The Supreme Court also held that it is the responsibility of the bidder to quote the correct Harmonized System of Nomenclature (HSN) code and the corresponding GST rate.
The ruling came in response to the government’s plea following the high court’s decision in a case pertaining to Bharat Forge Ltd in connection with a railway contract. Diesel Locomotive Works, under the Indian Railways, floated a global tender inviting e-tenders for procurement of
wheel impeller balance in 2019, under the Make in India scheme. Bharat Forge, one of the bidders, had approached the Allahabad High Court, saying that neither the Notice Inviting Tender (NIT) nor the bid documents mentioned the relevant HSN Code. The company contended that it had disclosed the correct GST, at the rate of 18%, whereas the top three bidders had shown the GST at the rate of 5% and accordingly their overall prices were lower in comparison to that quoted by Bharat Forge.
The high court allowed the company’s petition, following which the Union government and the Railway Board filed an appeal in the Supreme Court seeking clarity on whether it is part of public duty to indicate the HSN Code when a public tender is floated.
The Supreme Court said that when the state decides to award a contract it is not obliged to undertake the ordeal of finding out the correct HSN code and the tax rate applicable to the product which it wishes to procure. However, it ruled that a copy of the document that forms the basis of award of contract containing all material details will have to be immediately forwarded to the jurisdictional officer concerned by the appellant to ensure that there is no tax evasion.
Experts said the ruling will have bearing on cases where contractors and suppliers have been adopting tax positions based on the HSN code or tax rate provided by the recipients.
“This judgment casts an additional responsibility on the government and governmental authorities to provide the bid documents, contracts, etc., to the jurisdictional officer of the successful bidder in order to enable them to determine the correct rate of GST when assessing the returns filed by the successful bidder,” said Saurabh Agarwal, partner, EY.