2020 (12) TMI 746 - HC - GST

Flawed Tender Process: GST Discrepancies Impact Fairness

Bharat Forge Limited Versus The Principal Chief Materials Manager Diesel Locomotive Works And 7 Others

The court held that the tendering process was flawed due to discrepancies in the GST rates and HSN Code classification, impacting fairness and ... Classification of goods in the e-tender procurement - contention is that the procurement product would fall under Chapter 84 of the GST Tariff of India declared by the GST Council and HSN Code 84148030 is relevant for 'Turbo charger', or the Procurement Product, which is chargeable at 18% GST - Validity of “Public Procurement” (Preference to Make in India) Order' 2017 - contention of the learned senior counsel for the petitioner is that a comprehensive reading of the Make in India policy; circular issued by the Railway Board and the tender document indicates that the bidders, including the petitioner herein were required to specify the percentage of local content in the material being offered in accordance with the Make in India Policy - HELD THAT:- There is no dispute about the fact that the petitioner is a local manufacturer recognized and included in the list of approved vendors maintained by the respondent nos.1 and 3. The petitioner has annexed a certificate of the product being indegeniously developed along with the tender documents. The opening of the subject tender, in the instant case, may not be possible as the offer period has expired due to the interim order passed by this Court. Further with the subsequent tender for procurement of the product, namely 'Turbo Wheel Impeller Balance Assembly' having been granted to the petitioner, the prayer nos.2 and 3 of the writ petition have been rendered infructuous. Flaw in the procedure adopted by the Railways in the tendering process - petitioner is aggrieved by the fact that after opening of the financial bids, the ranking of bidders was done on the total price (all inclusive price), which was arrived at by adding base price and GST rate (GST value) - HELD THAT:- The Court cannot examine the details of the terms of the contract which has been entered into by the public bodies or the State. The Courts have inherent limitations on the scope of any such enquiry. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then the Court, cannot act as an appellate Court by substituting its opinion in respect of selection made for entering into such contract. Whether the classification of HSN Code is integral to the tendering process, i.e., whether it has an impact on the selection of tenderers or the choice of tenderers while ranking them after opening the financial bids? - HELD THAT:- The HSN code (Harmonized System of Nomenclature) is provided for each product/service by GST Council to specify the rate at which GST would be applicable. The suppliers have to quote HSN Code of the product to be supplied by them in the tender document, itself. The mentioning of correct HSN Code is necessary to determine the GST rate (GST value) which is to be added in the base price to arrive at the final price offered by the bidder/tenderer - In the case at hand, though the respondent no.6 was ranked as L-1 and the petitioner herein as L-4, but the margin of purchase preference between respondent no.6 (L-1) and petitioner (L-4) became more than 20% on account of mentioning of GST rate at 5% by the respondent no.6 (L-1), which is according to HSN Code of the product in Chapter 86 of GST Tariff. The petitioner herein claims that the correct GST rate should be 18% and the HSN Code which falls under Chapter 84 of GST Tariff would be applicable. Whereas the respondent no.1, Railways in the counter affidavit filed by them did not clarify the correct HSN Code or GST rate of the product and is trying to shift its responsibility by saying that the levy of tax and imposition of penalty for mis-classification of HSN Code is an area of concern of the tax authorities. If the GST value is to be added in the base price to arrive at the total price of offer for the procurement product in a tender, and is used to determine the interse ranking in the selection process, it is incumbent on the part of the respondent nos.1 and 2 to clarify the HSN Code, i.e. to clear their stand with regard to the applicable GST rate and HSN Code of the “procurement product” - the mentioning of HSN Code in the tender document itself shall resolve all disputes relating to fairness and transperancy in the process of selection of bidder, by providing 'level playing field' to all bidders/tenderers in the true spirit of Article 19(1)(g) of the Constitution of India. For any issue relating to the applicability of correct HSN Code or GST rate, it would then be the duty of respondent nos.1 and 2 to seek clarification from the GST authorities. Petition disposed off. Issues Involved:1. Validity of GST rates and HSN Code classification in the tender process.2. Compliance with the Make in India policy.3. Fairness and transparency in the tendering process.4. Responsibility of the tendering authority to ensure uniform bidding.Issue-wise Detailed Analysis:1. Validity of GST Rates and HSN Code Classification:The petitioner argued that the procurement product, 'Turbo Wheel Impeller Balance Assembly,' should be taxed at 18% under HSN Code 84148030, as per Chapter 84 of the GST Tariff. The respondent no.6 quoted a GST rate of 5%, classifying the product under Chapter 86, which led to a significant price difference in the bids. The petitioner contended that this misclassification resulted in an unfair advantage to respondent no.6, placing the petitioner at a disadvantage. The court noted that the tender document did not specify the relevant HSN Code, leading to discrepancies in the GST rates quoted by different bidders. The court emphasized that it is the responsibility of the tendering authority to seek clarification from GST authorities regarding the correct HSN Code and GST rate to ensure a fair bidding process.2. Compliance with the Make in India Policy:The petitioner, being a local manufacturer with 97.68% indigenous content, claimed that it was unfairly prevented from availing the benefits under the Make in India policy due to the incorrect GST rate quoted by respondent no.6. The policy mandates a preference for products with at least 50% local content, with a margin of purchase preference of 20%. The court acknowledged that the petitioner was entitled to the benefits of the Make in India policy and that the incorrect GST rate quoted by respondent no.6 affected the petitioner's ranking and eligibility for preference.3. Fairness and Transparency in the Tendering Process:The court highlighted that the tendering process must be fair, transparent, and provide a level playing field for all bidders. The discrepancy in GST rates quoted by different bidders due to the lack of clarity on the HSN Code led to an unfair advantage for some bidders. The court emphasized that the tendering authority must ensure that all bidders quote the correct GST rate to maintain fairness and transparency in the selection process.4. Responsibility of the Tendering Authority to Ensure Uniform Bidding:The court held that it is the responsibility of the tendering authority to provide a level playing field for all bidders by mentioning the correct HSN Code in the tender document. This would ensure that all bidders quote a uniform GST rate, preventing any unfair advantage. The court directed the respondent no.2, General Manager, Diesel Locomotive Works, Varanasi, to seek clarification from GST authorities regarding the correct HSN Code and GST rate and include this information in the tender document to ensure uniform bidding.Conclusion:The court concluded that the tendering process was flawed due to the lack of clarity on the HSN Code and GST rate, which affected the fairness and transparency of the process. The court directed the tendering authority to seek clarification from GST authorities and mention the correct HSN Code in the tender document to ensure a level playing field for all bidders. The writ petition was disposed of with these observations and directions.