2025 (12) TMI 444 - HC - Indian Laws

Tender award upheld as 18% GST applies to human health and social care services; challenge dismissed in public interest

ROCHE DIAGNOSTICS INDIA PRIVATE LIMITED Versus DELHI STATE HEALTH MISSION & ANR.

HC upheld the tender award to respondent no. 2, holding that 18% GST is chargeable on the 'Human Health and Social Care Services' forming the subject of ... Seeking quashing of the award of the category/rank from L1-L2 by way of the Price Bid Report - applicability of GST for the services sought by DSHM - infraction or violation of any condition of the subject tender by awarding the contract to respondent no. 2 ignoring the mandate provided in Annexure 9 read with Clause 6 and the “Method of Tender Evaluation and Price Comparison” of the tender document or not. Applicability or otherwise of GST - HELD THAT:- Since a pointed query was sent to the GST Department by DSHM, it is apparent that the response thereto by the said department puts the controversy beyond the pale of doubt. In that, 18% GST is indeed chargeable on Human Health and Social Care Services. Undoubtedly, the services sought by DSHM and offered by both the petitioner as also the respondent no. 2 are squarely covered under the “Human Health and Social Care Services” on which 18% GST appears to be chargeable. In that context, so far as the Notification No. 12/2017 – Central Tax (Rate) dated 28.06.2017 issued by the Department of Revenue, Ministry of Finance and relied upon by the respondent no. 2 is concerned, having regard to the latest clarification tendered by the GST Department itself affirming 18% GST chargeable on the services sought, it is impelled to rely on the said clarification being “contemporanea expositio”. Moreover, it is not called upon to decide the correctness of the Notification or the clarificatory letter issued by the same department. Ergo, the issue as to whether the 18% GST is chargeable or not is answered in the affirmative. That said, now it is required to consider as to whether for the purposes of selecting the L-1 bidder, the CPRT without GST is essential or whether price with GST inclusive would be relevant. Whether the DSHM has award the contract to respondent no. 2 vide letter dated 30.03.2025 without violating the terms of the subject tender? - HELD THAT:- At the stage of notification of the tender document, it appears that the DSHM was not aware as to the extent to which GST would be chargeable on such services as sought. It is only subsequently when it had two bidders, i.e., the petitioner quoting its CPRT with and without GST while respondent no. 2 quoted its price indicating that no GST is chargeable at all, that the conundrum arose. Both parties were completely at variance with each other in so far as chargeability of GST is concerned. On the one hand, petitioner was of the opinion that 18% GST is chargeable on such services while respondent no. 2, relying upon the Notification No. 12/2017 – Central Tax (Rate) dated 28/6/2017 was clearly of the opinion that no GST is applicable at all for the same services. It was this controversy which led the DSHM to seek clarification from the GST Department. As observed above, by the letter dated 25.03.2025, the GST Department clarified that for the services sought under the tender document, 18% GST was chargeable. In all probability it appears that the indemnity bond was asked to be furnished by respondent no. 2 in the above context. Thus, the argument that the financial bid in the subject tender ought to have been considered only on the basis of CPRT, though may be a relevant consideration, yet the overriding power of the DSHM to consider the prices inclusive of GST and requiring a bidder to furnish an indemnity bond in that context cannot be said to be a perverse or an arbitrary exercise. In that view of the matter, we are of the considered opinion that the award of contract to respondent no. 2 by DSHM considering the same as inclusive of GST@18% may not be amenable to interference or interdiction. It is informed that services sought under the tender are being executed by respondent no. 2 since April 2025 and the award of contract is for a period of 1 year and would be over in March-April 2026. Having regard thereto, the tender or the contract issued is not interdicted in favour of respondent no. 2 at this belated stage lest it may cause significant disruptions to the services being offered and would surely disturb the public services, which are paramount to any tender. Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether 18% GST is applicable on the services forming the subject-matter of the tender and, if so, how that affects bid evaluation. 1.2 Whether the tendering authority violated the tender conditions, particularly Annexure 9, Clause 6 and the 'Method of Tender Evaluation and Price Comparison', by treating the successful bidder's quoted price as inclusive of GST and accepting an indemnity bond. 1.3 Whether the tender process and award decision were arbitrary, unfair, mala fide or otherwise vitiated, warranting interference in judicial review despite the limited scope of intervention in tender matters. 1.4 Whether, assuming infirmities in the tender process, the Court ought to set aside the award considering the stage of contract performance and public interest. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of 18% GST on the tendered services and its relevance Interpretation and reasoning 2.1 The Court noted that the tendering authority sought a specific clarification from the GST Department by letter dated 21.03.2025 on applicability of GST to the services in question. 2.2 The GST Department, by letter dated 25.03.2025, clarified that under Notification No. 11/2017 (Central Tax Rate) dated 28.06.2017, 18% GST is chargeable on 'Human Health & Social Care Services'. 2.3 The Court held that the services under the tender, being NAT testing and related services, fall within 'Human Health and Social Care Services' and therefore attract GST at 18%. 2.4 The contrary position urged on the basis of Notification No. 12/2017 - Central Tax (Rate) dated 28.06.2017 was not examined substantively, as the Court relied on the contemporaneous departmental clarification from the GST authority and was not called upon to adjudicate upon the correctness of that notification or the clarification itself. Conclusions 2.5 The Court concluded that 18% GST is applicable to the services forming the subject of the tender, and answered the issue of chargeability of GST in the affirmative. Issue 2 - Whether the tendering authority violated tender conditions by treating the successful bidder's price as inclusive of GST and accepting an indemnity bond Legal framework discussed 2.6 Annexure 9 (Price Bid) required bidders to indicate: (a) 'Rate per reportable test (without GST)' (Column D), (b) '% GST' (Column E), (c) 'Final reportable test (including GST) in Rs.' (Column F), and (d) 'Total amount during contract (including GST)' (Column G = C × F). The note specified that L1 would be selected on the basis of the grand total of Column G. 2.7 Clause II (Taxes & Duties) of the tender provided that prices 'shall be inclusive of all taxes & duties leviable including GST and Entry tax etc. and the Purchaser shall not be liable for the same' [sub-clause (ii)], and that if tax rates change during performance, an equitable adjustment to the contract price would be made [sub-clause (iv)]. 2.8 Clause IV(xvi) (Price Negotiation) of the General Terms and Conditions permitted negotiations with the lowest quoted technically qualified bidder (L1) in exceptional circumstances, with prior approval of the competent authority. Interpretation and reasoning 2.9 The Court accepted that Annexure 9 is an integral and relevant part of the tender, and that all fields (including indication of GST) are material for price comparison. 2.10 It was undisputed that the successful bidder did not specify, in Annexure 9, whether Rs. 945/- CPRT was with or without GST, and indicated 0% GST, whereas the other bidder quoted CPRT, GST at 18% and the corresponding total. 2.11 The Court observed that at the time of tender issuance, the tendering authority itself was evidently uncertain about the GST position, which led to divergent stands by the two bidders on applicability of GST and to the subsequent reference to the GST Department. 2.12 On harmonising Annexure 9 with Clause II, the Court held that while Annexure 9 requires separate disclosure of CPRT without and with GST, Clause II(ii) clearly mandates that quoted prices are to be 'inclusive of all taxes & duties including GST' and that the purchaser has no liability for such taxes. 2.13 The Court reasoned that Clause II(ii) must be given its plain and natural meaning; otherwise, it would be rendered otiose. Reading the tender conditions harmoniously, the Court held that the tendering authority was entitled to treat quoted prices as inclusive of GST and to evaluate bids on that basis. 2.14 In this light, the tendering authority's decision to treat the successful bidder's quoted CPRT of Rs. 945/- as inclusive of GST at 18% and to protect itself by obtaining an indemnity bond was considered to be within the contractual framework and commercial discretion of the authority. 2.15 The Court recognised that the indemnity bond was likely sought to safeguard the purchaser in view of Clause II and the GST clarification, and held that calling for such a bond did not, by itself, render the process arbitrary or perverse. Conclusions 2.16 The Court held that, although Annexure 9 required explicit indication of GST, the overriding stipulation in Clause II(ii) permitting consideration of prices inclusive of GST justified the tendering authority's approach. 2.17 The award of the contract to the successful bidder on the footing that its quoted price was inclusive of 18% GST, coupled with an indemnity bond, was not found to be in violation of the tender conditions so as to warrant judicial interference. Issue 3 - Alleged arbitrariness/unfairness in the tender process and scope of judicial review Legal framework discussed 2.18 The Court referred to principles laid down in decisions on judicial review of tenders, including that: (a) tender processes are primarily commercial decisions of the State; (b) interference is limited to cases of arbitrariness, irrationality, mala fides, bias or violation of mandatory norms; and (c) there is no absolute obligation to accept the lowest bid, provided the decision is fair and reasonable. 2.19 The Court reiterated the tests from prior judgments that judicial review is confined to examining whether the process adopted or decision made is mala fide, intended to favour someone, or so arbitrary and irrational that no responsible authority could have reached it, and whether public interest is adversely affected. Interpretation and reasoning 2.20 The Court noted the existence of multiple committees (pre-bid clarification, prequalification, technical evaluation, and price bid evaluation) as indicative of an institutional process, but did not treat this alone as conclusively negating arbitrariness. 2.21 The Court accepted that once the GST Department clarified that 18% GST was applicable, the tendering authority knew that both bidders would be subject to GST at the same rate. In such circumstances, fairness required that both bidders be treated even-handedly, including in any further clarification or price negotiation. 2.22 The Court held that the tendering authority, after receiving the GST clarification, ought to have called both bidders for further clarification or negotiations, especially in view of Clause IV(xvi) providing for negotiations with the L1 bidder in exceptional circumstances. Restricting the indemnity arrangement to only one bidder without extending a comparable opportunity to the other was viewed as falling short of ideal fairness and transparency. 2.23 The Court regarded Annexure 9 as materially relevant, and noted as a 'disturbing feature' that the successful bidder had not clearly stated whether its quote was inclusive of GST, yet its bid was regularised through the indemnity mechanism without parallel engagement with the other bidder. 2.24 The Court also took serious note of the incorrect instructions furnished to the Court earlier, where it was represented that services at both hospitals had commenced on 30.03.2025, while the record showed that installation and commencement at one hospital occurred only at the end of April 2025. The Court characterised this as falling within the doctrine of 'suppressio veri suggestio falsi' and expressly deprecated such conduct, though it stopped short of initiating contempt proceedings. 2.25 At the same time, the Court found no conclusive material to hold that the process was tainted by mala fides or that the decision to award the contract to the successful bidder was so irrational or arbitrary as to be unsustainable in law. Conclusions 2.26 The Court held that while the tendering authority's conduct displayed procedural lapses and lack of ideal fairness (particularly in not engaging both bidders equally post-GST clarification and in furnishing incorrect instructions to the Court), these did not cumulatively establish mala fides, bias, or such arbitrariness as would vitiate the entire tender process under the limited scope of judicial review. 2.27 Consequently, the tender award was not set aside on grounds of arbitrariness or unfairness, though the Court admonished the authority's conduct and emphasised the binding necessity of fairness and transparency in public tenders. Issue 4 - Whether the contract should be quashed despite identified infirmities, in light of public interest and stage of performance Interpretation and reasoning 2.28 The Court was informed that the contract period was one year, that services under the tender had been performed by the successful bidder since April 2025, and that the contract was due to end around March-April 2026. 2.29 The Court recognised that setting aside the award at that stage would cause significant disruption to ongoing NAT testing services in public hospitals and adversely affect public interest, which is of paramount importance in matters involving essential health services. 2.30 The Court also considered that the price difference between the two bidders was marginal in overall terms and that there was no challenge to the technical capability or performance standards of the successful bidder. Conclusions 2.31 Weighing the identified procedural shortcomings against the advanced stage of contract performance and the potential disruption to public health services, the Court declined to interdict the contract. 2.32 The writ petition was dismissed, without costs, and the contract in favour of the successful bidder was allowed to continue until its natural expiry, with the Court's admonition to the tendering authority to adhere strictly to fairness, transparency and accuracy in future tender processes.