AI Drafter 
TaxTMI 
TaxTMI 
2017 (10) TMI 1062
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....ndors. The evaluation of tenders had to be proceeded with in terms of Part III- Paras 37-38 and Part IV Para 45(b) of the RFP which, read together, provide that the commercial proposals of shortlisted firms are to be opened by the Committee on the appointed date, a comparative statement prepared and the lowest bidder (hereinafter referred to as "Ll") determined on this basis. The reasonableness of such L1 price is to be established based on advance/stage payments etc. and no further negotiation is to be conducted with such Ll vendor 3. Part III of the RFP which contained the commercial aspects of the tender and more particularly Paragraphs 37 to 40 are extracted below: - "Commercial Offer 37. Commercial offers will be opened only of the vendors whose equipment is shortlisted, after technical trials and evaluation. The Commercial Offer must be firm and fixed and should be valid for at least 18 months from the date of submission of offer. 38. The Commercial Offers will be opened by a committee and if supplier desires he may depute his representative, duly authorized in writing, to be present at the time of opening of the offers. The committee will determine the lowest bid....
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.... MHC 606 1,21,20,000.00 0.00 B Cost of Manufacturer's Recommended List of Spares formed part of the bid but inadvertently not mentioned in Appendix F. Now mentioned (After additions of Annexure 1A of Appendix C). 606 77,27,411.24 2,60,55,459.65 Cost of TOTE (Table of Tools and Equipment's) Formed part of bid but not mentioned in Appendix F as no column was provided in format. Now mentioned. 606 34,54,806.00 0.00 C Cost of Special Maintenance Tools and Special Test Equipment 37,9558.38 1,67,558.40 D TRAINING In India:- a) Operator's Training 40 1,10,000.00 2352000.00 b) Maintenance Training 23 74,750.00 0.00 c) QA Training 4 60,000.00 0.00 Abroad NA NA E COST OF DOCUMENTS, LITERATURE, MANUALS User hand Book/Operator's Manual 620 1,24,000.00 11,40,000.00 Technical Specifications 50.00 0.00 Workshop Manual 240 1,44,000.00 0.00 Manufacture's Recommended List of Spares 0.00 Illustrated Spare Parts Catalogue 240 1,44,000.00 0.00 STE's Manual 240 ....
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....he bid is not done on a "Cost to User" basis but on a "Cost to State" basis whereby the customs duty and taxes are not included as part of the bid. Reliance is placed on the submission that the end user in the present case is the State, since the MoD, is an instrumentality of the State, the inclusion of taxes and duties would be irrelevant to the bid, as it would not be paying itself the same. More importantly, Vectra argues that in the event that custom duty is to be included as part of the bid, it has to be re calculated all the same, contingent on whether a customs duty exemption Certificate would be issued by the MoD. 10. It is argued that customs duty is a notional charge because this being defence procurement, the Government would issue a Customs Duty Exemption Certificate ("CDEC") and the goods would be imported without paying any customs duty. The description in the format at item k (vi) is: "Custom duty payable on import component for which COEC required." It is submitted that Vectra's commercial proposal follows the above format and shows the basic cost separately and all taxes have been shown separately. The commercial proposal of Span does not follow the above format....
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....as made a second fundamental error - by taking the tax rates as quoted by the bidders, rather than the tax rate as applicable under law. The rates applied by the MoD are given below: Tax Rate Span Rate Vectra Rate Excise Duty 10.3% 12.36% Sales Tax 12.5% 13.5% Service Tax ... 12.36% Customs Duty 10% 26% 14. It is submitted that the difference in Customs Duty rates has had the biggest price impact since the Customs Duty applicable for Span is @10% and is Rs. 3,03,00,000 whereas the Customs Duty applicable for Vectra is @26% and is Rs. 10,72,01,400/-. This approach is wholly erroneous because firstly, the tax rate cannot be the subject matter of a quote by a bidder; it is determined by law. The bids of both Vectra (page 90) and Span (page 133) state that all statutory norms as applicable on the date of supply shall be chargeable. It is well known that tax rates do change from year to year, and the period in this case stretches from 2009 when the RFP was issued, to 2014-15 when supplies will be made. Next, it is stated that Span has given no justification for its quoted Excise Duty rate of 10.3%. This is in fact known to the MoD, which h....
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....ch as cost of Manufacturer Recommended List of Spares (MRLS), Special Maintenance Tools, Special Test Equipment (SMT/STEs), Technical literature, optional equipment, excise duty and inclusion of customs duty in basic cost. It is pertinent to state here that the first petitioner had also requested to incorporate the cost part of MRLS and total Table of Tools and Equipment (TOTE) component which were erroneously not reflected in their commercial quote and reducing the service tax component which was incorrectly mentioned in their commercial quote. 18. It is argued that after analysing all aspects based on the clarifications issued by the eligible vendors, the CNC during its seventh meeting held on 03.10.2013 took the decision, based on the Integrated Finance Advisor (IFA) (Army Capital)'s advice that he had gone into the issue in details. It is stated that there are basically two concepts involved, i.e. Cost to the User and Cost to the State. When the MoD takes the Cost to the User, the financial price payable by the User (i.e. the Army) is relevant. This includes all taxes and duties. However, in case of Cost to the State, the taxes and duties are offloaded as the same is paid ba....
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.... was made to the Evaluation criteria set out in the said policy, which stated: "If reimbursement of customs duty/ excise duty/ VAT is intended as extra, over the quoted rates, the Bidder must specifically say so. In the absence of any such stipulation it will be presumed that the prices quoted are firm and final and no claim on account of such duties will be entertained after the opening of tenders. If a bidder chooses to quote a price inclusive of any duty and does not conform inclusive of duty so included is firm and final, he should clearly indicate the rate of such duty and quantum of excise duty included in the price. ...In respect of the Bidders who fail to comply with this requirement, their quoted prices shall be loaded with the quantum of excise duty which is normally applicable on the item in question for the purpose of comparing their prices with other Bidders. The same logic applies to Customs duty and VAT also." 21. It is also submitted that according to the existing policy of procurement of defence items applicable to the MoD, in terms of the mandate of the Government of India minimum of 30% of overall procurement cost had to be of indigenous content. This crite....
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....ender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. The Government must have freedom of contract. In other words, a fairplay in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) hut must be free arbitrariness not affected by bias or actuated by mala fides. Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure." 24. In Air India Ltd. v. Cochin International Airport, (2000) 2 SCC 617, the Supreme Court held as follows: "The award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision consideration which are of paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to te....
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....aw. We have reasons to do so. In the present scenario, tenders are floated and offers are invited for highly complex technical subjects. It requires understanding and appreciation of the nature of work and the purpose it is going to serve. It is common knowledge in the competitive commercial field that technical bids pursuant to the notice inviting tenders are scrutinized by the technical experts and sometimes third party assistance from those unconnected with the owner's organization is taken. This ensures objectivity. Bidder's expertise and technical capability and capacity must be assessed by the experts. In the matters of financial assessment, consultants are appointed. It is because to check and ascertain that technical ability and the financial feasibility have sanguinity and are workable and realistic. There is a multiprong complex approach; highly technical in nature. The tenders where public largesse is put to auction stand on a different compartment. Tender with which we are concerned, is not comparable to any scheme for allotment. This arena which we have referred requires technical expertise. Parameters applied are different. Its aim is to achieve high degree of perfect....
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...." or "cost to the State". In the opinion of this Court, the question is answered by the fact that the MoD is liable to be taxed and does pay the custom duty to the Government of India for its imports. Keeping that in mind, it would be ideal and efficient to analyze the bid with respect to the "Cost to the User". The question as to Custom Duty Exemption is an afterthought, because a priori it has been established that the MoD is liable to pay duties, like any other purchaser. The submission of the MoD and specifically the Integrated Finance Advisor (IFA) that the tender should be in accordance with the "Cost to the User" is not fundamentally erroneous. 29. The rationale behind this decision is a matter, which is not in the jurisdiction of this Court. The contracting parties and in this case the MoD can choose to evaluate the bid in accordance with its own internal decision making. If there does not exist, any concrete form of bias and inequity by the Respondent, the Court in all its wisdom cannot read anything arbitrary into it. Moreover, the Respondent has provided documentary evidence and in their pleading has stated that: "In this instant case, since there were no clear cut....
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....e is whether the custom duty amount, could be reevaluated after Vectra's explanations and clarifications. Vectra's bid stated the sum of Rs. 10.24 Crore as Custom Duty to be paid. With the analysis above, prima facie it does suggest that the Petitioners wanted to seek the same amount as Exemption. Rs. 10.24 Crore was a sum which was calculated contingent on the customs duty in vogue and not a fixed amount. The MoD's contention is that under DPM 2009, the CDEC Exemption is always granted for a fixed amount as to avoid the variability and arbitrary nature of the Exemption. Vectra has maintained throughout that custom duty would be of Rs. 10.24 Crore throughout his Petition and has not disputed this amount. Evidence of this can be seen in the Petition as well as the Annexure enclosed with it, which states that this was the amount in the bid. Undeniably, Vectra intimated no clarification, regarding the customs duty in all the PNC meetings. This Court finds no reason to analyze this amount. Had Vectra stated this amount as part of the bid, this Court could possibly not have ignored it or agree with Vectra's version that duty could be changed after the bid had been opened. The event of d....