TaxTMI 
TaxTMI 
2026 (7) TMI 1
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....t. 2. It would be necessary to allude to the petitioners' case as well as the defense to decide the issue on hand. Petitioner's Case: 3. The petitioners in both the writ petitions are manufacturers manufacturing plastic products and are Udayam - registered MSME units registered under the MSMED Act. It is their contention that the respondent corporation had issued the impugned tender for setting up of an outsourced container manufacturing unit at LBP, Manali, Chennai on 09.01.2026. The tender has been deliberately structured and projected as procurement of services for in-house manufacturing. According to the petitioners an artificial classifications and an attempt to deny the applicability of statutory public procurement policy framed under Section 11 of the MSMED Act has been created by this tender. 4. It is their case that the 1^st respondent corporation is a Central Public Sector Enterprise and an instrumentality of State under Article 12 of the Constitution of India. They are bound by constitutional mandate of fairness, transparency and non-arbitrariness in public procurement. The petitioner would submit that they are existing supplier / vendor in packaging industry....
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....uation of the tender and as per jurisdiction clause of the tender under dispute upto the stage of LOA it is the Courts at Mumbai that have jurisdiction and dispute during execution alone is vested in the jurisdiction of this Court. 11. The respondents would further submit that the entire writ petitions are premised on the misconception that the tender is one for procurement. However, it is the contention of the respondents that the tender which has been floated is one for works contract which does not fall within Section 11 of the MSMED Act or the PPP - MSE Order, 2012. Therefore, on this ground also the respondents seeks to have the writ petitions dismissed. 12. The respondents would further submit that a mere perusal of the scope of work would clearly indicate that what is contemplated is setting up of manufacturing facilities for manufacturing the containers with the raw materials being supplied by the respondents. Therefore, the respondents would submit that this is not a case of purchasing the finished product which is what is contemplated under Item 209 of the appendix attached to the PPP - MSE Order, 2012. 13. The respondents would further give reasons for the tende....
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....cate that the scope of work is the same and in the impugned tender the only difference is with reference to setting up of the unit within the precincts of the respondent and supply of raw material by the respondents. The learned counsel would therefore submit that the tender which is against the PPP - MSE Order, 2012 has to necessarily be set aside in so far as it allows participation of non MSE. 18. The learned Additional Solicitor General appearing for the respondents 1 and 2 would submit that a mere reading of the tender notice would clearly prove that it is not one for procurement but that it is a works contract. He would further submit that as per Clause 3 of the PPP - MSE Order, 2012, 20% of overall procurement should from micro and small enterprises in a period of 3 years. 19. Further, as per Clause 6 therein, in a tender where MSME enterprises quote a price within price band of L 1 + 15 %, they should also be permitted to supply a portion of the requirement by bringing down their price to L1. He would therefore submit that even the public policy only contemplates 20 % of the over all procurement to be from MSME. Clause 11 of the PPP - MSE Order, 2012, has directed the....
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....s further been introduced to facilitate the promotion, development and enhancing the competitiveness of small and medium enterprises. The Act seeks to achieve these objects: "(a) ................. (b) provide for the establishment of a National Board for Micro, Small and Medium Enterprises, a high level forum consisting of stakeholders for participative review of and making recommendations on the policies and programmes for the development of small and medium enterprises; (c) .................. (d) empower the Central Government to notify programmes, guidelines or instructions for facilitating the promotion and development and enhancing the competitiveness of small and medium enterprises. (e) .................. (f) empower the central and state governments to notify preference policies in respect of procurement of goods and services, produced and provided by small enterprises, by the Ministries, departments and public sector enterprises. (g) .................. (h) .................. 28. In order to achieve the objects set out in (f) supra, the Central Government had included Section 11 in the Act which reads....
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....e Court in the Judgement in Lifecare Innovations Pvt. Ltd., and another Vs. Union of India and others - 2025 SCC Online SC 436, wherein the Hon'ble Supreme Court has observed as follows: "21. Having considered the provisions of the Act and the MSE Procurement Preference Policy, 2012, we are of the opinion that there is no mandatory minimum procurement 'right' of an individual MSE. However, there is certainly a statutory foundation for the Procurement Preference Policy, 2012, having force of law as it 'encapsulates' a mandate and discloses a specific purpose. Clause 3 of the policy mandating procurement of 25 per cent of supply from MSEs is simply the statutory duty of the bodies constituted under the Act and the Policy." 33. Further, in paragraph No. 33, the learned Judges have held as follows: "33. However, the law as applicable for procurement through MSEs stands on a different footing. This is for the reason that there is a statutory prescription for notifying a procurement preference policy (Section 11), and in furtherance of such a statutory prescription, the Preference Policy 2012 has been notified mandating procurement of a minimum of 25 per cent from th....
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....ing and detection systems. In that case relying upon the PPP - MSE Order, 2012 the tender inviting authority had allowed the 3rd respondent MSE enterprise to match the petitioner's L 1 price and consequently the tender was awarded to the 3rd respondent therein. Challenge to the above tender was on the ground that the tender in question was not for procurement but was for works contract which did not come within the purview of the PPP - MSE Order, 2012. The product in question was not part of 358 items reserved for exclusive procurement from MSEs. Further, reliance in this case was on Clause 6 of the PPP - MSE Order, 2012. 38. The Division Bench held that the Act would not apply to the works contract. The Bench after considering the scope of the contract under the tender came to the conclusion that it was composite contract for supply of goods as well as installation of fire water spray system which is permanent fixture. The Bench went on to hold that the contract in question was not a "procurement" but only a works contract as it involved designing and installation. 39. The Bench has held as follows: "57. As stated earlier, the MSMED Act and the Public Procurement Po....
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....w material is supplied by the respondent. 43. If every Government undertaking etc., are permitted to procure the items set out in the appendix to the PPP - MSE Order, 2012, by converting its procurement into a works contract the very object of Section 11 and the PPP - MSE Order, 2012 notified by the Government would become otiose. 44. Clause 12.2 of the PPP - MSE Order, 2012 states as follows: "(2) This Committee shall, inter alia, review list of 358 items reserved for exclusive purchase from Micro and Small Enterprises on a continuous basis, consider requests of the Central Ministries or Departments or Public Sector Undertakings for exemption from 20 per cent target on a case to case basis and monitor achievements under the Policy. " This shall now be read as 25% in the light of the notification of the Public Procurement Policy for MSEs order, 2018 which has become effective from 01.04.2019. 45. A reading of the above makes it clear that there shall be a constant review of 358 items reserved for exclusive projects for micro small enterprises and the committee is given the task of considering the request of central ministries or departments or public sector und....
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....entire revenue from RM purchase can be retained with IOCL (Raw material cost is the major component in the price of the container i.e., around 85 - 90%) (vi)Usage of free space available at LBP, Manali and the same can bring value addition to the unutilized real estate. (vii)Affordability, flexibility and risk reduction to IOCL as the vendor takes on ownership and maintenance costs. This is diametrically contrary to the terms of the policy. Further, the reasons given would indicate that if the respondents find the procurement through works contract more beneficial then they would resort to the same for future needs. 48. The Hon'ble Supreme Court in the Judgement in Lifecare Innovation Pvt. Ltd., supra had discussed the issue as to whether the 25% procurement from MSEs would be independent of the 358 items exclusively reserved for procurement from MSEs. They have discussed this in paragraph No. 27 to 29 of their judgement as follows: "27............. A holistic reading of the procurement police, incorporating clauses 3, mandating 25 percent from MSEs and clause 11 reserving 358 items for procurement from MSEs, gives us an impression that these mandat....
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....tor Company. However, in the case on hand the Government has floated a policy whereby a particular product is mandatorily required to be purchased from an MSE. That being the policy, by inventing procurement through a works contract, the policy of the Government is sought to be set at naught. From a conjoint reading of Section 11 and the PPP - Order it is clear that Item 209 viz; the product, is exclusively reserved to be supplied by an MSE. It is the product that is reserved and not the manner in which the product is supplied i.e., as a finished product or as contemplated in the Tender in question. 50. In the judgement reported in 2002 (2) SCC 333 - Balco Employees Union (Regd) Vs. Union of India and others, the Hon'ble Supreme Court had stated as follows: "92. In a democracy, it is the prerogative of each elected Government to follow its own policy. Often a change in Government may result in the shift in focus or change in economic policies. Any such change may result in adversely affecting some vested interests. Unless any illegality is committed in the execution of the policy or the same is contrary to law or mala fide, a decision bringing about change cannot per se....