23.08.2022: Providing HSN code is responsibility of bidder, and not of tendering authority: Supreme Court

The Supreme Court has set aside an Allahabad high court judgement that had made it mandatory for the tendering authority to mention the relevant harmonised system of nomenclature (HSN) code in tenders so that bidders can know the right goods and services tax (GST) rate for quoting prices. The court said it is the bidders' responsibility to find out the relevant HSN code.

The tender relates to the supply of turbo-wheel impeller balance for which the tendering authority, Diesel Locomotive Works in Varanasi, had sought bids through Notice Inviting Tender (‘NIT’) from various vendors and provided ranks based on the price quoted by the bidders.

The NIT said the GST rate has to be provided separately and if it is not then it would be deemed that the price is GST inclusive.

Bharat Forge Limited, a bidder not selected for the tender, filed a petition with Allahabad High Court, which held that provisioning of GST rate is an essential component for giving ranking to a bidder.

A level-playing field would be denied if another bidder gets the tender by quoting a lesser GST rate. Accordingly, the tendering authority cannot get away from providing the HSN code or GST rate in the NIT wherever necessary, the court ruled.

If required the tendering authority can seek clarification from the GST authorities on the correct HSN code or GST rate, it said.

Aggrieved, the union government and the Railway Board filed an appeal in the Supreme Court to know whether there exists any public duty with them to indicate the HSN Code when they float a public tender. The Supreme Court held that it is the responsibility of the bidder to quote the correct HSN code and the corresponding GST rate.

In the name of producing a level-playing field, the state would not be obliged to undertake the task of finding out the correct HSN Code and the tax applicable for the product, which they wish to procure, the apex court held.

This is, particularly so when the state is not burdened with the liability to pay the tax. The liability to pay the tax under the GST regime is on the supplier unless it falls under the reverse charge mechanism, the court said.  

The bidder must make enquiries and make an informed decision as to what would be the relevant HSN code, the court held.

The court said the appellants cannot be expected to find out the HSN code and announce it so as to bind the tenderers or fetter the power of the jurisdictional officer of the supplier.

However, a copy of the document by which the contract is awarded 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, the court held.

Source: Business Standard 

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