Supreme Court: State is Under no Obligation to Follow Provisions of HSN Code for GST Trade

Judge gavel Law Insider

Priya Gour

Published on: 21st August, 2022 at 17:51 IST

The Supreme Court Bench of Justices KM Joseph and Hrishikesh Roy held that the State is not duty bound to mention the HSN Code in public tender documents. It quashed the mandamus issued by the Allahabad High Court to direct the Central Government to verify the HSN Code from taxing authorities and indicate the same on bid documents.

The court was hearing a petition which claimed that the non-disclosure of the HSN Code in the public tender violates the doctrine of “level playing field” embodied in Article 19(1)(g) of the Constitution.
Global e-tenders were floated by the company Diesel Locomotive Works in April 2019, to procure turbo wheel impeller balance assembly. The tenders were under the Make in India scheme of the government.

Bharat Forge Ltd., had alleged the company of having not provided either the Notice Inviting Tender (NIT) nor the Harmonised System of Nomenclature (HSN Code) in the documents of bidding. The HSN is adopted by the GST Council for an indication of GST rates on goods and services.

The company submitted that it provided for its genuine GST rate of 18%, whereas the top three tenderers had shown the GST as 5. This reduced the overall pricing of the other companies. This was caused by the non-disclosure of the HSN Code in the bid document, due to which the correct rate of tax for all the bidders couldn’t be disclosed.

The non-disclosure is not in line with the government’s “Make in India” policy and, hence, puts the local manufacturers.

The central government contended with the correctness of the writ of mandamus since there was no breach of a statutory duty by the government. There was clear mention of the provision in the bid documents that the Central Government has no duty of payment of taxes and duties.

The same shall be done by the tenderers. It was also submitted that the provision of the HSN code is not feasible by the government. There already exist tax authorities in this regard. This has been clarified by the government earlier as well.

The Court upheld the writ. It can be invoked even in cases of a “public duty” and not just a statutory duty. Even in matters of common charter, common law, custom or even contract, the said writ can be invoked.

In cases of failure to exercise discretion under the ‘dictation of another authority‘, the writ can be invoked. The court explained the wider scope of the writ and that it is the court’s duty to invoke it, putting aside technicalities.

The Court opined that the scope of judicial review remains limited with respect to contracts that are entered into with the state. The court can intervene only when the state acts arbitrarily, goes against the public interest, or has whimsical motives. The Court said that it was Bharar Forge’s duty to enquire about the HSN code and other tax rates.

The court relied on a communication by the Railway Board which read as : “The purchaser (Diesel Locomotive Work) “may” incorporate the HSN Code in the tender document.”

Here, the word ‘may’, as per the court, did not impose any compulsion on the purchaser to indicate the HSN Code. No such compulsion to declare exists even under the Make in India policy for HSN disclosure.

We are at a loss to further understand how in the name of producing a level playing field, the State, when it decides to award a contract, would be obliged to undertake the ordeal of finding out the correct HSN Code and the tax applicable for the product, which they wish to procure. This is, particularly so when the State is not burdened with the liability to pay the tax.”

“Hence, the court ruled out any such duty of disclosure by the state. However, it directed that in cases of contract by the Union Government, Railway Board, a copy of the document with all details shall be immediately forwarded to the concerned jurisdictional Assessing Officer. The details of the officers would be provided by the tenderers.”

 

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