Providing HSN code responsibility of bidder, not tendering authority: SC





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


Bharat Forge Limited, a bidder not selected for the tender, filed a petition with Allahabad High Court, which held that provisioning of 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 to know whether there exists any public duty with them to indicate the HSN Code when they float a public tender. The 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.


Saurabh Agarwal, tax partner at EY, said the Supreme Court has removed the ambiguity in the tendering process. “It is a settled principle of law which has been upheld by the Supreme Court that appropriate classification of goods and services and payment of GST liability is the sole responsibility of the supplier (except in case of the reverse charge mechanism),” he said.


PwC India, in a note, said the decision might impact multiple cases where contractors and suppliers have been adopting tax positions based on the HSN code or tax rate provided by the recipients.


“Taxpayers must factor this in their biddings as well as in the contract negotiations with the purchaser, including the need to have a strong indemnification framework in place against any rate differential disputes. This decision would support the purchaser in emphasising the obligation on the supplier to determine their tax liability upfront, without any recourse later on change in the tax position,” it said.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor





Source link

Comments are closed.