HSN CLASSIFICATION – WRIT OF MANDAMUS

[Dr. Sanjiv Agarwal]

An appeal was filed by Union of India arising from High Court judgment wherein direction was issued to Railways (General Manager Diesel Locomotive Works, Varanasi) that if the GST value is to be added in the base price to arrive at the total price of offer for the procurement of products in a tender and is used to determine inter se ranking in the selection process, he would be required to clarify the issue, if any, with the GST authorities relating to the applicability of correct HSN Code of the procurement product and mention the same in the NIT (Notice inviting tender) tender/ bid document, so as 'to ensure uniform bidding from all participants and to provide all tenderers/bidders a 'Level Playing Field'. [UNION OF INDIA & OTHERS VERSUS BHARAT FORGE LTD. & ANOTHER - 2022 (8) TMI 690 - SUPREME COURT].

The Apex Court held that a Writ of Mandamus or a direction, in the nature of a Writ of Mandamus, is not to be withheld, in the exercise of powers of Article 226 on any technicalities. This is subject only to the indispensable requirements being fulfilled. There must be a public duty. While the duty may, indeed, arise from a Statute ordinarily, the duty can be imposed by common charter, common law, custom or even contract. The fact that a duty may have to be unravelled and the mist around it cleared before its shape is unfolded may not relieve the Court of its duty to cull out a public duty in a Statute or otherwise, if in substance, it exists. Equally, Mandamus would lie if the Authority, which had discretion, fails to exercise it and prefers to act under dictation of another Authority. A Writ of Mandamus or a direction in the nature thereof had been given a very wide scope in the conditions prevailing in this country and it is to be issued wherever there is a public duty and there is a failure to perform and the courts will not be bound by technicalities and its chief concern should be to reach justice to the wronged.

The court observed that the observations made by the High Court, undoubtedly, draw inspiration from factual matrix essentially involved in the culling out of the principle of level playing field, which was found to be impaired on the basis of a lack of legal certainty, as found established by the material available on record. In the course of observations in paragraph-36, Court held that Article 19(1)(g) confers a Fundamental Right to carry on a business to a company. The court accepted it, subject to the caveat that Article 19 confers a right on the citizens, who are natural persons.

Further, the High Court, in the impugned Judgment, has correctly noticed the contours of the jurisdiction of courts in the realm of judicial review of action of State in matters relating to contracts. It is correctly found that the Court cannot examine the details of the terms of the contract. Thereafter it posed the question, as to whether the classification of the HSN Code is integral to the tendering process and answers it by holding that it is integral and then founds its interference in the manner done by finding that fair competition or level playing field would be denied to each bidder as someone may bag the tender by quoting the lesser rate of GST, creating a substantial difference in the total price. Undoubtedly, selection is based on aggregating the base price with the tax (GST). If there is lack of clarity, each bidder would be in a position to take a shot at the tender by understating the value of the tax.

The Apex Court observed in this case that the purport of the Railway Board is that it is the responsibility of the bidder to quote the correct HSN Number and the corresponding GST rate. The very idea of a discretionary power would suffer annihilation, if it ceases to be discretionary in the hands of a Court ordering a Mandamus. No doubt, there may be cases where the facts are such that the court is not powerless to direct the Authority to do a thing which it considers absolutely necessary and just and legal to perform the act even when the Authority seeks shelter on the basis that what is conferred on it, is a mere discretion. The other terms of the circular clearly appear to indicate that the rate even if indicated by the appellants will not detract from the tenderers quoting the rate which is up to them. It is the rate quoted by the tenderers which governs. It is the same which will be used to carry out the ranking. The other terms also militate against a public duty with the appellants as directed. The appellant seeks to protect its best interest as a player in the commercial field. The clauses are self-evident.

Since the appellant in this case is the Union of India, it was expected that if it is otherwise permissible to sustain the impugned judgment, it may not be fair to not have a uniform policy in the matter of award of largesse by the various units under it. However, the appellants had pointed out that even in the tenders which have been brought out, the HSN Code mentioned in the tender is shown as indicative only. It therefore, held that the impugned judgment based on the issuance of tenders, cannot be entertained.

On Reverse Charge Mechanism, Apex Court observed from the tender condition relied upon by the writ petitioner which have been extracted at paragraph 58, what is contemplated is that the amount would be deducted at the applicable GST rate from the bill under the Reverse Charge Mechanism and deposited with the concerned tax authority. If under the terms of the tender, what is contemplated is that, in a case where the tax component is not included or it is included at a lower rate, the appellants are entitled to deduct the actual rate of tax as payable by it under the Reverse Charge Mechanism and the tender of such a person is accepted being the lowest tender, then there can be no question of public interest being prejudiced. If on the other hand, the tax rate is included and the clause provides for deduction of the actual rate from the bill, then also public interest may not be affected. This is all the more reason for the tenderer specifically including the tax component indicating the correct rate of tax. This is a matter where the appellant can consider giving appropriate instructions.

It further held that in order to also ensure that the successful tenderer pays the tax due and to further ensure that, by not correctly quoting the GST rate, there is no tax evasion, it is considered necessary to direct that, in all cases, where a contract is awarded by the appellants, a copy of the document, by which, the contract is awarded containing all material details shall be immediately forwarded to the concerned jurisdictional Officer.

In terms of above observations and discussions, the appeal was allowed.