In procurement and infrastructure contracts, tendering authorities often charge a non-refundable tender or bid document fee. Under the GST regime, the key issue is whether under the Goods and Services Tax (GST) regime is whether such a fee constitutes a “supply” made for “consideration” in the “course or furtherance of business” under the Central Goods and Services Tax Act, 2017 (“CGST Act”) and how it is treated when Special Economic Zone (SEZ) units are involved.
A non-refundable tender fee is ordinarily charged for obtaining tender documents or for being granted the right to participate in a tendering process. Unlike a security deposit, such a fee is irrevocable and represents a charge for access and facilitation, thereby possessing an inherent commercial character. Section 2(12) of the CGST Act defines “services” to mean anything other than goods, money, and securities. Since tender documents or the right to participate in a tender process do not qualify as “goods” under Section 2(52) of the CGST Act, the activity clearly falls within the ambit of services.
Further, Section 7 of the CGST Act defines “supply” in a broad manner to include all forms of supply of goods or services made for a consideration in the course or furtherance of business. A non-refundable tender fee satisfies all these statutory elements, as it is paid in exchange for a facilitative service provided by the tendering authority as part of its business or statutory functions.
The Authority for Advance Rulings in In re: Navi Mumbai Municipal Corporation (MANU/AR/0199/2019) expressly held that both online and offline tendering activities constitute a “supply of services” under GST and are classifiable under the residual Heading 9997. The Authority recognised that permitting participation in a tender process is itself a service, and any fee charged for such participation amounts to consideration for the supply. This position was reinforced by the Gujarat High Court in Nila Infrastructure Limited v. Surat Municipal Corporation (MANU/GJ/1848/2017), where the Court upheld the disqualification of a bidder for non-payment of the bid document fee along with GST, thereby affirming that GST forms an integral component of tender consideration.
The scope of “consideration” under Section 2(31) of the CGST Act has also been interpreted expansively. In In re: Rajkot Nagarik Sahakari Bank Ltd. (MANU/AR/0224/2019), the Authority for Advance Rulings held that even the notional monetary value of an act or forbearance constitutes consideration. Applying this principle, the payment of a non-refundable tender fee represents the monetary value of the act of granting access to the tender process and therefore qualifies as consideration for a taxable supply. The commercial nature of tender fees has also been recognised in income-tax jurisprudence. In Income Tax Officer v. Hiranandani Builders (MANU/IU/1207/2015), the Income Tax Appellate Tribunal, Mumbai, held that tender fees collected on sale of tender forms were intrinsically connected with the business activity of development and operation of SEZs and industrial parks, thereby acknowledging tendering as a business function.
The GST implications assume added complexity when Special Economic Zone entities are involved. Section 16(1) of the Integrated Goods and Services Tax Act, 2017 provides that supplies of goods or services made to an SEZ unit or developer for authorised operations are treated as zero-rated supplies. This statutory benefit is further strengthened by Section 51 of the Special Economic Zones Act, 2005, which gives overriding effect to SEZ provisions over other laws. In In re: Portescap India Private Limited (MANU/AI/0006/2023), the Appellate Authority for Advance Rulings held that supplies of services to SEZ units for authorised operations are zero-rated irrespective of whether the supplier is located in the Domestic Tariff Area and that such supplies are not liable to GST even under the Reverse Charge Mechanism upon furnishing a Letter of Undertaking. Similar views were reiterated in In re: Abans Alternative Fund Manager LLP-IFSC (MANU/AR/0019/2024) and In re: Waarce Energies Limited (MANU/AR/0020/2024).
However, the benefit of zero-rating is conditional upon the services being used for authorised operations. In In re: Coffee Day Global Limited (MANU/AR/0159/2018), it was held that supplies made to SEZ units qualify as zero-rated only when certified as being for authorised operations under the SEZ framework. Conversely, when an SEZ unit provides services to a Domestic Tariff Area entity, such supplies are not automatically zero-rated. This distinction was clarified by the Appellate Authority for Advance Rulings in In re: Sapthagiri Hospitality Private Limited (MANU/AI/0012/2019), which held that Section 16(1)(b) of the IGST Act applies only to supplies made to SEZ units and not to supplies made by them. The principle that tax is leviable only where consideration exists was further affirmed in Principal Commissioner of Central Excise v. Larsen and Toubro Limited (MANU/GJ/2256/2016), where it was held that no service tax can be levied in the absence of any charge or consideration.
In conclusion, a non-refundable tender fee constitutes consideration for a supply of services under the CGST Act and is ordinarily liable to GST. The non-refundability of the fee strengthens its character as taxable consideration for access to the tender process. In cases involving SEZ units or developers, the GST treatment depends on whether the supply is made to the SEZ for authorised operations and whether statutory conditions such as certification and furnishing of a Letter of Undertaking are fulfilled. The consistent statutory framework and judicial precedents affirm that tender participation is a commercial service and that non-refundable tender fees are squarely within the ambit of GST.
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Very informative, Anmol!