Introduction: Explore the insightful Kerala High Court ruling in the case of EKK Infrastructure Limited vs. Kerala State Transport Project, delving into the complex issue of GST liability within contracts. This legal analysis examines the conflict between quoting rates excluding GST in bid documents and indicating inclusive rates in the contract.
Analysis: The case centers around the dichotomy between bid documents and contract terms regarding GST inclusion. The petitioner, EKK Infrastructure Limited, was mandated to quote rates without GST in the bid, despite the contract indicating all-inclusive rates. The court debates whether the petitioner should bear the GST liability or if the recipient of services, i.e., the respondent, should be responsible.
The court underscores the significance of the bid documents, which required quoting rates excluding GST. This aspect aligns with a precedent, emphasizing that terms in the notice inviting tenders must govern the contract. Moreover, the court contends that since GST is a tax borne by the ultimate beneficiary, the respondent should be accountable for its payment.
The court draws upon the division bench’s judgment to substantiate its stance, elucidating that the bid amount’s exclusion of GST is a crucial factor. This divergence dismisses the relevance of cases involving mere changes in tax rates.
Conclusion: The Kerala High Court’s verdict emphasizes the significance of bid document stipulations and their impact on contract terms. By upholding the principle that GST, as a beneficiary’s liability, should be borne by the recipient, the court clarifies the intricate interplay between bid quotes and contractual agreements in matters of taxation. This ruling adds a notable perspective to the realm of GST compliance within contractual relationships.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
1. These writ petitions are filed challenging the action of the respondents in requiring the petitioner to pay GST in respect of the works contract awarded to the petitioner. W.P.(C) No.12471/2021 is in respect of the work of up gradation of Painavu – Thannikandom – Ashoka Kavala road (Km 0+000 to Km 21+000) and W.P.(C) No.12454/202 1 is in respect of BC Overlay of Adoor to Chengannoor (Part of SH-1) Km + 93 + 400 (Adoor) to Km 117 + 200 (Chengannoor). The orders under challenge in W.P.(C) No.12471/2021 are Exts.P8, P11 and P13 and the order under challenge in W.P.(C) No.12454/202 1 is Ext.P9.
2. Heard the learned counsel for the petitioner and the learned Standing Counsel appearing for the respondents.
3. It is submitted by the learned counsel for the petitioner that the petitioner is a limited company engaged in the business of construction and that the Kerala State Transport Project (for short, ‘the KSTP’) is a special purpose agent set up by the Government of Kerala for the purpose of road development utilizing funds from the World Bank in the State. It is submitted that the KSTP invited tenders under the Kerala Rebuild initiative funded by the World Bank. The bids were for up gradation of Painavu – Thannikandom – Ashoka Kavalla road (Km 0+000 to Km 2 1+000) and BC Overlay of Adoor to Chengannoor (Part of SH-1) Km + 93 + 400 (Adoor) to Km 117 + 200 (Chengannoor) having contract values of Rs.95.40 Crores and Rs.98.10 Crores respectively. It is submitted that as the petitioner was the lowest tenderer, the works were awarded to it by the 1st respondent as per Ext.P4 letter of acceptance. It is submitted that in the tender notification, the KSTP insisted that the bidders submit their tender without the GST amount and approved the amount quoted by the petitioner as the contractual amount. Later, the claim for the GST amount was rejected stating that the amount specified in the tender is inclusive of all taxes.
4. It is specifically contended that Clause 12.1 of the Letter of Bid – Financial Part specifically provided that the Letter of Bid shall be prepared using the relevant forms furnished in Section IV of the bid document. It is stated that the forms must be completed without any alterations to the text and no substitutes shall be accepted except as provided under ITB 20.2. All blank spaces shall be filled up with the information requested. It is stated that in the online format, the bidder was enabled only to enter the rates in column 5 and all other cells were disabled. The online column provided that the rate to be entered is the basic rate and the format for entering the rate is provided along with Ext.P1 bid documents at internal page Nos.110 and 111 in W.P.(C) No.12471/2021 and 112 and 113 in W.P.(C) No.12454/2021. It is stated that in Clause (b) of the letter format, it is clearly stated that the total price of the bid including any discounts offered is to be entered excluding the GST. There was no column provided to furnish the GST amount along with the bid.
5. The petitioner submitted his bid in the online format with regard to the up gradation of Painavu – Thannikandom – Ashoka Kavalla road as per Exts.P2 and P3 in W.P.(C) No.12471/2021 and the price quoted was Rs.95,40,00,000/- excluding GST. The tender was accepted and performance guarantee was required to be executed by Exts.P4 and P5. Contract agreement was also entered into. Thereafter, the petitioner submitted a request to the KSTP to pay the 1st instalment of the bill raised inclusive of GST at the rate of 12%. However, the KSTP approved only an amount equal to 2% of the contract price deducting the GST claim. The petitioner approached the respondents, but Ext.P8 reply was issued relying on Clause No.19.1.2 of the contract which stated that the contract price includes all duties, taxes, royalty and fees, that may be levied in accordance with the laws and regulations in force as on the base date on the contractor’s equipment, plant, materials and supplies acquired for the purpose of this agreement and on the services performed under this agreement.
6. In W.P.(C) No.12454/2021 the bid was for 98,10,00,000/- and the same was specifically required to be quoted excluding GST and the bid was accepted and acted upon.
7. The learned counsel for the petitioner places reliance on the circular dated 1.3.2019 which specifically states that the bid amount should be excluding GST, but inclusive of other taxes and Though replies were submitted highlighting these aspects also, the respondents have taken a stand that the claim made by the petitioner for GST is breach of contract conditions and it cannot be considered. It is further contended that subsequent to the issue raised by the petitioner, the KSTP has made changes in the tender notification by stating that the rates quoted must be inclusive of GST.
8. The learned counsel for the petitioner places reliance of a decision of this Court reported in Sebastian Jose v. State of Kerala [2021 (5) KLT 445], where it was held that after incorporating specific terms in the notice inviting tender that the bidders must quote rates excluding GST, the employer cannot contend that the bidder ought to have quoted the rates including GST. Referring to an earlier decision of a Division Bench of this Court in George C.A. v. State of Kerala and Others [2021 KHC 2682], the learned Single Judge held that in the document which provides for the price bid, when there is a clear instruction that the price should be quoted without taxes, the bidder cannot be blamed for not having incorporated the tax element in the bid document. The Division Bench in George C.A.’s case held that the fact that other contractors had quoted the rates inclusive of taxes would not make any difference to the situation since the conditions in the bid documents specifically provided for quoting of rates without taxes. The decision in Sebastian Jose’s case had been taken in appeal and had been affirmed by a Division Bench by its judgment dated 22.6.2022 in W.A. No.1710/2021.
9. A detailed statement has been placed on record by the respondents. It is contended therein that as per Clause 19.1.2 of Article 19 of the agreement entered into between the parties, the contract price is inclusive of all duties, taxes, royalty and fees and that as such, the petitioner ought to have quoted the rate inclusive of taxes. It is further contended that the primary liability to pay the GST is on the petitioner, being a works contractor and that as such, the petitioner ought to have quoted the price including GST. It is submitted that the provision made in the form for quoting the price excluding GST was a typographical error in the Letter of Bid-Financial Part which later came to the notice of the respondents and that the same has been corrected in respect of later works. It is contended that in the bidding document other than Letter of Bid-Financial Part, it is clearly mentioned that the bid price/contract price is inclusive of all taxes including GST and the petitioner ought to have brought this matter to the notice of the respondents during tendering stage and before executing the agreement. It is, therefore, contended that since the agreement was executed on 24.1.2020 upon submission of performance security by the petitioner on 10% of the contract price, the petitioner was very well aware that the contract price was inclusive of all taxes including GST and that all that is excluded from the contract price is the cost of maintenance as stated in Clause 19.1.1. It is contended that the petitioner having entered into a contract knowing fully well his liability to pay the GST cannot be permitted to derive benefits from an error committed by the respondents.
10. The learned Standing Counsel also places reliance on a judgment of this Court dated 20.3.2019 in W.P.(C) No.27226/2018, where this Court had considered the contentions that the difference between the 4% of Value Added Tax which was in existence at the time of the bid and the 12% GST which was made applicable later was to be paid by the contractor.
11. Having considered the contentions advanced, I notice that it is the specific case of the petitioner that the bid documents sought for quoting of the total contract amount excluding GST and that the financial bid document required the quoting of amount less GST is not disputed by the respondents. The respondents would only contend that even though the form required the quoting of the amount less GST, since the contract itself provided that the contract amount would be inclusive of all taxes, GST has to be suffered by the petitioner. I notice that the Division Bench of this Court in the judgment dated 22.6.2022 in W.A. No.1710/2021 has specifically considered an identical issue. It was found that the petitioner therein had bid for the work and had quoted the amount specifically excluding the component of GST from the quote in view of the condition contained in the notice inviting tender. It was further found that GST being a tax to be suffered by the ultimate beneficiary, the Corporation for whom the work is done by the contractor has to remit the same. It was held as follows :-
“14. The learned Single Judge has judiciously used his discretion and allowed the writ petition declaring that the terms and conditions in Ext.P1 shall govern the contract and that respondents 2 and 3 have to pay the GST component against the bill raised by the petitioner. The decision cited by the counsel for the appellate only prohibits the writ court from interfering in any contractual matter and the interference in the auction procedure when the decision making process is arbitrary and for any extraneous consideration. In this case, the learned Single Judge has not gone into the complexities of the clauses in the notice inviting tender nor substituted any interpretation other than those explicitly provided in the clause. In such view of the matter, the decisions cited (supra) have no application to the facts of this case and are distinguishable. The learned single judge was right in declaring that the GST component was not to be included as per clause 3.3.3 of Ext.P1 and the direction to pay the GST component by respondents 2 and 3 is in tune with the clauses of Ext.P1 and hence there are no ground to interfere with the judgment of the learned Single Judge, and hence the writ appeal is dismissed.”
The judgment relied on by the learned counsel for the respondents only considers the change in the rate of tax and does not apply to a case where the bid amount was required to be specified excluding the rate of GST.
In the above circumstances, I am of the opinion that the issue raised herein stands covered by the judgment of the Division Bench of this Court in W.A. No.1710/2021. Since the petitioner was required to make a quote excluding the GST amount, I am of the opinion that the petitioner cannot be mulcted with a liability of payment of GST. The respondent who is the ultimate beneficiary of the services performed by the petitioner has to pay the GST in respect of the work carried out. Since the bid was submitted by the petitioner specifically excluding the GST element, I am of the opinion that the petitioner is entitled to succeed in these writ petitions. The writ petitions are, therefore, allowed. The impugned orders are set aside. There will be a direction to the respondents to consider the claim of the petitioner for GST element as well and to take necessary steps for release of the amounts due in accordance with law. Necessary steps shall be taken within a period of two months from the date of receipt of a copy of this judgment.