Bharat Forge Limited Vs Principal Chief Materials Manager Diesel Locomotive Works (Allahabad High Court)
The HSN code (Harmonized System of Nomenclature) is provided for each product/service by GST Council to specify the rate at which GST would be applicable. The suppliers have to quote HSN Code of the product to be supplied by them in the tender document, itself. The mentioning of correct HSN Code is necessary to determine the GST rate (GST value) which is to be added in the base price to arrive at the final price offered by the bidder/tenderer.
In our considered opinion, if the GST value is to be added in the base price to arrive at the total price of offer for the procurement product in a tender, and is used to determine the interse ranking in the selection process, it is incumbent on the part of the respondent nos.1 and 2 to clarify the HSN Code, i.e. to clear their stand with regard to the applicable GST rate and HSN Code of the “procurement product”.
Thus, the mentioning of HSN Code in the tender document itself shall resolve all disputes relating to fairness and transperancy in the process of selection of bidder, by providing ‘level playing field’ to all bidders/tenderers in the true spirit of Article 19(1)(g) of the Constitution of India. For any issue relating to the applicability of correct HSN Code or GST rate, it would then be the duty of respondent nos.1 and 2 to seek clarification from the GST authorities. The respondent nos.1 and 2 cannot get away by saying that they are not required to mention the GST rate or HSN Code in the tender document, as it is integral to the process of selection of tenderer, moreso, in view of the admission of the respondent no.1 in the counter affdavit that the offers have to be evaluated based on the GST rates as quoted by each bidder and same will be used to determine the interse ranking.
We, therefore, find it expedient to issue a direction to respondent no.2 namely, the 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 interse 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’.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Heard Shri Kavin Gulati, learned Senior Advocate assisted by Shri Prashant Shukla and Ankur Sehgal, learned Advocates for the petitioner; Shri Shashi Nandan, learned Senior Advocate assisted by Shri Udayan Nandan and Shri Ajay Sondhi, learned Advocates for the respondent no. 6 and Shri Rajnish Kumar Rai, learned Advocate for the respondent nos. 1 to 5 (Railways).
The petitioner herein is a company registered under the provisions of the Indian Companies Act having its registered office at Pune Cantonment, Mundhwa, Pune, Maharashtra.
The respondent no.1, Diesel Locomotive Works, Varanasi published a notice dated 11.4.2019 inviting e-tender for procurement of Turbo Wheel Impeller Balance Assembly to D.L.W Part no.16080385. The Turbo Wheel Impeller Balance Assembly (in short referred to as the “procurement product”) is an assembly critical to the 710G HHP locomotive run by the Railway. This product consists of a turbine and a compressor, coupled on a common shaft, and balanced to enable its rotation at speeds as high as 22,000 RPM(rounds per min). This assembly is an essential moving part of the 710-G turbocharger. With the drop in higher temperature exhaust gases, there is rotational energy delivered to the turbine which in turn delivers its input to the compressor, enabling pumping of high density air into engine cylinders, for combustion.
A reading of the tender document shows that the validity period of offer was 120 days. The commercial compliance conditions of the tender, relevant for our purpose, are as under:-
“1. In case the successful tenderer is not liable to be registered under CGST/IGST/UTGST/SGST Act. The Railway shall deduct the applicable GST from his/their bills under reverse charge mechanism [RCM] and deposit the same to the concerned tax authority.”
“9. Please enter the percentage of local content in the material being offered. Please enter 0 for fully imported items, and 100 for fully indigenous items. The definition and calculation of local content shall be in accordance with the Make in India policy as incorporated in the tender conditions.”
10. Please enter the percentage of local content in the material being offered. Please enter 0 for fully imported items, and 100 for fully indigenous items. The definition and calculation of local content shall be in accordance with the Make in India policy as incorporated in the tender conditions.”
The Special Condition no.2 relevant to the case reads as under:-
“2. Instructions issued by Railway Board vide letter no. 2015/RS G/779/5 No dated 03.08.2017 [uploaded with tender] on Preference to Make of India will also be applicable for this tender. In case, conditions given in this letter contradict with Para 1.24 of GT Bid Document, conditions of this letter will prevail.”
It is contended by the petitioner that in order to promote local manufacturer and production of Goods and Services in India with a view to enhance employment opportunities, the Government of India had issued “Public Procurement” (Preference to Make in India) Order’ 2017 (in short as the “Public Procurement Order, 2017),” pursuant to Rule 153(iii) of the General Financial Rules 2017 issued by the Ministry of Commerce and Industry, Department of Industrial Policy and Promotion, Government of India.
The relevant provisions of the Public Procurement Order, 2017 are as under:-
“2. Definitions:- For the purpose of this Order:
‘Local content’ means the amount of value added in India which shall, unless otherwise prescribed by the Nodal Ministry, be the total value of the item procured (excluding net domestic indirect taxes) minus the value of imported content in the item (including all customs duties) as a proportion of the total value, in percent.
‘Local supplier’ means a supplier or service provider whose product or service offered for procurement meets the minimum local content as presecribed under this Order or by the competent Ministries/Departments in pursuance of this order.
‘L1’ means the lowest tender or lowest bid or the lowest quotation in a tender, bidding process or other procurement solicitation as adjudged in the evaluation process as per the tender or other procurement solicitation.
‘margin of purchase preference’ means the maximum extent to which the price quoted by a local supplier may be above the L1 for the purpose of purchase preference.
3. Requirement of Purchase Preference:- Subject to the provisions of this Order and to any specific instructions issued by the Nodal Ministsry or in pursuance of this Order, purchase preference shall be given to local suppliers in all procurements undertaken by procuring entities in the manner specified hereunder:-
b. In the procurements of goods which are not covered by paragraph 3a and which are divisible in nature, the following procedure shall be followed:
i. Among all qualified bids, the lowest bid will be termed as L1. If L1 is from a local supplier, the contract for full quantity will be awarded to L1.
ii. If L1 bid is not from a local supplier, 50% of the order quantity shall be awarded to L1. Thereafter, the lowest bidder among the local suppliers will be invited to match the L1 price for the remaining 50% quantity subject to the local supplier’s quoted price falling within the margin of purchase preference, and contract for that quantity shall be awarded to such local supplier subject to matching the L1 price. In case such lowest eligible local supplier fails to match the L1 price or accepts less than the offered quantity, the next higher local supplier within the margin of purchase preference shall be invited to match the L1 price for remaining quantity and so on, and contract shall be awarded accordingly. In case some quantity is still left uncovered on local suppliers, then such balance quantity may also be ordered on the L1 bidder.
5. Minimum local content: The minimum local content shall ordinarily be 50%. The Nodal Ministry may prescribe a higher or lower percentage in respect of any particular item and may also prescribe the manner of calculation of local content.
6. Margin of Purchase Preference: The margin of purchase preference shall be 20%.”
The Make in India Policy/Public Procurement Order, 2017 is applicable to all Ministries, Departments, CPSUs. The Railway Board, Ministry of Railways, Government of India New Delhi had adopted the Make in India policy and conveyed its decision by the circular dated 3.8.2017, relevant contents of which are noted hereunder:-
2. The order contemplates for decisions on certain issues to be taken by Nodal Ministry. Accordingly the decisions of Ministry of Railways (as nodal Ministry) on such issues are as under:
(a) Local content: The minimum local content shall ordinarily be 50% PHOD/CHOD of procuring department (Stores/Engineering), in consultation with indenting department shall however be competent to vary the minimum local content below the prescribed level on case to case basis. Requisite action as per para 14 of the subject order, shall be ensured. Such power should not be further delegated.
(b) Margin of Purchase Preference: The margin of purchase preference shall be 20%.
The contention of the learned senior counsel for the petitioner is that a comprehensive reading of the Make in India policy; circular issued by the Railway Board and the tender document indicates that the bidders, including the petitioner herein were required to specify the percentage of local content in the material being offered in accordance with the Make in India Policy noted above. The special conditions, inserted in the tender document, further provides that preference to ‘Make of India’ will also be applicable to the subject tender.
The Union of India had issued directions to all ministries, Departments & C.P.S.Us that in all procurements, preference shall be given to those products which have atleast 50% local content, ordinarily, with such purchase preference existing in the margin of 20%. Margin of purchase preference would refer to the extent to which the price of a local supplier/local product may be above the price quoted by the supplier/ product that would otherwise be the L-1, for the purpose of getting purchase preference. These directions were adopted by the circular dated 3.8.2017 issud by the Railway Board.
In the instance case, the tabulation statement of the financial bids of all bidders was published on 13.5.2019. The petitioner herein had been categorised as L-4 whereas respondent nos.6, 7 and 8 had been placed in the category as L1, L2 and L3; respectively.
As per the writ averments, the L-1, respondent no.6 (Krishna Bearings) is a trader importing procurement product from Walbar Corporation, Mexico, whereas L-2 and L-3 are local sources yet not approved by D.L.W (Diesel Locomotive Works), thus, only respondent no.6 (Krishna Bearing) could have outbid the petitioner herein. However, the respondent no.3 had included GST at the rate of 5% in the basic rate whereas the petitioner, and other bidders (L-5 and L-6) had quoted payment of GST at the specified rate of 18% on the basic rate of the procurement product. A table giving comparative figures in INR of the contesting bidders (L-1, respondent no.6) and (L-4, the petitioner herein) is as under:-
