GST Introduced After Tender Cannot Be Treated As Included In Quoted Rates: Bombay High Court

The Bombay High Court at Nagpur has ruled that a contractor cannot be denied GST reimbursement by relying on tender clauses requiring quoted rates to include “applicable taxes” when GST was not in existence when the tender was issued.

A Division Bench of Justice Anil S. Kilor and Justice Raj D. Wakode, relying on the tender clasues observed,

"The taxes which are not recoverable by the Government from the contractors, on the date of tender, cannot be the basis for quoting the rates while submitting the bid."

The court held that taxes that were not recoverable by the government on the date of the tender could not have formed the basis for quoting the contractor's rates.

The ruling came on a petition by Indu Construction challenging the Nagpur Metropolitan Region Development Authority's rejection of its claim for GST reimbursement on an ongoing affordable housing project in Nagpur.

The tender was floated on June 2, 2014, for construction of affordable housing at Wathoda, Nagpur. Indu Construction emerged as the successful bidder and received the work order on August 25, 2014.

GST came into force only on July 1, 2017, while the project was still underway.

The contractor later sought reimbursement of the GST burden. It relied on a Government Circular dated September 19, 2017 and a Government Resolution dated January 21, 2021, dealing with GST on ongoing contracts.

The September 2017 circular provided for compensation of the extra GST burden, subject to production of authenticated records showing the net additional burden. The 2021 Government Resolution provided for a supplementary agreement for ongoing work and laid down how the tax burden was to be adjusted against the remaining contract price.

Indu Construction also pointed out that GST reimbursement had been made to other contractors facing similar circumstances.

Its claim was verified by the respondents through Chartered Accountant Rodi Dabir and Company, which issued a certificate on June 28, 2022. The authority nevertheless rejected the claim about six months later through a communication dated December 20, 2022.

The authority relied on Clauses 25 and 48 of the tender. Clause 25 required the offer to include all taxes and other specified charges payable for the work. Clause 48 similarly provided that the contractor's rates would include all “applicable taxes, duties, levies and service tax” during the contract period, with no extra payment on that account.

The authority also relied on a clarification recorded during the pre-bid meeting. It stated that new taxes or charges introduced after the award of the contract would be borne by the contractor and would not be reimbursed.

The court rejected this interpretation.

It noted that the work order was issued in August 2014, when GST did not exist. The tender clauses required the contractor to include applicable taxes in its rates but did not cover taxes introduced in the future.

The court also rejected the reliance on the pre-bid clarification.

Referring to the Supreme Court's ruling in B. Rugmini Amma v. B.S. Nirmala Kumari, it held that the effect of a clarification cannot surpass or override the terms of the main order.

Since the pre-bid clarification was contrary to the tender conditions, it could not supersede those conditions, the court ruled.

The court further noted that the respondents had referred the contractor's GST reimbursement calculations to the Chartered Accountant for verification. After the calculations were verified, rejecting the claim six months later was arbitrary, it held.

The court observed that the government and its authorities cannot act unfairly, arbitrarily or unreasonably. In this case, it focused on whether similarly placed contractors could be treated differently.

If other contractors in the same position had received GST reimbursement while Indu Construction was denied it because of the pre-bid clarification, that would amount to “treating equals unequally” and violate Article 14, the court observed.

The court therefore allowed the writ petition and quashed the December 20, 2022, communication, rejecting the claim.

It held that Indu Construction was entitled to GST reimbursement for the amount verified by Chartered Accountant. The authorities were directed to make the payment within eight weeks.

For Petitioner: Senior Advocate M.G. Bhangade, assisted by Advocates M.M. Agnihotri and P.L. Sagdeo.

For Respondents: Advocate G.A. Kunte.