Supreme Court on HSN Code in Public Tenders: No Duty on State to Specify GST Rate – Union of India v. Bharat Forge [2022 INSC 837]

In Union of India v. Bharat Forge Ltd. (2022 INSC 837), the Supreme Court held that the State has no public duty to specify the HSN code or GST rate in a public tender, and allowed the appeal of the Union of India and Diesel Locomotive Works, Varanasi (paras 43–49, 59, 62). It set aside the High Court direction requiring the tendering authority to clarify the HSN code with GST authorities and mention it in the NIT. The Court ruled that under the GST law the liability to pay tax is on the supplier, who must determine the correct HSN code and rate, and that the purchaser cannot declare a binding GST rate (paras 35, 38, 55). To check tax evasion, it directed that every contract award be forwarded to the supplier's jurisdictional GST officer (paras 61–62).

Headnote

Central Goods and Services Tax Act, 2017 – Sections 9(3), 59, 60, 96–103, 168 – Constitution of India – Articles 14, 19(1)(g), 226 – Public tender – HSN code and GST rate – Writ of mandamus – Public duty – Level playing field – Judicial review in contractual matters.

Held: (i) A writ of mandamus lies only where a public duty exists; such duty may arise from statute, charter, common law, custom or contract, but there is no statutory or public duty on a purchasing department to indicate the HSN code in a tender (paras 18, 43, 49).

(ii) Under the GST regime, except in reverse charge cases under Section 9(3), the supplier is liable to pay tax and must decide the correct HSN code and rate; the purchaser cannot declare a GST rate binding on bidders (paras 35, 38, 55).

(iii) Railway Board's circular dated 05.09.2017 only permits the purchaser to indicate the HSN code and places responsibility on bidders; it does not create a mandatory duty enforceable by mandamus (paras 45–46).

(iv) The direction to "clarify" the HSN code with GST authorities is unworkable, as classification is settled only through the elaborate advance ruling process under Sections 96–103, and Section 168 confers no such right (paras 47–48, 57).

(v) Reliance Energy on "level playing field" and legal certainty did not apply, because Clauses 2.7.6, 2.8.6.2 and 2.9.2 of the tender read together left no uncertainty (paras 21–23, 39).

(vi) To prevent evasion, every contract award must be sent to the successful tenderer's jurisdictional GST officer, and bidders must disclose their assessing officer (para 61).

(paras 15–62)

Judgment Intelligence

Final Outcome: Appeal allowed; High Court judgment set aside; directions issued to forward contract awards to the supplier's jurisdictional GST officer; no order as to costs.

Case: Union of India & Others v. Bharat Forge Ltd. & Another

Neutral Citation: 2022 INSC 837

Case No.: Civil Appeal No. 5294 of 2022 (arising out of SLP (C) No. 4960 of 2021)

Court: Supreme Court of India

Date of Decision: 16 August 2022

Bench: Justice K.M. Joseph (author) and Justice Hrishikesh Roy

Relevant Acts & Sections: CGST Act, 2017 – Sections 9(3), 22, 59, 60, 96–103, 168; Constitution of India – Articles 14, 19(1)(g), 226; Public Procurement (Preference to Make in India) Order, 2017

Impugned Order: Judgment of the Allahabad High Court in the writ petition of Bharat Forge Ltd. against Diesel Locomotive Works, Varanasi

Source: Supreme Court of India

Key Holdings

• A State purchaser has no statutory or public duty to mention the HSN code or GST rate in a tender; no mandamus can issue to compel it (paras 43, 49, 59).
• GST is an indirect tax payable by the supplier, except under reverse charge; the supplier must self-assess and choose the correct classification (paras 35, 38).
• A bidder may quote a price inclusive of tax and may absorb the tax wholly or partly; that is a commercial choice (paras 38, 55).
• A circular that says the purchaser "may" incorporate the HSN code does not create an enforceable public duty (paras 45–46).
• Classification disputes are resolved through advance rulings and assessment by the supplier's jurisdictional officer, not by the purchaser (paras 40, 47, 57).
• The "Make in India" order does not oblige the purchaser to declare the HSN code, since "local content" excludes net domestic indirect taxes (paras 53–56).
• Contract awards must be forwarded to the supplier's jurisdictional GST officer to prevent evasion through under-quoted rates (para 61).

Brief Facts

Diesel Locomotive Works, Varanasi invited e-tenders for turbo wheel impeller balance assembly. Bharat Forge Ltd., a local manufacturer, quoted GST at 18%, while the bidders ranked L1 to L3 quoted GST at 5% (paras 4–6).

Bharat Forge's base price was Rs. 7,03,000 against L1's Rs. 6,00,000. After adding GST, its total price became Rs. 8,29,540 against L1's Rs. 6,30,000, and it ranked only L4 (paras 5–6).

Bharat Forge filed a writ petition seeking a direction that the product be taxed at 18% under HSN 84148030, and that the tendering authority specify the HSN code to ensure a level playing field (para 5). It relied on the "Make in India" order dated 15.06.2017 and a CBIC circular on turbo chargers (paras 6, 11).

The High Court directed the General Manager, DLW, to clarify the correct HSN code with GST authorities and mention it in the NIT whenever GST is added to the base price for ranking (paras 2, 7). The Union of India appealed.

Issues (paras 15, 43)

1. Whether a writ of mandamus can issue without a statutory duty, and what public duty is required (paras 15–18).
2. Whether the State, as purchaser, has a public duty to specify the HSN code and GST rate in a tender to ensure a level playing field (para 43).
3. Whether the Railway Board circular, Section 168 of the CGST Act, the "Make in India" order or other railway tenders created such a duty (paras 44–59).
4. What safeguards are needed against tax evasion by under-quoting the GST rate (paras 60–61).

Court's Findings

Scope of mandamus (paras 15–18): Relying on K.S. Jagannathan, Andi Mukta and Mansukhlal Vithaldas Chauhan, the Court held that mandamus is not limited to statutory duties. It lies wherever a public duty exists and is not performed, but a public duty is indispensable (para 18).

Judicial review of tenders (paras 19–23): Following Reliance Telecom, the Court reiterated that tender terms are open to scrutiny only if wholly arbitrary, discriminatory or mala fide. Reliance Energy, relied on by the High Court, turned on lack of legal certainty in tender norms and could not be applied mechanically (paras 21–23, 39).

Tender clauses read together (paras 25–39): Clause 2.7.6 required bidders to indicate applicable taxes; Clause 2.8.6.2 made the purchaser not responsible for misclassification; and Clause 2.9.2 treated an offer without tax details as inclusive. Read together, they left no uncertainty: the bidder bears the tax consequences of its own classification (paras 37–39).

Nature of GST liability (paras 33–35, 38): GST is an indirect tax on supply. The supplier registers, self-assesses under Section 59 and pays the tax; the recipient pays only under reverse charge in Section 9(3). The supplier must decide the HSN code and rate and may even absorb the tax (paras 35, 38).

No public duty from the circular (paras 44–47): The Railway Board circular dated 05.09.2017 says the purchaser "may" incorporate the HSN code and that bidders are responsible for quoting the correct code and rate. It does not create a mandatory duty, and courts cannot direct a discretionary power to be exercised in a particular way (paras 45–46).

Unworkable direction (paras 47–48, 57): Classification can be settled only through advance rulings under Sections 96–103, an elaborate process with appeals. Section 168 lets the Board issue instructions to officers, not a right for purchasers to seek clarification. Requiring this for every purchase was impractical (paras 47–48, 57).

Make in India and other tenders (paras 53–59): "Local content" excludes net domestic indirect taxes, so the order does not require the HSN code in the tender. Other railway tenders citing HSN codes treated them as indicative only (paras 54–59).

Reverse charge and anti-evasion direction (paras 60–61): Where the purchaser pays under reverse charge, it can deduct the actual tax from bills. To ensure the successful bidder pays the correct tax, the Court directed that contract awards be forwarded to the supplier's jurisdictional officer (paras 60–61).

Final Outcome / Directions (paras 61–62)

• Appeal allowed and the High Court judgment set aside.
• In all cases where the appellants award a contract, a copy of the award document with material details must be immediately forwarded to the concerned jurisdictional GST officer.
• Tenderers must indicate details of their assessing officers in their bids.
• The Union of India and the Railway Board must ensure compliance by all units.
• No order as to costs.

Legal Principle

A public authority inviting tenders is a purchaser, not the person liable to GST, and has no statutory or public duty to determine or declare the HSN code and GST rate of the goods it buys. Under the CGST Act, the supplier self-assesses and bears the tax, except under reverse charge, and classification disputes are resolved through advance rulings and the supplier's assessing officer. A writ of mandamus cannot compel the State to specify the HSN code merely to secure a perfect level playing field among bidders, where the tender terms clearly allocate tax responsibility to the bidder. Courts may, however, issue directions to ensure that under-quoting of tax does not lead to evasion.

Precedents Relied Upon

• Comptroller and Auditor General of India v. K.S. Jagannathan, (1986) 2 SCC 679 – Relied upon – scope of mandamus and directions under Article 226. Discussed at para 15.
• Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust v. V.R. Rudani, (1989) 2 SCC 691 – Relied upon – mandamus lies for public duty from any source. Discussed at para 16.
• Mansukhlal Vithaldas Chauhan v. State of Gujarat, (1997) 7 SCC 622 – Relied upon – nature of duty enforceable by mandamus. Discussed at para 17.
• Reliance Telecom Ltd. v. Union of India, (2017) 4 SCC 269 – Relied upon – limits of judicial review in tenders. Discussed at paras 19–20.
• Reliance Energy Ltd. v. Maharashtra State Road Development Corpn. Ltd., (2007) 8 SCC 1 – Distinguished – level playing field and legal certainty depended on its facts. Discussed at paras 21–23, 39.
• Sarvesh Refractories (P) Ltd. v. Commissioner of Central Excise and Customs, (2007) 13 SCC 601 – Referred – classification is for the officer having jurisdiction over the seller. Discussed at para 40.
• Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran, (2012) 5 SCC 306 – Referred – indirect tax burden can be allocated by contract. Discussed at para 41.

Important Paragraphs of the Judgment

Para 18: "There must be a public duty. While the duty may, indeed, arise form a Statute ordinarily, the duty can be imposed by common charter, common law, custom or even contract."

Para 38: "The liability to pay tax under the GST regime is on the supplier. He must make inquires and make an informed decision as to what would be the relevant HSN Code applicable to the items and the rate of tax applicable."

Para 39: "It is elementary that principles enunciated in the facts of a case are not be likened to Euclid's Theorem, having an inexorable operation divorced from the facts which arise for consideration."

Para 46: "It may be true that the circular permits the purchaser to indicate the HSN Number. The purchaser may indicate it. That is a far cry from holding that the communication enshrines a public duty which can be enforced by way of Mandamus."

Para 55: "Further, the appellants cannot declare a GST rate and make it binding on the bidder. The correctness of the Code/rate can, at best, be the appellants understanding of the same."

What the Ruling Means: Practical Impact

• For bidders and suppliers: You must determine the correct HSN code and GST rate yourself; seek an advance ruling where in doubt. Under-quoting tax is at your own risk (paras 38, 47).
• For government departments and PSUs: Mentioning the HSN code in a tender is optional, not mandatory. Tender clauses should clearly allocate tax responsibility to bidders (paras 37–39, 45–46).
• For GST authorities: Contract awards will now reach the supplier's jurisdictional officer, helping detect under-payment of tax (para 61).
• For local manufacturers: Complaints of unfair GST quoting by competitors should be raised with tax authorities, not through a mandamus to the purchaser (paras 14, 47).
• For litigants: Writs against tender terms succeed only where the terms are arbitrary or uncertain; a mere wish for a "perfect" level playing field is not enough (paras 19–23, 57).

Frequently Asked Questions

1. What did the Supreme Court hold in Union of India v. Bharat Forge (2022 INSC 837)?

It held that the State has no duty to specify the HSN code or GST rate in a public tender and set aside the High Court's direction. Bidders must determine the correct code and rate themselves (paras 43–49, 62).

2. Is it mandatory to mention the HSN code in a government tender?

No. A circular that says the purchaser "may" mention the HSN code creates no enforceable duty, and even where mentioned, it is only indicative (paras 45–46, 58–59).

3. Who is liable to pay GST in a tender contract?

The supplier, except where the purchaser is liable under reverse charge under Section 9(3) of the CGST Act. The supplier self-assesses and pays the tax (paras 35, 60).

4. Can a bidder quote a lower GST rate to win a tender?

A bidder bears the consequences of its own classification and may even absorb tax, but under-payment can be pursued by tax authorities; the Court directed contract awards to be sent to the supplier's GST officer (paras 38, 55, 61).

5. What direction did the Supreme Court give to prevent tax evasion?

Every contract award must be forwarded to the successful tenderer's jurisdictional GST officer, and bidders must disclose their assessing officer details (para 61).

Keywords: 2022 INSC 837, Union of India v. Bharat Forge, HSN code in tender, GST rate in public tender, writ of mandamus public duty, level playing field, Section 9(3) reverse charge, advance ruling Section 97, Section 168 CGST, Make in India local content, Diesel Locomotive Works, Justice K.M. Joseph, Justice Hrishikesh Roy

Judgment Copy

Judgment PDF: 2022 INSC 837 – Union of India v. Bharat Forge Ltd. (C.A. No. 5294 of 2022) – Download Judgment PDF

Source: Supreme Court of India.

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