Facts of the Case

The petitioner, M/s R And B Infra Project Pvt. Ltd., participated in a government tender floated by the Rajasthan Urban Infrastructure Development Project (RUIDP) for the design, construction, operation, and maintenance of sewerage works and sewage treatment plants at Mount Abu.

The tender conditions required bidders to include all applicable taxes in their quoted bid prices. During the tender process, the Central Government reduced the GST rate applicable to the contract from 18% to 12%.

The petitioner submitted its bid after the GST reduction had already come into effect and thereafter participated in negotiations with the department. Following negotiations, the Letter of Acceptance (LOA) was issued. However, Clause 4 of the LOA provided that since GST had been reduced from 18% to 12% during the bidding process, 6% GST would be deducted from every running bill of the contractor.

Aggrieved by this deduction, the petitioner approached the Rajasthan High Court challenging the validity of the said condition.

Issues Involved

  1. Whether the respondents were justified in deducting 6% GST from the petitioner's running bills after issuance of the Letter of Acceptance.
  2. Whether GST applicable at the time of submission of the bid should govern the contract.
  3. Whether the State could recover an amount exceeding the GST actually payable under law.
  4. Whether Clause 4 of the Letter of Acceptance was legally sustainable.
  5. Whether the writ petition was maintainable despite the respondents alleging the existence of an arbitration clause.

Petitioner’s Arguments

  • The petitioner submitted that its bid was filed after the Central Government had reduced the GST rate from 18% to 12%.
  • Since the GST rate prevailing on the date of submission of the bid was 12%, the bid price was prepared considering only that applicable tax rate.
  • During negotiations, the petitioner finalized its offer based on the prevailing GST rate, and the department accepted the negotiated offer.
  • After accepting the negotiated bid, the respondents could not subsequently impose a condition reducing 6% from the running bills.
  • Deducting 6% GST despite the applicable GST being only 12% amounted to recovery of money without authority of law and resulted in unjust enrichment by the State.

Respondent’s Arguments

  • The respondents raised a preliminary objection that the agreement contained an arbitration clause and therefore the writ petition was not maintainable.
  • They argued that Clause 14.7 of the Instructions to Bidders clearly provided that duties and taxes applicable 28 days before the last date for submission of bids were to be considered while quoting the bid price.
  • Every bidder was presumed to have quoted rates keeping this contractual condition in mind.
  • The deduction of 6% GST was therefore claimed to be strictly in accordance with the contractual terms.
  • The respondents also denied the petitioner's assertion that negotiations covered the issue of GST rates and maintained that negotiations related only to the quoted rates of work.

Court Order / Findings

The Rajasthan High Court rejected the preliminary objection regarding arbitration, observing that the dispute arose from the tender instructions and the Letter of Acceptance rather than any arbitration clause contained in the agreement.

The Court noted that:

  • The GST rate had already been reduced to 12% before the petitioner submitted its bid.
  • The clarification issued during the pre-bid stage specifically instructed bidders to consider the impact of GST while preparing their bid prices.
  • Therefore, it was natural that bidders would quote their prices considering the prevailing GST rate of 12%.

The Court further observed that:

  • The petitioner had not been awarded the contract on its original bid but only after negotiations.
  • The department failed to produce the negotiated offer to disprove the petitioner's assertion that the negotiated rates were based upon GST at 12%.

The Court held that:

  • The State was liable to pay only GST at the applicable rate of 12%.
  • Recovering an additional amount through deduction of 6% GST would amount to collecting money beyond what was legally payable.
  • Such recovery constituted unjust enrichment and was impermissible in law.

Accordingly, the Court:

  • Allowed the writ petition.
  • Quashed Clause 4 of the Letter of Acceptance dated 10.01.2018.
  • Directed the respondents not to deduct 6% GST from future running bills.
  • Directed the respondents to refund the 6% GST already deducted from the petitioner's previous running bills.

Important Clarification

  • A government authority cannot recover tax beyond the amount legally payable under GST law.
  • Where GST rates are reduced before submission of the bid and bidders prepare their quotations accordingly, the State cannot subsequently deduct the differential tax through contractual conditions.
  • Recovery of tax without legal authority amounts to unjust enrichment and is liable to be set aside.
  • The existence of an arbitration clause does not automatically bar the High Court from exercising writ jurisdiction where the dispute concerns the legality of governmental action.

Link to Download the Order https://www.mytaxexpert.co.in/uploads/1784885066_1955compressed.pdf

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