Facts of the Case

The petitioners, four individual contractors undertaking works for the Kerala State Electricity Board Limited (KSEB) and registered dealers under the CGST/SGST Act, 2017, challenged Clause 3 of KSEB's Circular No. FA/Tax Cell/GST-Tendering/2020-21 dated 24.02.2021 (Exhibit P-3) before the Kerala High Court. Clause 3 prescribed the mechanism for tender evaluation: for tenders with participation of both registered and unregistered bidders, tenders were to be evaluated on the total cash outflow to KSEB, i.e., the quoted rate plus applicable GST for registered bidders, or KSEB's reverse-charge liability where applicable; composition-scheme dealers were treated as unregistered contractors for this purpose; and for contracts valued up to Rs. 20,00,000 where GST registration details were not furnished, the bidder would be treated as unregistered. The petitioners contended this methodology placed GST-registered contractors like themselves at a competitive disadvantage in the bidding process.

Issues Involved

  1. Whether Clause 3 of the KSEB Circular, which evaluates tenders on a total-cash-outflow basis to compare GST-registered and unregistered/composition-scheme bidders, violates Articles 14 and 19 of the Constitution.
  2. Whether a GST-registered contractor is unfairly disadvantaged vis-à-vis an unregistered contractor under this evaluation methodology.
  3. Whether KSEB could insist on GST registration for contracts falling below the statutory threshold requiring compulsory registration.

Petitioner's Arguments

  • A GST-registered dealer cannot fairly compete with an unregistered dealer, since the unregistered dealer need not charge GST while the registered dealer must, causing the registered dealer's quote to appear higher and resulting in loss of contracts.
  • Clause 3 of Exhibit P-3 is discriminatory and violates Articles 14 and 19 of the Constitution, and ought to be set aside.

Respondent's Arguments

  • Unregistered dealers may lawfully participate in tenders up to Rs. 20,00,000, since contracts up to Rs. 50,00,000 were treated as exempt from compulsory GST registration; KSEB cannot insist on registration below that threshold.
  • Clause 3(a) evaluates tenders on total cash outflow to KSEB precisely so that unregistered bidders are not unfairly excluded, while ensuring the Board obtains the most competitively priced bid overall.
  • The same total-cost-to-KSEB methodology was followed even in the pre-GST VAT/Service Tax regime.
  • Under the CGST/SGST Act, composite supply of material and services by such contractors is exempt from GST in specified circumstances, and, in any event, a registered contractor can always claim input tax credit on inward supplies used for the contract, offsetting any perceived pricing disadvantage.

Court Order/Findings

  • The Court held that a contractor registered under GST can always claim input tax credit for tax paid on inward supplies used to execute the contract, and therefore the alleged competitive disadvantage from Clause 3 was a mere apprehension without substance.
  • Found no merit in the challenge to Exhibit P-3, holding the criteria for selecting contractors under the tender-evaluation circular to be sound.
  • Dismissed the writ petition as devoid of merits.

Important Clarification

  • Differential tender-evaluation treatment of GST-registered versus unregistered/composition-scheme contractors, based on comparing total cash outflow (quoted price plus applicable GST or reverse-charge liability) to the procuring entity, is not per se discriminatory, since the registered contractor retains the offsetting benefit of input tax credit.
  • Contracts valued below the applicable GST registration threshold do not require the contractor to obtain registration, and a procuring authority cannot compel registration merely for tender-evaluation purposes in respect of such contracts.

Sections Involved

  • Central Goods and Services Tax Act, 2017 and the Kerala State Goods and Services Tax Act, 2017 — govern registration thresholds, the composition scheme, reverse charge mechanism and input tax credit relevant to the dispute.
  • Provisions on the composition scheme and reverse charge mechanism under the CGST/SGST framework — relevant to KSEB's evaluation criteria for unregistered/composition bidders.
  • Articles 14 and 19, Constitution of India, 1950 — grounds of challenge to the impugned circular.
  • Article 226, Constitution of India, 1950 — writ jurisdiction invoked.

Decision – In Favour of

The writ petition was dismissed, in favour of the Department/Respondent (KSEB). The Court upheld Clause 3 of the tender-evaluation circular, finding the petitioners' apprehension of competitive disadvantage unsubstantiated given the availability of input tax credit to registered contractors.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No. 18906 of 2021
  • CNR: Not available in the order
  • Coram: Justice Dinesh Kumar Singh
  • Decision Date: 06.12.2023
  • Disposal Nature: Dismissed (challenge to tender evaluation circular dismissed)

Link to Download the Order

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