Economy

No price revision will be allowed in contract due to change in tax post-GST, rules HC

Shishir Sinha New Delhi | Updated on January 23, 2019 Published on January 23, 2019

A High Court ruling has made it clear that no price revision will be allowed under the contract due to change in the tax structure after introduction of Goods and Services Tax (GST).

“Grant of any relief as prayed in the present petitions would tantamount to varying terms and conditions of the tender document/rate contracts which is exercise of powers under Article 226 of the Constitution of India shall not be permissible,” a Division Bench of Gujarat High Court said in its ruling in the matter of Bipson Surgical (India) Pvt Ltd versus Gujarat State Government and Gujarat Medical Services Corporation (GMCL). Interestingly, the order was passed in March 2018, but reserved for publication till now.

Request for revision

Bipson Surgical is in the business of manufacture and distribution of surgical dressing items such as bandages, gauze etc.

Post introduction of GST, the petitioner made a written request to GMCL for revision in prices on account of change in GST rates to 12 per cent from 5 per cent (VAT rate).

However, GMCL rejected the said request quoting certain clauses of the contract which states that the price quoted are final net price all-inclusive of taxes and no escalation/revision of price on any counts including on the count of levy of new tax/revision of tax etc. will be allowed at any stage after the last date of submission of tender.

The petitioner then moved the High Court. It submitted that at the time of biding for tenders and accepting the contract, no one had kept in the mind a new GST law/rates of GST.

Also, rates were offered considering the existing taxes/tax laws. “Rate contract was not inclusive of tax and it was over and above and subject to revision of tax liability,” it said.

Liability upon suppliers

After hearing both the sides, the court observed that earlier and pre-introduction of GST / CGST and as per the rate contracts, the liability to pay the taxes including the VAT and the excise duty was upon the suppliers.

At the relevant time, VAT liability was 5 per cent and the excise duty liability was 2 per cent. As per the GST, now the total tax liability would be 12 per cent.

The Bench said that if the GST would not have been introduced and VAT and excise duty would have been continued to be levied and the rate of VAT and excise duty have been increased, then liability to pay enhanced tax was always upon the supplier and “as per Clause 49 of the tender document the claim of price revision of the of any finished goods under any pretext or reason including the revision of the duty/excise/cost will not be allowed under the last date of submission of the tenders.” Accordingly, the Bench declined to accept the plea to revise the price.

Wide ramification

Experts feel this decision will have wide ramification for the industry. There is common feeling that change in tax structure will trigger change in prices under an agreement but the ruling by the Gujarat High Court has just opposite expression.

“This ruling, once again underlines the fact that contracts should be appropriately worded to ring-fence on account of unforeseen future regulatory changes. Resort cannot be taken of any change in tax regime unless the contract includes adequate tax clause, change in law clause etc., to cover the same,” Harpreet Singh, Partner in KPMG, said.

Published on January 23, 2019
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