1. What is the Legal Principle?

Under Indian law, the rule is simple:

Quoted price is deemed inclusive of all duties and taxes existing on the base date, unless the contract says otherwise.

This is codified in two places:

a) Standard Tender Clause: Most FIDIC / CPWD / State PWD tenders have Clause 13.4:
"All duties, taxes and other levies payable by the Contractor under the Contract, or for any other cause as of the date 28 days prior to deadline for submission of bids shall be included in the rates and prices and total bid price"

b) Section 64A of Sale of Goods Act, 1930: The Supreme Court has interpreted this to mean whether a contractor is entitled to be paid tax or increase has to be ascertained from intention of parties to contract and unless a different intention appears, in case of imposition or increase in tax after making of contract, the contractor bears it

If you fail to account for it, you cannot later ask for extra.

2. Consequences of Failure

1. No reimbursement: Courts consistently uphold that if contract says "inclusive of all taxes", you cannot claim extra.
2. Cannot question consideration: A party to contract is not entitled to question amount of consideration after signing the contract.
3. Loss absorption: Contractor must absorb the duty from his profit margin.
4. No price revision: Even if duty structure changes, if clause 49 says "claim of price revision of any finished goods under any pretext including revision of duty/excise/cost will not be allowed" - no revision allowed

3. Leading Case Laws

1. Numaligarh Refinery Ltd. v. Daelim Industrial Co. Ltd. (2007) 10 SCC 110 - Supreme Court
This is the leading authority. Contractor DIC claimed reimbursement of customs duties. Supreme Court held Clauses 2(b), 6, 2.1(g) and 13(f) unequivocally placed responsibility of taxes, duties and levies on the contractor. Contract is binding. Contractor cannot shift burden. Arbitration award allowing reimbursement was set aside.

2. Bombay High Court - GST introduced after tender - GST cannot be treated as included
Division Bench of Justice Anil S. Kilor and Justice Raj D. Wakode held that contractor cannot be denied GST reimbursement by relying on clauses requiring rates to include "applicable taxes" when GST was not in existence when tender was issued. Taxes which are not recoverable by Government from contractors on date of tender cannot be basis for quoting rates.

This is the major exception to the rule.

3. Kerala High Court - Ganga Constructions Vs Assistant Executive Engineer & EKK Infrastructure Ltd. Vs KSTP
Held that GST is payable over and above contract value quoted and cannot be treated as included in bid amount unless expressly specified. Court examined Section 15 of CGST Act, 2017 and Clause 19.1.2 which said contract price includes all duties, taxes, royalty and fees that may be levied. If tender said rates to be quoted exclusive of GST but inclusive of other taxes, GST must be paid extra.

4. Sreedhanya Construction Company Vs State of Kerala - 2024 Supreme(Ker) 1375
Court held: If contract deems prices inclusive of all applicable taxes, courts consistently uphold these terms, refusing extra reimbursements unless explicitly allowed.

5. Calcutta High Court - Kayal Construction W.P.A. 17188/2023
Petitioners were awarded tenders on condition they would bear expenses for all taxes/cess payable. They contended rates for taxes/cess were specified in contract and due to subsequent implementation of GST in 2017 they were compelled to bear additional expenses. Court dismissed plea because standard clause obligated contractor to bear Income Tax, VAT, Sales Tax, Royalty, Cess and "similar other statutory levy/cess". GST was held to merely subsume earlier levies and did not constitute new tax burden - so no refund.

6. Madras High Court - Contract price has three components
In landmark judgement, Madras HC held contract price comprises three components viz. cost factors, profit margin and tax component, thus value of tax component on account of GST has to be fully paid back to contractor where Government itself issued G.O.Ms. No.296 dated 09.10.2017 noting price bid to be quoted should be inclusive of taxes and duties.

4. When Can You Claim Despite Failure?

You can still claim if you prove:

1. New Tax After Base Date: Tax did not exist on base date. E.g., GST introduced after 2017. Bombay HC and Kerala HC allow extra.
2. Contract says "exclusive": Tender itself says quote exclusive of GST.
3. Change in Law Clause: Under Clause 13.7 FIDIC / GCC, increase due to change in legislation after base date is reimbursable.
4. Employer is liable: Omission of GST rate in tender bid does not permit employer to deduct GST from quoted price because GST was employer's liability; correct approach is re-evaluation by adding applicable GST.

5. Best Practices to Avoid Litigation

1. Read Tax Clause carefully - inclusive vs exclusive.
2. Always add base date duties in BOQ.
3. Include escalation formula for statutory levies.
4. Keep documentary proof of duty paid.
5. For government contracts, rely on Section 64A - make intention clear in contract: "Any increase/decrease in duties after base date shall be to employer's account".