Two Quotations, One Discount, and a Fund That Must Be Split
A Gram Panchayat holds ₹24,00,000 of untied funds. The district order says administrative overhead may not exceed 5% of the untied fund, and at least 30% of the untied fund must be spent on works in wards whose SC/ST population share is above the panchayat average - Wards 4, 9 and 12. Two works are ready: a drain in Ward 4 with an engineer's estimate of ₹11,50,000, and a road in Ward 7 with an estimate of ₹8,40,000. For the road, two quotations arrive. A: base ₹8,40,000, a 10% discount, then 18% GST on the discounted amount. B: base ₹8,60,000, 18% GST added first, then a 6% discount on the gross. A ward member argues that B is cheaper 'because the discount is calculated on the bigger, GST-inclusive number'. The panchayat also proposes to book ₹1,08,000 as office overheads.
1. Evaluate the two quotations with full working, and address the ward member's argument directly.
Read the worked answer
Work both to the rupee.
A: 8,40,000 × 0.90 = 7,56,000. Then 7,56,000 × 1.18 = ₹8,92,080.
B: 8,60,000 × 1.18 = 10,14,800. Then 10,14,800 × 0.94 = ₹9,53,912.
A is lower by ₹61,832.
The ward member's argument is arithmetically wrong. Discount and GST are both multiplications, and multiplication is commutative: base × (1 − d) × (1 + g) gives the same product as base × (1 + g) × (1 − d). Applying the discount to a bigger gross figure does not help, because the gross figure was made bigger by the tax in the first place. What decides the comparison is the base price and the discount rate, not the order of operations. State it that way in the file, so the minutes record that the argument was heard and answered rather than ignored, and note that GST is remitted to the government and is not the panchayat's money in any case.
2. After awarding the road to A, check the budget: overheads, the total commitment, the balance, and whether the 30% earmark is met.
Read the worked answer
Overheads. 1,08,000 ÷ 24,00,000 = 4.5%, within the 5% cap (₹1,20,000). Compliant, but there is only ₹12,000 of headroom left.
Commitments. Road (A) ₹8,92,080 + drain ₹11,50,000 = ₹20,42,080. Adding overheads gives ₹21,50,080 against ₹24,00,000, leaving a balance of ₹2,49,920.
Earmark. 30% of ₹24,00,000 is ₹7,20,000, which must go to Wards 4, 9 and 12. The Ward 4 drain of ₹11,50,000 alone exceeds this, so the condition is satisfied - provided the payment is actually booked against Ward 4 and not against a general head. The Ward 7 road does not count towards the earmark, and the file should say so plainly to prevent a later audit objection.
Judgement. The balance of ₹2,49,920 is not free money for overheads: the overhead line is already near its cap, and the balance should either fund a small Ward 9 or 12 work or be reported as unspent. Silence about it is what auditors read as concealment.
3. The road contractor offers to bill ₹8,40,000 with no GST if paid in cash from the untied fund. How should the panchayat respond, and why?
Read the worked answer
Refuse, and record the refusal. The offer is not a discount; it is a proposal to keep the transaction off the books.
Audit trail. Cash payment without a tax invoice leaves a voucher that cannot be supported. The auditor will ask for the invoice, the measurement and the payee, and the panchayat will have nothing to show except a resolution. That converts a ₹8,40,000 work into an unexplained payment, which is the finding that matters far more than the tax saved.
Legal exposure. Accepting an invoice that suppresses GST makes the panchayat a party to evasion, and the supplier's lower price is funded by tax not remitted. The panchayat's own funds are public money; they must move by cheque or DBT into a verified account.
Practical loss. No invoice means no warranty, no measurement record and no defence if the work fails. The apparent saving of roughly ₹1.5 lakh is smaller than the amount an audit disallowance would recover.
What to do. Ask for a proper tax invoice at the quoted rate, pay by cheque after measurement, and if the contractor refuses, invite fresh quotations - and note in the file that this quotation was withdrawn.