Larsen & Toubro Limited vs Delhi Metro Rail Corporation Ltd
- Court
- Delhi High Court
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 20.07.2026
Judgment pronounced on: 16.10.2026
# CNR No. DLHC011445042016
+ O.M.P. (COMM) 257/2016
LARSEN & TOUBRO LIMITED .....Petitioner
Through: Mr. Ramesh Singh, Senior
Advocate, Mr. Arpan Behl, Ms.
Rohini Roy, Ms. Hage Nanya,
Advs along with Mr. Yogesh
Gupta, AR.
versus
DELHI METRO RAIL CORPORATION LTD .....Respondent
Through: Mr. Tarun Johri, Mr. Ankur Gupta,
Mr. Vishwajeet Tyagi, Advs.
CORAM:
HON'BLE MR. JUSTICE OM PRAKASH SHUKLA
JUDGMENT
% 16.10.2026
1. The present petition has been filed under Section 34 of the
1
Arbitration and Conciliation Act of 1996 , assailing the arbitral award
2
dated 31.03.2014 with respect to disputes arising out of a contract dated
3 4
15.01.2008 executed between the Petitioner and the Respondent .
1
“Act” hereinafter
2
“Impugned Award” or “Award” alternatively
3
“Contractor” alternatively
4
“DMRC” alternatively
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
17:01:20
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2. Shorn off unnecessary details, the facts emerging from the record
5
would show that DMRC awarded Contract dated 15.01.2008 to a
consortium consisting of the Petitioner and M/s Furrer + Frey AG Ltd., in
the capacity of contractors.
3. The Contract pertains to the “design, supply, installation, testing
6
and commissioning of 25kV Rigid Overhead Contact System switching
Stations (1SSP, 1 SP, 2SS) with 25kV associated cabling for the
Underground Portion of Central Secretariat – Green Park – Saket (Broad
Gauge – Line – 2) and Central Secretariat – Jangpura (Standard Guage –
7
Line – 6) Sections of Delhi MRTS Phase-II Project” for a value of
Rs.43,36,75,791/- and USD 2,024,988 and Swiss Franc 54,94,930, with
the commencement date of 19.09.2007.
4. The Contract required the Contractor Consortium (including the
Petitioner) to deliver certain items/equipment to DMRC in accordance
8
with the Bill of Quantities attached to the said contract.
5. During the execution of the Contract, disputes arose between the
Petitioner and DMRC with respect to the applicability and
9
reimbursement of Delhi Value Added Tax as paid by the Petitioner on
some of the items, in view of Clause 24(c)(ii) of the Special Conditions
5
“Contract” hereinafter
6
“ROC” hereinafter
7
“Project” hereinafter
8
“BOQ” hereinafter
9
“DVAT” hereinafter
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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10
of Contract which provided that DMRC would reimburse the
Contractor for the DVAT paid by it. The said clause is reproduced
hereinbelow:
“(c) The rates and prices quoted for each item in the Bill of
Quantities shall be inclusive of all taxes, levies, duties and other
charges leviable, including tax deducted at sources, except.
i. Custom Duty and Excise Duties on all equipments,
including machinery and rolling stock procured for this
contract, for which exemptions certificates will be issued in
terms of para (i) above provided PAC has not been asked for
the same item.
ii. DVAT/UP Trade Tax (if applicable) paid on all
indigenous equipments including machinery and rolling stock,
procured for this contract which will be reimbursed to the
contractor on the basis of actual on submission of
documentary proof of payment, in addition to the unit rates
quoted.
iii. Haryana VAT has been exempted in terms of Haryana
Government Excise and Taxation Department Notification No.
S.O. 112/H.A.6/2003/S 59/2006 Dated 30th November 2006
procured for this contract.”
6. On account of non-resolution of this issue, the Petitioner issued a
“Notice of Dispute” dated 21.10.2011 to the Respondent and resultingly,
the learned Arbitral Tribunal comprising of three members came to be
constituted on 01.06.2012 and rendered the impugned award on
31.03.2014.
7. According to the Petitioner, it was required to not only deliver
equipment as per the BOQ but also install, test and commission the same.
These items/equipment are as follows:
10
“SCC” hereinafter
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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“ BOQ-S1
Item No. B-1.5 Contact Wire;
Item No. B-2 Sectioning Post for Udyog Bhawan;
Item No. B-3 Sub-sectioning Posts at Jorbagh and Green Park;
Item No. B-4 Traction Cables for Central Secretariat to Green
Park to Saket;
Item No. B-5.2 Return Conductor.
BOQ-S2
Item No. B-1.5 Contact Wire;
Item No. B-2 Sub-sectioning & Paralleling Posts at Central
secretariat;
Item No. B-3 25 kV cables for Line 2 to Line 6 Traction Power
Exchange Link;
Item No. B-4 25 kV cables for Park Street TSS-1-link for
Overhead Conductor System (OCS) of Line 6;
Item No. B-5 Equipment for Park Street TSS-2;
Item No. B-6 Equipment for Airport TSS;
Item No. 7 25 kV traction cable for Central Secretariat to
Jangpura;
Item No. B-8.2 Return Conductor.”
8. It is the case of the Petitioner that for the installation and
commissioning of the aforesaid equipment, it required certain materials
11 12
such as high voltage panels, low voltage panels, cables, contact wires
etc. Accordingly, it procured these HV and LV panels from one M/s
Aveda (India), Allahabad and M/s Areva (India), Kolkata. The aforesaid
being an interstate transaction, the Petitioner issued Form C for 2%
13
Central Sales Tax to the aforementioned suppliers at Allahabad and
Kolkata. Further, M/s Aveda (India) imported the HV panels from
Germany and paid custom duty on the same. Admittedly, this custom
duty was reimbursed by DMRC after furnishing requisite proof.
11
“HV” hereinafter
12
“LV” hereinafter
13
“CST” hereinafter
Signature Not Verified
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TRIPATHI
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9. According to the Petitioner, it was required to shift this equipment
to various sites in Delhi as per the Contract and integrate them to
constitute the “Sectioning” and “Sub-Sectioning Posts” for erection of
the ROC System. The Petitioner claims the aforesaid to be new
commercial products sold to DMRC in Delhi. Accordingly, the Petitioner
paid Rs.4,45,73,743/- as DVAT on these items. In this regard, the
Petitioner also furnished five invoices before the learned Tribunal.
10. Notably, DMRC did reimburse the Petitioner on one of the
aforesaid invoices. However, this amount was subsequently recovered
from the Petitioner’s running bills on the premise that DVAT was not
applicable on the transactions in question.
11. DMRC resisted all these claims by maintaining that as per Clause
14
24(c)(ii) of the Special Conditions of Contract , DVAT was liable to be
reimbursed only if it was legally applicable and not if it were wrongfully
paid by the Contractor. In this regard, DMRC contended that since the
LV panels were procured from M/s Areva (India), Kolkata for
incorporation in Delhi, DVAT was not applicable on such interstate sale.
In a meeting held on 30.01.2014 before the learned Tribunal, the
Petitioner clarified that it procured the items from outside of Delhi and
hence, CST was applicable. Further, the HV panels were procured from
Germany, for which, the custom duty was already reimbursed by DMRC.
14
“SCC” hereinafter
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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12. In view of the aforesaid, the learned Tribunal rendered the
impugned award dated 31.03.2014, whereby all the claims of the
Petitioner came to be rejected. Since DMRC also did not raise any
counter-claims, a nil award was passed. The learned Tribunal held as
follows:
(i) There was a direct link between the Petitioner placing orders
for HV panels and the import of the same by M/s Areva for
DMRC, for which custom duty was paid and reimbursed
thereafter.
(ii) The Petitioner erred in paying DVAT on items brought to
Delhi from other States and therefore, DMRC is not liable to
reimburse.
(iii) DMRC has not denied that it initially reimbursed the
Petitioner for one of the DVAT invoices, but later recovered
the same. Petitioner’s reliance on this aspect is of no avail
since a party can be allowed to rectify its mistake without it
amounting an admission of sorts.
13. Aggrieved thereby, the Petitioner preferred the present objection
petition under Section 34 of the Act.
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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SUBMISSIONS
14. At the outset, Mr. Ramesh Singh, learned Senior Counsel for the
Petitioner assailed the impugned award on the ground of patent illegality,
inasmuch as the Arbitral Tribunal has erred in its applicability of the
DVAT Act and Clause 24(c)(ii) of the SCC. It was submitted that the
Petitioner was required to pay DVAT, as is evident from the definition of
“sale” under Section 2(zc) of the DVAT Act and therefore, DMRC ought
to reimburse it.
15. Mr. Singh contended that the learned Tribunal rendered the
impugned award in complete disregard of the express clauses of the
Contract. According to him, Clause 24(c)(ii) of SCC, read with Clause
15
11.1.1 of General Conditions of Contract only requires actual payment
of tax and furnishing proof thereof for the purpose of claiming
reimbursement. The use of “if applicable” only indicates the transactions
undertaken during the execution of the contract in respect of which
DVAT or U.P. Trade Tax provisions shall apply. It does not give any
discretion to the Respondent to refuse reimbursement of the amount of
VAT paid by the Petitioner. It was submitted that this intent is also
evident from Clause 35 of GCC, which stipulates a refund mechanism to
be pursued with the tax department when the Respondent is of the view
that tax is not payable on a transaction.
15
“GCC” hereinafter
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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16. Mr. Singh also challenged the impugned award on account of it
being against the public policy of India. It was submitted that the learned
Tribunal exceeded its jurisdiction insofar as it returned findings on
whether DVAT was leviable or not, which is strictly a sovereign
function. In this regard, it was submitted that Clause 17.3 of the Contract
empowered the Tribunal to resolve disputes arising out of this Contract.
However, the issue of applicability of DVAT is not a ‘a dispute arising
out of the contract’, which can only be decided by the authorities under
the DVAT Act and parties cannot, by way of agreement, confer
jurisdiction on authorities not envisaged by law. It was further submitted
that the DVAT Act is a complete code in itself and it designates
authorities for adjudication of matters arising under the Act. In this
regard, it was submitted that Section 83 of the DVAT Act bars a suit
before any civil court, and hence, by necessary implication, arbitration is
16
also barred. Reliance was placed on H.P. SEB v. R.J. Shah and Co. ,
17
Titagarh Paper Mills Ltd. v. Orrisa State Electricity Board and Anr. ,
18
Vijay Karia & Ors. v. Prysmian Cavi E Sistemi SRL & Ors. , A.
19
Ayysamy v. A. Paramasivam , Vidya Drolia & Ors. v. Durga Trading
20 21
Corp. and Delhi Airport Metro Express (P) Ltd. v. DMRC .
17. Learned Senior Counsel further submitted that from a conjoint
reading of Sections 26 and 31 of the DVAT Act, it can be reasonably
16
(1999) 4 SCC 214
17
(1975) 2 SCC 436
18
2020 SCC OnLine SC 177
19
2016 (10) SCC 386
20
(2021) 2 SCC 1
21
(2022) 1 SCC 131
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TRIPATHI
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discerned that once tax is paid and return has been filed, it is a self-
assessment of tax liability. Section 31(1)(a) provides that such self-
assessment is deemed to be an assessment made by the Commissioner. It
was therefore urged that the impugned award essentially sets aside an
assessment made by the Commissioner under the DVAT Act. Reliance
22
was placed on Samsung India Elecs. v. Govt. of NCT of Delhi .
18. Mr. Singh further contended that the learned Tribunal’s findings
on the exigibility of DVAT is incorrect, inasmuch as it held that sale of
HV and LV Panels by M/s Areva (India) to the Petitioner as “sale in
course of import” and “inter-state sale” respectively did not attract
DVAT. In this regard, it was submitted that the import of HV panels and
purchase of LV panels from Kolkata were not directly linked to the
installation of sectioning posts and sub-sectioning posts, which were
items of BOQ. It was therefore submitted that the integration of these
panels for commissioning did not meet the criteria for “sale in course of
import” or “interstate sale” as defined under Section 7(c) of the DVAT
Act read with Section 5(2) of the CST Act, 1956. It was submitted that
there is necessity of an integral connection between the first sale,
following the import and the actual imported itself and that the same was
overlooked by the learned Tribunal. It was also argued that the
movement of goods from a foreign country must be pursuant to
contractual conditions between the vendor and the customer. In this
regard, reliance was placed on K.G. Khosla and Co. v. Deputy
22
(2017) 97 VST 417
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
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23
Commissioner of Commercial Taxes and Deputy Commissioner of
Agricultural Income Tax and Sales Tax, Ernakulum v. Indian
24
Explosives Ltd. .
19. Mr. Singh further submitted that the contract mandated the
Petitioner to install and commission specific BOQ items which are
distinct from spare parts procured, such as LV and HV panels. It was
reiterated that the purchase of HV and LV panels constituted independent
transactions, which were completely different from the sale of the
commissioned BOQ items and that it was the Petitioner’s obligation to
deliver fully installed and commissioned BOQ items and not just supply
the spare parts separately, that is to say, the sectioning and sub-sectioning
posts constituted a distinct commercial commodity. According to Mr.
Singh, M/s Areva (India) independently imported, and purchased the
panels, which were not imported by the Petitioner directly or through M/s
Areva (India) acting as agent of the Petitioner. It was after such import
by M/s Areva (India) that these panels were sold to the Petitioner and
then transported to the erection sites from Allahabad and Kolkata to
Delhi. It was argued that there was complete lack of privity of contract
between the Respondent and M/s Areva (India) and the Respondent with
the exporter. It was also contended that the use of imported panels
purchased from Kolkata for installation did not establish any inextricable
link between the Petitioner’s sale and M/s Areva (India)’s import. Mr.
Singh further submitted that the learned Tribunal overlooked that absence
23
(1966) 3 SCR 352
24
(1985) 4 SCC 119
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TRIPATHI
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of privity of contract between a foreign seller and an Indian customer in
cases involving two separate sale transactions does not amount to sale in
25
course of import, as also affirmed in Binani Brothers v. UOI . Reliance
26
was also placed on K. Gopinathan Nair & Ors. v. State of Kerala and
27
Coffee Board v. Joint Commercial Tax Officer .
20. Learned Senior Counsel urged that introduction of a third party
dealing independently with the seller and importer severs the link
between them. Mr. Singh relied on Giesccke & Debrient I. P. Ltd. v.
28
Commr., S. T. in this regard.
21. Mr. Singh further laid emphasis on the aspect that DMRC itself
reimbursed the Petitioner for DVAT paid by it on BOQ items on
15.01.2010 and deducted TDS on the Petitioner’s DVAT invoices as per
Section 36A of the DVAT Act. This, it was argued, demonstrated
acknowledgment by DMRC that the sale of BOQ items was a local sale
and that the Respondent’s act of recovering reimbursement from running
bill on 03.03.2011 was an afterthought. It was argued that the learned
Tribunal erroneously considered this afterthought to be a bona fide
mistake. It was further argued that it was in furtherance of such conduct
of the Respondent that the Petitioner continued to pay DVAT on the local
sale of BOQ items, therefore according to Mr. Singh, the Respondent
was estopped from refusing to reimburse the Petitioner.
25
(1974) 1 SCC 459
26
(1997) 10 SCC 1
27
(1970) 25 STC 528 (SC)
28
(2012) 47 VST 343
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TRIPATHI
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22. Mr. Singh submitted that the reliance placed on ABB Ltd. v.
29
Commissioner Delhi Value Added Tax by the Respondent before the
learned Tribunal was erroneous because: (i) in that case, the contractor
directly imported the goods for supply to the Respondent but in the
present case, the Petitioner did not directly import the goods, instead the
items were bought from M/s Areva (India), who imported the same
independently; (ii) in that matter, the goods therein were manufactured
outside Delhi and sold directly to DMRC after interstate movement but in
this case, the Petitioner integrated the equipment supplied by M/s Areva
(India); (iii) the goods supplied to DMRC were identical to the ones
procured domestically and internationally; however, in the present case,
the HV and LV panels procured from M/s Areva (India) differ from the
sectioning and sub-sectioning posts sold to the Respondent.
23. Per contra, Mr. Tarun Johri, learned Counsel for the Respondent
submitted at the outset that the allegation of the Petitioner that the
learned Tribunal did not have jurisdiction to render an award relating to
DVAT stands belied in view of the fact that it was Petitioner who
invoked arbitration in the first place and did not move any application
under Section 16 of the Act in this regard, hence, the Petitioner is now
precluded from raising this objection. Reliance was placed on Narayan
30
Prasad Lohia v. Nikunj Kumar Lohia and S.N. Malhotra v. Airport
31
Authority of India .
29
(2012) 55 VST 1
30
(2002) 3 SCC 572
31
2008 SCC OnLine Del 442
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TRIPATHI
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24. Mr. Johri submitted that once the aforesaid objection stands
rejected, the only other ground taken by the Petitioner is with respect to
interpretation of the Contract. However, it was submitted that a court
under Section 34 is not a court of appeal and can only intervene if the
interpretation of the Arbitral Tribunal is not plausible. Reliance was
32
placed on ONGC v. Saw Pipes Ltd. and State Trading Corpn. of India
33
Ltd. v. Toepfer International Asia (P) Ltd.
25. Mr. Johri vehemently maintained that the impugned award did not
warrant any interreference by this Court. It was submitted that the
Respondent was not legally obligated to reimburse the Petitioner for all
transactions, and that as per Clause 24(c)(ii) of the SCC, the Respondent
was only liable to pay DVAT if it were applicable on a transaction. It was
therefore submitted that the transactions in question did not attract
DVAT. According to Mr. Johri, in light of Section 7 of the DVAT Act, if
there is import of goods, DVAT is not applicable. It was submitted that
there was a direct link between the import by M/s Areva (India) and sale
by Petitioner to Respondent since the goods were custom-made for the
Respondent; hence, if the underlying contract with the Respondent was
not in existence, then the Petitioner could not have imported those
specific goods.
26. With respect to the Petitioner’s contention that the procured HV
and LV panels were not the same as the sectioning and sub-sectioning
posts envisaged by the contract, it was submitted that these contents were
32
(2003) 5 SCC 705
33
2014 SCC OnLine Del 3426
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TRIPATHI
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considered by the learned Tribunal as well comprising of people from the
engineering background and therefore, their findings do not warrant
interference at the Section 34 stage. It was also submitted that in such
case, the Petitioner ought to have invoiced the sectioning and sub-
sectioning posts after value addition and not the individual BOQ items.
Placing reliance on ABB Ltd. (supra) , it was submitted that the items
were custom-made for the Respondent and approved by it and therefore,
the import and inter-State trade were necessarily linked to the Contract.
27. It was further argued that sub-sectioning formed part of the GIS
34
substation and comprised of both off-the-shelf goods and custom
component, which raises the issue of double taxation. Thus, it was
submitted that no interference is warranted by this Court in the limited
jurisdiction it exercises under Section 34 of the Act.
28. In rebuttal, Mr. Singh submitted that the invoices included the cost
for the “work done”, that is modification of the procured items into what
was finally sold to the Respondent and labour charges for installation etc.
and that these invoices also depicted a break-up of the items as per BOQ.
It was submitted that these items were integrated for the purpose of
sectioning and sub-sectioning.
29. With respect to the submission that the goods were imported
specifically for the Respondent and that they were custom-made, Mr.
Singh submitted that the goods were merely approved by the Respondent
34
Gas-Insulated Switchgear substation
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TRIPATHI
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and were part of the input. It was submitted that this input was integrated
and assembled into an output for the Respondent. It was urged that the
invoices contained the break-up of input items in terms of the BOQ in the
Contract. It was further averred that as per tax jurisprudence, if at the
end, a distinct product comes into existence, then it is a distant product
for levy of tax and in the present case, a new product emerges.
30. The main thrust of the argument of the learned Senior Counsel was
that ABB Ltd. (supra) is distinguishable as it did not pertain to a works
contract and the products were supplied as it is without any value
addition. It was emphasised that the Petitioner added value by substantial
integration and incorporated the procured items into sectioning and sub-
sectioning posts, thereby creating commercially distinct products. It was
also submitted that the invoices, merely stipulated the breakup of the
constituent items in terms of the BOQ.
ANALYSIS AND REASONING
31. I have heard the learned Counsel appearing for the parties and
perused the material on record.
32. I shall refrain from burdening this judgment by delineating the
well settled scope of Section 34 of the Act. There lies no quarrel with the
position of law on this aspect.
33. The short issue for consideration of this Court is whether DMRC is
liable to reimburse the Petitioner for the DVAT paid by it in terms of
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TRIPATHI
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Clause 24(c)(ii) of the Contract. Thus, the anterior question is whether
DVAT was applicable or not in the first place.
34. In the present case, DMRC awarded a works contract to the
Petitioner for designing, supplying, installing, testing and commissioning
a ROCS system for certain metro stations. For execution of the Contract,
the Petitioner procured certain items from other States and one of its
suppliers, in turn, procured the items from Germany. The learned
Tribunal accepted DMRC’s arguments that the transactions in question
constituted inter-State trade and import respectively, therefore, DVAT
was not applicable.
35. At the outset, Article 366(29A)(b) of the Constitution of India, as
th
it stood prior to the Constitution (105 ) Amendment Act, 2021,
stipulated the following:
“366. Definitions.—In this Constitution, unless the context otherwise
requires, the following expressions have the meanings hereby
respectively assigned to them, that is to say—
*
(29-A) “tax on the sale or purchase of goods” includes—
*
(b) a tax on the transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works contract ;…”
(emphasis supplied)
36. Article 366(29A)(b) brings indivisible goods involved in works
contract within the ambit of taxation by the State by treating it as a
deemed sale. An inquiry to this effect i.e., whether transfer of property in
goods has occurred, is a fact-intensive endeavour and largely dependent
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on the terms of the contract itself. The first step is to discern the taxable
35
event, which in a works contract is when the deemed sale occurs.
37. Simply put, a “works contract” is one whereby a party undertakes
to execute works such as construction, manufacture, installation etc.
Section 2(zo) of the DVAT Act defines a “works contract” as follows:
“(zo) “works contract” includes any agreement for carrying out for
cash or for deferred payment or for valuable consideration, the
building construction, manufacture, processing, fabrication, erection,
installation, fitting out, improvement, repair or commissioning of any
moveable or immovable property;”
36
38. Section 2(ja) of the Central Sales Tax Act, 1956 also defines
“works contract” in the following manner:
“(ja) “works contract” means a contract for carrying out any work
which includes assembling, construction, building, altering,
manufacturing, processing, fabricating, erection, installation, fitting
out, improvement, repair or commissioning of any movable or
immovable property;”
39. For the purposes of the present case, it is also relevant to note that
37
Section 7 of the DVAT Act exempts sale in the course of import of
35
Aristo Printers (P) Ltd. v. CTT, (2025) 147 GSTR 182; Larsen & Toubro Ltd. v. State of Karnataka, (2014) 1
SCC 708
36
“CST Act” hereinafter
37
“ 7. Certain sales not liable to tax
Rule: Nil Form: Nil
Nothing contained in this Act or the rules made thereunder shall be deemed to impose or authorise the imposition
of tax on any sale of goods when such sale takes place—
( a ) in the course of inter-state trade or commerce; or
( b ) outside Delhi; or
( c ) in the course of import of the goods into or export of the goods out of, the territory of India.
Explanation . - Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 (74 of 1956) shall apply for determining
whether or not a particular sale takes place in the manner indicated in clause (a), clause (b) or clause (c) of this
section.”
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goods into the territory of India and in the course of inter-State trade or
commerce.
40. Section 3 of CST Act defines “inter-State trade or commerce” as
follows:
“3. When is a sale or purchase of goods said to take place in the
course of inter-State trade or commerce.— A sale or purchase of
goods shall be deemed to take place in the course of inter-State trade
or commerce if the sale or purchase—
(a) occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods during
their movement from one State to another…”
(emphasis supplied)
41. Further, Section 5 of CST stipulates what constitutes as sale in the
course of import or export, as follows:
“5. When is a sale or purchase of goods said to take place in the
course of import or export.—(1) A sale or purchase of goods shall be
deemed to take place in the course of the export of the goods out of the
territory of India only if the sale or purchase either occasions such
export or is effected by a transfer of documents of title to the goods
after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the
course of the import of the goods into the territory of India only if
the sale or purchase either occasions such import or is effected by a
transfer of documents of title to the goods before the goods have
crossed the customs frontiers of India.
(3) Notwithstanding anything contained in sub-section (1), the last
sale or purchase of any goods preceding the sale or purchase
occasioning the export of those goods out of the territory of India shall
also be deemed to be in the course of such export, if such last sale or
purchase took place after, and was for the purpose of complying with,
the agreement or order for or in relation to such export.
(4) The provisions of sub-section (3) shall not apply to any sale or
purchase of goods unless the dealer selling the goods furnishes to the
prescribed authority in the prescribed manner a declaration duly filled
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and signed by the exported to whom the goods are sold in a prescribed
form obtained from the prescribed authority.
(5) Notwithstanding anything contained in sub-section (1), if any
designated Indian carrier purchases Aviation Turbine Fuel for the
purposes of its international flight, such purchase shall be deemed to
take place in the course of the export of goods out of the territory of
India.
Explanation.—For the purposes of this sub-section, “designated
Indian carrier” means any carrier which the Central Government
may, by notification in the Official Gazette, specify in this behalf.”
(emphasis supplied)
38
42. In Aristo Printers (P) Ltd. v. CTT , the Supreme Court observed
that transfer of property occurred when goods were incorporated in the
works. It was clarified that these items need not exist in the final product
and that Article 366(29A)(b) of our Constitution “does not mandate that
the works contract must yield a physical end-product or that the transfer
must be tangible”. The relevant excerpt is reproduced as thus:
“61. In Gannon Dunkerley and Co. v. State of Rajasthan [(1993) 88
STC 204 (SC); (1993) 1 SCC 364; 1992 SCC OnLine SC 524.] , this
court clarified that the transfer of property in such goods takes place
when the goods are incorporated in the works. The court's use of the
word “incorporated” should not be mechanically interpreted to mean
that a transfer of property occurs only when a physical or tangible
goods is passed on when executing a works contract. Rather,
“incorporation” is to be understood contextually, defined by the
specific nature of “the works” contracted for.
*
63. This court in Xerox Modicorp Ltd. v. State of Karnataka [(2005)
142 STC 209 (SC); (2005) 7 SCC 380; 2005 SCC OnLine SC 1225.]
and the Kerala High Court in Enviro Chemicals v. State of
Kerala [(2011) 39 VST 434 (Ker) [FB]; 2011 SCC OnLine Ker 3685.]
correctly identified the taxable event as the precise moment the
contractor's goods are incorporated into the “works”, i.e., when the
toner is fitted into the machine or the chemical is introduced into the
effluent water. The subsequent consumption of these items is
irrelevant, as it does not negate the transfer of property that has
38
(2025) 147 GSTR 182
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already occurred. The cardinal principle, which must serve as the
guiding light for any court or Tribunal adjudicating such disputes, is
that the analysis must be anchored to a singular question : has
transfer of property in goods involved in the execution of the works
contract occurred ?
64. In Enviro Chemicals v. State of Kerala [(2011) 39 VST 434 (Ker)
[FB]; 2011 SCC OnLine Ker 3685.] , the Kerala High Court
correctly noted that the items need not exist in any form in the
resultant product. To insist that a transfer of property is contingent
upon the good's tangible presence in a final product is to impose a
condition that article 366(29A)(b) does not contemplate and, in fact, is
textually contradictory. The statutory framework only requires that
the goods be “involved in the execution of the works contract”. It
does not mandate that the works contract must yield a physical end-
product or that the transfer must be tangible. To impose such a
limitation would not only lead to a gross misapplication of the law but
would also defeat the legislative intent of the Forty-sixth Amendment
and the dictum of this court in various rulings. This court allowed a
broad interpretation of the term “works contract” in order to enable
the taxing transfer of property in goods in all genres of works
contract.
65. Many works contracts , particularly those for services and
transformations, do not result in a new end-product or a tangible
transfer of property . For example, a works contract for providing pest
control or cleaning service (as was the case in Pest Control India
Ltd. v. Union of India [(1989) 75 STC 188 (Patna); 1989 SCC OnLine
Pat 288.] and Dynamic Industrial and Cleaning Services P.
Ltd. v. State of Kerala [(1995) 97 STC 564 (Ker); 1994 SCC OnLine
Ker 379.] , respectively) would not lead to the creation of a new end-
product or a very tangible transfer of property in goods. However,
the chemicals used are indeed being transferred, as without such
transfer of goods, it would be impossible to make an area clean or
pest-free. Similarly, in Deputy Commissioner of Sales Tax
(Law), Board of Revenue (Taxes) v. M.K. Velu [(1993) 89 STC 40
(Ker); 1993 SCC OnLine Ker 577.] and Microtrol Sterilization
Services P. Ltd. v. State of Kerala [(2009) 26 VST 213 (Ker); 2009
SCC OnLine Ker 1480.] , the works contract therein could not have
been executed successfully without the transfer of property in the
fireworks and ethylene oxide, respectively. The chemicals, fireworks,
and ethylene oxide are the primary goods facilitating the works under
the respective contracts. It is in this context that they may said to be
incorporated in the “works” of the respective contracts. Consequently,
it is undeniable that the property in such goods is being transferred
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when the respective works contract are executed. These goods differ
from consumables such as water and electricity, which merely aid in
executing works contract and the property in them is not transferred
before they are consumed.”
(emphasis supplied)
43. Further, three Judges of the Supreme Court in Larsen & Toubro
39
Ltd. v. State of Karnataka succinctly provided a three-fold test to
determine if tax was leviable in a works contract, as follows:
“97.1. For sustaining the levy of tax on the goods deemed to have
been sold in execution of a works contract, three conditions must be
fulfilled: (i) there must be a works contract, (ii) the goods should have
been involved in the execution of a works contract, and (iii) the
property in those goods must be transferred to a third party either as
goods or in some other form.”
44. A Division Bench of this Court in ABB Ltd. (supra) dealt with the
applicability of DVAT with respect to a contract for supply, installation,
testing and commissioning of traction electrification, power supply and
power distribution for operation of certain metro trains. The bid
document, in that case prescribed, inter alia, the items, their quantities
and specifications, delineating the sources along with the name of the
manufacturers for procuring these items, and detailed terms and
conditions for approval of subcontractors/suppliers. To ascertain whether
there was an inter-State sale or if the sale was in course of import, the
learned Bench examined the link between the sale and the movement of
goods, i.e., how integrally was the sale connected with the contract itself.
It found that since the contract envisaged where the items would be
39
(2014) 1 SCC 708
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procured from (which the contract stipulated to be outside of Delhi),
undoubtedly the movement of the goods was linked to the contract. It
was observed that even if the movement of goods was incidental to the
contract, it would amount to an inter-State trade. It was also observed
that since the goods were custom-made, they were procured specifically
for the contract and not independently by the contractor. I deem it
apposite to reproduce the relevant excerpt hereinbelow:
“26. In Tata Iron and Steel Co. Ltd. v. S. R. Sarkar [1960] 11 STC 655
(SC), the Supreme Court held that where the goods are moved from
one State to another as a result of a covenant in the contract of sale,
that would be clearly a sale in the course of inter-State trade. The
court further proceeded to hold that even a movement of goods from
one State to another, which is merely incidental to, and which is not
part of the contract of sale, is also brought within the fold of section
3(a) of the Central Act .
27. In Oil India Ltd. v. Superintendent of Taxes [1975] 35 STC 445
(SC), the Supreme Court held that :
"No matter in which State the property in the goods passes, a
sale which occasions 'movement of goods from one State to
another is a sale in the course of inter-State trade'. The inter-
State movement must be the result of a covenant, express or
implied, in the contract of sale or an incident of the contract.
It is not necessary that the sale must precede the inter-State
movement in order that the sale may be deemed to have
occasioned such movement. It is also not necessary for a sale
to be deemed to have taken place in the course of inter- State
trade or commerce, that the covenant regarding inter-State
movement must be specified in the contract itself. It would be
enough if the movement was in pursuance of and incidental to
the contract of sale."
28. In English Electric Company of India Ltd. v. Deputy Commercial
Tax Officer [1976] 38 STC 475 (SC), the court again held that (pages
479 and 480 in 38 STC) :
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"When a branch of a company forwards a buyer's order to
the principal factory of the company and instructs them to
dispatch the goods direct to the buyer and the goods are sent
to the buyer under those instructions it would not be a sale
between the factory and its branch . If there is a conceivable
link between the movement of the goods and the buyer's
contract, and if in the course of inter-State movement the
goods move only to reach the buyer in satisfaction of his
contract of purchase and such a nexus is otherwise
inexplicable, then the sale or purchase of the specific or
ascertained goods ought to be deemed to have taken place in
the course of inter-State trade or commerce as such a sale
or purchase occasioned the movement of the goods from
one State to another . The presence of an intermediary such
as the seller's own representative or branch office, who
initiated the contract may not make the matter different.
Such an interception by a known person on behalf of the
seller in the delivery state and such person's activities prior
to or after the implementation of the contract may not alter
the position."
29. Yet again, in South India Viscose Ltd. v. State of Tamil Nadu
[1981] 48STC 232 (SC), the Supreme Court held that if there is a
"conceivable link" between a contract of sale and the movement of
goods from one State to another in order to discharge the obligation
under the contract of sale, it must be held to be an inter-State sale
and that character will not be changed on account of an
interposition of an agent of the seller who may temporarily intercept
the movement .
30. In the present case, there can be no manner of doubt that there
was a live and conceivable link between the sale and movement of
goods ; DMRC was aware that the goods were to be sourced from the
appellant's factories, which were outside Delhi. The reference to
specific locations, in the list issued by DMRC, in respect of
particular equipments, which were integral to the contract,
establishes that the movement of those goods was clearly in the
contemplation of the parties. Moreover, as noticed earlier, the goods
were custom made . The only conclusion that could reasonably have
been drawn was that the character of the transaction was that of
inter- State sale, necessitating movement . Specific instructions, or
allusions in the contract, or lack of such facts, can hardly be decisive ;
the intention of the contract, as gleaned from the document compels
the court to draw the conclusion that inter-State sales were involved
in the present case, as to attract section 3 of the Central Sales tax
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Act . In the opinion of this court, the Tribunal fell into error in
assuming that to attract section 3(a) of the Act, the agreement has to
expressly stipulate for inter-State movement of goods, and the fact that
in performance of the contract, the appellant would have to move the
goods from other States to Delhi would not suffice. In this context, in
Oil India Ltd. [1975] 35 STC 445 (SC) where it was very pertinently
held that "It is also not necessary for a sale to be deemed to have
taken place in the course of inter-State trade or commerce, that the
covenant regarding inter-State movement must be specified in the
contract itself. It would be enough if the movement was in pursuance
of and incidental to the contract of sale" .
31. … Question No. 2 : Sale in the course of import
32. … In terms of section 5(2), a sale or purchase of goods shall be
deemed to take place in the course of the import of the goods into the
territory of India if the sale or purchase either occasions such import
or is effected by a transfer of documents of title to the goods before the
goods have crossed the customs frontiers of India.
33. In K. G. Khosla and Co. [1966] 17 STC 473 (SC) ; AIR 1966 SC
1216 a Constitution Bench of the Supreme Court had to consider
whether sales in that case were in the course of import. The assessee
therein had entered into a contract with the Director General of
Supplies, New Delhi, for supply of axle bodies manufactured by its
principals in Belgium. The goods were inspected on behalf of the
buyers in Belgium but under the contract they were liable to rejection
after further inspection in India. In pursuance of the contract the
appellant supplied axle bodies to the Southern Railway at Perambur
and Mysore. The assessee contended that the sales by them to the
Director General of Supplies were in the course of import. The
contention was rejected by the assessing authority, holding that these
were intra-State sales because the seller was the consignee of the
goods and the buyer had reserved the right to reject the goods even
after their arrival in India. The assessee's appeal to first appellate
authority was rejected. Its appeal to the Tribunal was partly allowed.
The High Court rejected the assessee's revision application. The
Constitution Bench of the Supreme Court held that section 5(2) of
the Central Sales tax Act does not prescribe any condition that
before a sale could be said to have occasioned import, it is necessary
that the sale should have preceded the import and that it was
apparent that it was incidental to the contract in that case ;
furthermore that the axle-box bodies would be manufactured in
Belgium, inspected there, and imported into India for the consignee .
Movement of goods from Belgium to India was in pursuance of the
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conditions of the contract between the assessee for any other
purpose. Consequently, the sales took place in the course of import of
goods within section 5(2). The entire transaction was an integrated
one by which a foreign seller through its Indian agent, namely, the
assessee sold the goods to Indian purchaser, namely, the Director
General of Civil Supplies through the agency of its local agent,
namely, the assessee and, therefore, the transaction was treated by the
Constitution Bench as representing sale in the course of import. The
court held as follows (pages 484 and 489 in 17 STC) :
".. . appellant K. G. Khosla & Co., hereinafter referred to as
the assessee entered into a contract with the Director-
General of Supplies and Disposal, New Delhi, for the supply
of axle-box bodies. According to the contract the goods were
to be manufactured in Belgium, and the D. G. I. S. D.,
London, or his representative, was to inspect the goods at the
works of the manufacturers. He was to issue an inspection
certificate. Another inspection by the Deputy Director of
Inspections, Ministry of W. H. & S., Madras, was provided
for in the contract. It was his duty to issue inspection notes on
Form No. WSB. 65 on receipt of a copy of the inspection
certificate from the D. G. I. S. D. London and after
verification and visual inspection. The goods were to be
manufactured according to specifications by M/s. La
Brugeoies. ET. Nivelles, Belgium.
.. .
The next question that arises is whether the movement of
axle-box bodies from Belgium into Madras was the result of a
covenant in the contract of sale or an incident of such
contract. It seems to us that it is
quite clear from the contract that it was incidental to the
contract that the axle-box bodies would be manufactured in
Belgium, inspected there and imported into India for the
consignee. A movement of goods from Belgium to India was
in pursuance of the conditions of the contract between the
assessee and the Director-General of Supplies. There was no
possibility of these goods being diverted by the assessee for
any other purpose. Consequently we hold that the sales took
place in the course of import of goods within section 5(2) of
the Act, and are, therefore, exempt from taxation."
*
35. Recently, in Indure Ltd. v. Commercial Tax Officer [2010] 34 VST
509 (SC) ; (2010) 9 SCC 461, wherein the dealer had procured the
goods as a part of the contract to supply, erect and commission them
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as part of a larger project , the Supreme Court held that (pages 523
and 524 in 34 VST) :
".. . we are of the considered opinion that it has not been the
respondents' case that the MS pipes imported by the company
were not used for the erection and commissioning of the plant
for N. T. P. C. Thus, from the facts of Binani Bros. [1974] 33
STC 254 (SC) ; (1974) 1 SCC 459, it is clearly spelt out that
the facts of the case in hand are different. Thus, the ratio of
the said case would not be applicable to it.
42. In fact, the ground, sought to be raised for the first time
before this court that MS pipes were put to manufacturing
process and thereby converted into a distinct end-product
had not been raised before any of the authorities earlier. It
was not the respondent's case that pipes so imported were not
necessary components for the erection and commissioning of
the plant. Admittedly, the said pipes were used as
components in the ash handling plant in the same condition
as they were imported without altering their originality .
Thus, the ground which was sought to be raised before us for
the first time has not been considered by any of the
authorities and in our opinion rightly so. Thus, we also do
not deem it fit and proper to consider the same at this belated
stage.
43. Apart from the aforesaid reasons, we are also of the
considered opinion that such import would fall within the
Constitutional umbrella. It is also to be noted that company
had admittedly imported the goods into India for completion
of the project on turnkey basis of N. T. P. C. Thus, by virtue
of article 286(1)(b) of the Constitution, they would not be
taxable. For ready reference, article 286(1)(b) of the
Constitution is reproduced hereinbelow :
'286. Restrictions as to imposition of tax on the sale or
purchase of goods.—(1) No law of a State shall impose, or
authorise the imposition of, a tax on the sale or purchase of
goods where such sale or purchase takes place—
(a) outside the State ; or
(b) in the course of the import of the goods into, or export of
the goods out of, the territory of India.
See Minerals and Metals Trading Corporation of India Ltd.
v. Sales Tax Officer [1998] 111 STC 434 (SC) ; (1998) 7 SCC
19.
44. In the facts and circumstances of the case we are of the
opinion that the order passed by Division Bench of the High
Court as also the orders passed by Tribunal and other
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authorities cannot be sustained in law. The same are hereby
set aside and quashed. The appellant is held entitled to claim
the benefit of section 5(2) of the Act."”
(emphasis supplied)
45. After delineating the foregoing position in law, the learned Bench
succinctly articulated the relevant factors for consideration, as follows:
“36. The common thread of reasoning which runs through all the
decisions is that to determine whether the sale was in the course of
import, the court has to see whether the movement of goods through
was integrally connected with the contract for their supply . Questions
such as passing of title, or whether the end user has a privity of
contract with the supplier, or where the consideration flows from, are
not determinative or decisive of the issue. Section 5 does not prescribe
any condition that before a sale could be said to have occasioned
import, it is necessary that the sale should have preceded the impor t.
37. In the present case, the various conditions in the contract and
other related covenants between DMRC and the appellant amply bear
out that :
(1) Specifications were spelt out by DMRC ;
(2) Suppliers of the goods were approved by the DMRC ;
(3) Pre-inspection of goods was mandated ;
(4) The goods were custom made, for use by DMRC in its project ;
(5) Excise duty and customs duty exemptions were given, specifically
to the goods, because of a perceived public interest, and its need by
DMRC ;
(6) In the project authority certificate issued by DMRC the name of
the sub-contractors as well as the equipment/goods to be supplied by
them were expressly stipulated ;
(7) DMRC issued a certificate certifying its approval of foreign
suppliers located in Italy, Germany, Korea, etc., from whom the
goods were to be procured.
(8) Packed goods were especially marked as meant for DMRC's use
in its project.”
(emphasis supplied)
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46. The aforementioned decision in ABB Ltd. (supra) came to be
40
affirmed by the Supreme Court in CVAT v. ABB Ltd. . The Supreme
Court observed that DMRC executed a contract which required the
contractor to provide certain stipulated items and complete electrical
solution including control room for operation of metro trains of a
particular section. It was further observed that movement of goods by
way of import or inter-State trade was either envisaged and/or incidental
to the contract. It was held that the goods were of specific quality and
description as prescribed by the contract, and accordingly, there was no
possibility of those goods being diverted by the contractor for any other
purpose. Accordingly, the transactions in question constituted either
sale/purchase in course of import or inter-State trade and hence,
exempted from the ambit of the DVAT Act. The Court observed and held
as follows:
“9. So far as the issue in respect of sale in the course of inter-State
trade is concerned, the Tribunal rejected the claim on the ground that
there was no specific order for supply of such goods issued by DMRC
nor was there specific instruction for inter-State movement of goods.
The High Court found that in fact the terms of the contract envisaged
inter-State movement of goods. Such movement of goods was within
the knowledge of DMRC because there was total ban on setting
up/working of heavy industries in Delhi and DMRC had approved 18
places within the country from where the equipments and goods had to
be supplied. These included the premises and factories of the
respondent also.
10. On facts, therefore, it was rightly held by the High Court that the
inter-State movement of goods was within the contemplation of the
parties and it can be reasonably presumed that such movement was to
fulfil the terms of the contract and therefore the transaction was
covered by Section 3(a) of the CST Act. The law on this issue was also
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considered by the High Court in correct perspective after noticing the
case of Tisco Ltd.v. S.R. Sarkar [Tisco Ltd. v. S.R. Sarkar, AIR 1961
SC 65 : (1960) 11 STC 655] that where the goods moved from one
State to another as a result of a covenant in the contract of sale it
would be clearly a sale in the course of inter-State trade. The
conclusion of the High Court on this issue also finds ample support
from the following case laws which were noticed by the High Court in
(1) Oil India Ltd. v. Supt. of Taxes [Oil India Ltd. v. Supt. of Taxes,
(1975) 1 SCC 733 : 1975 SCC (Tax) 167 : (1975) 35 STC 445] ,
(2) English Electric Co. of India Ltd. v. CTO[English Electric Co. of
India Ltd. v. CTO, (1976) 4 SCC 460 : 1977 SCC (Tax) 23 : (1976) 38
STC 475] and (3) South India Viscose Ltd. v. State of T.N. [South
India Viscose Ltd. v. State of T.N., (1981) 3 SCC 457 : 1981 SCC
(Tax) 245 : (1981) 48 STC 232] :
10.1. In Oil India Ltd. [Oil India Ltd. v. Supt. of Taxes, (1975) 1 SCC
733 : 1975 SCC (Tax) 167 : (1975) 35 STC 445] this Court held that
(SCC p. 737, para 9) the inter-State movement must be the result of a
covenant, express or implied in the contract of sale or an incident of
the contract. In other words, the covenant regarding inter-State
movement need not be specified in the contract, it would be enough if
the movement was in pursuance of or incidental to the contract of sale.
10.2. In English Electric Co. of India Ltd. [English Electric Co. of
India Ltd. v. CTO, (1976) 4 SCC 460 : 1977 SCC (Tax) 23 : (1976) 38
STC 475] the law was clarified thus : (SCC p. 464, para 16)
“16. … If there is a conceivable link between the movement
of the goods and the buyer's contract, and if in the course of
inter-State movement the goods move only to reach the buyer
in satisfaction of his contract of purchase and such a nexus is
otherwise inexplicable, then the sale or purchase of the
specific/ascertained goods ought to be deemed to have taken
place in the course of inter-State trade or commerce….”
10.3. In South India Viscose Ltd. [South India Viscose Ltd. v. State of
T.N., (1981) 3 SCC 457 : 1981 SCC (Tax) 245 : (1981) 48 STC 232] it
was held that (SCC p. 462, para 8) if there is a “conceivable link”
between contract of sale and the movement of goods from one State to
another to meet the obligation under a contract of sale it would
amount to an inter-State sale and such character will not be changed
on account of interposition of an agent of the seller who may
temporarily intercept the movement.”
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47. In the case at hand, the Petitioner, at the outset contended that the
learned Tribunal could not have adjudicated upon the applicability of
DVAT since it is a sovereign function. In this regard, the decision of the
Division Bench of the High Court of Allahabad in U.P. Public Works
41
Deptt. v. Vriddhi Infratech India (P) Ltd. is much relevant. The Court
was seized with the question as to whether an arbitrator could decide a
dispute pertaining to taxation and held as follows:
“40. In this regard, a court while formally considering as to whether a
dispute is arbitrable or non-arbitrable must follow the following
postulates which have been culled out from judicial pronouncements
of the Supreme Court and has gained universal acceptance.
(i) Whether the action giving rise to the disputes lies in the realm of
acts in rem. Any act which leads to a dispute which requires
adjudication and the effect of such judgment or adjudication is that it
determines a status of the party or things, which is distinct from a
particular interest in it of a party to a litigation and such
adjudication/judgment is conclusive evidence for and against all
persons whether parties or strangers to the matter actually decided,
such judgments operate in rem and such kind of disputes are generally
not arbitrable. [see Vidya Darolia (supra)];
(ii) Legal action against sovereign function of the State is also non
arbitrable as it is the State which has the exclusive domain, right and
duty to perform such functions. Any decision and adjudication of and
by the State which has a public interest element involved including
such rights relating to legitimacy of marriage, citizenship, winding up
of the companies, are considered to be non arbitrable. The only
exception is where a statute in relation to a regulatory or adjudicatory
mechanism either expressly or by clear implication permits
arbitration;
(iii) All such matters wherein the cause of action and subject matter of
dispute affects third party rights which may have an all pervading
effect and requires centralized adjudication in contradistinction to
cases where mutual adjudication would not be proper and
enforceable, are also non-arbitrable;
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(iv) Where the subject matter of the dispute is expressly or by
implication made non arbitrable as per statute.
41. Now to answer specifically, the issue, whether a dispute relating
to taxation is arbitrable or not, can be considered under two distinct
heads:
(A) Disputes relating to tax which can be resolved within the
contract can be resolved through arbitration and
(B) Disputes which requires statutory determination through tax
laws and such disputes cannot be resolved through arbitration.
41.1 Head-A: Such disputes are covered under Head A, which arise
from an agreement over which the arbitrator has the jurisdiction to
interpret the terms of the contract to settle private obligations such
as:
(i) Any such matter arising out of the contract which requires,
deciding inter se tax liability that is to say which party is
contractually liable and obligated to pay or deposit the tax;
(ii) Any such disputes which require adjudication within the
contract relating to which party is obligated to receive
reimbursement of tax paid;
(iii) Contractual issues relating to tax sharing or indemnity
clause or determination of the fact as to which party to the
contract is obligated to indemnify the other in respect of
statutory taxes and penalties;
(iv) Any interpretation of any clause contained in the contract
including or to give meaning to any phrase in the contract
including words and phrases such as “inclusive of all taxes”
and whether the use of such words would include a newly
introduced tax or any other change or statutory modification of
any taxing regime or if such tax may impact and constitute an
‘extra cost’, under the contract.
41.2. Head B:- All such matters would fall under Head B, which
relates to tax and which cannot bind a third party, are generally not
arbitrable such as:
(i) In matters relating to tax between the contracting parties, if
any such issue or adjudication is made by an arbitrator which
may have the impact of encroaching upon the exclusive domain of
a taxing authority then it cannot be decided by an arbitrator;
(ii) Similarly, any issue arising between the contracting parties
relating to the determination as to whether any particular
transaction is legally taxable or has the impact of challenging a
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statutory tax arrangement issued by a taxing authority, cannot be
made the subject matter of arbitration;
(iii) Issue which may involve determination of any classification
or entry as specified by a taxing statute, which may be applicable
in between the contracting parties;
(iv) Issue relating to determination of rate of taxation, which may
be in dispute between the contracting parties including as to
whether any of the contracting parties is eligible for any statutory
exemption from tax or any tax concession;
(v) Disputes between any contracting party and the State
Authority relating to tax also cannot be decided by the arbitrator.
41.3. In other words, what is required to be truly seen is not what the
parties agreed but what the law mandates. A question of statutory
interpretation and fiscal categorization which may lie in the exclusive
domain of the taxing authority including in its appellate hierarchy,
including Tribunal constituted under the taxing statute, such disputes
would necessarily require the arbitrator to render a finding on the
applicable tax rate, classification of goods or entries in the taxing
statute, these are all issues which are in the hands of the taxing
authorities and not the arbitrator.
41.4. The arbitrator is a creature of contract and its jurisdiction to
decide the dispute may be co-extensive with the contract but if it
requires any determination relating to tax rates or classification of
goods under any particular entry of the taxing statute or the quantum
of any tax liability or the adjudication requires referencing to any
Executive Tax Notification and Statutory Tax Rates Schedules, then
such disputes even though arising out of a contract ceases to be
contractual in nature and it metamorphosis into a fiscal regulatory
issue. Such issues are governed by the taxing statute which are a
complete code in themselves and cannot be subjected to determination
by a private forum such as an Arbitral Tribunal.”
(emphasis supplied)
48. Thus, the Court carved out two distinct heads, whereby one is
concerned with disputes pertaining to tax which can be resolved within
the contract. These disputes require the arbitrator to interpret the terms of
the contract and do not have any effect on third parties. They include
situations wherein a party may be obligated to receive reimbursement of
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tax, or questions as to inter se tax liability of the parties involved, etc.
The second category pertains to tax issues which are generally not
arbitrable such as determination of the rate of tax, determination as to
whether a particular transaction is legally taxable, or any adjudication by
an arbitrator, which may have the effect of encroaching upon the
exclusive domain of a taxing authority. In the abovementioned case,
there was no dispute with respect to whether GST was payable or not.
Instead, the dispute pertained to the extent as to whether the payable tax
42
was to be calculated as per MoRTH guidelines or the orders issued by
the concerned State Government.
49. Notably, the case at hand revolves around Clause 24(c)(ii) of the
SCC which envisages reimbursement by DMRC to the Petitioner for any
DVAT paid by it, if applicable. Accordingly, the bone of contention is
whether DVAT was applicable on the underlying transactions. Therefore,
in the opinion of this Court, such question falls under ‘Head A’, as
carved out by the learned Division Bench in the aforementioned decision,
and is therefore, arbitrable.
50. Adverting to the facts of the present case, the main thrust of the
Petitioner’s argument is that “sectioning posts” and “sub-sectioning
posts”, which was a BOQ item, created a commercially distinct final
product which attracted DVAT and that the installation and
commissioning of the BOQ items also led to value addition, thereby
attracting DVAT.
42
Ministry of Road Transport and Highways
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51. With respect to the import by M/s Areva (India), Allahabad from
M/s Areva (Germany), the Petitioner maintained before the learned
Tribunal that it made the purchase from M/s Areva (India) only. It was
also maintained that certain items were bought from M/s Areva (India),
Kolkata as well, for which it paid CST. It was further argued that the
contract did not envisage sale of the HV and LV panels, and the
Petitioner was instead required to sell “Sectioning and sub-sectioning
posts”, “traction cables”, “return conductor” etc., as stipulated in the
BOQ. According to the Petitioner, the sale of these BOQ items
constituted a sale under the DVAT Act.
52. On the other hand, DMRC maintained that Clause 24(c)(ii) of the
SCC only contemplated reimbursement of DVAT if it was legally
applicable in the first place. DMRC placed reliance on the purchase order
dated 20.09.2008 for HV panels, which was in the name of DMRC itself,
to urge that since the invoices bore its name, the Petitioner was aware
that the procurement was specifically in furtherance of the works contract
and accordingly, the import was also incidental to the contract. Further,
the invoices issued by M/s Areva and customs invoice of M/s Areva also
mentioned the name of DMRC as the consignee. DMRC also contended
before the learned Tribunal that it approved M/s Areva as the supplier
and accordingly, issued the Custom Duty Exemption Certificate in favour
of M/s Areva. Therefore, DMRC maintained that there was direct nexus
between such sale and import, with the contract executed between
DMRC and the consortium of contractors. DMRC relied on Sections 3
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and 5 of the CST Act to submit that since there existed an unbreakable
chain between the sale and movement of goods, the exemption under
Section 7 of DVAT Act would apply.
53. DMRC also contended that as per the invoices furnished by the
Petitioner, it had paid DVAT on the HV and LV panels and not on the
sectioning post or sub-sectioning post. The Petitioner contested the
aforesaid in the following manner:
“6.2.2 On this the Claimant' contention is that HV panels, LV Panels
etc., are all spare parts to be integrated to form the individual BOQ
items stated above. The HV panels, LV panels, Cables, Contact Wires,
and Return Conductors were shifted to different sites of erection where
these panels were integrated, erected, installed and commissioned to
form "Sectioning and Sub-Sectioning Posts", "Overhead Conductor”
etc., as stated in the respective BOQ item, and the Claimant, as per the
BOQ, submitted the invoice as "Sectioning and Sub-Sectioning Posts",
"Traction Cables", "Return Conductor", "Sub-Sectioning and
Paralleling Posts", "25 Kv Cables", Equipment for Park Street TSS-2,
Equipment for Airport TSS, 25 Kv Traction Cables and "Return
Conductor" for ROCS to the Respondent for payment. Thus new
commercial products were sold to the Respondent at various station
locations in New Delhi, and in terms of the statutory compliances
under Delhi Value Added tax Act, the Claimant paid the DVAT on
these BOQ items over a period from 2008 to 2009, as and when the
sale accrued. The sale in the course of import of HV Panels, and inter-
state trade of LV Panels could not be effected as the supply of BOQ
items does not contemplate sale of stand-alone items such as HV and
LV Panels.”
54. The Petitioner further maintained that there was no direct link
between the purchase and sale since the purchase is related to
procurement of the component items for the assembly of the BOQ items,
and it is these BOQ items that are sold to DMRC. The Petitioner sought
to argue that the Contract did not contemplate DMRC to issue Form ‘C’
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for HV and LV panels from a different State. The BOQ items being a
distinct product from what was procured, attract DVAT. The Petitioner
placed reliance on an order passed by the Commissioner (Trade and
Taxes), as follows:
“6.2.6 In support of its claim the Claimant has filed a copy of the
Order No. 193/CDVAT/2007/179 dated 15.01.2008 passed by the
Commissioner, T&T, under Delhi Value Added Tax Act, 2004, which
states in the penultimate paragraph "— There is no sale during import
because the equipment had been custom cleared by the applicant
company himself and charged VAT on sale" In the case of the
Claimant, the custom clearance was made by the Claimant's vendor,
thus breaking the inextricable link in the chain of transaction.
Therefore Claimant does not agree with the contention of the
Respondent that the inextricable link has not been broken. The
Claimant has also tried to establish its point that the DVAT amount of
Rs. 1,88,28,688/- claimed by the Claimant vide invoice No. BE-3 Lot-
2/DVAT/03 dated 09.03.2009 for the period 01.12.2008 to 31.12.2008,
was reimbursed by the Respondent (Rs. 1,29,29,200/- as net amount)
vide cheque no. 12992 dated 15.01.2010, as the Respondent was of the
view thạt DVAT was required to be paid on the said transaction as per
the Contract conditions. However, the Respondent did an above turn
and recovered from the claimant’s Running Bill, the gross amount of
Rs. 1,38,22,788/- on 03.03.2011.
6.2.7 The Claimant through its Application under Section 23 of the
Arbitration and Conciliation Act, 1996, has brought out that the
Claimant made local sale in Delhi and the same was accepted by the
Respondent by the action taken by the Respondent by effecting Works
Contract Tax/TDS under Section 36A of DVAT Act on the above said
supply of "Sectioning and Sub-Sectioning Posts", "Over Head
Conductors" etc., which means they deducted TDS on WCT on these
supplies considering the same as local sale. As per Section 36A of
DVAT Act, "any dealer, for discharge of any liability on account of
valuable consideration payable for the
transfer of property in goods in pursuance of a Works Contract, shall
at the time of credit of such sum to the account of the contractor or at
the time of payment thereof in cash or by any other mode, whichever is
earlier, deduct tax thereon at the rate of four percent and same to be
remitted to the Govt. and issue TDS certificate to the Contractor". The
DVAT Act does not contemplate deduction of TDS on inter-state sale,
thus clearly establishing that the inextricable link has been broken. By
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virtue of Tax deducted by the Respondent and TDS certificate issued, it
is clearly evident that the Respondent also treated this as local sale.
The Claimant denies the Respondent's submission that there cannot be
any tax by any State on sale or purchase of goods when such sale or
purchase takes place in the course of import or export, and that in the
course of inter-state sale, local tax of any State would not apply, and
only Central Sales Tax would apply.”
55. DMRC placed reliance on ABB Ltd. (supra) before the learned
Tribunal and submitted that the said decision squarely applied to the case
at hand in the following manner:
“6.2.9 …(a) Technical specifications of the Contract (page 148-555 in
RD-1);
(b) Supply of goods were approved by the DMRC (pages 675, 676 to
678 of RD-2);
(c) Pre-inspection of goods for BE-3 Lot-2 Contract (Clauses 7.3, 19
of the GCC, Employers requirement- General specifications and
Particular Specifications related to Scope of Work);
(d) The goods were custom made for use by DMRC in its project -
Design & Drawings were approved by DMRC specifically for custom
made items used in DMRC;
(e) Excise and Custom duty exemption certificates were issued by the
DMRC (pages 686-687 & 688 of RD-2);
(f) DMRC issued a certificate certifying its approval as foreign
supplier located in Germany from whom the goods were procured;
(g) Packed goods were specially marked as meant for DMRC use in
Contract (page 685 of CD-4 for HV panel- consignee - DMRC, &
pages 605, 606 of CD-3 fer LV panels - Consignee - DMRC).”
56. It is also pertinent to note that the Petitioner claimed before the
learned Tribunal that certain items like cables, contact wires, etc., were
purchased in Delhi itself and were undisputed. However, in a meeting
held before the Tribunal on 30.01.2014, the Petitioner clarified that these
materials were not purchased in Delhi, but from other States. The
Petitioner maintained that these were undisputed materials on which
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DMRC ought to have reimbursed DVAT, however, DMRC contested the
aforesaid and claimed that these materials were also disputed on the
grounds that they were purchased from outside Delhi.
57. It is in the aforesaid background that the learned Tribunal held as
follows:
“6.3 The Arbitral Tribunal's Conclusions:
6.3.1 The Arbitral Tribunal has considered the whole matter based
on the documents placed before it and the arguments advanced by the
parties during the oral hearings. The import of the HV panels and
indigenous procurement of all other items, were part of the BOQ
equipment under the Contract executed between the Claimant and the
Respondent. The Respondent issued the Custom exemption certificate
in favour of M/S Areva wherever applicable and reimbursed the
import duty, for import of HV panels in case paid by the Claimant
through M/S Areva. The Claimant has not refuted the assertion of the
Respondent (Para 6.5 supra) that the name of M/S Areva was got
approved by the Claimant from DMRC, before placing the purchase
order on 08.05.2008, the Purchase Order dated 20.09.2008 placed by
the Claimant in favour of M/S Alstom T & D india Ltd. for delivery of
HV panels, prescribed that the same are required for Respondent's
Rigid Overhead Contact System, the Excise invoices issued by Areva
and the Custom invoices raised by M/S Areva on the Claimant also
mentioned the name and address of the consignee to be M/S Delhi
Metro Rail Corporation Ltd. Thus M/S Areva also knew from the very
beginning that the HV panels had been imported by the Claimant only
for the purposes of its installations in Delhi Metro Project. This
establishes a direct connection between the Claimant placing
purchase orders upon M/S Areva and import of. HV panels by M/S
Areva for the Respondent's project under the Contract. The Tribunal is
also convinced that after the clarifications given by the Claimant in
the meeting held with both the Parties on 30-01-2014 (Ref; Para
6.2.12), the materials purchased for the project from within India were
not purchased at New Delhi but were procured from outside as the
inter-state sales, subjected to the Central sales Tax, and are not the
local sale in Delhi liable for payment of DVAT.
6.3.2 The Claimant's mention of the Respondent deducting Works
Contract Tax on the Invoices, which included the DVAT amount, has
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not been contradicted by the Respondent. The Respondent has also not
denied that that the DVAT amount of Rs. 1,88,28,688/-claimed by the
Claimant vide invoice No. BE-3 Lot-2/DVAT/03 dated 09.03.2009 for
the period 01.12.2008 to 31.12.2008, was reimbursed by the
Respondent, but later on recovered from the Claimant's Running Bill
Through this the Claimant has tried to justify that the Respondent
treated this as local sale, and that the inextricable link has been
broken, because the DVAT Act does not contemplate deduction of TDS
on inter-state sale. However, the Tribunal is of the opinion that if a
mistake has been committed, but rectified later on its realization, it
cannot justify admission of the material to be as local sale, liable for
payment of DVAT. The Tribunal is of the considered-view that the
Claimant has erred in paying-the DVAT to the Department, on the
material for the Respondent's project brought to Delhi either through
import or as inter-state sale, and the Respondent is not, therefore,
bound to reimburse the same to the Claimant.
6.3.3 Accordingly, the Tribunal rejects the claim of Rs. 4,45,73,743/-
(Rupees Four Crore Forty Five Lakh Seventy Three Thousand Seven
Hundred and Forty Three) raised by the Claimant against the
Respondent, and give ‘NIL’ Award against the claim.
6.3.4 The Claimant has also claimed interest, pre-reference from the
date of reference till 11.06.2012, interest pendente-lite till the date of
Award, and future interest from the date of Award till the date of
payment, @ 18% p.a. As the amount awarded on the Claim is 'NIL',
the question of awarding interest does not arise. Even otherwise, in
terms of Clause 17.10 of the General Conditions of Contract (GCC),
of the Contract executed between the parties, no interest is to be paid
on whole or any part of the money for any period, till the date on
which the award is made.
6.3.5 The Claimant has stated that it is entitled for cost of
arbitration proceedings also. The Respondent has pleaded against this
demand due to clear provision in the Contract. In terms of Clause
17.11 of the GCC of the Contract executed between the parties, the
cost of arbitration, which includes the fee of the arbitrators also, is to
be borne by the respective parties. Hence, the Tribunal is unable to
grant any relief to the Claimant on this score also.
6.4 No counterclaim has been filed by the Respondent.
7. Award:
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7.1 Since the Tribunal rejects the claim of Rs. 4,45,73,743/-
(Rupees Four Crore Forty Five Lakh Seventy Three Thousand Seven
Hundred and Forty Three) raised by the Claimant against the
Respondent, ‘NIL’ Award is given against the claim.
7.2 As the awarded amount is ‘NIL’, and also there being clear
provision in Clause 17.10 of GCC, no interest is payable to the
Claimant.”
58. It is evident from a plain reading of the impugned award that the
learned Tribunal considered the relevant material placed before it and the
submissions of both parties. It proceeded on the premise that there was a
link between the import and indigenous procurement of the items with
the contract executed between the parties. Accordingly, the exemption
under Section 7 of the DVAT Act would come into play. The learned
Tribunal observed that DMRC approved the name of M/s Areva as
supplier, issued custom exemption certificate and reimbursed the import
duty, the purchase order bore the name of DMRC, the excise and custom
invoices were also in the name and address of DMRC as the consignee.
Thus, the learned Tribunal, based on the aforesaid, opined that there
existed a direct link between the Petitioner procuring the items
indigenously and through import for the works contract. The learned
Tribunal also placed reliance on the meeting dated 30.01.2014, whereby
the Petitioner admitted that the materials were purchased from outside of
Delhi and were therefore amenable to CST.
59. The learned Tribunal further took note of the fact that DMRC did
reimburse the DVAT amount of Rs. 1,88,28,688/-, however, it later
recovered the same on the ground that DVAT was not applicable. In this
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regard, the learned Tribunal opined that DMRC committed a mistake and
subsequently rectified the same. Such rectification, according to the
learned Tribunal, could not be treated as an admission so as to invoke
liability for payment. Ultimately, the learned Tribunal arrived at the
conclusion that the Petitioner erred in paying DVAT on the material
indigenously procured or by way of import, and therefore, DMRC was
not bound to reimburse the same to the Petitioner.
60. In my considered opinion, the present case is squarely covered by
the judgment of this Court in ABB Ltd. (supra) which came to be
affirmed by the Supreme Court. The key elements being the following:
“(1) Specifications were spelt out by DMRC ;
(2) Suppliers of the goods were approved by the DMRC ;
(3) Pre-inspection of goods was mandated ;
(4) The goods were custom made, for use by DMRC in its project ;
(5) Excise duty and customs duty exemptions were given, specifically
to the goods, because of a perceived public interest, and its need by
DMRC ;
(6) In the project authority certificate issued by DMRC the name of the
sub-contractors as well as the equipment/goods to be supplied by them
were expressly stipulated ;
(7) DMRC issued a certificate certifying its approval of foreign
suppliers located in Italy, Germany, Korea, etc., from whom the goods
were to be procured.
(8) Packed goods were especially marked as meant for DMRC's use in
its project.”
61. In the present case, it is evident from the material on record that, at
least, conditions (1), (2), (3), (4), (5), (7) and (8) are satisfied. The same
has been noted by the learned Tribunal as well, as is evident from
paragraph no. 6.2.9, which is being delineated herein below:
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“6.2.9 … (a) Technical specifications of the Contract (page 148-555
in RD-1);
(b) Supply of goods were approved by the DMRC (pages 675, 676 to
678 of RD-2);
(c) Pre-inspection of goods for BE-3 Lot-2 Contract (Clauses 7.3, 19
of the GCC, Employers requirement- General specifications and
Particular Specifications related to Scope of Work);
(d) The goods were custom made for use by DMRC in its project -
Design & Drawings were approved by DMRC specifically for custom
made items used in DMRC;
(e) Excise and Custom duty exemption certificates were issued by the
DMRC (pages 686-687 & 688 of RD-2);
(f) DMRC issued a certificate certifying its approval as foreign
supplier located in Germany from whom the goods were procured;
(g) Packed goods were specially marked as meant for DMRC use in
Contract (page 685 of CD-4 for HV panel- consignee - DMRC, &
pages 605, 606 of CD-3 fer LV panels - Consignee - DMRC).”
62. This Court, under Section 34 of the Act, does not sit in appeal over
the decision of the Arbitral Tribunal and cannot re-appreciate evidence.
This Court shall refrain from interfering with an arbitral award if the
same is a plausible view based on the material on record.
63. In the instant case, DMRC provided the technical specifications for
the contract, it approved the supply of goods, it pre-inspected the goods,
the goods were custom-made for DMRC, DMRC issued certificates for
custom and excise exemption, and the packed goods were specifically for
DMRC’s use pursuant to the Contract.
64. In view thereof and considering the ratio in ABB Ltd. (supra) , I
am of the considered view that there exists a direct link between the
inter-State procurement of goods with the Contract and between the
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import of goods with the Contract. Accordingly, the exemption granted
under Section 7 of the DVAT Act is applicable.
65. At this stage, it would be relevant to note the Petitioner’s
contention as to how ABB Ltd. (supra) is distinguishable from the
present case. The Petitioner, in this regard, largely submitted that (i) the
Contractor directly imported the goods for sale but in the present case,
the Petitioner bought from M/s Areva, which had imported the goods; (ii)
the goods were manufactured outside Delhi in that matter, however, in
the present case, the goods procured were integrated and commissioned
into the final product as per BOQ and not sold as it is.
66. I am not inclined to accept these contentions for the reasons to
follow.
67. The fact that the contractor in ABB Ltd. (supra) directly imported
the goods is of no avail. The relevant inquiry is whether the movement of
goods was occasioned by or incidental to the contract between the
Petitioner and DMRC. In the present case, there exists a link because the
order was placed by the Petitioner and the invoice bore the name of
DMRC as the consignee. The learned Division Bench in ABB Ltd.
(supra) clarified that to ascertain if a sale was in the course of import, a
court must examine whether the movement of goods was “integrally
connected with the contract for their supply” . In the present case, in light
of the foregoing discussion, this Court is of the considered view that such
integral connection does exist.
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68. The submission that the Petitioner integrated the equipment into
the final product does not, by itself, distinguish ABB Ltd. (supra) , which
also involves a works contract pertaining to installation and
commissioning of electrical systems for DMRC. At the cost of repetition,
the link between deemed sale and movement of goods is to be examined
in order to ascertain whether the sale is inter-State or in the course of
import.
69. Apropos the sectioning and sub-sectioning posts, it is borne from
the record that the same required HV and LV panels as constituent items.
It was urged on behalf of the Petitioner that sectioning and sub-sectioning
posts are commercially distinct from these input items. However, as per
ABB Ltd. (supra) , what is relevant is the contractual nexus with the
movement of goods rather than the form in which the goods were
incorporated. In the present case, the goods were procured as per the
specifications of DMRC from approved suppliers and specifically for the
contract, this is what is relevant in the inquiry as to whether the sale falls
under Section 3 or 5 of CST Act. The incorporation, according to this
Court, does not severe this nexus.
70. To reiterate, the Supreme Court in English Electric Company of
43
India Ltd. v. Deputy Commercial Tax Officer held that “If there is a
conceivable link between the movement of the goods and the buyer's
contract, and if in the course of inter-State movement the goods move
only to reach the buyer in satisfaction of his contract of purchase and
43
[1976] 38 STC 475 (SC)
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such a nexus is otherwise inexplicable, then the sale or purchase of the
specific or ascertained goods ought to be deemed to have taken place in
the course of inter-State trade or commerce as such a sale or purchase
occasioned the movement of the goods from one State to another”.
71. In view of the foregoing discussion, this Court is of the considered
view that no ground under Section 34 of the Act is made out in order to
warrant interference. The impugned award reflects due application of
mind and consideration of material on record. The conclusion arrived at
by the learned Arbitral Tribunal is a plausible view based on the material
on record before it. Even mere incorrect application of law is not a
ground sufficient enough to warrant interference.
72. Undoubtedly, this Court cannot undertake its own exercise of re-
appreciating evidence to arrive at another equally plausible view of the
matter. The learned Tribunal has not re-written the contractual bargain.
There exists no patent illegality going to the root of the matter in the
impugned award.
73. The petition is, accordingly, dismissed in the above terms.
74. Pending applications, if any, stand disposed of.
75. No order as to costs.
OM PRAKASH SHUKLA, J
OCTOBER 16, 2026/ gunn
Signature Not Verified
Signed By:ANUBHAV
TRIPATHI
Signing Date:16.10.2026
17:01:20
O.M.P. (COMM) 257/2016 Page 45 of 45