Contract-linked interstate and imported goods remain DVAT-exempt despite incorporation into works-contract outputs.

DMRC awarded a consortium including Larsen & Toubro a contract to design, supply, install, test and commission a rigid overhead contact system. The contract provided for reimbursement of DVAT paid on indigenous equipment, if applicable, upon proof of payment

L&T claimed reimbursement of approximately ₹4.46 crore in DVAT on equipment and materials procured outside Delhi, including HV panels imported by its supplier and LV panels procured from Kolkata.

The arbitral tribunal rejected the claim, finding the transactions were inter-State sales or sales in the course of import and therefore not subject to DVAT.

L&T challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996

1. Whether the dispute over DVAT reimbursement, including whether DVAT applied to the transactions, was arbitrable.

2. Whether the tribunal’s finding that the transactions were inter-State sales or sales in the course of import, and thus exempt from DVAT, disclosed a ground for setting aside the award under Section 34.

Section 34 of the Arbitration and Conciliation Act, 1996 permits only limited review; a court does not reappreciate evidence or set aside an award merely because another view is possible, where the tribunal’s conclusion is plausible on the material before it.

Under Section 7 of the Delhi Value Added Tax Act, 2004, sales in the course of inter-State trade or commerce and sales in the course of import are not liable to DVAT; Sections 3 and 5 of the Central Sales Tax Act, 1956 respectively identify those categories by reference to the movement of goods and whether the sale occasions that movement or import.

Article 366(29A)(b) of the Constitution permits taxation of the transfer of property in goods involved in executing a works contract, with the taxable event arising when the goods are incorporated into the works.

Under ABB Ltd. v. Commissioner, Delhi Value Added Tax, affirmed in CVAT v. ABB Ltd., the relevant inquiry is whether the movement of goods was integrally connected with, or incidental to, the contract; privity with the end user, the route of consideration, or an intermediary is not decisive.

A dispute about contractual reimbursement of tax between the parties is arbitrable, even though a dispute requiring a binding determination of statutory tax liability may fall within the exclusive domain of tax authorities.

The Court treated the dispute as one concerning the parties’ contractual reimbursement obligation and therefore arbitrable.

On the merits, the tribunal had relied on evidence that DMRC specified and approved the goods and suppliers, required pre-inspection, issued customs and excise exemption certificates, and that the goods were custom-made, marked for DMRC, and procured for the project.

Applying ABB Ltd., the Court held that these circumstances supported a direct and integral connection between the movement of the goods—including the import arranged through the supplier—and the contract. Incorporating the panels into sectioning and sub-sectioning posts did not sever that connection; the form in which the goods were ultimately incorporated did not displace the inquiry into the nexus between movement and contract.

The tribunal’s conclusion that DVAT was not applicable, and thus not reimbursable under the contract, was a plausible view that could not be displaced on Section 34 review.

No ground for interference under Section 34—including patent illegality—was established. The petition was dismissed; pending applications were disposed of, with no order as to costs.