IMPORTANT POINT
When turnkey contract specifies goods to be custom made and requires inter-state movement, the transaction would be covered by CST Act and not VAT Act.
When the sale is in course of import would be exempt from VAT.

Headnote:Central Sales Tax Act, 1956 – Section 3(a) and Section 5(2) – Sale in course of import – DMRC awarding turnkey contract to respondent – Specifying goods to be custom made – Diversion not possible – Goods of specific quality and description for use in the turnkey contract – No possibility of diversion of the goods – Transaction covered by Section 3(a) – Total ban on setting up/ working of heavy industries in Delhi – DMRC approving 18 places within the country including premises and factories of respondent from where the equipments and goods had to be supplied – Inter-state movement of goods thus within contemplation of parties – Such m the govement in fulfillment of terms of the contract – Such import and supply occasioned by the contract – Transaction covered by section 5(2) – Movement of goods by way of imports or by way of inter-state trade in pursuance of the conditions and/or as an incident of the contract between the assessee and DMRC – Sale of such goods to DMRC held, in course of import – Exempt from VAT u/s 7, Delhi Value Added Tax Act, 2004. (Para 6, 7, 9, 17)
       (1966) 3 SCR 352: AIR 1966 SC 1216; (1960) 11 STC 655: AIR 1961 SC 65; (1975) 35 STC 445 (SC): (1975) 1 SCC 733; (1976) 38 STC 475 (SC): (1976) 4 SCC 460; (1981) 48 STC 232 (SC): (1981) 3 SCC 457; (1997) 7 SCC 190; (1985) 4 SCC 119; (2010) 9 SCC 461 – Relied upon
       (1974) 1 SCC 459 – Distinguished
       Facts of the case:
       On 15.05.2003 DMRC invited tenders for supply, installation, testing and commissioning of traction electrification, power supply, power distribution and SCADA system for Line 3 Barakhamba Road-Connaught Place-Dwarka Section of the DMRC.
       DMRC short listed the respondent and then executed the contract under which the respondent had to provide transformers, switch-gears, High Voltage Cables, SCADA system and also complete electrical solution, including control room for operation of metro trains on the concerned Section.
       In the year 2005-06 the respondent was called upon to pay DVAT on the deemed sales made by it to DMRC.
       The Assessing Officer rejected the claim of the respondent and confirmed the demand of Rs. 47,62,366/- towards VAT, Rs. 3,32,258/- towards interest and also imposed a penalty of Rs. 1,20,56,196/-.
       The respondent preferred an appeal which was rejected by the Additional Commissioner.
       Further appeals before the VAT Tribunal, 40 in total in respect of different assessment periods were also disallowed by the VAT Tribunal by the common judgment. On the issue of penalty there arose a difference between the two Members of the Tribunal and hence that was referred to third Member and is supposed to be pending. The respondent challenged the common judgment and order of the Tribunal and those appeals have been allowed by the order under appeal dated 28.09.2012.
       The High Court accepted the contentions advanced on behalf of respondent that the transactions leading to import of goods as well as movement of goods from one state to another were occasioned by the contract awarded by the DMRC to the respondent and hence the transactions were not covered by the Delhi VAT Act but the CST Act.
       Finding of the Court:
       High Court has taken a correct view. There is no reason to take a different view.

       Result: Appeals dismissed.

JUDGMENT :

Shiva Kirti Singh, J.

1. Instant appeals have been preferred by Commissioner, Delhi Value Added Tax to assail the judgment and order of the High Court of Delhi dated 28.09.2012 in S.T.A.Nos.51-70 of 2012. The High Court reversed the order of the VAT Tribunal and of other lower authorities on the basis of its conclusion that the inter-State movement of goods was in pursuance of and incidental to the contract for the supply of goods used in the execution of the works contract between the respondent-assessee and the Delhi Metro Railway Corporation Ltd. (hereinafter referred to as ‘DMRC’). The High Court further came to hold that claimed sales should be deemed to have taken place in course of imports of the goods or inter-state trade and that such import/movement of goods was integrally connected with the contract for their supply to DMRC. On the basis of such twin findings the High Court has held that the transactions constituting inter-State trade and those constituting sale or purchase in the course of import were covered by Section 3(a) and Section 5(2) respectively of the Central Sales Tax Act, 1956 (hereinafter referred to as ‘CST Act’) and, therefore, exempt from taxation under the Delhi Value Added Tax Act, 2004 (hereinafter referred to as ‘DVAT Act’).

2. According to appellant the impugned judgment and order of the High Court is based upon erroneous interpretation of judgments of this Court particularly that of the Constitution Bench in the case of M/s. K.G. Khosla & Co. v. Deputy Commissioner of Commercial Taxes, Madras, (1966) 3 SCR 352, AIR 1966 SC 1216. The appellant has placed strong reliance upon a subsequent Constitution Bench judgment in the case of M/s. Binani Bros. (P) Ltd. v. Union of India & Ors., (1974) 1 SCC 459. On the other hand, respondent has fully supported the view adopted by the High Court. Its contention is that ratio in the case of K.G. Khosla (Supra) has not been doubted in the later judgment in the case of Binani Bros. and the conclusions drawn by the High Court on the basis of admitted facts are supported by the principle of law settled in the case of K.G. Khosla which has not been doubted in any other case. According to respondent the claim of sale in course of imports occasioned by the contract was negatived in the case of Binani Bros. on peculiar facts of that case which were quite different from the facts of the instant case, as correctly noticed by the High Court.

3. Before adverting to the main issue as to whether the High Court judgment is correct in law as well as in facts or not, it would be appropriate to notice some of the relevant facts. The respondent is a Public Limited Company engaged, inter alia, in manufacture and sale of engineering goods including power distribution system and SCADA system. It appears to be a market leader in power and automation technologies. It is a subsidiary of ABB Ltd., Zurich Switzerland which has operational presence in over 100 countries and employs around 1,30,000 personnel. On 15.05.2003 DMRC invited tenders for supply, installation, testing and commissioning of traction electrification, power supply, power distribution and SCADA system for Line 3 Barakhamba Road-Connaught Place-Dwarka Section of the DMRC. Respondent responded.

4. DMRC short listed the respondent and then executed the contract under which the respondent had to provide transformers, switch-gears, High Voltage Cables, SCADA system and also complete electrical solution, including control room for operation of metro trains on the concerned Section. The Bid Document contained detailed Bill of Goods, quantities and specifications for the goods, sources (i.e., name of the manufacturer/brand), detailed terms and conditions requiring approval of sub-contractors/suppliers and testing. The goods as also the components of works required certification as well as acceptance. The NIT required both

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2016 Supreme(SC) 281

SUPREME COURT OF INDIADIPAK MISRA, SHIVA KIRTI SINGH, JJ.Commissioner, Delhi Value Added Tax – AppellantVersusM/s. ABB Ltd. – RespondentCivil Appeal Nos. 2989-3008 of 2016 [Arising out of S.L.P.(C) Nos. 30045-30064 of 2013]Decided on : 05-04-2016

IMPORTANT POINTWhen turnkey contract specifies goods to be custom made and requires inter-state movement, the transaction would be covered by CST Act and not VAT Act.When the sale is in course of import would be exempt from VAT.

Cases Referred (9)

SUPREME COURT OF INDIA
DIPAK MISRA, SHIVA KIRTI SINGH, JJ.
Commissioner, Delhi Value Added Tax – Appellant
Versus
M/s. ABB Ltd. – Respondent
Civil Appeal Nos. 2989-3008 of 2016 [Arising out of S.L.P.(C) Nos. 30045-30064 of 2013]
Decided on : 05-04-2016

IMPORTANT POINT
When turnkey contract specifies goods to be custom made and requires inter-state movement, the transaction would be covered by CST Act and not VAT Act.
When the sale is in course of import would be exempt from VAT.