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Commissioner, Delhi Value Added Tax Versus M/s. ABB Ltd.

2016 (4) TMI 534 - SUPREME COURT

Validity of High Court order - 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 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 imp .....

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ly suggest any factual error on the part of the High Court in noting those features. The salient features flowing out as conditions in the contract and the entire conspectus of law on the issues as notice earlier, leave us with no option but to hold that the movement of goods by way of imports or by way of inter-state trade in this case was in pursuance of the conditions and/or as an incident of the contract between the assessee and DMRC. The goods were of specific quality and description for be .....

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016 [Arising out of S.L.P. (C) Nos. 30045-30064 of 2013] - Dated:- 5-4-2016 - Dipak Misra And Shiva Kirti Singh, JJ. For the Appellant : Mr. Ajit Kumar Sinha, Sr. Adv. Ms. Niranjana Singh, Adv. Mr. Vibhushankar Mishra, Adv. Mr. Shashank Singh, Adv. Mr. Sudhir Agarwal, Adv. Mr. Shadman Ali, Adv. Mr. D. S. Mahra, AOR For the Respondent : Mr. S. Ganesh, Sr. Adv. Mr. R. Jawaharlal, Adv. Mr. Sidharth Bawa, Adv. Mr. Shyamal Anand, Adv. Mr. Ashwani Kumar, Adv. JUDGMENT Shiva Kirti Singh, J. 1. Instant .....

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ilway 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 cover .....

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rcial 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. Khosla1 has not been doubted in the later judgment in the case of Binani Bros. and the conclusions drawn by the High Court on the b .....

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w 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 tend .....

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ncerned 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, Technical Bid and Financial Bid. Besides the quotation of lumpsum price for the entire scope of work the Bid Document required individual .....

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ted in the course of import and also in respect of inter-state sale of goods, on account of provisions in Section 3(a) and 5(2) of the CST Act. The Assessing Officer vide order dated 25.11.2005 rejected the claim of the respondent and confirmed the demand of ₹ 47,62,366/- towards VAT, ₹ 3,32,258/- towards interest and also imposed a penalty of ₹ 1,20,56,196/-. The objections of the respondent under Section 74 of Delhi VAT Act were also rejected and hence the respondent preferre .....

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Nos. 51-70 of 2012 and those appeals have been allowed by the order under appeal dated 28.09.2012. 6. The Assessing Officer as well as the Appellate Authority returned a finding that there was no link between the contractee, DMRC and the supplier of goods that were imported by the respondent and hence on account of lack of any privity of contract the requirements of Section 3(a) of the CST Act were not satisfied in respect of movement of goods from outside Delhi to the required site of DMRC in D .....

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h demonstrate and clarify that the importation of equipment was strictly as per requirement and specification set-out by DMRC in the contract and only to meet such requirement of supply the specified goods were imported and hence the event of import and supply was clearly occasioned by the contract awarded to the respondent by the DMRC. There was a similar contention in respect of procurement of goods within the country and their movement from one state to another. After carefully considering th .....

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i VAT Act but the CST Act. 8. Some of the material terms governing the contract between the respondent and DMRC which were highlighted before the Tribunal and have been noticed by the High Court are as follows: The Letter of Acceptance issue by DMRC, in terms of the Contract reads as: Your proposal to execute OHE works by M/s Best & Crompton Engg. Ltd. the sub-contractor and control and monitoring (SCADA, AMS, BMS) yourself is accepted. Other sub-contractor (s)/vendor approval (s) shall be a .....

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. (excerpts from GCC). Clauses 4 and 4.5 read as follows: 4. Sub-Contractors For major sub-contracts (each costing over Rs. Four hundred thousand) it will be obligatory on the part of the Contractor to obtain approval of the Employer to the indentity of the sub-contractor. The Employer will give his approval after assessing and satisfying himself of the capability, experience and equipment resources of the sub-contractor. In case the Employer intends to withhold his approval, he shall inform the .....

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be obtained for other proposed Sub-contractors; (c) Not less than 28 days before the intended date of each Sub-contractor commencing work, the Contractor shall notify the Engineer of such intention; and (d) The contractor shall give fair and reasonable opportunity for contractors in India to be appointed as Sub-contractors. The Contractor shall be responsible for observance by all Sub-contractors of all the provisions of the contract. The Contractor shall be responsible for the acts or defaults .....

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onal Sums will be subject to pre-qualification of tenderers. In such a case, the Contractor shall prepare documents required for the pre-qualification, (including where appropriate bills of quantities, quantified schedules of prices or rates, specifications, drawings and other like documents) for the work, Plant, Materials or services included in each such Provisional Sum. Some of the other terms contained in the contract documents are as follows: 13. Sub-clause 5.1 Construction and Manufacture .....

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ments in relation to which the Engineer has previously notified his approval, the Contractor shall, at his own expense, make such alterations or additions as, in the opinion of the Engineer, are necessary to remedy such non-compliance or non-agreement and shall submit all such varied or amended drawings or documents for the approval of the Engineer. Workmanship, materials and plant Inspection: 7.3 The employer and the engineer shall be entitled during manufacture, fabrication and preparation at .....

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ry out the inspection, examination, measurement or testing without unreasonable delay. If the Contractor fails to give such notice, he shall, when required by the Engineer, uncover such work and thereafter reinstate and make good at his own cost. The DMRC issued a letter listing out the approved or authorized list of suppliers which reads as: TO WHOMSOEVER IT MAY CONCERN This is to certify that following is a list of the approved vendors for 3E21 contract entered into between the DMRC Ltd. and A .....

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s. ABB Limited, Bangalore 9. SCADA Systems M/s. ABB Limited, Bangalore 10. MV Switchgear M/s. ABB Limited, Nashik 11. Battery Bank M/s. AMCO Power Systems, Bangalore 12. LT Switchgear/ ACDB/DCDB M/s. HEI Engineering (P) Ltd., Gurgaon 13. 3000/2500/1000/500/200 KVA Dry Type Auxiliary Transformer M/s. Electromecannica Colombia, Italy 14. 66 KV/33 KV/25 KV HT Cable M/s. ILJIN, Korea 15. LV Cables (power and control) M/s. KEI Industries, Bhiwadi 16. 66/33/25 KV Cable Terminations and joints M/s. Tyc .....

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ods. 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 the 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. 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 s .....

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the High on this issue also finds ample support from the following case laws which were noticed by the High Court (1) Oil India Ltd. v. The Superintendent of Taxes (1975) 35 STC 445 (SC) = (1975) 1 SCC 733 (2) English Electric Company of India Ltd. v. The Deputy Commercial Tax Officer (1976) 38 STC 475 (SC) = (1976) 4 SCC 460 (3) South India Viscose Ltd. v. State of Tamil Nadu (1981) 48 STC 232 (SC) = (1981) 3 SCC 457. In Oil India Ltd. this Court held that the inter-state movement must be the .....

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s 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………… . In South India Viscose Ltd. it was held that 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 .....

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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. Explanation1- Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such d .....

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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 .....

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A Constitution Bench of this Court had the occasion to consider in the case of M/s. K.G. Khosla & Co. (supra) whether sales in that case were in the course of imports. The assessee in that case had a contract with the Director General of Supplies, New Delhi for supply of axle bodies manufactured by its principals in Belgium. Although goods were inspected in Belgium also but under the contract they could be rejected on further inspection in India. After supplying the goods the assessee claim .....

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of the contract. The incident was held to be import of goods within Section 5(2) on the reasoning that 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. It will be useful to reproduce the passage from that judgment which is as follows: ……appellant K.G. Khosla & Co., hereinafter referred to as the assessee entered into a contract wi .....

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o. 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. x x x 10. 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 wa .....

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t, and are, therefore, exempt from taxation. 12. For analysing the main contention advanced on behalf of the appellant that the present case is identical to that of the assessee in the case of Binani Bros. (supra), we have examined the facts of Binani Bros. (supra) with meticulous care. In para 13 of that judgment the most peculiar and conspicuous aspect of K.G. Khosla case (supra) was noticed and highlighted that under the contract of sale the goods were liable to be rejected after a further in .....

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….. the sale by the petitioner to the DGS&D did not occasion the import. It was purchase made by the petitioner from the foreign sellers which occasioned the import of the goods . In paragraph 16 it was further pointed out that there was no obligation on the DGS&D to procure import licences for the petitioner. 13. There is no difficulty in holding that Binani Bros. (supra) did not differ with the earlier judgment of a Constitution Bench in the case of K.G. Khosla (supra). A carefu .....

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p;D because there was no specification of the goods in such a way as to render it useable only by the DGS&D. This was coupled with the fact that the latter had imposed no obligation on the assessee to supply the goods only to itself. Further, there were no obligations of testing and approving the goods during the course of manufacture or for that matter, even at a later stage with a right of rejection. Such a right of rejecting the specific goods in the present case is identical to the simil .....

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y 1997 (7) SCC 190 and stand supported by the judgment in the case of Deputy Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam vs. Indian Explosives Ltd. 1985 (4) SCC 119, as well as in Indure Ltd. and Anr. vs. CTO & Ors. 2010 (9) SCC 461. In these cases, sale in course of imports was accepted without requiring privity of contract between the foreign supplier and the ultimate consumer in India. 15. The aforesaid conclusion leading to our concurrence with the views of the High .....

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