Case: Commissioner,Delhi Value Added Tax Vs. M/S Abb Ltd

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 VoltageSCADA 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, Technical Bid and Financial Bid. Besides the quotation of lumpsum price for the entire scope of work the Bid Document required individual breakup of price of goods and other details. Bid submitted by the respondent finally culminated into a contract on 04.08.2004. The contract document comprised of Special Conditions of Contract, General Conditions of Contract etc.5. In the year 2005-06 the respondent was called upon to pay DVAT on the deemed sales made by it to DMRC. It denied its liability and claimed exemption under Section 7(a) and (c) of DVAT Act on the ground that it was exempted from payment of VAT in respect of sale effected 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 Rs. 47,62,366/- towards VAT, Rs. 3,32,258/- towards interest and also imposed a penalty of Rs. 1,20,56,196/-. The objections of the respondent under Section 74 of Delhi VAT Act were also rejected and hence the respondent preferred an appeal which was rejected by the Additional Commissioner on 11.03.2008. 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 dated 07.06.2012. 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 vide STA 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 Delhi. Similar finding was returned in respect of movement of the goods under import, i.e., it can not be held to have been occasioned by the contract between DMRC and the respondent.7. The High Court heard the matter in detail and considered all the relevant facts particularly terms, conditions and stipulations in the contract in the context of contention on behalf of respondent that the revenue authorities and tribunal had failed to consider relevant clauses and conditions of the contract which 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 the relevant provisions of the contract, specifications of goods, requirement of inspection of goods at more than one occasion and right of rejecting the goods even on testing after supply, prompted the High Court to accept 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.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 asLetter 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 as per relevant tendercontract specifically required approval of DMRC for sub-contractors/vendors as evident from the following provisions of the SCC to the Contract:"1.1.2.6 "Sub-Contractor" means any person named in the Contract as a sub-contractor, manufacturer or supplier for a part of the works or any person to whom a part of the Works has been subcontracted with the approval of the Employer and the legal successors in tittle to such person, but not any assignee of such person." (excerpts from GCC).Clauses 4 and 4.5 read as follows:"4. Sub-ContractorsFor major sub-contracts (each costing over L 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 contractor in time to enable him to make alternative arrangements.4.5 The Contractor shall not sub-contract the whole of the Works unless otherwise stated in the Special Condition of Contract:(a) the Contractor shall not be required to obtain approval for purchases of Materials which are in accordance with the standards specified in the Contract or provisions of labour or for the sub-contracts for which the Sub-contractor is named in the Contract.(b) The prior approval of the Engineer shall 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 of any Sub-contractor, his representatives or employees, as fully as if they were the acts or defaults of the Contractor, his representatives or employees and nothing contained in sub-clause 4.5 (a) shall constitute a waiver of the Contractors obligations under this Contract."38 (c) Approved Sub-contractors:Approved Sub-contractors shall be appointed in accordance with the procedure described as hereunder. If the Engineer/Employer instructs, the letting of a sub-contract for an item of Provisional 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 Provisionalof the other terms contained in the contract documents are asSub-clause 5.1Construction and Manufacture DocumentsNo examination by the Engineer of the drawings or documents submitted by the Contractor, nor any approval by the Engineer in relation to the same, with or without amendment, shall absolve the Contractor from any of his obligations under the Contract or any liability for or arising from such drawings or documents.Should it be found at any time after notification of approval that the relevant drawings or documents do not comply with the Contract or do not agree with the drawings or documents 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 plantInspection:7.3 The employer and the engineer shall be entitled during manufacture, fabrication and preparation at any places where work is being carried out, to inspect, examine and test the materials and workmanship, and to check the progress of manufacture, of all Plant and Materials to be supplied under the Contract. The contractor shall given them full opportunity to inspect, examine, measure and test any work on Site or wherever carried out.The Contractor shall give due notice to the Engineer whenever such work is ready, before packaging, covering up or putting out of view. The Engineer shall then carry 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 readsWHOMSOEVER IT MAY CONCERNThis is to certify that following is a list of the approved vendors for 3E21 contract entered into between the DMRC Ltd. and ABB Ltd. On 4th August 2004.140 MVA Traction TransformerM/s. ABB Limited, Vadodara215 MVA Power TransformerM/s. Crompton Greaves Ltd., Bhopal366 KV/25 KV Circuit BreakersM/s. ABB Limited, Vadodara466 KV Capacity Voltage TransformerM/s. ABB Limited, Vadodara566 KV Current TransformerM/s. ABB Limited, Italy666 KV/25 KV IsolatorsM/s. Switchgear and Structural Limited, Hyderabad760 KV/42KV lighting arrestersM/s. Elpro International Ltd., Pune8Control and Relay panelsM/s. ABB Limited, Bangalore9SCADA SystemsM/s. ABB Limited, Bangalore10MV SwitchgearM/s. ABB Limited, Nashik11Battery BankM/s. AMCO Power Systems, Bangalore12LT Switchgear/ ACDB/DCDBM/s. HEI Engineering (P) Ltd., Gurgaon133000/2500/1000/500/200 KVA Dry Type Auxiliary TransformerM/s. Electromecannica Colombia, Italy1466 KV/33 KV/25 KV HT CableM/s. ILJIN, Korea15LV Cables (power and control)M/s. KEI Industries, Bhiwadi1666/33/25 KV Cable Terminations and jointsM/s. Tyco, Germany17Ms. RoundM/s IISCO, Kolkata18Cable Trays/Earthing materials/Electrodes.M/s. Techno Engg. Co,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 there was 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 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 such movement was to fulfill 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 considered by the High Court in correct perspective after noticing the case of Tata Iron and Steel Co. Ltd. v. S.R. Sarkar, (1960) 11 STC 655 : AIR 1961 SC 65 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 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.

Reasoning:
11. 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 claimed the sales to be in course of import. After losing up to High Court, the assessee succeeded before the Supreme Court. The Constitution Bench held that Section 5(2) of the CST Act does not prescribe any condition that before the sale could be said to have occasioned import, it is necessary that the sale should precede the import. The sale is only required to be incidental to the contract. In other words the movement of goods from another country to India should be in pursuance of the conditions 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 Civilagree with the reasonings of the High Court for coming to the view that the present case is fit to be governed by the ratio laid down in K.G. Khoslas caseconcurrence with the views of the High Court is also based upon the salient facts, particularly the various conditions in the contract and other related covenants between DMRC and the respondent which have been spelt out in paragraph 31 of the High Court judgment, enumerated and described as followsSpecifications 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) The Project Authority Certificate issued by DMRC the name of the subcontractors 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 DMRCs use in its project.Before us there was no attempt to assail the aforesaid features and to even remotely suggest any factual error on the part of the High Court in noting those features.17. 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 being used in the works contract awarded on turn key basis to the assessee and there was no possibility of such goods being diverted by the assessee for any other purpose. Hence the law laid down in K.G. Khoslas (supra) case has rightly been applied to this case by the High Court. We find no reasons to take a different view.