COMMISSIONER, DELHI VALUE ADDED TAX versus M/S. ABB LTD.
[2016] 4 S.C.R. 600, Supreme Court of India, 2016
Outcome: Dismissed (Dismissed)
Segment: Ratio
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[2016] 4 S.C.R. 600 
COMMISSIONER, DELHI VALUE ADDED TAX 
v. 
MIS. ABB LTD. 
(Civil Appeal Nos. 2989-3008 of2016) 
APRIL 05, 2016 
[DIPAK MISRA AND SHIVA KIRTI SINGH, JJ.] 
Central Sales Tax Act, 1956 - ss. 3(a) and 5(2) - Exemption 
fr01i1 taxation under Delhi Value Added Tax Act, 2004 - Import of 
goods and their movement from one State to another, by the assessee 
- Demand made under Delhi Value Added Tax Act -Assessee denied 
the liability claiming exemption from the tax as the movement of 
goods was in pursuance of a contract - Demand confirmed by the 
Assessing Officer, statutory appellate authority as well as the 
Tribunal, rejecting the claim of the assessee - High Court held that 
assessee was entitled to exemption - On appeal, held: The movement 
of goods by way of imports or by way of inter-State trade was in 
pursuance of the conditions and/or as an incident of the contract -
Hence the transactions were exempt from Delhi Value Added Tax 
Act, 2004 - Delhi Value Added Tax Act, 2004 - s.7(a) and (c). 
Dismissing the appeals, the Court 
HELD: 1. 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 Central Sales Tax Act, 1956. 
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. [Para 9) [609-C-D] 
Tata Iron and Steel Co. Ltd. v. S.R. Sarkar 1961 SCR 
379 : (1960) 11 STC 655 : AIR 1961 SC 65; Oil India 
Ltd. v. The Superintendent of Taxes 1975 (3) 
SCR 797 : (1975) 35 STC 445(SC) : 1975 (1) sec 733; 
English Electric Company of India Ltd. v. The Deputy 
Commercial Tax Officer 1977 (1) SCR 631 : (1976) 38 
STC 475 (SC) : (1976) 4 SCC 460; South India Viscose 
' 
Ltd. v. State of Tamil Nadu 1982 (1) SCR 44 : (1981) 
48 STC 232 (SC) : (1981) 3 SCC 457 - relied on. 
600
/ COMMISSIONER, DELHI VALUE ADDED TAX v, MIS. ABB 
LTD. 
2. In view of the salient features flowing out as conditions 
in the contract and the entire conspectus· of law on the issues, 
the movement of goqds by way of imports or by way of inter-State 
trade in the case was in pursuance of the conditions and/or as an 
incident of the contract between the assessee-contractor and 
contractee. 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. [Para 17] [614-
E-F] 
Mis. K.G Khosla & Co. v. Deputy Commissioner of 
Commercial Taxes, Madras (1966) 3 SCR 352 : AIR 
1966 SC 1216 - followed. 
State of Maharashtra v. Embee Corporation, Bombay 
1997 (3) Suppl. SCR 497 : 1997 (7) SCC 19; Deputy 
Commissioner of Agricultural Income Tax and Sales Tax, 
Ernakulam v. Indian Explosives Ltd. 1985 (2) Suppl. 
SCR 623 : 1985 (4) SCC 119; Indure Ltd. and Am: vs:-
CTO & Ors. 2010 (11) SCR 556 : 2010 (9) SCC 461 -
relied on. 
Mis. Binani Bros. (P) Ltd. v. Union of India & Ors. 1974 
(2) SCR 619 : 1974 (1) SCC 459 - held inapplicable. 
Case Law Reference 
(1966) 3 SCR 352 
followed 
Para2 
1974 (2) SCR 619 
held inapplicable 
Para2 
1961SCR379 
relied on 
Para9 
1975 (3) SCR 797 
relied on 
Para9 
1977 (1) SCR 631 
relied on 
Para9 
1982 (1) SCR 44 
relied on 
Para9 
1997 (3) Suppl. SCR 497 relied on 
Para 14 
1985 (2)
Suppl. SCR 623 relied on 
Para 14 
2010 (11) SCR 556 
relied on 
Para 14 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2989-
601 
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3008 of2016. 
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[2016] 4 S.C.R..--. 
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From the Judgment and Order dated 28.09.2012 of the High Court 
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of Delhi at New Delhi iri S. T. Appl. Nos. 51-70 of2012. 
Ajit Kumar Sinha, Sr. Adv., Ms. Niranjana Singh, Vibhushankar 
Mishra, Sudhir Agarwal, D. S. Mahra, Advs. for the Appellant. 
S. Ganesh, Sr. Adv., R. Jawaharlal, Sidharth Bawa, Shyamal, 
Ashwani Kumar, Advs. for the Respondent. 
The Judgment of the Court was delivered by 
SHIVA KIRTI SINGH, J. I. 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 
of2012. 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 interpretatio·n of judgments of 
this Court particularly that of the Constitution Bench in the case of Mis. 
K.G Khosla & Co. v. Deputy Commissioner of Commercial Taxes, 
Madras 1• The appellant has placed strong reliance upon a subsequent 
Constitution Bench judgment in the case of Mis. Binani Bros. (P) 
Ltd. v. Union of India & Ors.:. On the other hand, respondent has 
fully supported the view adopted by the High Court. Its contention is 
that ratio in the case ofK.G Khosla 1 has not been doubted in the later 
judgment in the case ofBinani Bros. and the conclusions drawn by the 
I (1966)3 SCR352=A1R 1966SC 1216 
'(1974) 1sec459
COMMISSIONER, DELHI VALUE ADDED TAX v. M/S. ABB 
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LtD. [SHIVA KIRTI SINGH, J.] 
High Court on the basis of admitted facts are supported by the principle 
oflaw settled in the case ofK.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 ofBinani 
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, SCAD A 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 
oflumpsum 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) ofDVAT 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 
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SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
goods, on account of provisions in Section 3(a) and ~(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 of2012 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
COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB 
LTD. [SHIVA KIRTI SINGH, J.] 
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 as follows: 
"The Letter of Acceptance issue by DMRC, in terms of the 
Contract reads as: 
"Your proposal to execute OHE works by Mis Best & 
Crompton Engg. Ltd. the sub-contractor and control and monitoring 
(SCAD A, AMS, BMS) yourself is accepted. Other sub-contractor 
( s )/vendorapproval ( s) shall be as per relevant tender conditions." 
The contract 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-Contractors 
For major sub-contracts (each costing over Rs.
Four hundred 
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thousand) it will be obligatory on the part of the Contractor to 
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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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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: 
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SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
(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 oflabour 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 shal I 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 Contractor's 
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 
Provisional Sum." 
Some of the other terms contained in the contract documents 
are as follows: 
"13. Sub-clause 5.1 
Construction and Manufacture Documents 
No examination by the Engineer of the drawings or
COMMISSIONER, DELHI VALUE ADDED TAX v. M/S. ABB 
607 
LTD. [SHIVA KIRTI SINGH, J.] 
documents submitted by the Contractor, nor any approval by 
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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 
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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 
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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 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 reads as: 
"TO WHOMSOEVER IT MAY CONCERN 
This is to certify that following is a list of the approved vendors 
for 3E2l contract entered into between the DMRC Ltd. and 
ABB Ltd. On 4th August 2004. 
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SUPREME C6URT REPORTS 
[2016] 4 S.C.R. 
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40 MV A Traction 
Mis. ABB Limited, Vadodara 
Transformer 
2. 
15 MVA Power 
Mis. Crompton Greaves Ltd., 
Transformer 
Bhopal 
3. 
66 KV /25 KV Circuit 
Mis. ABB Limited, Vadodara 
Breakers 
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66 KV Capacity Voltage 
Mis. ABB Limited, Vadodara 
Transformer 
5. 
66 KV Current 
Mis. ABB Limited, Italy 
Transformer 
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66 KV /25 KV Isolators 
Mis. Switchgear and Structural 
Limited, Hyderabad 
7. 
60 KV /42KV lighting 
Mis. Elpro International Ltd., 
arresters 
Pune 
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Contr:ol and Relay panels 
Mis. ABB Limited, Bangalore 
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SCADA Systems 
Mis. ABB Limited, Bangalore 
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MY Switchgear 
Mis. ABB Limited, Nashik 
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11. Battery Bank 
Mis. AMCO Power Systems, 
Bangalore 
12. LT Switchgear/ 
Mis. HEI Engineering (P) Ltd., 
ACDB/DCDB 
Gurgaon 
13. 
3000/2500/100015001200 
Mis. Electromecannica 
KV A Dry Type Auxiliary Colombia, Italy 
Transformer 
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66 KV /33 KV /25 KV HT 
Mis. ILJIN, Korea 
Cable 
15. L V Cables (power and 
Mis. KEI Industries, Bhiwadi 
control) 
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66/33/25 KV Cable 
Mis. Tyco, Germany 
Termina~ons and joints 
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17. 
Ms. Round 
Mis IISCO, Kolkata 
18. Cable Trays/Earthing 
Mis. Techno Engg. Co, 
materials/Electrodes. 
Chandigarh 
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COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB 
LTD. [SHIVA KIRTI SINGH, J.] 
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 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. Sarkar3 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 (I) Oil India Ltd. v. 
The Superintendent of Taxes• (2) English Electric Company of 
India Ltd. v. The Deputy Commercial Tax Officer5 (3) South India 
Viscose Ltd. v. State of Tamil Nadu6 • 
In Oil India Ltd. this Court held that 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 ifthe movement was in pursuance of or incidental to the contract 
of sale. In English Electric Co. of India Ltd. the law was clarified 
thus: "ifthere 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 ............ ". 
3 (1960) 11STC655 =AIR 1961SC65 
• ( 1975) 35 STC 445 (SC)= ( 1975) 1 sec 733 
' ( 1976) 38 STC 475 (SC)= ( 1976) 4 sec 460 
6 ( 1981) 48 STC 232 (SC)= (1981) 3 sec 457 
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SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
In South India Viscose Ltd. it was held that ifthere 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. 
10. On the issue of sale in the course of import it is relevant to 
extract Section 3 and 5 of the CST Act, 1956 enacted by the Parliament 
in exercise of powers under Article 286(2) of the Constitution of India: 
"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 
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during their movement from one State to another. 
Explanation 1- 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 delivery and terminate at the time when delivery is taken 
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from such carrier or bailee. 
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Explanation 2 - Where the movement of goods commences and 
terminates in the same State it shall not be deemed to be a
movement of goods from one State to another by reason merely 
of the fact that in the course of such movement the goods pass 
through the territory of any other State. 
5. When is a sale or purchase of goods said to take place in 
the course of import or export. 
(I) A sale or purchase of goods shat I be deemed to take place 
in the course of the export of the goods out of the territory of 
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India only ifthe 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 
1-1 
only if the sale or purchase either occasions such import or is
COMMISSIONER, DELHI VALUE ADDED TAX v. M/S. ABB 
LTD. [SHIVA KIRT! SINGH, J.] 
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 (I), the 
last sale or purchase of any goods preceding the sale or purchase 
occasioning the export of those goods out of the territory oflndia 
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." 
11. A Constitution Bench of this Court had the occasion to consider 
in the case of Mis. 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 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 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 oflnspections, Ministry ofW.H. 
& S., Madras, was provided for in the contract. It was his duty to 
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SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
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issue inspection notes on Form No. WSB.65 on receipt of a copy 
of the Inspection Certificate from the D.G.l.S.D. London and after 
verification and visual inspection. The goods were to be 
manufactured according to specifications by Mis La Brugeoies. 
ET. Nivelles, Belgium. 
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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 was 
incidental to the contract 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 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." 
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 ofBinani 
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 inspection by the buyer in India." 
In the same paragraph it was further highlighted with the help of a 
quotation from K.G. Khosla case (supra) that movement of goods 
imported 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 such goods being used by the assessee for any other 
purpose. In the next paragraph of the Report the peculiar facts ofBinimi 
Bros. (supra) were highlighted in the following words, " ..... 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.
COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB 
LTD. [SHIVA KIRTI SINGH, J.] 
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 
ofK.G Khosla (supra). A careful analysis of the facts in Binani Bros. 
(supra) leads to a conclusion that the case of West Bengal Sales Tax 
authorities in that matter that there were two sales involved in the 
transactions in question, one by the foreign seller to the assessee and the 
second by the assessee to the DGS&D, because there was no privity of 
contract between the DGS&D and the foreign sellers, was accepted 
mainly because the assessee was found entitled to supply the goods to 
any person, even other than DGS&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 similar right in respect of goods in K.G Khosla case 
(supra). Hence we are unable to accept the main contention of the 
appellant that this case is similar to that ofBinani Bros (supra). To the 
contrary, we agree 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 Khosla's case (supra). 
14. The legal principles enunciated in K.G Khosla (supra) have 
been reiterated in State of Maharashtra vs. Embee Corporation, 
Bombay7 and stand supported by the judgment in the case of Deputy 
Commissioner of Agricultural Income Tax and Sales Tax, 
Ernakulam vs. Indian Explosives Ltd.8, as well as in Indore Ltd. 
and Anr. vs. CTO & Ors.9 • 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 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 follows: 
1 1997 (7) sec 190 
• 1985 (4) sec 119 
• 2010 (9) sec 461 
613 
A 
B 
c 
D 
E 
F 
G 
H
614 
SUPREME COURT REPORTS 
[2016] 4 S.C.R. 
A 
"(I) Specifications were spelt out by bMRC; 
(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 
B 
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 
C 
of the subcontractors as well as the equipment/goods to be 
supplied by them were expressly stipulated; 
D 
E 
F 
G 
H 
(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." 
16. 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 tum 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 Khosla's 
(supra) case has rightly been applied to this case by the High Court. We 
find no reasons to take a different view. 
18. In the result the appeals are found without any merit and 
dismissed as such. The parties are, however, left to bear their own 
costs. 
Kalpana K. Tripathy 
Appeals dismissed.