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

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 2989-3008 of 2016)Decided 5 Apr 2016
Civil Appeal Nos. 2989-3008 of 2016
Justice Dipak Misra · Justice Shiva Kirti Singh

Background

ABB Ltd. supplied transformers, switchgear, cables and SCADA systems to the Delhi Metro Rail Corporation (DMRC) under a contract requiring DMRC-approved suppliers, specifications, and inspection, with many components imported from abroad or moved in from ABB's plants in other states. The Delhi VAT department assessed ABB for VAT, interest, and a heavy penalty on these supplies, rejecting ABB's claim that the transactions were exempt as sales occasioned by import or by inter-state trade under the Central Sales Tax Act. The Delhi High Court overturned the VAT Tribunal's ruling against ABB, holding the movements were indeed integrally tied to the DMRC contract and therefore exempt from Delhi VAT.

Decision Breakdown

The Supreme Court upheld the High Court, applying the long-standing test from a Constitution Bench ruling (K.G. Khosla) that a sale counts as "in the course of import" or "inter-state trade" if the movement of goods is incidental to, or a necessary consequence of, the underlying supply contract, even without a direct privity of contract between the foreign/out-of-state seller and the final buyer. On the facts, DMRC had specified exact goods, approved specific suppliers (including named foreign manufacturers), mandated pre-shipment inspection, and reserved a right of rejection, showing the import/inter-state movement was clearly occasioned by and inseparable from the DMRC contract, just as in the Khosla precedent, and distinguishable from a rival precedent (Binani Bros.) where no such direct link existed. The Court also found the CAG/revenue authorities' interpretation did not undermine this conclusion and dismissed the Commissioner's appeals, leaving each side to bear its own costs.

Lesson Learnt

When a business imports goods or moves them across state lines specifically to fulfill a particular contract's requirements (specified suppliers, inspections, exact goods), those transactions can be exempt from local VAT as inter-state/import sales: direct privity between the ultimate buyer and the foreign/out-of-state seller is not required if the link to the contract is clear.

Official source (sci.gov.in)View Judgment (PDF)

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