COMMISSIONER, DELHI VALUE ADDED TAXversusM/S. ABB LTD.

                            [2016] 4 S.C.R. 600



A              COMMISSIONER, DELHI VALUE ADDED TAX
                                        v.
                                 MIS. ABB LTD.
                    (Civil Appeal Nos. 2989-3008 of2016)
                              APRIL 05, 2016
B
                [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
c   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
D   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
E
    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
F   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;
G           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.
H
                                  600
/ COMMISSIONER, DELHI VALUE ADDED TAX v, MIS. ABB                    601
                       LTD.

      2. In view of the salient features flowing out as conditions   A
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
                                                                      B
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                c
       1966 SC 1216 - followed.
       State of Maharashtra v. Embee Corporation, Bombay
       1997 (3) Suppl. SCR 497 : 1997 (7) SCC 19; Deputy
       Commissioner ofAgricultural Income Tax and Sales Tax,
       Ernakulam v. Indian Explosives Ltd. 1985 (2) Suppl.            D
       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.            E
                       Case Law Reference
       (1966) 3 SCR 352            followed             Para2
       1974 (2) SCR 619            held inapplicable    Para2
       1961SCR379                  relied on            Para9         F
       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       G

       1985 (2) Suppl. SCR 623 relied on                Para 14
       2010 (11) SCR 556           relied on            Para 14
      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2989-
3008 of2016.                                                          H
602            SUPREME COURT REPORTS                           [2016] 4 S.C.R..--.


A           From the Judgment and Order dated 28.09.2012 of the High Court
      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,
B     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
c     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
D     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
 E
      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').
 F           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)
G
      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
H     '(1974) 1sec459
 COMMISSIONER, DELHI VALUE ADDED TAX v. M/S. ABB                              603
~         LtD. [SHIVA KIRTI SINGH, J.]

High Court on the basis of admitted facts are supported by the principle      A
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.
                                                                               B
       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               c
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              D
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          E
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          F
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.                                                    G

       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    H
604             SUPREME COURT REPORTS                           [2016] 4 S.C.R.


A     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
B
      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
c     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
D     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
 E    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
 F    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
G     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
H     testing after supply, prompted the High Court to accept the contentions
  COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB                             605
           LTD. [SHIVA KIRTI SINGH, J.]

advanced on behalf of respondent that the transactions leading to import      A
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            B
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
                                                                               c
      (SCADA, 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:                                              D
            "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        E
      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
          thousand) it will be obligatory on the part of the Contractor to     F
          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       G
          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:
                                                                               H
606   SUPREME COURT REPORTS                          [2016] 4 S.C.R.



A        (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       (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
                                                           '
c       (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
D     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:
E
         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
 F    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."
G     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
H
COMMISSIONER, DELHI VALUE ADDED TAX v. M/S. ABB                            607
         LTD. [SHIVA KIRTI SINGH, J.]

     documents submitted by the Contractor, nor any approval by            A
     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         8
     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               C
     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             D
     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         E
     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,         F
     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:                                                        G
     "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.
                                                                            H
608         SUPREME C6URT REPORTS                        [2016] 4 S.C.R.


A
      I.   40 MVA 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
B
           Breakers
      4.   66 KV Capacity Voltage      Mis. ABB Limited, Vadodara
           Transformer
      5.   66 KV Current               Mis. ABB Limited, Italy
           Transformer
c     6.   66 KV/25 KV Isolators       Mis. Switchgear and Structural
                                       Limited, Hyderabad
      7.   60 KV/42KV lighting         Mis. Elpro International Ltd.,
           arresters                   Pune

D     8.   Contr:ol and Relay panels   Mis. ABB Limited, Bangalore

      9.   SCADA Systems               Mis. ABB Limited, Bangalore

      10. MY Switchgear                Mis. ABB Limited, Nashik
E     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
          KVA Dry Type Auxiliary       Colombia, Italy
F         Transformer
      14. 66 KV/33 KV/25 KV HT         Mis. ILJIN, Korea
          Cable
      15. LV Cables (power and         Mis. KEI Industries, Bhiwadi
          control)
G     16. 66/33/25 KV Cable            Mis. Tyco, Germany
          Termina~ons and joints

      17. Ms. Round                    Mis IISCO, Kolkata
      18. Cable Trays/Earthing         Mis. Techno Engg. Co,
          materials/Electrodes.        Chandigarh
H
  COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB                                 609
           LTD. [SHIVA KIRTI SINGH, J.]

         9. So far as the issue in respect of sale in the course of inter-state   A
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
                                                                                   B
 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         c
 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 3 that where the goods moved
                                                                                   D
 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                  E
 Viscose Ltd. v. State of Tamil Nadu 6 •
         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
                                                                                   F
 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            G
  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
   ( 1981) 48 STC 232 (SC)= (1981) 3 sec 457
6
                                                                                   H
610            SUPREME COURT REPORTS                          [2016] 4 S.C.R.


A     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.
8
             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
c           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
D           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
E           from such carrier or bailee.
            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.
 F
            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
G            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                             611
           LTD. [SHIVA KIRT! SINGH, J.]

      effected by a transfer of documents of title to the goods before         A
      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         B
      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 ofthis Court had the occasion to consider
in the case of Mis. K.G Khosla & Co. (supra) whether sales in that             c
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       D
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     E
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            F
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                  G
       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      H
612             SUPREME COURT REPORTS                           [2016] 4 S.C.R.


A           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.
B           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 was
c           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
D           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
E     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."
 F    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
G     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
H     the petitioner.
    COMMISSIONER, DELHI VALUE ADDED TAX v. MIS. ABB                          613
             LTD. [SHIVA KIRTI SINGH, J.]

       13. There is no difficulty in holding that Binani Bros. (supra) did A
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
                                                                             B
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 c
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
                                                                             D
(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 E
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          F
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    G
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                                                            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;
             (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.
D
             (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.
E
             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
F     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
G     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.
H