No DVAT reimbursement for Larsen and Toubro: Delhi HC upholds nil award in ₹4.45 crore Metro dispute
Justice Om Prakash Shukla held that the high and low voltage panels Larsen and Toubro bought through Areva for the Delhi Metro moved under a contract built around DMRC specifications, so the sales were inter-State and in the course of import, and no Delhi VAT was ever payable.
Larsen & Toubro paid ₹4,45,73,743 in Delhi Value Added Tax on the switchgear it supplied for two underground stretches of the Delhi Metro, and then spent the better part of fifteen years trying to get Delhi Metro Rail Corporation to pay it back. On 16 October 2026 the Delhi High Court ended that effort. Justice Om Prakash Shukla dismissed the company’s petition under Section 34 of the Arbitration and Conciliation Act, 1996 against a 2014 award that had rejected the claim in full. The panels at the centre of the dispute had come to Delhi from Allahabad, Kolkata and Germany under a contract written around DMRC’s own specifications, the judge held, so the sales were inter-State and in the course of import, and DVAT was never payable on them.
A clause that promised to reimburse DVAT, if applicable
DMRC awarded the contract on 15 January 2008 to a consortium of L&T and Furrer + Frey AG. The work was the design, supply, installation, testing and commissioning of 25kV rigid overhead contact system switching stations, with associated 25kV cabling, for the underground portions of the Central Secretariat–Green Park–Saket section of Line 2 and the Central Secretariat–Jangpura section of Line 6 of Delhi MRTS Phase-II. The price was ₹43,36,75,791 plus USD 2,024,988 and 54,94,930 Swiss francs, with a commencement date of 19 September 2007.
The Bill of Quantities listed what the contractor had to deliver and commission: contact wire, a sectioning post at Udyog Bhawan, sub-sectioning posts at Jorbagh and Green Park, traction cables from Central Secretariat to Saket, return conductors, a sub-sectioning and paralleling post at Central Secretariat, 25kV cables linking the traction power of Lines 2 and 6, and equipment for the Park Street and Airport traction substations.
Clause 24(c) of the Special Conditions of Contract said the quoted rates were inclusive of all taxes, levies and duties, with three exceptions. Customs and excise duties on equipment would be covered by exemption certificates. Haryana VAT was exempt under a 2006 notification. And, under sub-clause (ii), DVAT or UP Trade Tax if applicable, paid on indigenous equipment procured for the contract, would be reimbursed on actuals against documentary proof, over and above the unit rates. Those two words, if applicable, carried the entire dispute.
To build the sectioning and sub-sectioning posts, L&T needed high voltage and low voltage panels. It bought them from Areva (India), which had units at Allahabad and Kolkata. Since those were inter-State purchases, L&T issued Form C declarations and paid 2 per cent Central Sales Tax. Areva’s Allahabad unit had in turn imported the HV panels from Germany and paid customs duty, which DMRC reimbursed on proof. L&T then moved the panels, cables, contact wire and return conductors to the station sites, integrated them into the posts and other BOQ items, and invoiced DMRC for those items. Treating this as a fresh sale of a new commercial product in Delhi, it paid DVAT between 2008 and 2009 and submitted five invoices for reimbursement.
DMRC paid one of them. On 15 January 2010 it issued a cheque for ₹1,29,29,200, the net amount on an invoice of 9 March 2009 claiming ₹1,88,28,688 of DVAT for December 2008. It had also, on L&T’s uncontradicted account, been deducting works contract tax at source on those invoices under Section 36A of the DVAT Act. Then, on 3 March 2011, it recovered the gross sum of ₹1,38,22,788 from L&T’s running bill, on the footing that DVAT had never applied to these transactions.
L&T served a notice of dispute on 21 October 2011. A three-member tribunal was constituted on 1 June 2012. At a meeting before the tribunal on 30 January 2014, L&T clarified that it had procured the items from outside Delhi, so CST applied, and that the HV panels had come from Germany with customs duty already reimbursed. It had earlier claimed that some items like cables and contact wire were bought in Delhi and were undisputed; it now accepted they too had come from other States.
The award of 31 March 2014 rejected every claim. The tribunal found a direct link between L&T’s purchase orders and Areva’s import of HV panels for DMRC’s project, for which customs duty had been reimbursed. It held that L&T had erred in paying DVAT on material brought to Delhi from other States, so DMRC was not bound to reimburse it. On the one invoice DMRC had paid and then clawed back, the tribunal said a party could rectify a mistake without that amounting to an admission. Interest at 18 per cent was refused, both because nothing was awarded and because Clause 17.10 of the General Conditions of Contract barred interest for any period before the award. Costs were refused under Clause 17.11, which made each side bear its own. DMRC had filed no counterclaim, so the result was a nil award.
L&T argued the arbitrators had no business deciding whether DVAT was leviable
Mr Ramesh Singh, Senior Advocate, appearing with Mr Arpan Behl, Ms Rohini Roy and Ms Hage Nanya, attacked the award on two fronts.
The first was patent illegality. The tribunal, he said, had misread both the DVAT Act and Clause 24(c)(ii). L&T had to pay DVAT because the transaction was a sale under Section 2(zc) of the DVAT Act. Read with Clause 11.1.1 of the General Conditions, the reimbursement clause required only that tax be actually paid and proof furnished. The words if applicable merely identified which transactions during execution attracted DVAT or UP Trade Tax; they gave DMRC no discretion to refuse. Clause 35 of the General Conditions showed the intended route if DMRC thought a tax was not payable: pursue a refund from the tax department.
The second front was public policy. In deciding whether DVAT was leviable at all, the tribunal had taken on a sovereign function. Clause 17.3 let it resolve disputes arising out of the contract, and the applicability of a State tax was not such a dispute; parties could not by agreement confer jurisdiction on a forum the law did not recognise. The DVAT Act was a complete code with its own authorities, and Section 83 barred civil suits, which by implication barred arbitration too. Mr Singh cited H.P. SEB v. R.J. Shah, Vidya Drolia, A. Ayyasamy and Delhi Airport Metro Express v. DMRC, among others. He added that under Sections 26 and 31 of the DVAT Act a return filed on self-assessment is deemed an assessment by the Commissioner, so the award had in effect set aside an assessment order.
On the merits, he said the import of HV panels and the purchase of LV panels from Kolkata were not directly linked to the installation of the sectioning posts that the BOQ actually required. A sale in the course of import under Section 5(2) of the CST Act needs an integral connection between the import and the first sale that follows it. Areva had imported independently and then sold to L&T; there was no privity between DMRC and Areva, or between DMRC and the German exporter, and a third party dealing independently with the seller severs the link. He relied on K.G. Khosla, Indian Explosives, Binani Brothers, K. Gopinathan Nair and Coffee Board. The posts were a distinct commercial commodity built from the panels, not the panels themselves.
DMRC’s own conduct, he argued, proved the point. It had reimbursed DVAT on 15 January 2010 and deducted TDS under Section 36A, both of which treated the supply as a local sale. The recovery of 3 March 2011 was an afterthought that the tribunal wrongly characterised as a bona fide mistake, and DMRC was estopped from refusing reimbursement after L&T had kept paying DVAT in reliance on it. Finally, the Division Bench ruling in ABB Ltd v. Commissioner, Delhi VAT, on which DMRC leaned, was distinguishable: the contractor there imported directly, the goods were sold to DMRC as they were, and what was procured was identical to what was supplied. Here the panels were bought from an independent importer and transformed into something else.
For DMRC, Mr Tarun Johri, with Mr Ankur Gupta and Mr Vishwajeet Tyagi, began with jurisdiction. It was L&T that invoked arbitration, and it never filed an application under Section 16 questioning the tribunal’s competence; Narayan Prasad Lohia and S.N. Malhotra v. Airport Authority of India shut that door. What remained was contractual interpretation, and under ONGC v. Saw Pipes a Section 34 court intervenes only when the tribunal’s reading is not a plausible one. Clause 24(c)(ii) made DMRC liable only for DVAT that applied. Under Section 7 of the DVAT Act an import attracts no DVAT, and the link between Areva’s import and L&T’s sale was direct because the goods were custom-made for DMRC; without the contract, those goods would never have been imported. The tribunal, made up of people with engineering backgrounds, had considered the integration argument and rejected it. If L&T truly sold a new product, it should have invoiced the posts after value addition rather than itemising the BOQ components.
In rebuttal Mr Singh said the invoices priced the work done in modifying the procured items and the labour of installation, and showed a break-up of the BOQ items only for reference. The goods were merely approved by DMRC as inputs; what emerged after assembly was a distinct product, and a distinct product is a distinct subject of levy. ABB did not involve a works contract and the goods there were supplied as they were, with no value added.
Why the tax question was arbitrable
Justice Shukla said the settled scope of Section 34 needed no restatement. The short question was whether DMRC was liable to reimburse under Clause 24(c)(ii), and the anterior question was whether DVAT applied at all.
He dealt first with the objection that an arbitrator could not decide that anterior question. He drew on a 2026 Division Bench ruling of the Allahabad High Court in U.P. Public Works Department v. Vriddhi Infratech India, which sorted tax disputes into two heads. Head A covers disputes that can be resolved within the contract: which party is contractually liable to pay or deposit a tax, which party is entitled to reimbursement of tax paid, indemnity and tax-sharing clauses, and the meaning of phrases such as inclusive of all taxes. Those are arbitrable. Head B covers questions that would trespass on the taxing authority’s exclusive domain: whether a transaction is legally taxable, classification under a tariff entry, the applicable rate, eligibility for a statutory exemption, and any dispute between a contracting party and the State. Those are not. In the Allahabad case the parties agreed GST was payable and fought only over how it should be computed.
The present case, the judge held, turned on Clause 24(c)(ii), a clause that provided for reimbursement by DMRC of any DVAT paid, if applicable. A dispute over whether that contractual promise to reimburse had been triggered fell under Head A, and was arbitrable.
Eight markers from the ABB case, and seven of them present
The judgment then set out the framework for deciding where a deemed sale in a works contract takes place. Article 366(29A)(b) of the Constitution, as it stood before the 105th Amendment, brought the transfer of property in goods involved in executing a works contract within the State’s taxing power. Section 2(zo) of the DVAT Act and Section 2(ja) of the CST Act both define a works contract to include installation, erection and commissioning. Section 7 of the DVAT Act then carves out any sale that takes place in the course of inter-State trade, outside Delhi, or in the course of import, and borrows Sections 3, 4 and 5 of the CST Act to decide which is which. A sale is inter-State under Section 3 if it occasions the movement of goods from one State to another; it is in the course of import under Section 5(2) if it occasions that import.
Two Supreme Court decisions supplied the test for the deemed sale itself. Aristo Printers v. CTT (2025) held that property passes when goods are incorporated in the works, and that the goods need not survive in the final product in any recognisable form. The three-judge bench in Larsen & Toubro v. State of Karnataka (2014) laid down three conditions: there must be a works contract, the goods must be involved in its execution, and property in them must pass to a third party, as goods or in some other form.
The decisive authority was ABB Ltd, a Division Bench ruling of the Delhi High Court on a DMRC contract for traction electrification and power supply, affirmed by the Supreme Court in Commissioner of VAT v. ABB Ltd (2016). The Division Bench had asked how integrally the movement of goods was connected with the contract for their supply, and found eight features that answered it: DMRC spelt out the specifications; DMRC approved the suppliers; pre-inspection was mandated; the goods were custom-made for DMRC’s project; excise and customs exemptions were granted for those goods; the project authority certificate named the sub-contractors and their equipment; DMRC certified its approval of foreign suppliers; and the packed goods were marked as meant for DMRC. On those facts the movement, inter-State or from abroad, was within the parties’ contemplation, and the goods could not have been diverted to any other purpose.
Justice Shukla found that at least seven of the eight conditions were satisfied on the record here, and that the tribunal itself had catalogued them at paragraph 6.2.9 of the award. DMRC had set the technical specifications. It had approved the supply of goods. Pre-inspection was required under Clauses 7.3 and 19 of the General Conditions. The design and drawings for the custom-made items had been approved by DMRC. DMRC had issued excise and customs exemption certificates. It had certified its approval of the German supplier. And the packed HV and LV panels named DMRC as consignee. The purchase order of 20 September 2008 for the HV panels recorded that they were required for DMRC’s rigid overhead contact system, and Areva’s excise and customs invoices carried DMRC’s name and address as consignee. The tribunal had also recorded L&T’s own clarification at the meeting of 30 January 2014 that the indigenous material came from outside Delhi and was subject to CST.
Neither of L&T’s attempts to distinguish ABB succeeded. That the contractor in ABB imported directly made no difference, because the relevant inquiry was whether the movement of goods was occasioned by or incidental to the contract between L&T and DMRC, and here the order was placed by L&T with DMRC named as consignee. The ABB bench had asked whether the movement was “integrally connected with the contract for their supply”, and the judge found that connection present. Nor did integration into sectioning posts help. ABB was itself a works contract for installing and commissioning electrical systems for DMRC. What mattered was the contractual nexus with the movement of the goods, not the form in which they were eventually incorporated, and incorporating the panels into the posts did not sever that nexus. The judge closed with the Supreme Court’s formulation in English Electric: where there is a conceivable link between the movement of goods and the buyer’s contract, and the goods move only to reach the buyer in satisfaction of that contract, the sale is in the course of inter-State trade.
Order
The Court held that no ground under Section 34 was made out. The award reflected application of mind to the material on record, and its conclusion was a plausible view; the judge added that “mere incorrect application of law is not a ground sufficient enough to warrant interference”. The Court could not re-appreciate the evidence to reach another equally plausible view. The tribunal had not rewritten the contractual bargain and there was no patent illegality going to the root of the award.
The petition was dismissed. Pending applications were disposed of. There was no order as to costs. The matter had been reserved on 20 July 2026 and was pronounced on 16 October 2026.