Sales Tax — inter-State rolling-stock transactions of Railways · F2J-C-2919
Ministry of Railways v. Assessing Authority & Ors. and connected petitions
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Holding (ratio)
The challenged sales-tax assessments misconstrued the inter-State movement and contractual character of Railway rolling-stock transactions and could not sustain the aggregate demands on the stated jurisdictional basis.
Operative order (extract)
The connected petitions were allowed and sales-tax demands aggregating approximately Rs.533.79 crore were set aside.
Scope limits
The holding is confined to the issues actually decided in the retained judgment; no view is attributed to the court on questions expressly left open or remanded.
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Complete searchable judgment text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 31.07.2026
Judgment pronounced on: 02.09.2026
Judgment uploaded on: 02.09.2026
# CNR No. DLHC010684312006
+ W.P.(C) 13676/2006, CM APPL. 10593/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS. .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs.
# CNR No. DLHC010684482006
+ W.P.(C) 13696/2006, CM APPL. 10622/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS. .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs.
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 1 of 41
14:28:28
# CNR No. DLHC010684492006
+ W.P.(C) 13697/2006, CM APPL. 10624/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010684652006
+ W.P.(C) 13712/2006, CM APPL. 10651/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS. .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010687922006
+ W.P.(C) 14233/2006, CM APPL. 11173/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 2 of 41
14:28:28
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010690072006
+ W.P.(C) 14685/2006, CM APPL. 11551/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORTY & ORS .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010690232006
+ W.P.(C) 14704/2006, CM APPL. 11572/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 3 of 41
14:28:28
versus
THE ASSESSING AUTHORITY & ORS .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010692282006
+ W.P.(C) 15031/2006, CM APPL. 11931/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS. .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010692312006
+ W.P.(C) 15034/2006, CM APPL. 11940/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS. .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 4 of 41
14:28:28
Priyanka Jindal, Advs. for
GNCTD.
# CNR No. DLHC010692672006
+ W.P.(C) 15077/2006, CM APPL. 12014/2006
MINISTRY OF RAILWAYS .....Petitioner
Through: Mr. Chetan Sharma, ASG with
Ms. Rukhmini Bobde, Ms.
Archana Gour, CGSC with Ms.
Ridhima Gour, Mr. Vinayak
Aren, Mr. Deepu Kumar and
Ms. Aishwarya Nigam, Advs.
versus
THE ASSESSING AUTHORITY & ORS .....Respondents
Through: Mr. Balbir Singh, Sr. Adv. with
Mr. Sumit K. Batra and Ms.
Priyanka Jindal, Advs. for
GNCTD.
CORAM:
HON'BLE MR. JUSTICE ANIL KSHETARPAL
HON'BLE MS. JUSTICE SHAIL JAIN
JUDGMENT
ANIL KSHETARPAL, J.:
1. By way of this common judgment, this Court shall dispose of
ten connected Writ Petitions arising out of assessments made under
the Delhi Sales Tax Act, 19751 for the Assessment Years 1987-88 to
1996-97. The Petitioner in all the Writ Petitions is the Ministry of
Railways. The dispute concerns the levy of Sales Tax on rolling stock
financed through the Indian Railway Finance Corporation Limited2.
1
Hereinafter DST Act.
2
Hereinafter IRFC.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14:28:28
2. The Impugned assessments proceed on two distinct
transactions. According to the Respondents, the rolling stock was first
manufactured or procured by the Railways, which acquired ownership
thereof. The Railways thereafter transferred the rolling stock to IRFC
against the funds made available by IRFC. Upon acquiring ownership,
IRFC leased the same rolling stock back to the Railways against lease
rentals.
3. The Petitioner disputes the aforesaid characterisation.
According to it, IRFC was constituted for raising resources for
acquisition of rolling stock required by the Railways and the funds
were made available by IRFC for the said purpose. The Railways
asserts that, owing to its technical infrastructure and expertise, it
undertook the manufacture or procurement of the rolling stock and
performed the functions connected with its inspection, delivery and
commissioning. It is contended that there was no independent sale of
rolling stock by the Railways to IRFC. In the alternative, it is
submitted that the alleged sale was, in any event, not exigible to Sales
Tax in Delhi.
4. W.P.(C) 13676/2006, pertaining to the Assessment Year 1994-
95, has been treated as the lead matter. The assessment-year-wise
demands challenged in the present batch of Petitions are as under:
Assessment Assessed Amount Concerned
Years (In ₹) W.P.(C)
1987-88 53,74,51,587 13712 of 2006
1988-89 60,25,33,200 13696 of 2006
1989-90 75,08,17,000 15031 of 2006
1990-91 82,58,81,200 15034 of 2006
1991-92 66,18,31,160 15077 of 2006
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14:28:28
1992-93 51,50,43,960 14685 of 2006
1993-94 39,10,03,540 13697 of 2006
1994-95 24,66,40,860 13676 of 2006
1995-96 28,67,73,890 14233 of 2006
1996-97 51,99,45,220 14704 of 2006
Total: ₹ 533,79,21,617
5. IRFC was incorporated in December, 1986. The Cabinet Note
preceding its incorporation reflects that conventional sources of
financing were inadequate to meet the investment requirements of the
Railways. It envisaged IRFC raising resources through market
borrowings, acquiring rolling stock and leasing the same mainly to the
Railways. The funds mobilised through bonds were contemplated to
be utilised for acquiring assets required by the Railways, including
wagons.
6. The financing arrangement was thereafter considered by the
Committee of Secretaries in its meeting dated 16.12.1987. The
minutes recorded that one of the principal objectives of IRFC was to
purchase rolling stock and lease the same to Indian Railways. The
possible incidence of Sales Tax under this arrangement was also
considered, as was the feasibility of granting an exemption.
7. The parties subsequently executed a Lease Agreement dated
11.10.1996, under which IRFC is described as the Lessor and the
President of India, acting through the Ministry of Railways, as the
Lessee. The Agreement was executed at New Delhi and was made
operative with effect from 01.04.1993. It also describes the rolling
stock covered by it as being owned by IRFC.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14:28:28
8. Certain clauses of the Lease Agreement between the IRFC and
the Railways are material to the issues arising in the present Petitions
and are reproduced, insofar as relevant, as under:
4(a) The Lessor will be deemed to have acquired ownership of the Rolling
Stock leased to the Lessee from the first day of the month in which the
respective items of Rolling Stock were placed on line released to traffic.
Provided that in case the payment towards the cost of the Rolling Stock so
acquired by the Lessor has not been effected by the time the items of
Rolling Stock were placed on line/released to traffic, interest at the rate of
12.5% p.a. shall be deducted from the lease rentals payable to the Lessor
upto the time that the payment towards the cost of the Rolling Stock is
finally effected.
The months from which the respective items of Rolling Stock were placed
on line/released to traffic will be obtained from the Statements furnished
by the Ministry of Railways in this regard from time to time and the details
there from will be transcribed into Schedule-I to this Agreement.
LESSEE’S COVENANTS.
6(B) At all times, during the continuance of this Lease, the Lessee shall
(i) Keep the Rolling Stock in its possession and under its control.
(ii) Affix and keep affixed the letters IRFC and/or other mark(s) on the
Rolling Stock indicating and stating the sole and exclusive ownership
thereof is of the Lessor, either by stencilling or by embossing on a metal
plate, to be screwed on the rolling stock and not allow or permit the same
to be removed or defaced.
(iii) The Lessee shall not claim right, title or interest in the rolling stock
other than that of a Lessee under this Lease Agreement and shall not deny
the Lessor's ownership thereof.
7. The Lessee expressly declares and covenants that the Lessee shall have
no right, title or interest in or upon the Rolling Stock, or any part thereof,
save and except the rights relating thereto, as herein expressly granted.
8.1. The Lessor hereby appoints the Lessee as its agent for inspection, for
taking delivery from the manufacturers and for commissioning of the
Rolling Stock. The Lessor shall not be responsible or liable for any
damage to the Rolling Stock either in the process of delivery or in transit.
By accepting the Rolling Stock, the Lessee shall be deemed to have
examine the Rolling Stock and to have found it complete, in proper order
and condition and entirely fit for its purpose and the Lessee does not and
Signature Not Verified
Signed By:SAVITA
PASRICHA
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will not, at any time, have any claim against the Lessor in respect of or
arising out of the Rolling Stock.
15. For all purposes, the items of Rolling Stock covered by this Lease
Agreement as detailed in schedule-I annexed hereto should be deemed to
have been appropriated at Delhi/New Delhi where the administrative
offices of both the Lessor and the Lessee are located and where execution
of this Agreement has taken place.
9. The aforesaid provisions disclose four features of the
arrangement which assume significance in the present Writ Petitions.
First, Clause 4(a) fixes the point from which IRFC is to be regarded as
having acquired ownership of the rolling stock. Secondly, while
Clauses 6(B) and 7 recognise IRFC’s ownership, the physical
possession and control of the rolling stock remain with the Railways
as lessee. Thirdly, Clause 8.1 expressly recognises an agency in
favour of the Railways for the limited purposes of inspection, taking
delivery from the manufacturers and commissioning of the rolling
stock. Lastly, Clause 15 provides for deemed appropriation at
Delhi/New Delhi of the items covered by the Lease Agreement and
detailed in Schedule-I. The legal effect of these provisions upon the
alleged sale and its situs shall be considered at the appropriate stage.
10. The original Assessment Order dated 31.07.2000 for the
Assessment Year 1994-95 recorded that a Lease Agreement dated
07.02.1996 is stated to have been filed before the Assessing Authority.
A copy of the said lease agreement does not form part of the paper
books before this Court. Consequently, the terms of the Lease
Agreement dated 11.10.1996 cannot, without some supporting
material, be assumed to have governed every transaction during all the
Assessment Years in dispute.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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11. For the Assessment Year 1994-95, the original Assessment
Order dated 31.07.2000 was confined to 136 wagons purchased from
M/s Hindustan General Industries, Nangloi, Delhi (“HGI”) for an
amount of ₹16,18,40,000/-. Tax of ₹1,13,28,800/- and penalty of
₹1 crore were imposed, resulting in a demand of ₹2,13,28,800/-.
12. The earlier assessments for the Assessment Years 1987-88 to
1996-97, as also the reassessments for the Assessment Years 1987-88
to 1989-90, were challenged before this Court. By judgment dated
05.04.2004 in W.P.(C) No. 3496/1993 and connected matters,
captioned The Ministry of Railways vs. The Sales Tax Officer and
Ors., a Division Bench of this Court had noticed the competing stands
of the parties concerning the transactions between the Railways and
IRFC.
13. This Court had then observed that the relevant aspects had not
been examined by the Assessing Authority and that matters such as
“where the sales, if any, took place, who were the purchasers, who
were the manufacturers etc.” required consideration. It was further
noticed that Sections 23, 38 and 41 of the DST Act enabled the
Assessing Authority to call for documentary evidence from other
persons. The earlier Assessment Orders and reassessment orders were
accordingly quashed and set aside, and the Assessing Authority was
directed to decide the matter afresh, independently and in accordance
with law, without being influenced by the earlier findings. No opinion
was expressed on the merits.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14. Pursuant to the aforesaid judgment, fresh Assessment Orders
were passed on 30.09.2004 and 01.10.2004, as applicable. In the lead
Assessment Year, the fresh assessment was no longer confined to the
136 wagons procured from HGI. The Assessing Authority proceeded
in respect of 2,960 items of rolling stock having an aggregate value of
₹352,32,98,000/- and raised a demand of ₹24,66,40,860/-.
15. The fresh Assessment Order states that notices under Section 41
of the DST Act were issued to the Railways as well as IRFC for
production of books of account and other relevant documents and that,
despite opportunities granted, the complete books and documents
were not produced. The Order further attributes to an authorised
representative of IRFC a confirmation that the rolling stock had been
transferred from the Ministry of Railways to IRFC and that the
consideration stood adjusted against funds earlier provided by IRFC.
16. The Assessing Authority thereafter proceeded on the premise
that the Railways had manufactured or purchased the rolling stock,
taken possession thereof and transferred ownership rights to IRFC at
New Delhi against the amount received in advance from IRFC. The
entire value of ₹352,32,98,000/- was treated as turnover from local
sales to IRFC in Delhi.
17. The Petitioner thereafter invoked the revisional jurisdiction
under Section 47 of the DST Act. Vide Order and judgment dated
30.03.2006, the Additional Commissioner of Sales Tax dismissed the
revision petition and substantially affirmed the reasoning adopted in
the fresh Assessment Orders.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14:28:28
18. The Revisional Authority held, firstly, that the Ministry of
Railways answered the statutory description of a “dealer”, secondly,
that transfer of rolling stock by the Railways to IRFC against funds
advanced by IRFC constituted a “sale”, and thirdly, that the
transactions were liable to Sales Tax in Delhi. In reaching these
conclusions, reliance was placed upon the Railway production units,
statutory D Forms, the terms of the Lease Agreement, the funds
advanced by IRFC, contemporaneous Government letters and the non-
production of complete books of account by the Petitioner.
19. Aggrieved by the dismissal of its Revision Petition, the
Ministry of Railways thereafter instituted the present Writ Petitions in
2006. By order dated 30.08.2006, the impugned demands were stayed.
Rule D.B. was issued in 2008, and the interim protection was
continued till the disposal of the Writ Petitions.
20. This Court has heard learned counsel representing the parties at
length and perused the paper books as well as the written submissions
and synopsis filed by them.
SUBMISSIONS ON BEHALF OF THE PETITIONER
21. Ms. Rukhmini Bobde, learned counsel appearing for the
Petitioner, submits that the Railways cannot be treated as a dealer in
respect of rolling stock merely because it also sells scrap, condemned
material, coal ash or unclaimed goods in the course of its operations.
According to her, the decisions relied upon by the Respondents
concern goods which admittedly belonged to the Railways and were
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 12 of 41
14:28:28
thereafter sold for consideration. Those decisions, it is urged, do not
answer whether the financing arrangement with IRFC involved a sale
of rolling stock by the Railways to IRFC.
22. Learned counsel refers to the Cabinet Note preceding the
incorporation of IRFC to explain the genesis of the arrangement. She
submits that IRFC was conceived as the financing vehicle which
would mobilise resources, acquire rolling stock and lease the assets to
the Railways. Since the Railways possessed the specialised
infrastructure, manpower and technical expertise required for such
assets, it undertook, according to the Petitioner, the functions
connected with their manufacture or procurement, inspection, delivery
and commissioning.
23. Reliance is placed upon the Lease Agreement, particularly
Clause 8.1, under which the Railways was appointed as the agent of
IRFC for inspection, taking delivery from the manufacturers and
commissioning of the rolling stock. Learned counsel submits that the
Agreement recognises IRFC as the owner and the Railways as lessee
and contains no stipulation evidencing an antecedent sale of the
rolling stock by the Railways to IRFC.
24. Learned counsel further disputes the treatment of the funds
supplied by IRFC as consideration for an onward sale. According to
the Petitioner, the funds constituted finance made available in advance
for acquisition or manufacture of rolling stock and were available
even before particular assets were identified and adjusted against such
funds. The subsequent treatment of the rolling stock by IRFC as its
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 13 of 41
14:28:28
asset, including its claim of depreciation and receipt of lease rentals
from the Railways, is stated to establish IRFC’s ownership but not the
source from which such title was acquired.
25. Insofar as the transactions with HGI are concerned, learned
counsel points out that Sales Tax had already been paid at the stage of
procurement from that manufacturer. More importantly, it is submitted
that the D Forms and purchase documents relied upon by the
Respondents relate to the first transaction between the manufacturer
and the Railways and do not, by themselves, establish the alleged
subsequent sale by the Railways to IRFC.
26. On territorial taxability, learned counsel submits that the rolling
stock was manufactured or procured at different places across the
country and supplied for use at Railway destinations outside Delhi.
Even assuming a sale between the Railways and IRFC, it is contended
that the same could not be treated as a local sale in Delhi merely
because the administrative offices of the two entities were situated at
New Delhi. Reliance is placed upon Section 8 of the DST Act read
with Sections 3 and 4 of the Central Sales Tax Act, 1956 (hereinafter
referred to as the “CST Act”).
27. Learned counsel further points out that, for the lead Assessment
Year, the original assessment was confined to 136 HGI wagons valued
at approximately ₹16.18 crores, whereas the fresh assessment after
remand brought 2,960 wagons, valued at approximately ₹352.33
crores, to tax. It is contended that the fresh assessment travelled
beyond the scope of the Show Cause Notice. In any event, according
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 14 of 41
14:28:28
to the Petitioner, such substantial enlargement of the turnover required
the alleged sale and its taxability in Delhi to be established in respect
of the enlarged class of rolling stock.
28. Lastly, learned counsel submits that the Department did not
adopt the same position in subsequent Assessment Years despite
continuation of the financing arrangement between the Railways and
IRFC. According to her, such subsequent treatment supports the
Petitioner’s contention that the present transactions were wrongly
characterised as taxable sales.
SUBMISSIONS ON BEHALF OF THE RESPONDENTS
29. Per contra, Mr. Balbir Singh, learned Senior Counsel appearing
for the Respondents, submits that the Ministry of Railways falls
within the definition of a “dealer” under the DST Act. Reliance is
placed upon the definition of “business”, which expressly makes a
profit motive immaterial, and upon decisions of the Supreme Court
holding the Railways to be a dealer in relation to sales of scrap,
unserviceable material and unclaimed goods. Learned Senior Counsel
also refers to registrations obtained by the Railways as a dealer under
subsequent State VAT and GST enactments, though the same are
relied upon only to show the conduct of the Petitioner and not as the
source of the present levy.
30. According to the Respondents, the arrangement comprised two
distinct transactions. The Railways first manufactured rolling stock in
its own production units or purchased the same from private
manufacturers. Thereafter, the Railways transferred the rolling stock
Signature Not Verified
Signed By:SAVITA
PASRICHA
Signing Date:02.09.2026 W.P.(C) 13676/2006 and connected matters Page 15 of 41
14:28:28
to IRFC against the funds furnished by IRFC. IRFC consequently
became the owner of the assets, claimed depreciation thereon and
leased the same rolling stock back to the Railways against lease
rentals.
31. Learned Senior Counsel places considerable reliance upon
Clause 4(a) of the Lease Agreement, under which IRFC is deemed to
have acquired ownership only from the stipulated date on which the
respective item of rolling stock was placed on line/released to traffic.
According to the Respondents, the Railways’ possession and control
of the rolling stock, its responsibility for specifications, maintenance,
safety and commissioning, coupled with the subsequent vesting of
ownership in IRFC, support the conclusion that the Railways first held
the assets and thereafter transferred them to IRFC.
32. Reliance is further placed upon the statutory D Forms stated to
have been issued in the name of the Railways as evidence that the
Railways itself purchased the rolling stock from the manufacturers as
further indication that it was acting as a registered dealer.
Learned Senior Counsel also refers to the statement attributed in the
fresh Assessment Order to the authorised representative of IRFC
regarding transfer of rolling stock to IRFC and adjustment of
consideration against the funds already advanced. The coeval
Government letters, including communications in which the
transaction was described as a sale and exemption from Sales Tax was
considered or sought, is relied upon as corroborating the same
understanding.
Signature Not Verified
Signed By:SAVITA
PASRICHA
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14:28:28
33. On territorial taxability, learned Senior Counsel submits that the
sale was effected in Delhi. Reliance is placed upon the administrative
offices of both the Railways and IRFC being situated at New Delhi
and upon the communications quoted in the Revisional Order which
refer to the proposed sale/transfer taking place at Delhi. The
Respondents also rely upon Clause 15 of the Lease Agreement, which
provides for deemed appropriation of the rolling stock at Delhi/New
Delhi. Reliance is placed upon 20th Century Finance Corporation
Ltd. and Anr. v. State of Maharashtra3, in support of the aforesaid
submission.
34. Lastly, the Respondents have also contended that, in the
absence of any patent jurisdictional error or breach of principles of
natural justice, proceedings under Article 226 of the Constitution
ought not to be used for a fresh appraisal of commercial evidence.
Reliance in this regard is placed upon Assistant Commissioner of
State Tax v. Commercial Steel Ltd.4, and Commissioner of Income
Tax v. Chhabil Dass Agarwal5.
ANALYSIS AND FINDINGS
35. Three questions arise for consideration. First, whether the
Railways can answer the statutory description of a “dealer”. Secondly,
whether the transactions under consideration involved sales of rolling
stock by the Railways to IRFC. Thirdly, if such sales took place,
whether they were liable to tax in Delhi.
3
(2000) 6 SCC 12
4
2021 SCC OnLine SC 884
5
(2014) 1 SCC 603
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36. These questions must be answered in that order. The Railways
may be capable of being a dealer without every transaction undertaken
by it being a sale. Equally, the existence of a sale would not, by itself,
establish that the sale took place in Delhi.
37. The Respondents have relied upon Commercial Steel Ltd.
(supra) to contend that proceedings under Article 226 of the
Constitution should not be employed for a fresh appraisal of
commercial evidence. The proposition is unexceptionable. The present
challenge, however, concerns the legal character of the transactions
brought to tax and the statutory basis upon which they have been
treated as local sales in Delhi. The assessments were made pursuant to
an earlier remand by this Court, the Petitioner exhausted the revisional
remedy available under the DST Act, and the present Petitions have
remained pending since 2006, this Court, therefore, considers it
appropriate to examine the challenge on merits.
WHETHER THE RAILWAYS CAN BE TREATED AS A DEALER
38. The first submission of the Petitioner is that the Railways
cannot be treated as a “dealer” in respect of the rolling-stock
transactions under consideration. If the submission is that the
Railways, because it performs a public function or forms part of the
Union Government, falls outside the DST Act, it cannot be accepted.
39. Section 2(c) of the DST Act6 defines “business” in wide terms
and expressly makes the existence of a motive to make gain or profit
6
2. Definitions.—In this Act, unless the context otherwise requires,—
(c) “business” includes—
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immaterial. Section 2(e)7, while defining “dealer” as a person carrying
on the business of selling goods in Delhi, also includes the Central
Government when it carries on such business.
40. In District Controller of Stores, Northern Railway, Jodhpur v.
Assistant Commercial Taxation Officer8, the Supreme Court held that
the sale of scrap and unserviceable material by the Railways was
connected with or ancillary to its activity as a carrier. The Railways
was consequently held to be a dealer for the purposes of the concerned
sales-tax enactment.
41. The same principle was applied in Member, Board of Revenue,
West Bengal v. Controller of Stores, Eastern Railway9. The disposal
of unclaimed goods was held to be incidental to the Railways’
business as a carrier, while the sale of scrap and unserviceable
(i) any trade, commerce or manufacture or any adventure or concern in the nature of
trade, commerce or manufacture whether or not such trade, commerce, manufacture,
adventure or concern is carried on with a motive to make gain or profit and whether or
not any gain or profit accrues from such trade, commerce, manufacture, adventure or
concern; and
(ii) any transaction in connection with, or incidental or ancillary to, such trade,
commerce, manufacture, adventure or concern;
7
(e) “dealer” means any person who carries on business of selling goods in Delhi and includes—
(i) the Central Government or a State Government carrying on such business;
(ii) an incorporated society (including a co-operative society), club or association which
sells or supplies goods, whether or not in the course of business, to its members for cash
or for deferred payment or for commission, remuneration or other valuable consideration;
(iii) a manager, factor, broker, commission agent, del credere agent, or any mercantile
agent, by whatever name called, and whether of the same description as hereinbefore
mentioned or not, who sells goods belonging to any principal whether disclosed or not;
and
(iv) an auctioneer who sells or auctions goods belonging to any principal, whether
disclosed or not and whether the offer of the intending purchaser is accepted by him or by
the principal or a nominee of the principal;
8
(1976) 1 SCC 660
9
1989 Supp (2) SCC 236
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material was treated as covered by District Controller of Stores
(supra).
42. These decisions answer the question of statutory capacity. They
establish that the Railways is not immune from sales-tax legislation
merely because transportation is its principal function or because it is
a part of the Central Government. Equally, they do not establish that
every transaction involving Railway property is a sale.
43. The distinction is important. In both decisions, the goods
belonged to the Railways, and their sale for consideration was not in
dispute. The controversy was whether the activity of selling them
brought the Railways within the definition of a dealer. Here, the
anterior question is whether the rolling stock belonged to the Railways
in its own right and was thereafter sold to IRFC.
44. The first issue is accordingly answered in favour of the
Respondents. The Railways can very well answer the description of a
dealer under the DST Act. Whether it effected the sales sought to be
taxed is a separate question. Now it must be examined whether the
arrangement between the Railways and IRFC involved a transfer of
property in the rolling stock for consideration so as to constitute a
“sale” within the meaning of Section 2(l) of the DST Act.
WHETHER THE ALLEGED SALE BY THE RAILWAYS TO IRFC
HAS BEEN ESTABLISHED
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45. Section 2(l) of the DST Act10 defines “sale”, insofar as relevant
to the present case, as a transfer of property in goods by one person to
another for cash, deferred payment or other valuable consideration.
The levy in the present case, therefore, requires the Respondents to
establish that property in the relevant rolling stock vested in the
Railways and was thereafter transferred by the Railways to IRFC for
consideration.
46. The passing of property depends upon the intention of the
parties, gathered from the terms of their arrangement, their conduct
and the surrounding circumstances. Possession of the rolling stock,
responsibility for its specifications, inspection, insurance,
maintenance, transportation or commissioning are therefore relevant
circumstances in determining the intention of the parties, but none is
conclusive of ownership. Similarly, the fact that IRFC provided
finance before particular rolling stock was manufactured or identified
does not determine whether such funds represented financing for
acquisition of the assets or advance consideration for their subsequent
purchase from the Railways.
10
(l) “sale”, with its grammatical variations and cognate expressions, means any transfer of
property in goods by one person to another for cash or for deferred payment or for other valuable
consideration, and includes—
(i) a transfer of goods on hire-purchase or other system of payment by instalments, but
does not include a mortgage or hypothecation of, or a charge or pledge on, goods;
(ii) supply of goods by a society (including a co-operative society), club, firm or any
association to its members for cash or for deferred payment, or for commission,
remuneration or other valuable consideration, whether or not in the course of business;
and
(iii) transfer of goods by an auctioneer referred to in sub-clause (iv) of clause (e);
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47. At this point, it is necessary to take note of the difference in
transactions. Some rolling stock was obtained from private
manufacturers, and some rolling stock was manufactured in
production units belonging to the Railways. The same conclusion
cannot necessarily be applied to both.
48. Where a private manufacturer supplied rolling stock to IRFC
and the Railways acted on behalf of IRFC in procuring, inspecting,
taking delivery or commissioning it, property passed from the
manufacturer to IRFC. The intervention of the Railways in that
process did not give rise to an intermediate sale by the Railways.
49. The position would be different if the Railways purchased
rolling stock from a private manufacturer in its own right, acquired
title to it and thereafter transferred that title to IRFC against the funds
supplied by IRFC. In that event, the transaction between the Railways
and IRFC would answer the definition of a sale. Private manufacture,
alone, is therefore not conclusive. The capacity in which the Railways
made the purchase is important.
50. Rolling stock manufactured in Railway production units stands
on a clearer position. Where the Railways manufactured and owned
identified rolling stock, adjusted its cost against the funds supplied by
IRFC, and thereafter vested ownership in IRFC, the transaction
contained the essential elements of a sale. The absence of a separately
executed sale agreement or an invoice raised by the Railways would
not alter its legal character.
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51. A contract of sale need not assume any particular form. It may
be gathered from the arrangement between the parties and from the
manner in which they acted upon it. What matters is that the Railways
transferred property which belonged to it, and did so for consideration.
52. The governing distinction is therefore not merely between
private manufacture and Railway’s own manufacture. It is whether the
Railways held title in its own right immediately before IRFC became
the owner. Railway manufacture would ordinarily establish the first
part of that enquiry. In the case of privately manufactured stock, the
answer depends upon whether the Railways purchased as principal or
acted for IRFC.
53. The Impugned Orders did not maintain this distinction. They
proceeded on the position that all rolling stock manufactured or
procured through the Railway administration first belonged to the
Railways and was thereafter sold to IRFC. The material relied upon by
the Authorities must therefore be examined to determine how far that
conclusion can be sustained.
54. The material relied upon by the Authorities is not all of the
same evidentiary character. The Lease Agreement and the sample
purchase documents form part of the record before this Court. The D
Forms, the statement attributed to the authorised representative of
IRFC, the letter dated 31.08.1999 and certain earlier governmental
letters are known principally from the statements contained in the
Impugned Orders.
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55. Their absence as primary documents does not render those
recitals irrelevant. The findings recorded by the statutory Authorities
may be examined on their own terms. The difficulty arises when a
recital relating to one transaction has been employed to draw a
conclusion about the entire rolling stock financed over ten Assessment
Years.
56. The D Forms stated to have been furnished in the name of the
Railways in respect of purchases from HGI support the Respondents’
case that the Railways was the purchaser from that manufacturer. The
sample purchase documents also show that procurement was
undertaken through Railway authorities and that sales tax was charged
by the manufacturers.
57. This material concerns the first transaction, i.e, the supply made
by the private manufacturer. It does not, by itself, establish the second
transaction asserted by the Respondents, namely, a sale by the
Railways to IRFC. For that conclusion to follow, the record must
further show that the Railways acquired title in its own right and
thereafter transferred that title to IRFC for consideration.
58. Clause 8.1 of the Lease Agreement has a limited but material
bearing upon this enquiry. It appoints the Railways as IRFC’s agent
for inspection, taking delivery from manufacturers and commissioning
the rolling stock. The clause does not establish that the Railways acted
as IRFC’s agent when entering every procurement contract. At the
same time, it prevents physical receipt or possession of the stock from
being treated as conclusive proof of ownership in the Railways.
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59. The absence of an agency fee does not carry the matter further.
Section 185 of the Indian Contract Act, 1872 expressly provides that
consideration is not necessary for the creation of an agency. The
Revisional Authority was therefore not justified in rejecting the plea
of agency that the Petitioner raised merely because IRFC did not
separately remunerate the Railways for performing the functions
entrusted to it.
60. The communication dated 27.08.1992 describes rolling stock
obtained from outside agencies as having been procured on behalf of
IRFC. The document was issued after the tax dispute had arisen.
Nevertheless, its description of the arrangement is consistent with the
agency recognised in the Lease Agreement.
61. No uniform conclusion can therefore be drawn merely from the
fact that procurement was undertaken through the Railway
administration. Where the private manufacturer supplied the rolling
stock to IRFC and the Railways acted on its behalf, there was only one
sale, i.e. that made by the manufacturer. Where the Railways
purchased the stock in its own right and subsequently transferred it to
IRFC, there were two.
62. The second stage of the Respondents’ case finds some support
in the statement attributed by the Assessment Order to the authorised
representative of IRFC. According to the Order, the representative
confirmed that the rolling stock had been transferred by the Railways
to IRFC and that the consideration was adjusted against the funds
already supplied by IRFC.
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63. The Assessing Authority was entitled to take that statement into
account. Its reach, however, must remain confined to what the Order
records. The underlying statement has not been produced, and the
Order does not identify the items of rolling stock to which it related.
Nor does it indicate whether the word “transferred” was used to
describe a transfer of title by the Railways as owner or merely the
allocation of rolling stock against the finance provided by IRFC.
64. The letter dated 31.08.1999, as referred to in the Assessment
Order, likewise supports the existence of an adjustment between the
funds advanced by IRFC and identified rolling stock. Advance
payment is capable of constituting consideration for a sale, the fact
that the money was received before the goods were identified does not
prevent that conclusion. The letter does not, however, establish that
every item adjusted against those funds previously belonged to the
Railways.
65. The position of rolling stock manufactured in Railway
production units is materially different. Such stock was brought into
existence by the Railways in its own establishments. Clause 4(a)
further proceeds on the basis that IRFC acquired ownership only from
the stipulated date on which the particular item was placed on line or
released to traffic.
66. Read together, these circumstances show that IRFC was not
treated as the owner of Railway-manufactured stock throughout the
process of manufacture. The Railways held the stock before
ownership vested in IRFC. When identified stock was thereafter
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adjusted against the funds supplied by IRFC and treated as the
property of IRFC, property passed from the Railways to IRFC for
consideration.
67. Such transaction would answer the definition of a sale under
Section 2(l) of the DST Act. Its legal character would not depend
upon the execution of a separate sale agreement or the raising of an
invoice by the Railways. The arrangement, the adjustment of the
consideration and the passage of title are sufficient.
68. IRFC’s claim of depreciation and its receipt of lease rentals
reinforce the conclusion that it became the owner of the stock and
thereafter leased it to the Railways. Those circumstances do not
independently prove the source of IRFC’s title. In the case of
Railway-manufactured stock, however, that source is supplied by the
antecedent ownership of the Railways.
69. The same conclusion would apply to privately manufactured
stock where the Railways is shown to have purchased as principal and
thereafter transferred the stock to IRFC. It would not apply where the
Railways procured the stock on behalf of IRFC and never acquired
title in its own right.
70. The Authority in the Impugned Orders does not make this
separation. The entire value of rolling stock financed through IRFC
was treated as turnover arising from sales by the Railways without
identifying how much represented stock manufactured by the
Railways, stock purchased by the Railways in its own right, or stock
procured on behalf of IRFC.
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71. The difficulty is especially evident in the lead Assessment Year.
The original assessment concerned 136 wagons procured from HGI
for ₹16,18,40,000. After remand, the assessment was enlarged to
2,960 items of rolling stock valued at ₹352,32,98,000. The enlarged
amount was brought to tax without a corresponding separation of the
source and title history of the additional stock.
72. The failure of the Petitioner and IRFC to produce the complete
records sought by the Assessing Authority was a serious matter. The
Authority was entitled to draw an adverse inference and, where
necessary, undertake a best-judgment assessment.
73. An adverse inference may assist in determining disputed facts.
But it cannot make legally different transactions identical. Nor can a
best-judgment assessment dispense with identifying the class of
transactions which constitutes the taxable turnover.
74. The finding of sale can therefore be sustained in relation to
rolling stock shown to have been manufactured and owned by the
Railways before its transfer to IRFC. It can also extend to privately
manufactured stock shown to have been purchased by the Railways in
its own right and thereafter transferred to IRFC. It cannot extend to
stock procured by the Railways on behalf of IRFC.
75. Since the Impugned Orders brought all three classes to tax
together, the assessment of the entire financing amount as turnover
from sales by the Railways cannot be sustained in its present form.
The remaining question is whether the transactions which do
constitute sales were taxable in Delhi.
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WHETHER THE SALES WERE LIABLE TO TAX IN DELHI
76. The question of territorial taxability arises only in respect of
transactions which answer the description of sales by the Railways.
Once such a transaction is established, Section 6 of the DST Act
becomes material.
77. Section 6 of the DST Act11 places upon the dealer the burden of
proving that, in respect of any sale effected by it, no tax is payable
under the Act. The provision does not assist in proving the existence
of a sale. It operates after that threshold has been crossed.
78. This sequence is consistent with the decision in Haleema
Zubair, Tropical Traders v. State of Kerala12, the Supreme Court
while considering a reverse-burden provision under a sales-tax
enactment, held that its operation presupposed, firstly, a transaction of
sale and, secondly, a dealer as one of the parties to that transaction.
Section 6 operates on the same sequence. The existence of the sale
sought to be taxed must first be established, once that threshold is
crossed, the burden of proving non-liability, including a claim falling
under Section 8 of the DST Act, lies upon the dealer.
11
Burden of proof.—The burden of proving that in respect of any sale effected by a dealer he is
not liable to pay tax under this Act, shall lie on him.
12
Civil Appeal No. 6707/2008 decided on 19.11.2008
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79. Section 8 of the DST Act13 sets out the grounds upon which a
sale is excluded from the levy. It declares that the Act shall not impose
or authorise the imposition of tax upon a sale taking place in the
course of inter-State trade or commerce, outside Delhi, or in the
course of import or export. The Explanation requires those questions
to be determined in accordance with Sections 3, 4 and 5 of the CST
Act.
80. The effect of Sections 6 and 8 must be kept distinct. Section 6
identifies the person who must prove non-liability. Section 8, read
with the provisions of the CST Act, supplies the legal tests by which
that claim must be proved.
81. Section 3(a) of the CST Act treats a sale as taking place in the
course of inter-State trade or commerce where it occasions the
movement of goods from one State to another. The movement must
arise from a covenant of the contract of sale or be an incident of that
contract. That is the principle explained in Tata Iron and Steel Co.
Ltd. v. S.R. Sarkar14.
13
8. Certain sales and purchases not liable to tax .- Nothing in this Act or the rules made
thereunder shall be deemed to impose, or authorise the imposition of a tax on any sale or purchase
of any goods when such sale or purchase takes place-
(i) in the course of inter-State trade or commerce; or
(ii) outside Delhi; or
(iii) in the course of the import of the goods into, or export of the goods out of, the territory of
India.
Explanation .- Sections 3, 4, and 5 of the Central Sales Tax Act, 1956 (74 of 1956) shall apply for
determining whether or not a particular sale or purchase takes place in the manner indicated in
clause (i), clause (ii) or clause (iii) of this section.
14
(1961) 1 SCR 379
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82. Section 4 of the CST Act15 operates subject to Section 316. In
the case of specific or ascertained goods, the sale is treated as taking
place in the State where the goods were situated when the contract of
sale was made. In the case of unascertained or future goods, the
relevant place is where the goods were situated when they were
appropriated to the contract with the requisite assent.
83. The Petitioner relies upon the fact that the rolling stock was
manufactured or procured at different places across the country and
was dispatched for use at Railway destinations outside Delhi. Those
facts are relevant, but they do not establish that the alleged sale by the
Railways to IRFC occasioned that movement.
15
4. When is a sale or purchase of goods said to take place outside a State -
(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is
determined in accordance with sub-section (2) to take place inside a State, such sale or purchase
shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within
the State -
(a) in the case of specified or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of
sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such
appropriation.
Explanation - Where there is a single contract of sale or purchase of goods situated at more places
than one, the provisions of this sub-section shall apply as if there were separate contracts in respect
of the goods at each of such places.
16
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 during their movement from one
State to another.
Explanation 1. Where goods are delivered to a carrier or 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 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.
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84. The distinction between the two transactions again becomes
important. Movement from the premises of a private manufacturer to a
Railway destination may have been occasioned by the manufacturer’s
contract. That movement cannot, without further material, be
attributed to the separate sale alleged between the Railways and IRFC.
85. For the second transaction to qualify as an inter-State sale, the
Petitioner was required to connect the movement of the identified
rolling stock with the sale by the Railways to IRFC. Alternatively, to
establish a sale outside Delhi under Section 4 of the CST Act, it had to
show where the identified goods were situated at the relevant statutory
point.
86. The complete procurement contracts, statements of
appropriation, schedules of rolling stock and transaction-wise records
were not produced. The Petitioner did not identify which sale
occasioned movement from one State to another, where the goods
were situated when the relevant contract was made, or where future or
unascertained goods were situated when appropriated.
87. The fact that production units or private manufacturers were
situated outside Delhi did not, by itself, discharge that burden. Place
of manufacture and place of sale are not necessarily the same. Nor
does the subsequent use of the rolling stock outside Delhi establish
where the sale took place.
88. The Revisional Authority relied upon the location of the Head
Offices of the Railways and IRFC in New Delhi, the administrative
and financial control exercised from Delhi, the coeval correspondence,
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Clause 15 of the Lease Agreement and the failure of the Petitioner to
show that the transactions had been assessed in any other State.
89. Some qualification of that reasoning is necessary. The location
of the parties’ Head Offices does not, alone, determine whether a sale
was inter-State or where the goods were situated for the purposes of
Section 4 of the CST Act. Administrative control over a production
unit situated outside Delhi cannot notionally bring the goods produced
there into Delhi.
90. The absence of an assessment by another State is equally
inconclusive. A sale does not become taxable in Delhi merely because
no other State has brought it to tax. Taxability must arise from the
statute as applied to the transaction.
91. Clause 15 also cannot be treated as conclusive. It forms part of
the Lease Agreement between IRFC as lessor and the Railways as
lessee, whereas the transaction sought to be taxed is the antecedent
sale by the Railways to IRFC. A stipulation in the lease deeming
appropriation to have taken place at Delhi does not, by itself, establish
appropriation under the contract of sale.
92. The clause is subject to a further limitation. The Lease
Agreement available before this Court was executed on 11.10.1996
and made operative from 01.04.1993. In the absence of an identical
stipulation governing the earlier period, Clause 15 cannot bear upon
the Assessment Years 1987-88 to 1992-93. Schedule I to the Lease
Agreement, which was to identify the rolling stock covered by the
Agreement, is also not before this Court.
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93. The communications quoted in the Revisional Orders stand on a
somewhat different footing. The letter stated to be dated 15.07.1987
records that IRFC proposed to purchase the rolling stock at Delhi and
that the sale would be completed there. The Railway Board Note dated
06.03.1989 similarly describes the rolling stock as being deemed to
have been sold by the Railways to IRFC at Delhi.
94. These letters do not override Sections 3 and 4 of the CST Act.
They are nevertheless relevant to the manner in which the
arrangement was understood by the concerned authorities. In the
absence of transaction-wise material to the contrary, the Authorities
were entitled to consider them while examining whether the Petitioner
had discharged the burden placed upon it.
95. The reliance placed by the Respondents upon 20th Century
Finance Corporation Ltd. (supra), must also be kept within its proper
limits. That decision concerned the deemed sale arising from a
transfer of the right to use goods under Article 366(29-A)(d) of the
Constitution. The present levy concerns an ordinary sale involving a
transfer of property in rolling stock.
96. In State of A.P. v. National Thermal Power Corporation
Ltd.17, the Supreme Court reiterated that the situs attributed to a
transaction is immaterial once the sale answers the statutory test of an
inter-State sale. Neither State legislation nor a contractual stipulation
can convert an inter-State sale into an intra-State sale.
17
(2002) 5 SCC 203
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97. That principle would apply if the Petitioner established that the
sale by the Railways to IRFC occasioned inter-State movement. The
present record does not establish that connection in respect of the
transactions which otherwise answer the description of sales by the
Railways.
98. The deficiencies in the reasoning of the Revisional Authority
therefore do not, by themselves, establish the Petitioner’s plea of non-
liability. Once a sale by the Railways stood established, Section 6 of
the DST Act required the Petitioner to prove that the transaction fell
within Section 8 of the DST Act. A general reference to manufacture,
dispatch or use outside Delhi was insufficient for that purpose.
99. This Court is consequently unable to accept the Petitioner’s
contention that the transactions established as sales must be excluded
from the Delhi levy. The conclusion reached by the Revisional
Authority on taxability does not call for interference in respect of that
class of transactions, though the broader proposition that every item of
rolling stock financed through IRFC constituted a local sale in Delhi
cannot be sustained.
100. Territorial taxability is therefore not an independent ground for
setting aside the transactions otherwise shown to be sales by the
Railways. The defect in the Impugned Orders lies in their failure to
segregate those transactions from the rolling stock procured by the
Railways on behalf of IRFC.
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CONCLUSION AND DIRECTIONS
101. The result is neither that the entire financing arrangement was
taxable nor that it lay wholly outside the DST Act. Transactions
involving rolling stock owned by the Railways and thereafter
transferred to IRFC for consideration constituted sales. Transactions
in which the Railways procured rolling stock on behalf of IRFC did
not constitute sale.
102. The composite demands cannot be affirmed because the
Impugned Orders did not segregate these transactions. They treat the
entire rolling stock financed through IRFC as having first belonged to
the Railways and thereafter been sold to IRFC. That conclusion
cannot be sustained.
103. This Court cannot itself undertake the required segregation. The
source of each item of rolling stock, the capacity in which it was
procured, the manner in which its cost was adjusted against IRFC
funds and the point at which ownership vested in IRFC are matters
lying principally within the records of the Railways and IRFC.
104. The Court is conscious that the matters had earlier been
remanded on 05.04.2004. That remand required the Assessing
Authority to determine whether a sale had taken place, where it had
taken place, and whether the rolling stock had been purchased from
the manufacturers or from the Railways. The fresh assessments did
not produce the necessary segregation.
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PASRICHA
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105. A further unrestricted remand would therefore be neither useful
nor appropriate. It would reopen, nearly four decades later, the same
enquiry which the earlier remand had required the Authorities to
undertake. At the same time, the transactions found to constitute sales
cannot escape assessment merely because the taxable and non-taxable
classes were brought together.
106. There is also an institutional feature of the dispute which cannot
be overlooked. IRFC was created by the Union Government to finance
railway assets required by the Ministry of Railways. Yet the sales-tax
consequences of that arrangement have remained the subject of
litigation between public authorities since the Assessment Year 1987-
1988.
107. The possible incidence of sales tax was considered by
Committees of Secretaries in 1987 and 1989. During the pendency of
these Petitions, this Court had made sincere efforts through its Orders
dated 04.07.2007, 14.09.2007 and 05.03.2008 to enable the concerned
authorities to resolve the matter at an appropriate level. Those efforts
unfortunately did not bring the dispute to an end.
108. Liability to tax must, of course, be determined under the statute.
It cannot be created, waived or compromised merely because the
contesting parties are public authorities. Even so, continuation of this
inter-governmental dispute through another unrestricted round of
assessment and litigation would serve little public purpose when the
governing legal principles have now been settled and the remaining
exercise is principally one of identification and computation.
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109. The Court therefore considers it appropriate to afford the
concerned authorities one final, time-bound opportunity to place their
records together, segregate the transactions in accordance with this
judgment and resolve, to the extent permissible in law, the surviving
questions of classification and computation.
110. Accordingly, the Assessment Orders dated 30.09.2004 and
01.10.2004, as applicable to the respective Assessment Years, and the
Revisional Orders dated 30.03.2006 are set aside. The matters are
remitted to the Commissioner, Trade and Taxes, Government of NCT
of Delhi, for the limited determination directed hereinafter.
111. Within four weeks from the date of this judgment, a meeting
shall be convened between:
i. Member (Finance), Railway Board, or a senior officer
nominated by the Ministry of Railways;
ii. Principal Secretary (Finance), Government of NCT of
Delhi;
iii. Commissioner, Trade and Taxes, Government of NCT of
Delhi; and
iv. Chairman and Managing Director or Director (Finance),
IRFC.
112. The officers shall jointly prepare an assessment-year-wise
statement identifying:
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PASRICHA
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i. rolling stock manufactured in Railway production units
and transferred to IRFC;
ii. rolling stock purchased from private manufacturers by
the Railways in its own right and thereafter transferred to IRFC;
iii. rolling stock procured by the Railways on behalf of
IRFC;
iv. the value attributable to each class;
v. the documents or other material supporting the
classification; and
vi. the amounts deposited by the Petitioner and presently
retained by the Respondents.
113. The officers shall make a bona fide effort to arrive at an agreed
classification and computation within the framework of this judgment.
A jointly signed statement shall be placed before the Commissioner,
Trade and Taxes, within eight weeks. If agreement cannot be reached
upon any transaction or Assessment Year, the statement shall identify
the point of disagreement and briefly record the respective positions.
114. Upon receipt of the statement, the Commissioner, Trade and
Taxes, shall place the matters before an Assessing Authority
competent to exercise jurisdiction under the applicable enactment. The
Assessing Authority shall afford the Petitioner and IRFC a reasonable
opportunity of producing the relevant records and of being heard.
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115. The fresh exercise shall remain strictly confined to identifying
the transactions falling within the three classes specified in paragraph
112 and computing the liability arising from the transactions found to
constitute sales. It shall not reopen the legal conclusions recorded in
this judgment concerning the status of the Railways as a dealer, the
circumstances in which a transfer to IRFC constitutes a sale, or the
burden of proving non-liability under Sections 6 and 8 of the DST
Act.
116. The fresh determination shall also remain confined to the
turnover forming the subject matter of the respective Assessment
Orders set aside by this judgment. It shall not result in any further
enlargement of the assessed turnover.
117. The Assessing Authority shall pass separate, reasoned orders
for each Assessment Year within twelve weeks from the date on
which the statement contemplated in paragraph 113 is placed before
the Commissioner. The tax and other statutory consequences, if any,
shall be determined in accordance with law and the findings recorded
in this judgment.
118. The amounts deposited by the Petitioner and presently retained
by the Respondents shall remain subject to the fresh assessment
orders. Any liability determined thereunder may be adjusted against
those deposits. Any amount found to be in excess shall be refunded to
the Petitioner within eight weeks from the date of the respective fresh
assessment order.
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119. No recovery pursuant to the fresh assessment orders shall be
effected for four weeks from the date on which the orders are
communicated to the Petitioner. The Petitioner shall be at liberty to
avail such remedy against those orders as may be available in law.
120. The Writ Petitions are disposed of in the aforesaid terms. All
pending applications also stand disposed of.
ANIL KSHETARPAL, J.
SHAIL JAIN, J.
SEPTEMBER 02, 2026
sp/ad
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Disclaimer: Educational and research material only; not legal, tax, investment or professional advice. Verify the controlling court record, statutory version, jurisdiction and subsequent history.