W.P.(C) 13676/2006 and connected matters Page 1 of 41

$~

* 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.

W.P.(C) 13676/2006 and connected matters Page 2 of 41

# 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.

W.P.(C) 13676/2006 and connected matters Page 3 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 4 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 5 of 41

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

J U D G M E N T

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, 1975

1

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 Limited

2

.

1

Hereinafter DST Act.

2

Hereinafter IRFC.

W.P.(C) 13676/2006 and connected matters Page 6 of 41

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

Years

Assessed Amount

(In ₹)

Concerned

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

W.P.(C) 13676/2006 and connected matters Page 7 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 8 of 41

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

W.P.(C) 13676/2006 and connected matters Page 9 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 10 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 11 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 12 of 41

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

W.P.(C) 13676/2006 and connected matters Page 13 of 41

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

W.P.(C) 13676/2006 and connected matters Page 14 of 41

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

W.P.(C) 13676/2006 and connected matters Page 15 of 41

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

W.P.(C) 13676/2006 and connected matters Page 16 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 17 of 41

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 Maharashtra

3

, 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 Agarwal

5

.

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

W.P.(C) 13676/2006 and connected matters Page 18 of 41

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 Act

6

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—

W.P.(C) 13676/2006 and connected matters Page 19 of 41

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 Officer

8

, 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 Railway

9

. 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

W.P.(C) 13676/2006 and connected matters Page 20 of 41

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

W.P.(C) 13676/2006 and connected matters Page 21 of 41

45. Section 2(l) of the DST Act

10

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);

W.P.(C) 13676/2006 and connected matters Page 22 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 23 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 24 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 25 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 26 of 41

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

W.P.(C) 13676/2006 and connected matters Page 27 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 28 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 29 of 41

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 Act

11

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 Kerala

12

, 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

W.P.(C) 13676/2006 and connected matters Page 30 of 41

79. Section 8 of the DST Act

13

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. Sarkar

14

.

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

W.P.(C) 13676/2006 and connected matters Page 31 of 41

82. Section 4 of the CST Act

15

operates subject to Section 3

16

. 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.

W.P.(C) 13676/2006 and connected matters Page 32 of 41

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,

W.P.(C) 13676/2006 and connected matters Page 33 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 34 of 41

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

W.P.(C) 13676/2006 and connected matters Page 35 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 36 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 37 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 38 of 41

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:

W.P.(C) 13676/2006 and connected matters Page 39 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 40 of 41

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.

W.P.(C) 13676/2006 and connected matters Page 41 of 41

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