The judgment decides only L&T's Section 34 challenge to the 31.03.2014 arbitral award. It does not adjudicate any tax liability between either party and the revenue authorities, and it does not hold that all tax disputes are arbitrable — only contractual tax-reimbursement questions resolvable within the contract.
- Case
- Larsen & Toubro Limited v. Delhi Metro Rail Corporation Ltd.
- Court
- Delhi High Court
- Decision
- Citation
- 2026:DHC:9305
- Bench
- Om Prakash Shukla
- Judgment by
- Om Prakash Shukla, J.
- Case numbers
- O.M.P. (COMM) 257/2016
- Outcome
- Section 34 petition under the Arbitration and Conciliation Act, 1996 dismissed; the 31.03.2014 arbitral award (NIL award on the Rs.4,45,73,743 DVAT-reimbursement claim) stands undisturbed.
The dismissal
On 16 October 2026, the Delhi High Court dismissed Larsen & Toubro's petition under Section 34 of the Arbitration and Conciliation Act, 1996, leaving undisturbed a 31 March 2014 arbitral award that had given the company a 'NIL' award on its claim of Rs.4,45,73,743 as reimbursement of Delhi Value Added Tax paid on equipment supplied to the Delhi Metro Rail Corporation.
Justice Om Prakash Shukla held that the tribunal's view — that the supplies were effected in the course of inter-State trade or import and were therefore exempt from DVAT under Section 7 of the Delhi Value Added Tax Act, 2004 — was a plausible view on the record, and that a court hearing a Section 34 petition does not sit in appeal over an arbitral award.
The contract and the claim
The dispute arose from a contract dated 15 January 2008 under which DMRC engaged a consortium of Larsen & Toubro and M/s Furrer + Frey AG Ltd. for the design, supply, installation, testing and commissioning of a 25kV rigid overhead contact system and associated cabling for underground sections of the Central Secretariat–Green Park–Saket and Central Secretariat–Jangpura stretches of the Delhi MRTS Phase-II project. The contract was valued at Rs.43,36,75,791, USD 2,024,988 and Swiss Franc 54,94,930.
Clause 24(c)(ii) of the Special Conditions of Contract provided that 'DVAT/UP Trade Tax (if applicable) paid on all indigenous equipments including machinery and rolling stock, procured for this contract … will be reimbursed to the contractor on the basis of actual on submission of documentary proof of payment'. The reimbursement was thus conditional on DVAT being applicable in the first place.
L&T procured high-voltage and low-voltage panels and other equipment from outside Delhi — its supplier M/s Areva (India) imported the HV panels from M/s Areva in Germany — paid Rs.4,45,73,743 as DVAT on these items, and claimed reimbursement. DMRC had at one stage reimbursed a DVAT invoice of Rs.1,88,28,688 but later recovered it from L&T's running bills on the ground that DVAT was not applicable, and the arbitral tribunal rejected the reimbursement claim entirely, giving a 'NIL' award.
Was the tax question arbitrable at all?
L&T's threshold objection was that the applicability of DVAT is a sovereign function of the State and therefore not arbitrable. The Court tested this against the two heads carved out by a Division Bench of the Allahabad High Court in U.P. Public Works Deptt. v. Vriddhi Infratech India (P) Ltd. (2026 SCC OnLine All 22854).
Under 'Head A', disputes resolvable within the contract — inter se tax liability, who must bear or reimburse a tax, indemnity clauses — are arbitrable, because the arbitrator only interprets the contract and affects no third party. Under 'Head B', disputes requiring statutory fiscal determination — the rate of tax, classification of goods, whether a transaction is legally taxable, anything encroaching on the exclusive domain of the taxing authority — are not.
The Court held this dispute fell under Head A: the question was whether DVAT was applicable on the underlying transactions for the purpose of Clause 24(c)(ii)'s reimbursement promise — a contractual question about DMRC's reimbursement obligation, not a determination of tax liability against the revenue. It was therefore arbitrable.
The governing test: integral connection
Section 7 of the DVAT Act exempts sales taking place in the course of inter-State trade or commerce, outside Delhi, or in the course of import of goods into India. The Court applied the eight-factor test laid down by a Division Bench of the Delhi High Court in ABB Ltd. v. Commissioner, Delhi Value Added Tax (2012) 55 VST 1 — affirmed by the Supreme Court in CVAT v. ABB Ltd. (2016) 6 SCC 791 — in a materially identical DMRC traction-electrification contract.
The ABB factors ask whether DMRC spelt out the specifications, approved the suppliers, mandated pre-inspection, had the goods custom-made for its project, secured excise and customs duty exemptions for them, named sub-contractors in the project authority certificate, approved foreign suppliers, and had packed goods marked for DMRC's use.
The decisive inquiry, the Court said, is whether the movement of goods was 'integrally connected with the contract for their supply'. Following the Supreme Court in English Electric Company of India Ltd. v. Deputy Commercial Tax Officer, if there is a 'conceivable link' between the movement of the goods and the buyer's contract — the goods moving only to reach the buyer in satisfaction of his contract — the sale is deemed to take place in the course of inter-State trade or commerce.
Why the tribunal's view survived
The tribunal had found the nexus unbroken: DMRC approved Areva as supplier before the purchase order of 8 May 2008; the 20 September 2008 purchase order for HV panels was placed in DMRC's own name; the excise and customs invoices named DMRC as consignee; DMRC issued the customs exemption certificate in Areva's favour and reimbursed the import duty; and at a 30 January 2014 meeting L&T itself clarified that the materials were procured from outside Delhi. The Court found at least seven of the eight ABB conditions satisfied on this record.
L&T's attempts to distinguish ABB failed. That the import came through Areva rather than directly was 'of no avail': the relevant question is whether the movement was occasioned by or incidental to the DMRC contract, and the invoices bore DMRC as consignee. Nor did L&T's integration of the panels into commercially distinct 'sectioning and sub-sectioning posts' sever the nexus — what matters, the Court said, is the contractual nexus with the movement of goods, not the form in which the goods were incorporated.
Finally, the Court reiterated the Section 34 standard: it does not sit in appeal, cannot re-appreciate evidence, and must not interfere where the tribunal's conclusion is a plausible view on the material. 'Even mere incorrect application of law is not a ground sufficient enough to warrant interference.' No patent illegality going to the root of the matter was found.
Outcome and limits
The Section 34 petition was dismissed, pending applications were disposed of, and no order as to costs was made. The 2014 award — NIL on the Rs.4,45,73,743 DVAT-reimbursement claim — stands.
The judgment decides only L&T's challenge to the award. It does not adjudicate any tax liability between either party and the revenue authorities, and it does not hold that every tax dispute is arbitrable — only disputes about contractual tax-reimbursement promises that can be resolved within the four corners of the contract.
BANTHRY ANALYSISFor law students
Three ideas to carry away. First, Section 34 is a supervisory jurisdiction, not an appeal: the test is plausibility, not correctness, and even an incorrect application of law will not do. Second, tax disputes are not a single category for arbitrability — ask whether the dispute needs only the contract to be resolved (Head A, arbitrable) or needs the taxing statute to be interpreted (Head B, not arbitrable). Third, for inter-State and import sales, courts look for the 'integral connection' between the movement of goods and the contract: approved suppliers, named consignees, duty exemptions and custom-made goods all build that link, and an intermediary importer does not break it.
READING PROMPTSQuestions for a closer reading
- Why did the Court hold the DVAT-applicability question arbitrable despite L&T's 'sovereign function' objection?
- What facts established the 'integral connection' between the movement of the goods and the DMRC contract?
- What standard does a Section 34 court apply, and why could it not substitute its own view even if it disagreed with the tribunal?
