Inter-State sale by contract order: branch routing did not create stock transfer, and penalty reduction was set aside.

Goods moved from Tamil Nadu to identifiable buyers in Kerala pursuant to specific orders were held to be inter-State sales under section 3(a) of the Central Sales Tax Act, 1956, because the movement was occasioned by the contracts of sale; routing delivery through the Palghat branch did not convert the transactions into stock transfers, as the branch and head office were only offices of the same company. The Tribunal's contrary view was unsustainable. On penalty, the claim of exemption on a stock-transfer theory failed on the facts found, so the reduction of penalty to fifty per cent under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 read with section 9(2-A) of the Central Sales Tax Act, 1956 was set aside.

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Issues: (i) Whether despatches of cement from Tamil Nadu to identifiable ultimate buyers in Kerala, routed through the Palghat branch in some cases, amounted to inter-State sales under section 3(a) of the Central Sales Tax Act, 1956 or only stock transfers not exigible to tax; (ii) Whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 read with section 9(2-A) of the Central Sales Tax Act, 1956 could be sustained at fifty per cent of the tax due.

Issue (i): Whether despatches of cement from Tamil Nadu to identifiable ultimate buyers in Kerala, routed through the Palghat branch in some cases, amounted to inter-State sales under section 3(a) of the Central Sales Tax Act, 1956 or only stock transfers not exigible to tax

Analysis: The decisive factor was that the goods moved from Tamil Nadu to Kerala pursuant to specific orders placed by identifiable buyers, and the movement was occasioned by the contract of sale. The fact that the orders were placed through the branch office and that delivery was in some cases made through that branch did not alter the legal character of the transaction, because the head office and branch were merely offices of the same company and not distinct juridical persons. The movement of goods from the State of origin to the buyers in Kerala was therefore an incident of the sale and not a mere branch or stock transfer.

Conclusion: The transactions were inter-State sales exigible to tax under section 3(a) of the Central Sales Tax Act, 1956, and the Tribunal's view treating them as stock transfers was unsustainable.

Issue (ii): Whether penalty under section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 read with section 9(2-A) of the Central Sales Tax Act, 1956 could be sustained at fifty per cent of the tax due

Analysis: The returns disclosed the turnover, but a part of it was claimed as exempt on the footing that the movement was only stock transfer. On the facts found, the claim of exemption could not be accepted, and the statutory basis for reducing the penalty was not available. The minimum penalty prescribed by the provision could not be interfered with on the reasoning adopted by the Tribunal.

Conclusion: The reduction of penalty to fifty per cent was set aside and the penalty order did not survive.

Final Conclusion: The revisions failed to sustain the Tribunal's treatment of the disputed despatches as stock transfers and also failed to sustain the reduction of penalty, so the revenue's stand prevailed on both counts.

Ratio Decidendi: Where goods move from one State to another pursuant to identifiable buyers' orders and the movement is an incident of the contract of sale, the transaction is an inter-State sale even if delivery is routed through the seller's branch office; a branch of the same company does not create a separate legal identity to convert such movement into a stock transfer.

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