Inter-unit clinker transfer within the same company for captive use treated as stock transfer, not taxable "sale"

Inter-unit transfer of clinker between two adjoining manufacturing units owned by the same juristic person constituted a "sale" for purposes of sales tax exemption. The HC held that a taxable sale requires transfer of property between distinct persons; mere movement of goods from one unit to another of the same entity for captive consumption remains a stock transfer, and "sale to oneself" is legally impermissible. Relying on the principle affirmed in an earlier HC precedent, the Court found that separate unit registration does not create separate legal personalities. Consequently, the transfer of clinker from one unit to the other was not exigible to tax as a sale, the exemption claim stood, and the tax revisions were dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether movement/transfer of clinker from one registered unit/division of the same company to another registered unit/division of the same company constitutes a "sale" attracting tax, or is merely a stock/branch transfer not exigible as sale.

(ii) Whether the Tribunal was justified in restoring the exemption by treating the clinker movement between the two units as a transfer and not a sale, thereby warranting no interference in revision.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Characterisation of inter-unit clinker movement as "sale" or "transfer"

Legal framework (as discussed/applied by the Court): The Court applied the principle that a sale requires transfer of property in goods by one person to another for consideration, and that there cannot be a sale "to oneself" unless acting in a different capacity. The Court adopted and applied the reasoning of the earlier precedent relied upon in the judgment to hold that separate units/divisions of the same juristic person are not "two persons" for this purpose.

Interpretation and reasoning: The Court proceeded on the admitted facts that both Unit-I (cement) and Unit-II (slag cement) were owned by the same juristic person; clinker produced in Unit-I was moved to the adjacent Unit-II for use as raw material; and the units were merely divisions/units of the same company, notwithstanding separate unit registrations/nomenclature. On these facts, the Court held that treating the movement as a sale was legally untenable because the supposed seller and buyer were not distinct persons. The Court also rejected the argument that separate registered units necessarily imply separate taxable "persons" for sale purposes, holding that mere existence of two registered units does not convert one company into two different persons. The Court further accepted that arranging affairs to reduce tax incidence is not, by itself, impermissible, and did not treat the inter-unit transfer as a colourable device on the facts found.

Conclusion: Transfer of clinker from one unit to another unit of the same company, for internal production use, is not a "sale" and cannot be taxed as such merely because the units have separate registrations or names.

Issue (ii): Sustainability of the Tribunal's order granting exemption and scope for interference

Legal framework (as discussed/applied by the Court): The Court assessed whether the Tribunal's conclusion flowed from the admitted facts and the applied legal principle that a sale requires two distinct persons.

Interpretation and reasoning: The Court found the Tribunal's reasoning consistent with the determinative factual matrix (common ownership; internal transfer for manufacturing; adjacency of units) and with the governing principle that there cannot be a sale to oneself. Because the foundational requirement of a sale was absent, the Court held the basis on which the revisional authority had denied exemption (by re-characterising the transfer as sale) could not stand. Consequently, the Tribunal's restoration of exemption for the clinker value in question was upheld.

Conclusion: No merit was found to interfere with the Tribunal's order; the revision was rejected and the exemption as allowed by the Tribunal stood affirmed.

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