2024 (4) TMI 467 - AT - VAT and Sales Tax

Movement from manufacturing unit to branch offices constitutes inter-state sales under section 3(a) CST Act, not branch transfers

State of Maharashtra Versus M/s. Beardsell Limited

CESTAT New Delhi held that movement of goods from respondent's manufacturing unit in Maharashtra to branch offices in other states constituted inter-state ... Rejection of branch transfer / Stock transfer of Goods - movement of the goods from the manufacturing unit of the respondent at Navi Mumbai in the State of Maharashtra to the branch offices in other States - sale taking place during the course of inter-State trade or commerce or whether it was a case of branch transfer by the respondent to its branches at Ahmedabad, Delhi, Coimbatore, Bangalore, Chennai, Cochin, Hyderabad and Visakhapatnam? - burden of proof - HELD THAT:- What transpires from the decision of the Supreme Court in Hyderabad Engineering [2011 (3) TMI 1427 - SUPREME COURT] is that for a sale to be in the course of inter-State trade or commerce under section 3(a), there must be a sale of goods and such sale should occasion the movement of the goods from one State to another. To find out whether a particular transaction is a inter-State sale or not, it is essential to see whether the movement of the goods from one State to another is a result of a prior contract of sale. Under section 6A, if the dealer claims that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business and not by reason of sale, then the burden of proving that the movement of goods was so occasioned shall be on the dealer. The mode of discharge of this burden of proof has also been provided in the form of a declaration in form ‘F’. However, if the department does not take advantage of the presumption under section 3(a), but shows a positive case of sale in the course of trade or commerce to make it liable to tax under section 6, the declaration in form ‘F’ under section 6A would be of no avail. When the ‘sale’ or ‘agreement to sell’ causes or has the effect of occasioning the movement of goods from one State to another, irrespective of whether the movement of goods is provided for in the contract of sale or not, or whether the order is placed with any branch office or any head office which resulted in the movement of goods, if the effect of such a sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility of tax under section 3(a). The Supreme Court in Hyderabad Engineering held that when the sale has the effect of occasioning the movement of goods from one State to another irrespective of whether the movement of goods is provided for in the contract of sale or not or whether the order is placed with any branch office or head office which resulted in movement of goods, it would be a case of inter-State sale resulting in exigibility of tax under section 3A of the CST Act. In Ashok Leyland [2004 (1) TMI 365 - SUPREME COURT], the Supreme Court held that where the purchaser places an order for manufacture of goods as per his specification, a presumption can be raised that agreement to sell had been entered into. MSTT was, therefore, not justified in restricting the stand of the respondent to just three transactions for which material had been placed by the State as it is not the case of the respondent that in other transactions, the process had changed. What follows from the aforesaid factual position stated by the respondent before CESTAT is that the movement of the goods had occasioned from the factory of the respondent to the branch offices because of the orders placed by the customers at the branch offices of the respondent - thus, it has to be held that the Deputy Commissioner was justified in holding that the transaction in the present case was not a case of branch transfer but of inter-State sale and MSTT committed an error in holding that except for three transactions worth Rs. 53,21,459/-, the remaining transaction would be of branch transfers. In view of the provisions of section 22B(1) of the CST Act, a direction would, therefore, have to be issued to the Deputy Commissioner to ascertain whether any additional amount is required to be deposited by the respondent and if so to recover the same from the respondent. A further direction is issued to the States to transfer the refundable amount to the State of Maharashtra - appeal allowed. Issues Involved:1. Whether the movement of goods from the manufacturing unit to branch offices constituted inter-State sales or branch transfers.2. The burden of proof regarding the nature of the transactions.3. The applicability of previous decisions by CESTAT and other courts.4. The validity of the assessment and the order passed by MSTT.Summary:1. Nature of Transactions:The core issue was whether the movement of goods from the respondent's manufacturing unit at Navi Mumbai to its branches in other states constituted inter-State sales or branch transfers. The Deputy Commissioner concluded that the movement was due to pre-existing orders placed by customers at the branch offices, thus qualifying as inter-State sales. This conclusion was based on a previous decision by CESTAT in the case of the respondent itself, which stated that the goods were moved due to specific customer orders.2. Burden of Proof:Under section 6A of the CST Act, the burden of proof lies on the dealer to show that the movement of goods was a branch transfer and not an inter-State sale. The respondent had filed 'F' forms, raising a presumption that the transfers were not inter-State sales. However, the MSTT held that the State failed to prove that transactions amounting to Rs. 1,56,38,695/- were not branch transfers, except for three transactions worth Rs. 53,21,459/-.3. Applicability of Previous Decisions:The Deputy Commissioner relied on the CESTAT decision, which had examined the manufacturing process and customer order placements, concluding that the movement of goods was due to pre-existing orders. The MSTT, however, found that the CESTAT decision pertained to the classification of pre-fabricated buildings and not directly to the nature of the transactions as branch transfers or inter-State sales. The MSTT's approach was criticized for not considering the consistent process admitted by the respondent before CESTAT.4. Validity of Assessment and MSTT Order:The MSTT's order was set aside by the Appellate Tribunal, which held that the Deputy Commissioner was justified in treating the transactions as inter-State sales. The Tribunal emphasized that the respondent could not take different stands before different authorities and that the movement of goods was occasioned by customer orders, thus qualifying as inter-State sales under section 3(a) of the CST Act.Conclusion:The appeal was allowed, and the order dated 26.04.2016 passed by the MSTT was set aside. Directions were issued to the Deputy Commissioner to ascertain any additional amount to be deposited by the respondent and to transfer any refundable amount to the State of Maharashtra.