2025 (7) TMI 1405 - AT - VAT / Sales Tax

CESTAT Rules Stock Transfers Between Warehouses Are Not Inter-State Sales Under Section 6A CST Act

State of Maharashtra Versus M/s. Castrol India Ltd., State of Andhra Pradesh, State of Assam, State of Bihar, State of Chattisgarh, Union Territory of Delhi, Dadra and Nagar Haveli, State of Goa, State of Gujarat, State of Haryana, State of Jharkhand, State of Jammu and Kashmir, State of Karnataka, State of Kerala, State of Madhya Pradesh, State of Orissa, State of Punjab, State of Rajasthan, State of Tamil Nadu, State of Uttar Pradesh, State of West Bengal

State of Maharashtra Versus M/s. Castrol India Ltd., State of Andhra Pradesh, State of Assam, State of Bihar, State of Chattisgarh, Union Territory of ... ISSUES: Whether the movement of goods from the mother warehouse in one State to Carrying and Forwarding Agents (CFAs) in other States constitutes inter-State sales under section 3(a) of the Central Sales Tax Act, 1956 (CST Act) by virtue of discharge of pre-existing purchase orders.Whether such movement of goods qualifies as 'Stock Transfers' under section 6A of the CST Act, being transfers to other places of business or agents/principals without sale.The burden of proof and evidentiary requirements for claiming exemption under section 6A of the CST Act.Interpretation and application of Distributor Agreements and Agreements with CFAs in determining the nature of the transactions. RULINGS / HOLDINGS: On the issue of whether movement of goods from the mother warehouse to CFAs is inter-State sale under section 3(a), the Court held that such movement is not occasioned by discharge of pre-existing purchase orders but is made to maintain inventory levels, and thus does not fall within section 3(a) of the CST Act.The Court upheld that these movements constitute 'Stock Transfers' under section 6A of the CST Act, as the goods are transferred to other places of business or agents without sale, and the ownership of goods remains with the company.The burden of proving that the movement of goods was not by reason of sale lies on the dealer, who may discharge this burden by furnishing declarations in the prescribed form (Form F) under section 6A; failure to do so results in presumption of sale under section 3(a).Distributor Agreements and CFA Agreements demonstrate that the CFAs act as agents maintaining inventory per normative stocking levels, with appropriation of goods to specific orders occurring only at the CFA level, negating the existence of pre-existing purchase orders at the time of movement from the mother warehouse.The Sales Tax Tribunal's factual findings that movement of goods was for stock transfer and not pursuant to pre-existing orders were upheld as unchallenged and supported by evidence. RATIONALE: The Court applied the statutory framework of sections 3, 6, and 6A of the CST Act, emphasizing the distinction between inter-State sales causing movement of goods under a contract of sale (section 3(a)) and stock transfers without sale (section 6A).It relied on the Supreme Court precedent in Hyderabad Engineering Industries v. State of Andhra Pradesh, which clarified that for a transaction to be an inter-State sale under section 3(a), the movement of goods must be occasioned by a prior contract of sale, and that mere branch or stock transfers do not constitute sales.The Court examined the contractual terms in Distributor and CFA Agreements, which showed that CFAs maintain inventory on behalf of the company, and appropriation of goods to orders occurs only at the CFA level, supporting the stock transfer characterization.Precedents such as Tata Engineering, Kelvinator, CMS Computers, Keltech Energies, and Carlsberg India were applied to distinguish cases where movement of goods was linked to pre-existing sales orders from those involving stock transfers to branches or depots.The Court rejected the contention that automated purchase orders or credit-limit checks convert stock transfers into inter-State sales, holding that the movement from the mother warehouse to CFAs is independent of specific purchase orders.The Court noted the practical impossibility of servicing distributor orders directly from the mother warehouse due to transport and delivery timelines, reinforcing the necessity of maintaining inventory at CFAs.The factual findings of the Sales Tax Tribunal regarding the business structure, software norms, and inventory management were accepted as credible and decisive.No dissent or doctrinal shift was indicated; the decision follows established legal principles and precedents.