2025 (9) TMI 1600 - AT - VAT / Sales Tax

Appeal allowed: Movements from factory to branches are stock transfers, not inter-State sales under s.3(a) of CST Act

M/s. Steel Authority of India Ltd. Versus State of Orissa & 23 Others

CESTAT (AT) allowed the appeal, set aside the Sales Tax Tribunal's order dated 29.06.2018 and held the movements from the appellant's Rourkela plant to ... Stock transfer or inter-State sales - movements of goods from the Rourkela Steel Plant of the appellant in the State of Odisha to its own branches in other States - section 3(a) of the CST Act - Sales Tax Tribunal, after remand of the matter by the Central Sales Tax Appellate Authority, has recorded findings contrary to the findings recorded by the Central Sales Tax Appellate Authority in the remand order or not - HELD THAT:- Section 3 of the CST Act deals with principles for determining when a sale or purchase of goods takes place in the course of inter- State trade or commerce. The order dated 15.03.2010 passed by the Central Sales Tax Appellate Authority had attained finality and so the findings recorded by the Central Sales Tax Appellate Authority would be binding on the Sales Tax Tribunal. The findings recorded by the Central Sales Tax Appellate Authority have been extensively referred and what transpires is that a categorical finding with regard to the TBS Scheme was recorded. The Central Sales Tax Appellate Authority observed that it was difficult to construe the TBS Scheme as constituting an offer of sale or having the attributes of a sale agreement. In fact, the Appellate Authority noted the TBS Scheme was a broad framework within which the regulated transactions had taken place. The Appellate Authority also noted that though the offer and ultimate agreement owe their origin to the Scheme, it would be wrong to characterize the TBS Scheme itself as spelling out an agreement of sale and merely because the objective of the TBS Scheme was stated to be to give a commitment to the customers regarding supply of materials against firm orders, it would not mean that it had resulted in offer, and acceptance had come into effect before the goods were dispatched. The Sales Tax Tribunal, after remand again examined the offer letter issued after the registration of demand by the appellant under the TBS Scheme and held that it is “nothing but an agreement of sale” of goods at a future date with the buyer although, through the branch office. The TBS Scheme examined by the Central Sales Tax Appellate Authority and the Central Sales Tax Tribunal is the same Scheme. The Central Sales Tax Appellate Authority, after a careful consideration of the TBS Scheme, rejected the contention of the State of Odisha that the TBS Scheme is in the nature of an offer for sale and it has all the nuances of an agreement to sell - The Appellate Authority held that it is difficult to construe the Scheme as constituting an offer. The Sales Tax Tribunal, therefore, could not have recorded a finding contrary to the finding recorded by the Central Sales Tax Appellate Authority on the TBS Scheme. The Sales Tax Tribunal, after remand, examined eight transactions, including that of Mechanical Wire Industries and held that the movement of goods was occasioned by the initial agreement of sale. The Sales Tax Tribunal also held that any variation in the quantity of goods offered and actually sold would, therefore, be of no consequence. The Sales Tax Tribunal also noted that the goods were despatched to the branch offices and merely because the branch office had a discretion to give quantity of goods to customers, over which the Rourkela Steel Plant had no control, would not dilute the position. In fact, emphasis was placed by the Sales Tax Tribunal on the fact that the process commenced with registration of demand followed by issuance of the offer letter and this became the agreement of sale and production was carried on and goods were then moved from the Rourkela Steel Plant to the branch office as a result of which the branch office acted as a conduit. After a detailed analysis of the documents on record, the Central Sales Tax Appellate Authority recorded a categorical finding of fact that the offer letter was actually given to the buyer after the wagon arrived at the branch and rejected the contention of the State of Odisha that the initial offer after the registration was an agreement to sell. It is for this reason that the Central Sales Tax Appellate Authority recorded a finding that “the documents throwing light on the transaction with Mechanical Wire Industries clearly negates the case of the assessing authority that there was an inextricable link between the contract of sale and the movement of goods pursuant thereto”. The movement of goods from the Rourkela Steel Plant to the branches were branch transfers and not inter-State sale. Movement of goods from the Rourkela Steel Plant to branches was always in bulk in full rake/wagon loads, independent of any contract of sale. The movement of goods from the Rourkela Steel Plant to the branches was never under any contract of sale at the branch or as a result of any covenant or as an incident of such contract. All the plant documents were always in the names of the branches and in none of the plant documents, there was any mention of any buyer at the branch or any registration or offer or order of any buyer at the branch - The branches were free and had full discretion to sell the goods to any buyer at the branch or to transfer the goods to any other branch. Such movement from the Rourkela Steel Plant to the branches had no nexus or link with any buyer at the branch. The Rourkela Steel Plant never dispatched goods to the branches for any buyer under the TBS Scheme or pursuant to or as an incident of any registration or pre-offer of any buyer at the branch. The inevitable conclusion is that the movement of goods from the Rourkela Steel Plant of the appellant to the branches is not by way of inter-State sales as contemplated under section 3(a) of the CST Act but is by way of stock transfer from the Plant to the branches. The order dated 29.06.2018 passed by the Sales Tax Tribunal, therefore, cannot be sustained and is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether movements of goods from the Rourkela steel plant to the appellant's own branches in other States under the Time Bound Supply (TBS) and Demand Registration Schemes constitute mere stock/branch transfers or inter-State sales within the meaning of section 3(a) of the Central Sales Tax (CST) Act. 2. Whether the Sales Tax Tribunal, on remand from the Central Sales Tax Appellate Authority (CSTAA), was entitled to record findings contrary to the CSTAA's remand observations regarding the nature and legal effect of the TBS scheme and the typical transactions examined. 3. Whether the burden under section 6A of the CST Act was discharged by production of branch declarations (Form F) and attendant documentary material such that movement should be treated as otherwise than by reason of sale. 4. Whether variations in documentary sequences (registration, pre-offer, final offer, delivery order, invoice, wagon numbers) in the typical transactions supported characterization as inter-State sales occasioning movement, or instead supported branch transfers. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation: stock/branch transfer vs inter-State sale under s.3(a) CST Act Legal framework: Section 3(a) CST Act deems a sale to be in the course of inter-State trade if the sale occasions movement of goods from one State to another. Essential ingredients drawn from authoritative principles: (i) existence of a contract of sale with stipulation regarding inter-State movement or sale antecedent to movement; (ii) actual movement pursuant to that contract such that sale is proximate cause of movement; (iii) movement concluding the sale in another State. A mere transfer to a branch for open-market sale (stock transfer) does not amount to inter-State sale. Precedent treatment: The CSTAA's remand order treated the TBS scheme as a broad regulatory/methodological framework and concluded the TBS scheme itself was not necessarily an offer/contract of sale; analysis of a representative transaction (Mechanical Wire Industries) led the CSTAA to find absence of an inextricable link between movement and contract. The Orissa High Court, in earlier references, had held similar transactions to be branch transfers for certain years and the Tribunal later followed those conclusions for other years. Interpretation and reasoning: The Court examined the operational facts: continuous bulk dispatches in full rakes from plant to branches; plant documents in branch name with no mention of identified buyers; branches manned by company personnel exercising independent discretion to sell/divert stock; final offers issued by branches after receipt or in transit specifying particular quantities and wagon numbers; invoices and local sales tax paid by branches. The Court emphasized that goods were standard, manufactured and dispatched as part of a central production/marketing programme and not pursuant to antecedent contracts binding the plant to a particular buyer. The CSTAA's detailed documentary analysis (particularly of Mechanical Wire Industries) showed effective offers leading to sale were made only after arrival at branch and that initial pre-offers/registrations were tentative. The Court found the Sales Tax Tribunal's view-that initial TBS offer constituted an agreement of sale antecedent to movement-contradicted the CSTAA's documentary findings and the established principles that sale must occasion movement. Ratio vs. Obiter: Ratio - Movement from plant to branches, on the facts, was not occasioned by a prior contract of sale and thus did not satisfy s.3(a) of CST Act; hence movements were stock transfers not inter-State sales. Obiter - observations about the broader operation of the TBS as a 'broad framework' may be persuasive beyond these facts but are ancillary to the decision. Conclusion: The Court concluded that movements from the plant to branches in the relevant assessment years were stock/branch transfers and not inter-State sales under section 3(a); accordingly, the Tribunal's contrary finding could not be sustained. Issue 2 - Authority of Sales Tax Tribunal to record findings contrary to CSTAA remand observations Legal framework: Where a matter is remanded by an appellate authority with specific observations and directions, the remand scope and earlier binding findings constrain further fact-finding; findings of the appellate authority on remand issues attain finality unless challenged. Precedent treatment (treatment in record): The CSTAA's remand order made explicit analytic findings (e.g., TBS not to be construed as an offer of sale; Mechanical Wire Industries transaction showed effective offer only after wagon arrival). That remand order was not challenged and attained finality. Interpretation and reasoning: The Court held that the Sales Tax Tribunal, on remand, could not record findings directly contrary to the CSTAA's categorical findings concerning the TBS scheme and the analysed transactions. The Tribunal's conclusion treating the TBS pre-offer as an antecedent agreement of sale conflicted with CSTAA's documentary conclusions (e.g., effective offer post-arrival). The Court stressed that in as much as the CSTAA had already discredited the 'inextricable link' and the characterization of TBS as an offer of sale, the Tribunal's contrary factual finding erred. Ratio vs. Obiter: Ratio - The Sales Tax Tribunal erred in recording findings contrary to the unchallenged CSTAA remand conclusions; such contradiction rendered the Tribunal's order unsustainable. Conclusion: The Tribunal improperly departed from binding remand findings; its contrary determination was set aside. Issue 3 - Burden of proof under s.6A CST Act and adequacy of Form F / documentary proof Legal framework: Section 6A places on the dealer the burden to prove movement was otherwise than by reason of sale; prior to statutory amendments a dealer could discharge burden by producing branch declarations (Form F) or other evidence of transfer; later amendments placed stricter consequences where Form F not produced. Precedent treatment: CSTAA observed that filing of Form F prima facie discharges the burden but urged comprehensive documentary analysis; the assessing/downstream authorities may inquire into documentary veracity and if satisfied record movement as otherwise than sale. Interpretation and reasoning: The Court noted that plant documents were in branch names and the appellant produced branch declarations and extensive documentary material showing post-arrival final offers, delivery orders, invoices, local tax payment. The State emphasised missing or non-produced internal documents and sought adverse inference. The Court applied principle that adverse inference may be drawn where party fails to produce documents within its control but found that on available record the documentary chain supported branch transfers. The Court also observed that for the relevant years Form F regime and evidentiary standards allowed discharge by declaration plus evidence; the appellant's documentary record sufficed to show transfers were to branches for stock and subsequent local sale, and the State failed to rebut by pointing to antecedent contract linking movement to sale. Ratio vs. Obiter: Ratio - Dealer's production of Form F and documentary evidence, in the circumstances of these transactions, discharged the burden under s.6A; absence of certain internal documents did not justify treating the movement as sale where the State failed to show antecedent contracts linking movement to sale. Conclusion: The appellant satisfied the burden under s.6A for the relevant years; the State's non-production of additional internal records did not alter the finding of branch transferrals on the material before the authorities and the Court. Issue 4 - Significance of documentary sequence (registration, pre-offer, final offer, delivery, wagon numbers) in determining nexus between sale and movement Legal framework: Determination of whether sale occasions movement requires scrutiny of temporal and causal nexus between contractual instruments and physical movement; mere antecedent registration or pre-offer does not automatically constitute binding contract; effective offer and acceptance must be temporally and causally connected to movement. Precedent treatment: CSTAA's analysis of Mechanical Wire Industries demonstrated the operative offer relied upon by purchaser was dated after wagon arrival, undermining inference that movement was occasioned by earlier pre-offer or registration. Tribunal's contrary approach treated central planning and dispatch plans as sufficient link to treat plant as seller. Interpretation and reasoning: The Court examined the typical transactions: pre-offers were tentative and subject to conditions and withdrawal; final offers specifying quantities, wagon numbers and inspection rights were issued after goods reached or were in transit to branches; delivery orders and invoices issued upon full payment from buyers and local tax paid by branches. The Court held that this sequence evidenced sale completion at branch level post-movement and therefore movement was not occasioned by antecedent sales contracts. The Tribunal's emphasis on internal central planning or apportionment to plant as creating an inextricable link was rejected as speculative and unsupported by plant documents which did not name buyers or contracts. Ratio vs. Obiter: Ratio - Where final operative contractual acts (offer acted upon, payment, delivery order, invoice) occur after arrival at branch, and initial pre-offers are conditional/indicative, the movement cannot be said to have been occasioned by antecedent sale; such documentary sequence supports classification as branch transfer. Conclusion: The documentary chronology in the typical cases supported the finding that effective sales were concluded at branch after movement; thus the movement was not occasioned by sale and remained branch transfer. Overall disposition The Court set aside the Sales Tax Tribunal's order treating the plant-to-branch movements as inter-State sales for the four assessment years in dispute and allowed the appeals, holding on the facts and documentary record that the movements were stock/branch transfers not inter-State sales under section 3(a), and that the Tribunal's contrary findings were untenable in light of the CSTAA's remand findings and the evidentiary record.