Inter-State sale over branch transfer: purchase orders and linked documents determine tax treatment, while penalty needs proper notice.

Movement of butter from Maharashtra to the Haridwar branch was treated as an inter-State sale under section 3(a) of the Central Sales Tax Act because contemporaneous purchase orders, invoices, stock transfer challans, lorry receipts, Form F documents, emails, employee statements and the supply agreement showed dispatch pursuant to specific buyer orders, while the dealer failed to prove a branch transfer under section 6A. The proposed penalty under section 29(3) of the Maharashtra Value Added Tax Act read with section 9(2) of the Central Sales Tax Act was unsustainable because no proper show cause notice specifically proposed penalty. Relief under section 22(1B) was indicated for adjustment or refund of tax collected in the destination State.

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Issues: (i) Whether the movement of butter from the appellant's factory in Maharashtra to its Haridwar branch in Uttarakhand was a branch transfer under section 6A of the Central Sales Tax Act, 1956, or an inter-State sale occasioned by purchase orders under section 3(a) of that Act; (ii) whether the penalty imposed under section 29(3) of the Maharashtra Value Added Tax Act read with section 9(2) of the Central Sales Tax Act, 1956 was sustainable and whether relief could be granted under section 22(1B) of the Central Sales Tax Act, 1956.

Issue (i): Whether the movement of butter from the appellant's factory in Maharashtra to its Haridwar branch in Uttarakhand was a branch transfer under section 6A of the Central Sales Tax Act, 1956, or an inter-State sale occasioned by purchase orders under section 3(a) of that Act.

Analysis: The governing test under section 3(a) is whether the movement of goods from one State to another is the result of a prior contract or covenant of sale. Section 6A places the burden on the dealer to prove that the movement was otherwise than by sale. On the material on record, the purchase orders, invoices, stock transfer challans, lorry receipts, Form F documents, email correspondence, employee statements and the purchase agreement showed that goods were manufactured and dispatched in response to specific purchase orders from Patanjali. The agreement also showed supply on specified terms and delivery at the destination point, with quality control and rejection rights at the buyer's end. Mere testing at Haridwar did not amount to appropriation there so as to convert the transaction into an intra-State sale in Uttarakhand.

Conclusion: The movement was correctly treated as an inter-State sale under section 3(a), and the claim of branch transfer under section 6A failed.

Issue (ii): Whether the penalty imposed under section 29(3) of the Maharashtra Value Added Tax Act read with section 9(2) of the Central Sales Tax Act, 1956 was sustainable and whether relief could be granted under section 22(1B) of the Central Sales Tax Act, 1956.

Analysis: The penalty could not be sustained because the communication relied upon by the Revenue only called for production of documents and did not issue a proper show cause notice specifically proposing penalty on the disclosed grounds. In the absence of a proper notice and the requisite opportunity to meet the penalty case, the levy was unsustainable. Since the transaction was held to be an inter-State sale and tax had also been paid in the destination State, the statutory mechanism under section 22(1B) for inter-State adjustment/refund of tax collected by the destination State was attracted.

Conclusion: The penalty was set aside, and directions were warranted for adjustment/refund in accordance with section 22(1B).

Final Conclusion: The appeals succeeded only in part: the finding of inter-State sale was maintained, but the penalty was quashed and consequential refund/adjustment directions were issued.

Ratio Decidendi: Where contemporaneous purchase orders and allied documents show that movement of goods from one State to another was occasioned by specific orders of a buyer, the dealer fails to discharge the burden under section 6A of the Central Sales Tax Act, 1956; a penalty cannot be imposed without a proper show cause notice specifically proposing such penalty.

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