TaxTMI 
TaxTMI 
2024 (7) TMI 540
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.... dated 30.03.2014 of the Deputy Commissioner of Sales Tax [the Deputy Commissioner] for the period from 01.04.2009 to 31.03.2010. The Deputy Commissioner had held that the sale of explosives by the appellant to the subsidiaries of Coal India Limited [Coal India] in the State of Jharkhand and the State of West Bengal were inter-state sales by Coal India originating from the State of Maharashtra and rejected the claim of the appellant that they were branch transfers by Coal India to its subsidiaries situated in the State of Jharkhand and the State of West Bengal. The Joint Commissioner (Appeals) and the Sales Tax Tribunal maintained this part of the order. 2. The appellant is engaged in the manufacture and sale of explosives and has a manufacturing unit at Nagpur [the Nagpur Unit] in the State of Maharashtra. The products manufactured by the appellant at the Nagpur Unit are packaged explosives and are sold under the trade name 'kelvex'. The said products are controlled substances covered under the provisions of the Explosives Act, 1884 [the Explosives Act] and the provisions of the Explosives Rules, 2008 [the Explosives Rules] which regulate the manufacture, sale and transport of e....
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....Contract". ***** 12 Delivery ***** The dispatch of the products indicated at Annexure - 'A' should be effected only after the receipt of the proper indent in Form-37 from the respective users of the Subsidiary Companies. ***** ***** It would be mandatory for the RC holder to maintain 90% delivery performance (supply against allocation) to be evaluated on yearly basis for all consignees taken together. In case the delivery performance for the RC holder falls below 90%, CIL reserves the right to rescind the RC for that particular item and the balance RC quantity for that item may be purchased from any of the existing RC holders or empanelled "Reserve RC holders" or outside vendors by CIL/Subsidiary on risk purchase basis. ***** 26 Statutory Obligation ***** b) You are requested to ensure to get proper indents in FORM-37 and no explosives van should be sent with without any indent in FORM-37. This is absolutely imperative." (emphasis supplied) 5. Some of the subsidiaries of Coal India like ECL, BCCL and CCL are located at significant distances from the Nagpur Unit in the State of Jharkhand and State of West Bengal and it takes about fifteen days for th....
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....ned in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified: Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India. " (emphasis supplied) 8. The Sales Tax Tribunal found the Running Contract to be a purchase order and the subsequent indent issued by the subsidiaries of Coal India upon the depots of the appellant from time to time to be only a convenient mode for uninterrupted supply of explosives and, therefore, treated it as a requisition for supply of material and not as an independent contract of sale. The Sales Tax Tribunal, therefore, concluded that sale of goods had taken place in the course of inter-state trade or commerce as contempl....
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....10. On the basis of factual aspect of the case, we have come to the conclusion that, appellant is entered into contract with coal India Ltd. for supply of cartridge explosive to all subsidiary companies of Coal India Ltd. including NVC as per the tender dated 04/07/2008 and subsequent correspondence as referred in contract dated 28/11/2008. We held this running contract as purchase order because of the terms and conditions agreed therein. In our opinion, indent issued by subsidiary companies from time to time is convenient mode for uninterrupted supply of impugned goods. It should be treated as requisition of material and cannot be treated as independent contract of sale. Therefore, we come to the conclusion that, impugned transactions are covered u/s. 3(a) of the C.S.T. Act, it is liable to tax in the State of Maharashtra." (emphasis supplied) 9. Shri Sriram Sridharan, learned counsel for the appellant made the following submissions: (i) It is a well-settled position of law that for the purpose of interpreting section 3 of the CST Act, the term 'sale' includes both a completed sale and an agreement to sell. This principle was laid down by the Supreme Court in Balabhagas Hul....
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.... of the standing offer of the appellant when indents are eventually placed by the subsidiaries of Coal India. It is merely an understanding to conduct business in the future on the basis of pre-agreed terms and conditions. The Running Contract is merely an agreement to enter into an agreement on a future date. In other words, the Running Contract is merely a standing offer by the appellant and not a sale or any agreement to sell. It is settled law that a standing offer is a contractual arrangement that is distinct and different from a sale or an agreement to sell; (vii) In this connection, reliance has been placed on the decision of the Karnataka High Court in BASF India Ltd. vs. State of Karnataka and ors. [2022 (11) TMI 434], wherein it was held that the purchase orders which do not specify quantities are merely standing offers and do not constitute any contract of sale. It was also specifically held that such purchase orders do not constitute an 'agreement to sell' and that the inter-state movement of goods are mere stock transfers not occasioned by such purchase orders; (viii) In any case, it is settled law that a sale cannot be an inter-state sale if the appropriation of....
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.... subsidiary companies of Coal India from time to time on the depots of the appellant are merely a convenient mode for uninterrupted supply of goods. The indents are merely requisitions for material and cannot be treated as an independent contract for sale; (iv) Even if there is movement of goods from one State to another, not in pursuance of the sale itself, but in pursuance of an agreement to sell which later merges into the sale itself, the movement of goods would be deemed to have been occasioned by the sale itself wherever it takes place and in this connection reliance has been placed upon the decision of the Supreme Court Balabhagas ; (v) The inter-state movement of goods must be as a result of a covenant, express or implied, in the contract of sale or an incident of contract and it is not necessary that the sale must precede the inter-state movement in order that the sale may be deemed to have been occasioned by such movement. In this connection, reliance has been placed on the judgments of the Supreme Court in English Electric Company of India Ltd. vs. The Deputy Commercial Tax Officer and others [(1976) 4 SCC 460]; Oil India Ltd. vs. The Superintendent of taxes and ot....
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....ny contract prior to the goods reaching the depots of the appellant in the two States. The Running Contracts awarded by Coal India to various manufacturers of explosives are for pre-determining the price for supplying explosives. There is no one-to-one correlation between the goods received by the depots of the appellant and the goods dispatched from such depots on the receipt of indents from the subsidiaries of Coal India in the two States. 15. The following crucial facts emerge from the records: (i) The actual quantities supplied by the appellant to the subsidiaries of Coal India are far lesser than the quantities specified in the Running Contract; (ii) The cost of freight is entirely borne by the appellant and the risk is also borne by the appellant; (iii) The license issued to the subsidiaries specifies the maximum quantity of explosives that can be stored in the magazine at any point of time. The license also specifies the maximum monthly rotation of explosives i.e. the maximum quantity that can be transacted through the magazine; (iv) The subsidiaries of Coal India like NCL, SECL, MCL and WCL possess magazines with larger licensed storage capacities. These subsi....
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.... time, unless consideration has been given in return for an undertaking to keep it open. The offeree for his part is not bound to place any order or tender any goods unless he has expressly or impliedly promised to do so." (emphasis supplied) 18. In Chitty's Treatise on the Law of Contract (29th Edition) it is described as: "Tender - A tender to supply goods up to a certain quantity at a certain price is an offer to supply on those terms if and when the offeree chooses to given an order and this, qua that order, creates a binding contract. Even where the probable quantities which may be required have been specified in the invitation to tender, the offeror has no remedy if the offeree does not give any orders at all or fails to order up to the specified quantities, although the offeror is bound to deliver the specified goods as and when ordered by the offeree." (emphasis supplied) 19. In Anson's Law of Contract (24th Edition) it is described in the following manner: "The rule that an offer is made irrecoverable by acceptance is illustrated by the Great Northern Railway Co. v. Witham, a transaction which, like that in Offord v. Davies, involved a continuing relationship: ....
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....self to take some certain quantity, but a mere continuing offer which may be accepted by B, from time to time, by ordering goods upon the terms of the offer. In such a case each order given by B is an acceptance of the offer, and A can withdraw the offer, at any time before its acceptance by an order of B. This principle has been affirmed by Their Lordships of the Privy Council in the under-noted case." (emphasis supplied) 21. It transpires from the aforesaid that a tender to supply goods upto to a certain quantity at a certain price would merely be an offer to supply goods on those terms and it does not create a binding obligation as this does not bind the party to place any order for tender of goods and it is only when an order is placed that a binding contract between the parties comes into existence. Thus, a standing offer is to supply goods at a fixed price and it would not amount to a sale or an agreement to sell. 22. In the present case, the salient features of the Running Contract dated 28.11.2008 entered into between the appellant and Coal India are as follows: (i) The Running Contract determines the price at which the goods would be bought and sold between the tw....
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....gagement could be spelt out from the letters as they merely set out the terms on which the parties were ready to do business with each other, if and when the orders were placed and it is only when the order was placed and accepted that a contract would arise. The relevant portion of the judgment of the Supreme Court is reproduced below: "9. We do not intend to analyse these letters in detail here. It is enough to say that in our opinion no binding engagement can be spelt out of them except to this extent: Moolji Sicka & Company undertook to sell to the canteen contractors only through the Canteen Stores and not direct and undertook to pay a commission on all sales. This, in our opinion, constituted a continuing arrangement under which the Canteen Stores, i.e., the Government, would be entitled to the commission on all orders placed and accepted in accordance with the arrangement; and in fact the Canteen Stores did obtain a sum of Rs. 7500 in satisfaction of a claim of this kind. This money was paid long before the dates which are crucial here but the settlement illustrates that there was an arrangement of that nature and that it was a continuing one. In our opinion, it continued ....
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....ing up the outstandings on the unexpired portion of the contract." (emphasis supplied) 28. In State of Andhra Pradesh vs. Coromandel Paints & Chemicals Ltd. [(1995) 98 STC 82 (AP)], the Andhra Pradesh High Court held: "16. It is thus clear that where the terms of the agreement enjoin supply of goods against an order already placed, it amounts to a contract if the goods are specified but they are to be delivered at a future date as and when specified. But, where neither the quantity nor the goods have been specified and the supply has to be made at a stated period of the required quantity, it cannot be said that there was a sale or even an agreement to sell, it is merely a standing offer." (emphasis supplied) 29. In Central Distillery & Breweries Ltd. vs. Commissioner of Trade Tax, U.P., Lucknow [(1999) 115 STC 296], the Allahabad High Court held: "9. As is evident from the terms of the agreement, the intention of the parties was to bring about intra-State sales at Delhi from warehouse of the dealer that it was required to establish within the territory of Delhi where the dealer was required to maintain a buffer stock of atleast two trucks without any guarantee of any pu....
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....nd to supply the goods at those prices, when called upon to do so, up to at least the estimated quantities. The plaintiff can at any time withdraw his offer upon proper notice to the other party, and upon such withdrawal his liability to supply all or any of the goods not already ordered terminates. The Military authorities on the other hand are not bound to order all or any of the goods offered, but if they do give an order they are bound to pay the price set out in the schedule. They are free to accept the offer or not, as they may think fit, and it follows that they may buy the goods in question from any other source without reference to the plaintiff." (emphasis supplied) 32. In Speech & Software Technologies (India) Pvt. Ltd. vs. Neos Interactive Ltd. [2009 (1) SCC 475], the Supreme Court held: "11. ***** It is well settled legal position that an agreement to enter into an agreement is not enforceable nor does it confer any right upon the parties.*****" 33. The aforesaid decisions have considered cases where the document merely sets out the terms on which the parties agree to do business without specifying the exact quantity of goods to be supplied and it is only when ....
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....ed from time to time for supply of goods would constitute a contract between the parties. Thus, the sales effected pursuant to such purchase orders would be an intra-state sale and not inter-state sale. The relevant portions of the judgment of the Karnataka High Court are reproduced below: "3. Brief facts of the case are, petitioner is in the business of manufacture and sale of automotive paints. It is a registered dealer under the provisions of K-VAT Act (Karnataka Value Added Tax Act, 2003 - 'K-VAT Act' for short). Its manufacturing unit is situated near Mangaluru in Karnataka. It has warehouses (Branch offices) in Maharashtra, Tamilnadu, Haryana and Uttarakhand. 4. Petitioner manufactures automotive paints for original equipment manufacturers and supplies to Tata Motors, Mahindra and Mahindra, Maruti Udyog Ltd., etc., who procure raw materials on just-in-time (JIT) basis. To cater to their needs, petitioner has developed a business model to ensure that stock is maintained at warehouses located near the factories of OEM Customers. 5. Petitioner's case in substance is, after the product is approved by the customers, petitioner receives open purchase orders. Petitioner tran....
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....her or transfer of title to the goods must take place during their movement from one State to another. 29. In the case on hand, goods have been moved to different State under Form-F. Assessee's specific case is, sale is effected based on the indents received from time to time from the purchasers. ***** 35. Adverting to the facts of this case, the Open Purchase Orders referred to hereinabove, do not mention the quantity of the goods supplied. We may record that in order to avoid inventory, manufacturers have been using the 'JIT' (Just in time) supply model. It was argued on behalf of the assessee that to ensure, prompt delivery of the goods as and when called upon, the assessee transfers the goods and stocks it in its depot. Shri Sridharan also urged that the automobile manufacturing Industries nor the ancilliary units had any obligation to place purchase orders. In case the paint had remained unsold, the option for the assessee is to either destroy it or to take it back to its Manufacturing unit. 36. It is not in dispute that goods were transferred from Mangaluru to various depots situated in different States under Form-F and assessments for the years 2006-07 and 2007-0....
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....be borne by the collieries. The mode of dispatches was also mentioned. It further says that excess supply made, if any, shall be acceptable to the extent of 15% over the quantities against each item in respect of each area as indicated in Schedules I to IV. The price is firm for contract period. Then there is a clause of price variation also. The respective General Managers are to be contacted for monthwise allocation of explosives. IDL Chemicals Limited, and/or their consignment agents, namely, (i) M/s. B.P.Agarwalla & Sons (P) Ltd., P.O.Dhansar, Dist- Dhanbad, (ii) M/s. William Jacks & Co (India) Pvt. Ltd. Asansol/ Calcutta, and (iii) Abdul Hussain Mulla Allabuxji, Nagpur (Maharashtra), will supply explosives and accessories to mines on the basis of convenience and locations against this order. Mines will follow the existing system of drawing their requirements from IDL and/or their consignment agents who will raise the bills accordingly and payments will be made by cheques drawn in favour of IDL Chemicals Ltd. Instructions contained in the attached Schedule VI should be strictly and invariably followed. 12. Copy of this letter was sent to respective collieries all over. Theref....
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....iaries were issuing indents on the agents of the appellant in pursuance of the order dated 24-9-1976. In fact the appellant instructed its consignment agents to supply the goods to the collieries as per the indents placed by them. The collieries were also asked by the very same order that they would place their indents to the consignment agents of the appellant on the price fixed in this order and the quantity mentioned therein. Therefore, it is not a case in which there was any independent contract between the subsidiaries of CIL with that of the appellant. It is in pursuance of this order dated 24-9-1976 that the collieries were placing their indents for supply of the goods and the payment was made on the basis of the terms and conditions fixed in the order dated 24-9-1976. Therefore, the goods were moved from the appellant's factory for supply to CIL in pursuance of this order." (emphasis supplied) 37. In IDL Chemicals, the Supreme Court concluded that the contract was a contract of sale based on the fixed quantities of the explosives that were to be sold by IDL Chemicals to Coal India and were enumerated in the contract itself; the contract placed an obligation on the colli....
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....hows a break in the movement; and (i) The transactions are clearly stock transfers and the movements of goods is not occasioned by pre-determined contract of sale. 39. The judgment of the Supreme Court in IDL Chemicals would, therefore, not be applicable in the present case. On the other hand, the judgments of the Supreme Court Chatturbhuj Vithaldas and Maddala Thathiah, on which reliance has been placed by the learned counsel for the appellant, would apply to the facts of the present case. 40. Ms. Rama Ahluwalia, learned counsel appearing for the State of Maharashtra which has been impleaded as respondent no. 1 heavily relied upon the earlier decision of the Central Sales Tax Appellate Authority in Solar Industries, in which the facts are almost identical to the facts involved in BASF India. It needs to be noted that both Solar Industries and BASF India were decided by the same bench of the Central Sales Tax Appellate Authority on the same date i.e. 27.06.2019. They dealt with same issue namely whether the pre-existing rate contract occasioned inter-state movement of goods or it was merely a standing offer. As noticed above, the decision of the Appellate Authority in BASF I....