TaxTMI 
TaxTMI 
2024 (7) TMI 540
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.... the appellant against the assessment order 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 regul....
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....ter the RC period of 2008-09, in accordance with clause 01 "Duration of 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 ....
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....tle to the goods during their movement from one State to another. 6. Liability to tax on inter-State sales.- (1) Subject to the other provisions contained 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 n....
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....nce is secondary and irrelevant. Therefore, it is not a case in which there was independent contract between the subsidiaries of Coal India Ltd. and that of the appellant. ***** 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....
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....between the appellant and Coal India is breached. This clearly evidences that the Running Contract is not a sale or an agreement to sell; (vi) The Running Contract is merely an intimation from Coal India agreeing to the terms 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 constitu....
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....emicals Limited vs. State of Orissa [(2007) 14 SCC 386] and Hyderabad Engineering Industries vs. State of Andhra Pradesh [(2011) 4 SCC 705]; (iii) The Sales Tax Tribunal correctly held that the Running Contract is the firm purchase order and the indents issued by 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 ha....
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....neither a sale nor can it be termed as agreement to sell. The Running Contract, according to the appellant, is merely a standing offer by the appellant. The depots of the appellant sell the explosives supplied from the Nagpur Unit of the appellant. Thus, there is no appropriation of goods to any 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 ....
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....ties as the other may acquire (or produce) and tender from time to time. The "acceptance" of such an offer does not create any binding obligation; but on each occasion when an order is placed or a consignment tendered, the party who has made the offer is bound to sell or buy the quantity in question. Apart from this, the offer may be withdrawn at any 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 goo....
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....ertain prices and in such quantities as B may order for from time to time is not bad for want of mutuality, although, until B had given an order for goods he cannot sue A upon his agreement. A writing whereby A agrees to supply certain goods to B a certain prices and up to stated quantity, or in any quantity which may be required, for a certain period, is not a contract unless B binds himself 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 int....
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....ould, therefore, be in the nature of a rate contract. 25. It would now be appropriate to examine the decisions on which reliance has been placed by the learned counsel for the appellant. 26. In Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram and others [1954 SCR 817], the appellant was a partner of a firm of Moolji Sicka & Company, which is a firm of bidi manufacturers. The Supreme Court observed that no binding engagement 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 Store....
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....der referred to the placing of a formal order for the supply of jaggery, after the respondent had not only made a security deposit as required by the provisions of para 8 but had also furnished a receipt issued for that deposit to the Deputy General Manager, Grain Shops. So construed, the note in para 2 of the tender would refer to cancel this agreement, loosely called a contract, at any stage during the tenure of that agreement without calling 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 D....
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....is supplied) 31. In Secretary of State vs. Madho Ram [AIR 1929 Lah 114], the Lahore High Court held: "It appears to me on the proper construction of the document in question that there has been no breach on the part of the appellant and the suit should for this reason have been dismissed. The plaintiff's tender is merely an offer to supply certain classes of goods at certain prices during a fixed period, and so long as the offer remains open the plaintiff is bound 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 & Softwa....
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....ots of the petitioner situated in different States would amount to inter-state sale under section 3(a) of the CST Act. After taking note of the fact that the open purchase orders did not mention the quantity of the goods supplied and it was only to ensure prompt delivery of goods as and when called upon that BASF India transferred the goods and stocks to its depot, the High Court held that the open purchase order would not constitute any contract for sale and that only the purchase orders issued 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. Petitio....
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....and ancillaries who purchase goods from petitioner stipulate the 'quality standers' and other technical specifications in the open purchase orders which do not contain the 'quantity' and date of supply. The purchaser/s issue specific purchase order containing the quantity based on the requirement from time to time and the same is supplied from petitioner's depots immediately on just in time model. ***** 28. In order to hold that a transaction falls under Section 3(a) of the CST Act, the sale or purchase must cause movement of goods from one State to another 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 a....
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.... The important feature of this order is that all the Managers of the collieries in the three States will have to place order with the consignment agents of IDL Chemicals from their depots. This is a modality adopted by the appellant with a view to dispatch their goods from Rourkela to various consignment agents and from there all the collieries of CIL are bound to purchase through their agents mentioned in the order above. Though each colliery has to give its indents for purchase of explosives, detonators etc. as per the requirement but the fixed quantity has been given in the schedule appended to this order. The transit insurance was to 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, ....
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....ut we regret that cannot be of any avail for the simple reason that all supplies were made in pursuance of the order of CIL. Therefore, that was fountainhead from where all supplies followed. If the terms of the order is to be construed as purchase order, then other evidence is secondary and irrelevant. In fact both the parties understood that way only and paid CST for some time but subsequently discontinued. Therefore, from this it follows that the whole movement of the goods from the factory at Rourkela was triggered in pursuance of the order dated 24-9-1976. There was no independent contract by the subsidiaries of CIL with the appellant. The subsidiaries 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....
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....dardized goods (and not customized goods) and appropriation of the goods to the contract occurs only when the appellant separates out and earmarks the goods for a specific customer at its depots in the destination States; (g) It is clear that the appellant is stock-transferring the goods to its depots on the basis of the internal forecasts for replenishing the stocks of its depots. Subsequently, the goods are transported from the depot of the appellant in terms of the indents received from subsidiaries of Coal India; (h) There is no one-to-one correlation between the goods despatched from the Nagpur Unit and goods sold from the depots to the subsidiaries of Coal India. This clearly shows 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 ....