TaxTMI 
TaxTMI 
2024 (10) TMI 1124
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar Shri Jayesh Gaurav and Shri Ishwar Chandra Roy, Advocates for the State of Jharkhand ORDER The order dated 24.11.2014 passed by the Rajasthan Tax Board, by which fourteen appeals have been dismissed and the assessment orders for the years 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 of three companies, namely, (i) Carglsberg India Pvt. Ltd. [Carglsberg] , (ii) United Breweries Limited [United Breweries] , and (iii) Mount Shivalik Industries Ltd. [Mount Shivalik] have been upheld, has been challenged in these fourteen appeals. The said three companies shall collectively be called as "appellants". 2. The issue involved in these appeals relates to demand of central sales tax on movement of goods from the manufacturing units of the appellants situated in the State of Rajasthan to their depots in the State of Bihar and the State of Jharkhand. The impugned order has treated the movement to be arising out of inter-state supply of goods instead of inter-state stock transfers as claimed by the appellants. 3. The appellants hold licenses for manufacture and sale of liquor under the Rajasthan Excise Act, 1950 [the Rajasthan Act] and are also registered dealers under the Ra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ock the beer at the depots of the Corporation at its cost and risk. Delivery has to be in line with the OFS placed by the Corporation and shall be completed within the period specified by the Corporation. The Corporation also has the right to forthwith terminate any or all OFS placed on the manufacturer and forfeit the deposits on certain conditions. The manufacturer has to deliver the beer at a price indicated by the Corporation but payment for the beer delivered shall be made only after the disposal of beer. 7. Carlsberg established depots in the State of Bihar and obtained Wholesale License 19C [the License]. Clause 5A of the License requires Carlsberg to maintain a minimum stock of liquor at its depots in the State of Bihar as prescribed by the Commissioner from time to time and to recoup the stock within seven days in case the stock goes below the minimum limits. 8. Carlsberg alleges that in order to comply with the requirement of maintaining a minimum stock of beer at the local depots in the State of Bihar and also to ensure delivery of beer to the Corporation within the validity period prescribed in the OFS, it effected inter-state stock transfers of beer from its fact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the organization of the manufacturer/supplier to be given in its letterhead in the format in Annexure 1. (page 17). (ii) A certified copy of the license granted by the concerned Excise Commissioner/competent authority of the concerned State. (iii) Details of executives and/or representatives to deal with the Corporation to be given in its letter head as per the format in Annexure 2 (page 18) and 3 (page 19) respectively. (iv) An agreement as in the format in Annexure 4 (page 20-24) duly executed by the authorized signatory of the manufacturer/supplier in a stamp paper of denomination page Rs. 100/- (v) If the manufacturer is not the owner of the brands proposed to be supplied, then a copy of the agreement between the manufacturer / supplier and the owner of the brand. (vi) Certified copy of the latest audited accounts and annual report. If such accounts pertain to a period other than the recently concluded financial year, reasons for not submitting the certified accounts of such year shall be indicated. (vii) An attested/notarized copy of the registered partnership deed/Memorandum and Article of Association (late....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e remaining quantity shall lapse automatically. The Corporation may, at its discretion, extend the validity of the OFS and manufacturer/supplier shall honor the OFS within the extended validity period without fail. However Corporation shall charge a fee for extending validity of each OFS as under: (1) For first 3 days or part thereof - Rs 500/- per OFS (2) For every next 3 days and part thereof - Rs 1000/- per OFS However, these rates may be revised by the MD from time to time. 6.6 Repeated lapse of supplies against OFS without valid reasons may result in reduction of quantity sourced and may also attract other penalties that the Corporation may specify from time to time. 6.7 In respect of supplies from within State or outside the State, the manufacturer/supplier or their authorized representatives shall, after the issue of OFS., deposit the Import Fee, Excise Duty and other applicable duties/ fees for their respective brands with the Excise Department and obtain required transport permit to ensure delivery. Manufacturers/Suppliers may please take note that they are responsible for remitting/ depositing the correct quantum of dutie....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the depot of the corporation at its cost and risk. The corporation is not liable for any transit risk & other perils for its own interest, the manufacturer may arrange for an insurance coverage for all the risk including transit risk. 2.2 The Manufacturer shall deliver the Liquor in good condition within such time and at such depots as specified by the corporation. 2.3 The Manufacturer shall bear transit losses as defined in clause 8.2 of LSP 2008-09. The Manufacturers shall not claim for shortages, if any, arising from the difference between the quantities as dispatched it and the stocks actually delivered. 2.4 Delivery shall be in line with the Orders for Supplies placed by the Corporation and shall be completed within the period specified by the Corporation. Short supplies, if any, shall not be carried forward beyond the validity period of the Order for Supplies. ***** 4. CANCELLATION OF ORDERS 4.1 The Corporation shall, without prejudice to its legal rights, have the right to forthwith terminate any or all Order for Supplies placed on the Manufacturer and forfeit deposits, if any, if the Manufac....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... holder in writing if and when the stock will become less than the minimum than license holder will fulfill it within a period of 7 days upto the minimum liable." (emphasis supplied) 13. Having examined the provisions of the Liquor Policy, the Master Agreement and the License issued in Form 19C to Carlsberg, it will be appropriate to examine how the impugned order dated 24.11.2014 has addressed the issue relating to the movement of goods. 14. As noticed above, the State of Rajasthan treated the movement as one arising out of inter-state supply of goods, while the appellants treated it as inter-state stock transfers. The relevant portions of the order passed by the Rajasthan Tax Board are reproduced below: "Amidst rival contentions of the counsel, what transpires is that all essential conditions of section 3(a) of the CST Act are witnessable in the present case. On the authority of M/s TELCO Vs Assistant Commissioner, (supra) they could be deduced from Agreement to sale (supply) of beer between BSBCL and the appellants, necessitating and occasioning movement of beer from appellants manufacturing units in Rajasthan to Bihar on the premise of same transaction. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o go through the agreement entered into between the appellant and the BSBCL under the terms and conditions of the LSP as described in its Circular no. 675/BSBCL, dated 12.03.2008 (extended for the relevant years : 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14). B. At the background of above, it is apparent that the appellant manufacturers who were desirous of supplying liquor to the BSBCL for subsequent supply to buyers in reference to the aforesaid Clause 3.1 of the LSP submitted certain documents, before their offer was considered and action taken by BSBCL. We find that in terms of Clause 3.1 (iv) of the LSP, an Agreement was struck between the two parties to the issue, the BSBCL and the appellant company, the introductory part of which is reproduced as under: ***** 4. This Agreement entered into between the BSBCL and the appellant companies having manufacturing units in Alwar, Rajasthan and the branches at Patna in Bihar and Ranchi in Jharkhan is the cause celebre in the present context, enabling appellants' beer sales in the State of Bihar (or, Jharkhand) through the instrument called 'Order for Supply' issued by the BSBCL to the apell....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsferred beer from the manufacturing units situated in the State of Rajasthan to their depots in the State of Bihar or the State of Jharkhand; (ii) Movement of goods did not occur from the State of Rajasthan to the State of Bihar or the State of Jharkhand in pursuance to the Master Agreement, incidental or otherwise. In this connection, learned counsel placed reliance upon the decision of the Central Sales Tax Appellate Authority, New Delhi in Northen Coal Fields Ltd. vs. States of Madhya Pradesh and Uttar Pradesh [(2010) 29 VST 596 (CSTAA-Del)] ; (iii) The Master Agreement is not an agreement to sell in terms of section 4(3) of the Sale of Goods Act. In this connection, reliance has been placed on the decision of the Tribunal in M/s. Keltech Energies Ltd. vs. State of Maharashtra and others [2024 (7) TMI 540 - CESTAT New Delhi] as also on the decision of the Karnataka High Court in M/s. BASF India Ltd. vs. State of Karnataka and others [2022 (11) TMI 434 - Karnataka High Court] ; (iv) The intention of the parties cannot be ignored. The OFS is clearly intended to be the contract of sale in terms of the Sale of Goods Act. In this connection, reliance has b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as to be read as subject to the said permit; (iii) Clause 2 of the Master Agreement deals with "delivery" and clauses 2.1, 2.2, 2.3 and 2.4 expressly complete delivery of liquor by the manufacturer to the depots of the Corporation and other incidental obligations. Under sub-clause (iv) of clause 3.1, one of the listed document is the Master Agreement required to be submitted by the manufacturer if the said manufacturer is desirous of undertaking the said supply. Thus, sub-clause (iv) puts beyond doubt that the supply from the State of Rajasthan to the two States is incidental to the Master Agreement; (iv) The provisions of the Master Agreement as well as the Liquor Policy also show that the liquor manufactured by the appellants in the State of Rajasthan is earmarked for sale in the two States (as sale of the liquor with the aforesaid hologram/label can only be for the Corporation). In fact, in view of the said requirement, the said liquor cannot be sold to anyone outside the State even during transit; (v) The provisions also demonstrate that the liquor arrived from the State of Rajasthan to the two States not because of own volition of the appellants, but....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The provisions of sections 3 of the Central Sales Tax Act were examined by the Supreme Court in Hyderabad Engineering Industries vs. State of Andhra Pradesh[(2011) 4 SCC 705] and the relevant portion of the judgment is reproduced below: "20. For a sale to be in the course of inter-State trade or commerce under Section 3(a), two conditions must be fulfilled. There must be sale of goods. Such sale should occasion the movement of the goods from one State to another. A sale would be deemed to have occasioned the movement of the goods from one State to another within the meaning of clause (a) of Section 3 of the Act when the movement of those goods is the result of a covenant or incidence of the contract of sale, even though the property in the goods passes in either State. With a view to find out whether a particular transaction is an inter-State sale or not, it is essential to see whether there was movement of the goods from one State to another as a result of prior contract of sale or purchase. ***** 23. It is an accepted position in law that a mere transfer of goods from a head office to a branch office or an inter-branch transfer of goods, w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the State of Rajasthan to the State of Bihar and, therefore, all the essential conditions of section 3(a) of the Central Sales Tax Act are satisfied; (ii) The decision of the Allahabad High Court in Central Distillery and Breweries is distinguishable because of the decision of the Supreme Court in Indian Oil Corporation; (iii) The inter-state movement of beer from Alwar in the State of Rajasthan to Patna in the State of Bihar did not break there, since after a brief interval it finally terminated at different depots of the Corporation. This would not impact the nature of inter-state sale because it was merely a transit halt for the goods; (iv) The Master Agreement is the "cause celebre" enabling the appellants to sell beer in the State of Bihar or the State of Jharkhand through the instrument called "OFS" issued by the Corporation to the branches of the appellants in the State of Bihar and the State of Jharkhand; and (v) The analysis of facts and legal position indicate that interstate sale of beer under section 3(a) of the Central Sales Tax Act had taken place in which the Master Agreement acted as a contract to sell and caused the inter-stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... affected within the territory of Delhi and were not inter-state sales. The contention of the department, however, was that since the manufacturing activity of the revisionist was at Meerut within the State of Uttar Pradesh and as the goods were taken from the State of Uttar Pradesh to the Union Territory of Delhi pursuant to Agreements, the goods moved to Delhi in pursuance of the Agreements which occasioned the movement of goods from the State of Uttar Pradesh. Thus, according to the department, the transaction amounted to an inter-state sale within the meaning of section 3(a) of the Central Sales Tax Act. Though the contention of the department had been accepted by the authorities, but it was held not be an inter-state sale by the Allahabad High Court and the observations are as follows: "6. ***** The Tribunal has failed to appreciate the nature of the agreement executed between the Delhi Administration and the dealerrevisionist. The agreement, that has been referred to above, was not an agreement of purchase of any quantity of rum. The agreement was merely to grant a licence to the dealer to supply rum to the retail vends in Delhi. The orders for the actual purchase an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d received the sale price. The contention of the dealer was that the sales were effected in the State where the branches were situated while the contention of the Revenue was that the sales were inter-State sales. The Honourable Supreme Court held that the sales were inter-State sales as it were the orders placed by the purchaser that occasioned the movement of the goods. The principle of law as explained by the Honourable Supreme Court is not open to any doubt or explanation. However, it is apparent that the Tribunal has not properly appreciated the facts of the present case while applying the ratio of the judgment of the Honourable Supreme Court. In the case before the Supreme Court, the buyers had placed purchase orders on the dealer and it was in compliance of those orders that the goods were manufactured and despatched. In the present case, however, it has not been so established. ***** 7. The judgment of the Honourable Supreme Court in State of Tamil Nadu v. Cement Distributors (P.) Ltd. [1975] 36 STC 389 seems to be more appropriate to the issue in question. In that case the dealer, i.e., Cement Distributors Pvt. Ltd. was acting as an agent of the State Tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 purchase being actually made by the Delhi Administration. As and when the Delhi Administration would make the purchases, the dealer who was to be a L1-A licensee would supply the goods and replenish the stocks and the things would go on like that during the currency of the agreement. Therefore, as is indicated by the agreement, the movement of the goods to Delhi was not in pursuance of any transaction of sale but in pursuance of the licence under which the dealer was to maintain a warehouse with a minimum stock within the territory of Delhi. The agreement by itself did not bring about any sale or purchase and, therefore, the transport of goods from the distillery in U.P. to warehouse in Delhi could not be treated as a movement of goods occasioned by any sale or purchase. The sale, as stated above, took place only when any order was actually placed by the Collector of Central Excise, Delhi. As stated above, the assessing officer has not probed further into the matter to find out if there was no buffer st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in Clause 8 is only for operational convenience, it is only a mechanism devised to facilitate the transfer of naphtha through the seller's pipeline to their depot at Kanpur and from there to the Buyer's factory at Kanpur through the pipeline constructed at the buyer's cost. It is relevant in this connection to note that under Clause 7(ii) the cost of transferring naphtha from Barauni to the buyer's fence is to be borne by the buyer. 9. Each case turns on its own facts and the question is whether applying the settled principle which we have mentioned above to the facts of the present case the sales can be said to be inter-State sales. An attempt to show that some of the factors present in the instant case are present or absent in some case or other in which this Court held the sale to be a local sale or interstate sale hardly serves any useful purpose. On the facts of the present case the sales are clearly interState sales and the State of U.P. had therefore no jurisdiction to assess the petitioners to sales tax under the State Act. As the movement of naphtha commences from Barauni in Bihar, the sales tax payable on the sales of naphtha under the agreement dated February....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t as and when the indent is received. The department believed that this was an inter-state movement of goods from the manufacturing unit of the petitioner at Mangaluru in the State of Karnataka to various depots in other States against pre-existing contract and, therefore, would amount to inter-state sale leviable to tax under section 3(a) of the Central Sales Tax Act. The contention that was advanced on behalf of the writ petitioner was that the open purchase orders do not stipulate any specified quantity and so it cannot be construed as an "agreement to sell". The question, therefore, that fell for consideration before the High Court was whether the transfer of the goods under Form-F to the depots of the petitioner situated in different States would amount to inter-state sale under section 3(a) of the Central Sales Tax 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 depots, the Karnataka High Court held that the open purchase order would not constitute any contract for sale and that o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ting 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 2007-08 were concluded by accepting the Statutory declarations filed in Form-F. 37. In view of the Authorities in the case of Maddala Thathiah and Kelvinator, we are of the considered view that the Open Purchase Orders do not constitute any Contract. The Purchase Orders issued from time to time for supply of goo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he liability to pay tax under the Act would, however, arise if the sale of the refrigerators to distributors were to take place at Faridabad and the movement of refrigerators from Faridabad to Delhi were to take place under the contract of sale. The question with which we are concerned is whether the appellant entered into such an arrangement with the distributors that the liability to pay tax would be attracted and not the other arrangement under which no such liability could be fastened on the appellant. So far as this question is concerned, we find that the parties expressly stated in each of the three distribution agreements that it would be in Delhi that the sale of refrigerators would take place to the distributors and the property therein would pass to them. It was again in Delhi that the refrigerators were delivered to the distributors. The orders for the refrigerators were placed by the distributors in Delhi and it was also here that the price of refrigerators was paid. Looking to all the facts of the case, we have no doubt that the arrangement between the parties was that refrigerators would be sold by the appellant to the distributors after they had been transported to t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9. The sale as well as the movement of the goods from Madras to Bhandup at Bombay was a part of the same transaction. The movement of the goods from Madras to Bhandup was integrated with the contract of sale for the following reasons. The Bombay branch received the Bombay buyer's order and sent the same to the Madras branch factory. When the Bombay buyer asked for quotation of prices the Bombay branch wrote to the Madras branch and gave all the specifications and stated that the goods were for the Bombay buyer. The Madras branch in reply referred to the order of the Bombay buyer and gave particulars mentioning that the price was F.O.R. Madras. The Bombay branch thereafter wrote to the Bombay buyer reproducing all the particulars, conditions of sale and mode of dispatch as stated by the Madras branch and further stated that the goods would be manufactured at the Madras branch factory. ***** 15. The appellant in the present case sent the goods direct from the Madras branch factory to the Bombay buyer at Bhandup, Bombay. The railway receipt was in the name of the Bombay branch to secure payment against delivery. There was no question of diverting the goods which were....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... movement of the goods from Madras to Bombay. The inter-State movement of the goods was a result of the contract of sale and the fact that the contract emanated from correspondence which passed between the Bombay branch and the company could not make any difference." (emphasis supplied) 40. The aforesaid decision of the Supreme Court in English Electric would not come to the aid of the State of Rajasthan. It is seen that the Bombay buyer wrote to the Bombay branch of the appellant asking for lowest quotation. The factory of the appellant was situated in Madras. The buyers order was sent by the Bombay branch to the Madras branch, which quoted the price FOR Madras. The Bombay branch then wrote to the Bombay buyer quoting the FOR Madras price and also informed that the delivery would be ex-works Madras. The Bombay buyer then placed an order with the Bombay branch. The Bombay branch instructed its Madras factory to dispatch the goods directly to the buyers and the goods were then sent to the buyer under these instructions. It is in this context that the Supreme Court held that the movement of the goods from Madras to Bombay was part of the same transaction. The Supreme Court, the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tubes would not necessarily lead to the conclusion that there was a completed transaction of sale by the appellant in Madras by the appropriation of the goods towards any contract. The marking at best would indicate that the goods were intended for a person who had entered into a contract of purchase with the branch office in Andhra Pradesh. That would not either finally or conclusively determine the question as to the nature of the transaction for, the mere marking of the name of the purchaser on the consignment when the lorry receipt under which they were despatched stood in the name of the branch office would not, by itself, be sufficient to prove or establish a contract of sale between the appellant and the Government of Andhra Pradesh." (emphasis supplied) 46. It would now be appropriate to examine the facts of the present case in the light of the provisions of the Liquor Policy, the Master Agreement, and the License issue to the appellants. 47. As noticed above, the appellants manufacture beer at the breweries in the State of Rajasthan. The State of Bihar and the State of Jharkhand have created Corporations to facilitate and regulate retail sale of beer in their Stat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch depots as may be specified by the Corporation. Delivery by the manufacturer has to be in line with the OFS placed by the Corporation and shall be completed within the period specified by the Corporation. The Corporation has to specify the quality of beer to be delivered and the manufacturer has to adhere to such quality specification. The Corporation also has the right to forthwith terminate any or all OFS placed on the manufacturer and forfeit the deposits on certain conditions. The manufacturer has to deliver the beer at a price indicated by the Corporation but payment for the beer delivered shall be made only after the disposal of beer. 50. Clause 5A of 19C License requires Carlsberg to maintain minimum stock of liquor at its depots as prescribed by the Commissioner from time to time and to recoup within 7 days in case the stock goes below the minimum limits. 51. The decision of the Allahabad High Court in Central Distillery and Breweries, notices that though the manufacturing unit of the revisionist was situated at Meerut in the State of Uttar Pradesh but as it was required to maintain a buffer stock of atleast two trucks without any guarantee of any purchase by the De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, orders would be placed by the distributors with Kelvinator of India, after the refrigerators reached the sale office and godown of Kelvinator in Delhi. 54. In the present case, in terms of the Liquor Policy of the State of Bihar, the Corporation is under no obligation to procure any specified minimum quantities of beer. The Corporation issues the OFS on the local depots of the appellants situated in the State of Bihar for supply of specified quantity of beer. The OFS have a validity period within which the goods are required to be delivered to the Corporation. Clause 10.1 of the Liquor Policy clearly provides that the supply of beer to the Corporation against OFS shall be construed as an agreement to sell under section 4(3) of the Sale of Goods Act. Clause 5A of the License also requires Carlsberg to maintain a minimum stock of liquor at its depots in the State of Bihar as prescribed by the Corporation from time to time and to recoup the stock within seven days in case it goes below the minimum limits. Carlsberg is, therefore, justified in asserting that in order to comply with the requirement of maintaining a minimum stock at the local depots in the State of Bihar and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and at such depots of the corporation as specified by the Corporation. Clause 2.3 talks of transit loss, while clause 2.4 provides that the delivery shall be required to be made in terms of the OFS to be placed by the Corporation. It is, therefore, clear that the time and place of delivery of the stock of beer has been left unspecified. The delivery of beer has also been left open for the parties to determine from time to time. None of the clauses of the Master Agreement contemplate manufacture and delivery of liquor to the depots of the Corporation from outside the State of Bihar. The clauses merely discuss the manner in which the goods are to be delivered at the depots of the Corporation and issues incidental to it. In fact, there is no reference to the manufacturing activity undertaken by the appellants. The Master Agreement merely grants an option to the Corporation to purchase goods at a subsequent date as and when required by the Corporation. The Corporation does not actually purchase or agree to purchase beer from the appellants under the Master Agreement. If the Corporation does not place OFS on the appellants, the latter cannot sue the Corporation for damages because the M....