TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1405
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....jen Shonker and Shri Alim Anwar, Advocates for the State of Kerala Ms. Madhumita Bhattacharjee and Mr. Anant, Advocates for the State of West Bengal Mr. Sahil Bhalaik and Shri Ritik Arora, Advocates for the Appellant State of Andhra Pradesh Mr. Surjendu Sankar Das and Shri Samarpit Chauhan, Advocates for the State of Goa Mr. Arun Gaor, E&T Department, ETO Haryana ORDER JUSTICE DILIP GUPTA: Central Sales Tax Appeal No. 13 of 2017 has been filed by the State of Maharashtra to assail the order dated 12.04.2017 passed by the Maharashtra Sales Tax Tribunal at Mumbai [the Sales Tax Tribunal] in VAT Appeal No. 1226 of 2015 filed by M/s. Castrol India Ltd. [Castrol] - respondent no. 1. The appeal has been allowed and the assessment order dated 20.10.2015 passed by the Deputy Commissioner of Sales Tax disallowing the claim of branch transfer made by Castrol under section 6A of the Central Sales Act, 1956 [the CST Act] for the Financial Year 2009-10 has been set aside with consequential relief. 2. The remaining eight Central Sales Tax Appeals No's. 2 of 2018, 3 of 2018, 4 of 2018, 1 of 2020, 2 of 2020, 3 of 2020, 50867 of 2024 and 50868 of 2024 have also been....
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....en the goods are dispatched from mother warehouse, the customer is not identified at that stage. 31. xxxxxxxxxxx. It is pertinent to note that in this case also appellant had produced all 'F' forms and therefore appellant had discharged the initial burden cast upon it. When this is the position, the burden has shifted upon the Department to produce the concrete evidence that the transaction is not the transaction of branch transfer but it is sale in accordance with the pre determined order. It must be specifically stated that in the present case, the goods are standard goods. Admittedly, no alternations can be made at the branch office. Yet such goods can be kept in the godown and supplied to the parties. As discussed earlier, appellant, Castrol India Ltd has sale all over India and has large network of CFA and distributors and considering the constant demands of its product in the market and to keep up its reputation it is necessary that the products are available readily and minimum stock is maintained at CFA as well as distributor level. When this factual position is considered, there seems merit in the argument of appellant that goods move from mother warehouse to CFA n....
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....ents from time to time on the Company with regard to the quantity of the products which the Distributor desires to purchase from the Company. All orders/indents for the products placed by the Distributors with the Company shall be subject to acceptance thereof by the Company. The Company shall be entitled at any time after acceptance of an order/indent from the Distributor to cancel the same in whole or in part even though it shall have been partly executed by the Company. For this purpose, each lot of the products dispatched by the Company against an order/indent shall be the subject matter of separate contract. The failure on the part of the Company to dispatch one lot shall not affect of vitiate the contract relating to the other lot/s of the products. 3. The Distributor shall purchase the products at the rates which will be fixed by the Company from time to time. 4. Sales Tax, Excise and other taxes if any levied on delivery of the products to the Distributor shall be borne by the Distributor as an extra charge. 5. It is expressly agreed that the basis of all transactions between the Company and the Distributor in pursuance of this Agreement shall be on a principa....
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....r information as required by the Company from time to time. h. The Distributor undertakes to submit information to the Company at such intervals as may be agreed regarding the total benefits which the dealers will be entitled to under the schemes of the Company such as a scheme for free supply of the products. Such free supply of the products by the Company under the scheme is based on the statement furnished by the Distributor regarding upliftment of the products by the Dealers of the Distributors during the period of the scheme and is by way of replenishing the quantity of the products which the Distributor has so supplied free to his Dealers as per the Company's scheme. xxxxxxxxxx l. The Company is utilizing the services of an agency called Team HR which provides the Company Field Marketing Representatives to create and develop demand in the Distributor's markets. This development work is undertaken with a view to increase sales volume/value and is therefore for mutual benefit of the Distributor and the Company. The Company has agreed to bear the cost of the salary of the Field Marketing Representatives. However, in consideration of the benefits which the Distributor i....
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....t have arranged on their own a warehouse measuring 12,500 Sq ft at Plot no. 14 Mile, Amravati Road, Gondkhairy, Gram Panchayat - Nimji, Tal - Kalmeshwar Distt - Nagpur (hererinafter referred to as "the Warehouse"). xxxxxxxxxxx It is now agreed by and between the parties hereto as follows: 1. Scope of the Agreement xxxxxxxxxxx 1.2 The Company shall consign from time to time the said Products, Raw Materials, Packing and Promotional Materials, Stores and Equipments and any other assets belonging to the Company from its various manufacturing units and third party associates across the country, and also from its other C&F Agents to the Warehouse by Road/Rail, which the C&F Agent shall receive, stock and dispatch on behalf of and per the instructions of Company. xxxxxxxxxxxx 4. Remuneration 4.1 In consideration of the C&F Agent performing the obligations agreed to be undertaken herein, the Company shall pay the C&F Agent a fixed monthly amount of Rs. 101,000/- (Rupees One Lakh One Thousand only), hereinafter referred to as 'the fixed monthly consideration'. Break up towards rental and operating expense would be as follow. Rent for Providing 12,500 Sq Ft....
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....d of the amount of penalty imposed on the C&F Agent. 7.11 The Company shall indemnify and keep the C&F Agent indemnified against all costs, charges, expenses, losses, claims and demands against the C&F Agent incurred or suffered by the C&F Agent and its principal officers and directors due to the breach of the Company of any of the Company's representations, warranties and obligations under this Agreement." (emphasis supplied) 8. The appellant has also submitted a Supply Chain Map that elaborately demonstrates the movements of the goods from the plant of Castrol at Patalganga in the State of Maharashtra to the mother warehouse of Castrol at Bhiwandi also in the State of Maharashtra, and then to the CFAs in the States of Gujarat, Madhya Pradesh and Punjab. The map also shows how the Distributors purchase goods in the destination States for onward sale to retailers. This Supply Chain Map is reproduced below: Supply Chain Map 9. Ms. Rama Ahluwalia, learned counsel for the appellant State of Maharashtra pointed out from the Distributor Agreement that the Distributor has to maintain at all times a minimum quantity of the products as mutually agreed by the Castrol and the Dist....
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....o sales. The ERP system of Castrol tie together a multitude of business processes and enables the flow of data between them. The sales activity done through CFAs is merely an arrangement of sales or system developed by Castrol for PAN India activity. The Distributors are identified before movement of the goods and the goods are in turn routed through the CFAs. Thus, section 3(a) of the CST Act is attracted, and Castrol is liable to pay central sales tax on the movement of goods from the State Maharashtra to other States. Learned counsel also pointed out that in B2B business model of Castrol, a potential individual customer places an order by e-mail. The outsourcing agency of Castrol collects this purchase order and punches this order manually in the system. Confirmation mails are sent to the customer, whereafter the concerned CFAs located nearby deliver the goods to the customers. Thus, in B2B business model also, a customer is known to Castrol though the goods are delivered by the CFAs located near the customer. Section 3(a) of the CST Act is, therefore, also attracted in this case, and these transactions would be inter-State sale. To support the aforesaid contentions, learne....
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....er supplies are made to various CFAs in different States. The said supplies made by the mother warehouse at Calcutta have not been disputed by the State of West Bengal, and have been treated as 'stock transfers' in terms of section 6A of the CST Act. (vi) Each CFA holds inventory at its location. The extent of inventory of each SKU stored by each CFA is as per the 'Normative Stocking Levels' fixed by Castrol. Such 'Inventory Norms' are prescribed keeping in mind the Monthly Forecast of Sales. However, divergences between Monthly Forecast Sales and Actual Sales may exist in the States. On account of uncertainties and with a view to maximize all commercial sales opportunities, the entire supply and distribution framework from the mother warehouse to CFAs works on the basis of maintaining Normative Inventory Levels. The movement of goods from the mother warehouse to the CFAs, therefore, occurs to address these preset and pre-determined Normative Inventory Levels. The movement of goods from the mother warehouse to the CFAs is not as a consequence of any pre-existing purchase orders from the Distributors; (vii) When a CFA receives orders from the Distributors, the CFA makes a....
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....other warehouse to CFAs occurs as per the Distribution Plan / Dispatch Plan even on days when there is already an existing inventory of SKU at the relevant CFA and there are no pending orders for that SKU from any Distributors in the system; (xiv) The inventory at any CFA is merely stock held at the CFA location which remains unappropriated to a particular order from a Distributor till the "Picking List" is created by the CFA for each delivery to be made on a day; (xv) The holding of inventory at the CFA location is central to supply chain model of Castrol. Goods arrive at the CFA location in a continuous stream for replenishment of stocks; (xvi) The typical period for delivery from a CFA to a Distributor is 0-3 days in 75% of cases. Many transactions of sale to Distributors are delivered on the same day. A typical transport period for movement of goods from the mother warehouse to CFA is 3-10 days. It is, therefore, impossible to service Distributor orders by moving the goods from the mother warehouse; (xvii) The daily allocation for deliveries / sales to be made by the CFAs, is made by JD Edwards allocation tool and is tentative in many respects: (i) It can be rese....
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....ased on the norms that have been set; and (xxii) The stock transfer from the mother warehouse to CFAs are in bulk quantities. The sales by the CFAs to the Distributors and customers are in much smaller quantities. These are also in different quantities from the volumes being moved to the CFAs. This is linked to the fact that a CFA services multiple Distributors and customers and the movement of goods is also in the regular course towards replenishment of stocks at their normative levels. There is co-mingling of the stocks maintained at CFA, given that CFAs receive goods from multiple mother warehouses and other CFAs; 11. Based on the aforesaid factual aspects, learned senior counsel appearing for Castrol submitted that there is nothing in the terms of the Agreements with the Distributors that may construe an 'agreement to sell' of any specific goods pre-identified in such Agreement. There is also nothing in the Agreements with the Distributors that may even remotely suggest that the movement from the mother warehouse of Castrol in the State of Maharashtra is towards discharge of a specific order from the Distributors. The entire framework of operations carried out in rela....
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....xisting purchase orders which fall within the scope of section 3(a) of the CST Act as claimed by the State of Maharashtra, or are supplies in the nature of 'Stock Transfers' which fall within the scope of section 6A of the CST Act as claimed by Castrol. 15. To appreciate this issue, it would be appropriate to examine sections 3, 6 and 6A of the CST Act and the relevant portions of these sections are reproduced below: "3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title 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 sa....
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.... 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. 21. Section 6-A of the Central Act provides that if any dealer claims that he is not liable to pay tax under the Central Act in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal and not by reason of sale, then the burden of proving that the movement of goods was so occa....
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....goods was so occasioned shall be on the dealer. The mode of discharge of this burden of proof has also been provided in the form of a declaration in form 'F'. Mere transfer of goods from a head office to a branch office or inter-branch transfer of goods which broadly come under the phrase 'branch transfers' cannot be regarded as sale in the course of inter-State trade for the simple reason that a head office or branch cannot be treated as having traded with itself or sold articles to itself by means of stock transfers. When the 'sale' causes or has the effect of occasioning the movement of goods from one State to another, irrespective of whether the movement of goods is provided for in the contract of sale or not, or whether the order is placed with any branch office or any head office which resulted in the movement of goods, if the effect of such a sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility of tax under section 3(a). 18. In the present case, the Sales Tax Tribunal took into consideration the entire business structure of Castrol and the fact that for supplying goods in an assured time limit....
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....goods entrusted to the CFA in the course of operation of the Agreement shall continue to vest with Castrol. It also provides that the representatives of Castrol shall be entitled to check the stocks and records maintained by the CFA. 21. Castrol has also provided the factual position in detail and this has not been controverted by the appellant. 22. What has been emphasized by Castrol is that the goods are standardised, branded and Off-the-Shelf Products and are not products that are specially produced for the Distributors or the customers. Each variety of lubricants is treated as Stock Keeping Unit (SKU), which are over 1,000. The goods are manufactured in the manufacturing plant of Castrol at Patalganga in the State of Maharashtra from where they are moved to the mother warehouse of Castrol at Bhiwandi also in the State of Maharashtra. This movement has been described to be an internal stock transfer within the State of Maharashtra. Thereafter, the goods are transferred from the mother warehouse of Castrol in the State of Maharashtra to various CFAs of Castrol located in different States. Castrol has stated that these are branch transfers against which F-Forms have been ....
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....to move from the mother warehouse of Castrol. Castrol has also stated that since each CFA may have to deal with an average of about 600 orders monthly from customers and each order has on an average 4-5 SKUs, an automated allocation is required which is provided by JD Edwards. Castrol has also stated that it is physically impossible for Castrol to hold inventory at the plants of mother warehouses till a purchase order is raised at the CFAs location. Castrol has stated that there is co-mingling of the stocks maintained by CFA for the reason that the CFA may receive goods not only from the mother warehouse but also from other CFAs. 24. Learned senior counsel for Castrol, during the course of hearing of the appeal, also placed a Tabular Summary in respect of the CFA located in Delhi. With regard to the information available for the month of January 2010 in respect of SKU under the Heading 'Particulars/Month', learned senior counsel referred to the Heading "stock transfers outside State". This is in the course of stock transfers from the CFA in Delhi to CFAs in other States. In this connection, learned senior counsel referred to the following deals: (i) 13.01.2010: 1800 litre....
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.... towards an order placed by the Distributor is done by the CFA on the day of delivery. 28. The aforesaid factual business module of Castrol has not been disputed by the State of Maharashtra but an inference is sought to drawn from the same factual position that the movement of goods from the mother warehouse of Castrol in the State of Maharashtra to the CFAs in other States are supplies made in the discharge of pre-existing purchase orders. 29. It is, therefore, not possible to accept the contention that has been advanced by the learned counsel for the appellant that the Distributors are identified before movement of the goods from the mother warehouse of Castrol and the goods are merely routed through the CFAs. As noted above, each CFA holds an inventory at its location as per the 'Normative Stocking Levels' fixed by Castrol keeping in mind the Monthly Forecast of Sales. The movement of the goods from the mother warehouse to the CFAs, therefore, occurs to address the preset and pre-determined Normative Inventory Levels and not as a consequence of any pre-existing purchase orders from the Distributors. In fact, when CFAs receive orders from the Distributors an appropriatio....
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....ted as well as to other users in different States from the stockyards. An issue arose as to whether sale took place in different States where the stockyards were situated. The Supreme Court noticed that the sales office of the appellant in Bombay instructed the Jamshedpur factory to transfer vehicles to the stockyard in various States after taking into consideration the requirement of customers in various States. The stocks at the stockyards were distributed to the dealers from time to time. The Supreme Court found that the transfer of vehicles from the factory to various stockyards was a continuous process and was not related to the requirement of any particular customer. The stockyard appropriated the vehicles to the contract of sale out of the stocks available with it. Until such appropriation was made, the vehicles could be sold to any customer and, therefore, it was concluded that the transaction of sales of vehicles cannot be treated as inter-state sale from Jamshedpur factory but would be a local sale in the State where the stock yards were located. 33. The Allahabad High Court in Central Distillery & Breweries Ltd. vs. Commissioner of Trade Tax, U.P., Lucknow -(1999)....
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....e 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 stock at Delhi and the goods were transported from the distillery only on receipt of the orders. Therefore, there is no evidence to show that the supply of rum to the Del....
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....act, CMS Computers has to keep the systems in 100% working condition by rectifying the problems and replacing the faulty components. In order to ensure that the systems are kept 100% working during the period of the Annual Maintenance Contract, it is necessary for CMS Computers to ensure that all the parts are kept in store at the branch level from where the calls are attended. It cannot be said from a perusal of the Annual Maintenance Contract that after a fault has been identified, the spare parts are purchased from the head office. CMS Computers is obliged under the said contract to maintain adequate inventory for this purpose. The contract does provide for maintaining sufficient stock of hardware based on data of past years so that there is no down time. The contract also does not provide that this stock has to be procured on inter-state basis only, for the stock can be procured locally also. According to CMS Computers, it ordinarily keeps that much of "minimum order level" buffer stock at its branches as is sufficient to last for a period of thirty to forty-five days and the materials to the branch are transferred to replenish the buffer stock. The buffer stock is used by....
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....anch 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, therefore, held that the Bombay branch merely acted as an intermediary between the Madras factory and the buyer." (emphasis supplied) 38. Learned counsel for the appellant placed reliance on paragraph 47 of the decision of the Supreme Court in Hyderabad Engineering which is reproduced below: "47. We have already noticed the relevant clauses in the 'sales agreement'. A close reading of the clauses would clearly indicate that the parties have agreed to discharge certain obligations cast on them under the agreement. The agreement provides for the products to be supplied, sales zone, to organize sales and ser....
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....litate the supply of explosives to these subsidiaries. The appellant further contends that each of the aforesaid individual subsidiaries of Coal India like ECL, BCCL and CCL place indents on the depots/ branches of the appellant in the two States and the depots/branches of the appellant sell the explosives supplied from the Nagpur Unit to the subsidiaries. The appellant, on such sale, paid the applicable local VAT in the two States. This claim of the appellant of branch transfer from the Nagpur Unit to the depots was not accepted by the Deputy Commissioner and this order was upheld in the appeal filed by the appellant before the Joint Commissioner (Appeals) as also by the Sales Tax Tribunal." (emphasis supplied) 41. The Tribunal ultimately held: "43. It, therefore, follows from the aforesaid discussion that the appellant is merely stock transferring the goods to its depots and it is only when the subsidiaries of Coal India place indents on the appellant and the goods are supplied by the appellant that the sale takes place. The sale does not take place on the basis of the Running Contract dated 28.11.2008. It cannot, therefore, be said that the movement of packaged explo....
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....m 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 also to ensure the delivery of beer to the Corporation within the validity period prescribed in the OFS, it has to effect inter-state stock transfer of beer from its factory in the State of Rajasthan to its depots in the State of Rajasthan from time to time through Form-F, depending on estimation of market demand and that it is only when OFS is placed by the Corporation on the depots of the appellants in the State of Bihar that the goods are sold. Thus, it is the OFS that concludes the contract of sale between Carlsberg and the Corporation. The movement of goods from the State of Rajasthan to the depots of Carlsberg in the State of Bihar, therefore, cannot be said to have been occasioned by reason of any sale agreement. The appellants treated the sale from its depots in the State of Bihar to the Corporation in the State of Bihar ....
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....or the appellant, there was an agreement to sell raw jute between the appellant and buyers in Calcutta. When this agreement was entered into the jute was not in existence as it was being grown. Once grown, the jute was to be sent to Calcutta from places in Orissa, it being understood that the sale would only conclude at Calcutta once the raw jute was ultimately accepted by the buyers. It is in the context of these facts that the Supreme Court considered whether or not the term 'sale of goods' in section 3 of the CST Act includes an 'agreement to sell', and ultimately concluded in the affirmative, based on the combined effect of its interpretation of section 3 of the CST Act and section 4 of the Sale of Goods Act, 1930. This decisions, therefore, does not help the appellant. 47. The decision of this Tribunal in Beardsell would also not come to the aid of the appellant. It is seen from the decision that the goods were customized for the building requirement of the customers and the site engineers of Beardsell had to visit the customer site to understand the specifications and requirements after which orders were placed specifying the dimensions required. These structures were used ....