TaxTMI 
TaxTMI 
2025 (7) TMI 1405
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....State of Uttar Pradesh Shri Nishe Rajen 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 20....
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....limit, appellant requires effective software norms. This means that when 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....
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....ned in the Distributor Agreement are: "2. The Distributor shall place purchase orders/indents 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 bas....
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....undertakes to provide sales information customerwise/dealerwise on a regular basis as may be specified by the Company. The Distributor also undertakes to provide any other 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 Distri....
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....their responsibilities independently. Based on the said representations of the C&F Agent, the Company has agreed to entrust its carrying and forwarding operations of the said Products to the C&F Agent. The C&F Agent 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....
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....representatives shall be entitled to check the stocks and records maintained by the C&F Agent and to inspect all books of accounts, register, vouchers, documents and statements maintained by the C&F Agent. xxxxxxxxxxx 7.10 If the C&F Agent is required to pay any penalty while acting as the agent of the Company for any act for which the Company is responsible, the Company shall make good 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....
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....les Executives. These facts indicate strong control of the Head Office over all the activities of CFAs and Distributors. In fact, as CFAs are completely under the control of Castrol and dispatch goods as per the instructions of Castrol, they merely act as a conduit. The dispatch plan contains SKU wise quantity details and details of the CFAs location. This also proves that the movement of goods is inextricably linked to 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. Confirmati....
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....e in controversy is as regards the movement of goods from the mother warehouse of Castrol in Bhiwandi to the CFAs in the relevant States. It is this movement from the mother warehouse to the CFA that the State of Maharashtra is claiming to be an 'Inter-State sale' liable to central sales tax under section 3(a) of the CST Act; (v) There is a similar arrangement for distribution in respect of the Manufacturing Plant at Paharpur, for which the mother warehouse is in Calcutta and further 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 ent....
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....am on the basis of their Dispatch Plan. The Dispatch Plan is created by an Automated Tool which considers the Distribution Plan for each CFA location and dispatches against the Distribution Plan on a month-to-date basis; (xii) The movement of goods from the mother warehouse is by way of 'stock transfers', and not by way of a 'sale'. 'Production' and 'movement' of goods to the CFA location is made in anticipation of the demands to maintain the Inventory of CFA at Normative Levels; (xiii) Movement of goods from the mother 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 o....
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....es at the manufacturing plants and approximately 4 million litres at the mother warehouses, out of which 2.4 million litres is at Bhiwandi mother warehouse and 0.8 million each at Silvassa and Paharpur mother warehouses. The total storage capacity at all the CFAs, on the other hand is 20 million litres. Therefore, it is physically impossible for Castrol to hold inventory at the plants or mother warehouses. Castrol has 8 lakh sq. ft. of warehousing space in total, of which only 2.2 lakh sq. ft. is at the mother warehouse, which clearly evidences that the storing of inventory takes place at the CFA location, based 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....
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.... decided 21.10.2024 12. Learned counsel appearing for the other respondents supported the submissions made by the learned senior counsel appearing on behalf of Castrol and submitted that the appeals should be dismissed. 13. The submissions advanced by the learned counsel for the appellant and the learned senior counsel for appearing on behalf of Castrol and the leaned counsel appearing for other States have been considered. 14. What has to be determined in this appeal is as to whether the movement of the 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 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.....
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....hat the particulars contained in the declaration furnished by a dealer under sub-section(1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall be deemed for the purpose of this Act to have been occasioned otherwise than as a result of sale. *****" (emphasis supplied) 16. The provisions of sections 3 and 6A of the CST Act were examined at length by the Supreme Court in Hyderabad Engineering Industries vs. State of Andhra Pradesh-(2011) 4 SCC 705 and the relevant portions of the judgment are 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 tho....
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....nspires from the aforesaid decision of the Supreme Court in Hyderabad Engineering is that for a sale to be in the course of inter-State trade or commerce under section 3(a), there must be a sale of goods and such sale should occasion the movement of the goods from one State to another. To find out whether a particular transaction is an inter-State sale or not, it is essential to see whether the movement of the goods from one State to another is a result of a prior contract of sale. Under section 6A, if the dealer claims 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 and not by reason of sale, then the burden of proving that the movement of 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 havin....
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....valent to 14 days stock cover, which is the minimum required to be maintained at any given time. The Agreement between Castrol and CFA provides that the CFA will have to arrange on their own a warehouse measuring 12,500 sq ft and Castrol shall consign from time to time the products from its various manufacturing units, and also from its other CFAs to the warehouse of CFA and the CFA shall receive the stock and dispatch it on behalf of and per the instructions of Company. For this purpose the CFA will be paid a monthly amount of Rs. 101,000/-. The CFA shall also be responsible for the segregation of invoices customer wise and match them with the relevant lorry receipts and dispatch movements. The Agreement also provides that the ownership of the 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....
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....priated to a particular order from a Distributor till the "Picking List" is created by the CFA for deliveries to be made each day. The goods arrive at the CFA location in a continuous stream for replenishment of stocks. Thus, this movement of goods cannot be as a consequence of any pre-existing purchase order from the Distributor. 23. It has been stated by Castrol that a typical period for delivery from a CFA to a Distributor is about 0-3 days in 75% of the cases and in fact many of the deliveries to the Distributors are made on the same day. Castrol has also stated that since the transport period for movement of goods from the mother warehouse to CFA is about 3-10 days, it is impossible for the CFA to service the Distributors if the goods have 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 CFA....
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....allocates different packs namely Barrel, Drum and Cartons, and creates a truck-load to be delivered to one of the Distributors. It is seen that a total of 9,814.9 litres was delivered to a Distributor as a combination of Barrels (5) Drums (128) and Cartons (480), resulting in 613 packages of a total of 981.49 litres. It has also been stated that similar exercises are carried out by the CFA's all over the country on a daily basis allocating and appropriating goods of different SKUs in different pack sizes in respect of order received from different Distributors. This exercise is done at the CFA location. This clearly establishes that the goods which move from the mother warehouse to the CFA are not correlated to any pre-existing order from the Distributor. The allocation and appropriation 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....
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....tock Transfers', which fall within the scope of section 6A of the CST Act, learned senior counsel for Castrol placed reliance on certain decisions. Learned counsel for the appellant also placed reliance upon certain decisions to support the contention that the aforesaid movements of goods are supplies made in discharge of pre-existing purchase orders, which fall within the scope of section 3(a) of the CST Act. 32. In Tata Engineering Locomotive, which has been relied upon by learned counsel for the Castrol, Tata Engineering was carrying out business of manufacturing trucks at Jamshedpur in the State of Bihar. The appellant maintained stockyard in different States for the purpose of more effective distribution of the vehicles to the dealers. The sale of the vehicles to the dealers was affected 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 cust....
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....f 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: "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 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 ....
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....ition in paragraph 19 of the order, which is reproduced below: "19. It is seen that CMS Computers has clients at various places in the country. It undertakes an Annual Maintenance Contract for the maintenance of computers, scanner and printers. To appreciate the contentions that have been advanced, it would be appropriate to examine the relevant clauses of the Annual Maintenance Contract. It reveals that though the contract has been executed by the head office of CMS Computers and the Life Insurance Corporation of India, but CMS Computers is required to carry out onsite comprehensive maintenance of the computer systems and all the tools, test equipment and fixtures required for the onsite comprehensive maintenance of equipments have to be provided by CMS Computers. During the period of Annual Maintenance Contract, 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....
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....evious year and there is no clause in the contract that spare parts that are replaced have to be invoiced separately and they are covered by the Annual Maintenance Contract. The State Tribunal also found that the goods were standard components and were not tailor made for the customers." (emphasis supplied) 37. This Tribunal in CMS Computers also distinguished the decision of the Supreme Court in English Electric, which has been relied upon by the learned counsel for the appellant, in the following manner: "23. The aforesaid decision of the Supreme Court in English Electric would not come to the aid of the State of Maharashtra. 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 th....
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....ch are stated to be the reason for movement of the goods from the State of Maharashtra to other States does not envisage such a situation." 40. In Keltech Energies, relied upon by learned counsel for Castrol, the factual position has been highlighted by the Tribunal in paragraph 5 in the following manner: "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 the explosives to reach the aforesaid destination States from the Nagpur Unit. The appellant contends that since it is not possible to supply the explosives directly from the Nagpur Unit of the appellant to such collieries, the appellant has to maintain licensed stock depots for the explosives in the States of Jharkhand and West Bengal to facilitate 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....
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....n the State of Bihar to the Corporation in terms of the OFS issued by the Corporation was treated by Carlsberg as local sale in the State of Bihar, on which local VAT at the rate of 50% was paid. xxxxxxxxxxx 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 ....
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....t the contract amounted to a contract of sale. This decision would, therefore, not come to the aid of the appellant. 45. In Oil India, also relied upon by the learned counsel for the appellant, refers to an agreement between Oil India and the Government of India for the supply of oil produced in Assam to be sold to a refinery at Barauni in Bihar through a pipeline specially constructed by the seller running from its location in Assam to the refinery at Barauni. In view of these facts, the Supreme Court held that as the construction of the pipeline was undertaken in pursuance of the agreement and with the specific purpose of transporting crude oil to Barauni, this would mean that the parties contemplated that there should be an inter-State movement of goods. This decision, therefore, does not come to the aid of the appellant. 46. In Balabhagas Hulaschand, also relied upon by learned counsel for 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 ....