TaxTMI 
TaxTMI 
2025 (11) TMI 591
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....e State Tribunal reduced the penalties imposed upon the appellant under section 9(2) of the Central Sales Tax Act, 1956 [the CST Act] . Thus, VAT Appeal No. 03 of 2019, VAT Appeal No. 04 of 2020 and VAT Appeal No. 01 of 2021 filed by the appellant were partly allowed. The appellant has also sought a relief for setting aside the penalty imposed upon the appellant. 2. The issue that had arisen before the State Tribunal was whether the movement of goods from the Indapur factory of the appellant at Pune in the State of Maharashtra to Haridwar in the State of Uttarakhand was to fulfill the purchase orders of Patanjali and, therefore, not a branch transfer as claimed by the State of Maharashtra, or it was a transfer of goods to the Branch of the appellant at Haridwar covered by section 6A of the CST Act as claimed by the appellant. 3. The appellant is engaged in the manufacture and trading of milk and milk products under the brand name of "SONAI". The factory is situated at Indapur in Pune in the State of Maharashtra. The appellant claims that in order to broaden its client base, it established a Branch Office at Haridwar in the State of Uttarakhand and the said Branch Office at Ha....
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....n whether there exist contract of sale between the appellant and the ultimate buyer M/s Patanjali and as to whether there is interstate movement of goods pursuant to such contract of sale or whether such movement from Indapur Factory of the appellant to its branch at Haridwar is otherwise than by sale, i.e. by branch transfer. According to the Appellant's C.A. butter is sent from Appellants factory at Indapur to its branch at Haridwar by a refrigerated van which after reaching the branch office at Haridwar is parked near the branch office and that, thereafter the branch office informs the potential buyers about the availability of butter for sale. The Appellants main customer in Uttarakhand is M/s. Patanjali Ayurveda Ltd. which first checks the quality of the butter and if Patanjali finds butter in good condition as per there requirement, then and then only Patanjali purchases butter. As soon as the customer purchases butter the refrigerated VAN parked near the branch office is diverted to the Place of Patanjali for delivery. In proof of the above arrangement our attention is invited to Patanjali's letter dt- 9 th October 2022 there by certifying that butter from the appellant is p....
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....d in the stock transfer challan, lorry receipt and form no 16. Therefore there is reason to believe that the movement of goods from Indapur factory of the appellant to Haridwar, Uttarakhand has been for fulfilling purchase orders of Patanjali who is indisputably a single buyer from Haridwar, Uttarakhand for the period under consideration. It is seen from the documents that the consignments are sent after the date of particular purchase orders. It can be therefore gathered that the movement of goods is in pursuance of specific purchase orders. It is seen from the documents placed on record that the Haridwar branch of the appellant receives purchase orders from Patanjali which are forwarded to appellant's factory at Indapur and there after goods are sent to Patanjali, Haridwar through the branch at Haridwar which branch only prepares invoices and accepts payment for the appellant. 37. It is seen from the documents placed on record that the appellant has transferred goods such as whole milk powder, dairy whitener in addition to butter during the period under consideration. The purchase agreement dt- 01.12.2014 between Patanjali, Haridwar, Uttarakhand and the appellant is plac....
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....dealt with the controversy as to branch transfer in the right perspective. Thus, no interference is called for in the impugned assessment orders, so far as they relate to levy of tax and interest. However, so far as levy of penalty under section 29 (3) of MVAT Act read with section 9 (2) of the CST Act is concerned, as it appears that the appellant is already saddled with interest and penalty is also imposed heavily to the extent of 50% of tax levied; we are inclined to reduce the penalty to the extent of 25% of tax levied. Therefore, penalty for the assessment year 2014-15, 2015-16 and 2016-17 works out to Rs. 2,65,02,786/- Rs. 2,76,90,320/-, and 2,89,77,140/- respectively. Hence, we pass the following order. ORDER 1. VAT APPEAL No. 03/2019, 04/2020 and 01/2021 are partly allowed. 2. The penalties levied under section 29 (3) of the MVAT Act read with section 9(2) of the CST Act for the assessment year 2014-15, 2015-16, 2016-17 are reduced to Rs. 2,65,02,786/- (Two Crore Sixty Five Lakhs Two Thousand Seven Hundred Eighty Six) Rs. 2,76,90,320/- (Two Crore Seventy Six Lakh Ninety Thousand Three Hundred Twenty) and Rs. 2,89,77,140 (Two Crore Eighty Nine Lakh....
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....s erroneous; (iv) The appellant maintains the right to dispose or divert the goods, and there is no appropriation of goods until the completion of laboratory testing by Patanjali and the placement of a confirmed order with the Haridwar Branch. Until these conditions are met, the goods remain unallocated and are not specifically designated for the intended purpose; (v) If the transaction is held to be an inter-State sale from the State of Maharashtra, than the appellant should be granted the refund of the amount paid in the destination State under the provisions of the section 22(1B) of the CST Act; (vi) The State Tribunal reduced the amount of penalty. However, no penalty is attracted in the facts of the present case; (vii) A comprehensive show cause notice should have been issued for imposition of penalty. Only a letter has been produced for information of transaction in which there is a mention of proposal to impose penalty under section 29(3) of the MVAT Act. The said proposal to impose penalty was only if the appellant did not produce the required documents. Proposal to impose penalty cannot be made by merely referring to section 29(3) of the....
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....orders. The retailer invoices prepared by the Indapur factory also reveal the purchase order number and purchase order date based on which the invoices are prepared. The same invoice number is reflected in the stock transfer challan, lorry receipt and Form No. 16. Therefore, the movement of goods from Indapur factory of the appellant in the State of Maharashtra to Haridwar in the State of Uttarakhand fulfils the purchase orders of Patanjali, which is indisputably a single buyer in Haridwar for the period under consideration; (iii) The State Tribunal also held that consignments are sent after the date of purchase order. The documents on record also show that the Haridwar Branch of the appellant receives purchase orders from Patanjali which are forwarded to factory of the appellant at Indapur and thereafter the goods are sent to Patanjali through the Branch at Haridwar, which Branch only prepares invoices and accepts payment for the appellant; (iv) From the 'Purchase Agreement' dated 01.12.2014 between Patanjali and the appellant, it can be inferred that there is a pre-determined arrangement between the appellant and Patanjali for supply of goods. (v) The s....
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....ory to Haridwar there is no purchase order occasioning the movement of butter from Pune to Haridwar. It is a transfer of stock from Pune to the Haridwar Branch for prospective customers in Haridwar; (ii) Since the sale of the butter to Patanjali was an intra-State sale within Uttarakhand, VAT was leviable on it and has been paid; (iii) The sale and appropriation of the butter has taken place solely in the State of Uttarakhand and, therefore, it is the State of Uttarakhand which had the right to impose tax on the sale transaction; (iv) No case for transfer of tax to the State of Maharashtra is made out since the transactions in question constitute a stock transfer only; and (v) In any case, for refund to be granted under section 22(1B) of the CST Act, a detailed examination of the transactions in question will have to be undertaken before any transfer is made. Further, input tax credit has been claimed by Patanjali on all sales declared by Indapur Dairy, Haridwar at the rate of 5%. 12. The submissions advanced by the learned counsel for the appellant, the learned counsel for the State of Maharashtra and the learned counsel for the State of Utta....
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....) of section 5, is a sale in the course of export of those goods out of the territory of India. 6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale. - (1) Where any dealer claims that he is not liable to pay tax under this 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, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of despatch of such goods and if the dealer fails to furnish such declaration, then, the movement of such goods shall ....
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....rse of inter-State trade or commerce during the year of assessment. Where the department takes advantage of the presumption under Section 3(a) and/or to show that there has been a sale or purchase of goods in the course of inter-State trade or commerce and if the assessee disputes that there has been a sale or purchase of goods in the course of inter-State trade or commerce, then the assessee can rebut the presumption by filing declaration in form 'F' under Section 6A of the Central Act to prove that the movement of goods was occasioned not by reason of sale but otherwise than by way of sale. When the department does not take advantage of the presumption under Section 3(a) of the Central Act, but shows a positive case of inter-State sale in the course of inter-State trade or commerce to make it liable to tax under Section 6, the declaration in Form 'F' under section 6A would be of no avail. 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, which are broadly brought under the phrase 'Branch transfers' cannot be regarded as sales in the course of inter-State trade, for the simple re....
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....fic date, the Indapur factory at Pune, in response to the purchase orders, makes the goods ready for dispatch by preparing stock transfer challans, retailer invoices, Form No. 16 and lorry receipts. The State Tribunal also found from the dates mentioned in these the aforesaid documents that these documents were prepared to fulfill the purchase orders. The State Tribunal, therefore, concluded that the Branch of the appellant at Haridwar receives purchase orders from Patanjali which are forwarded to the factory of the appellant at Indapur and, thereafter, the goods are sent by the Indapur factory to Patanjali through the Branch at Haridwar. The State Tribunal, therefore, held that the movement of goods from the Indapur factory of the appellant at Pune in the State of Maharashtra to Haridwar in the State of Uttarakhand is in pursuance of the purchase orders placed by Patanjali, which was the sole buyer during the period under consideration. The State Tribunal, while arriving at the aforesaid finding, also took into consideration the statements made by some of the employees of the appellant at Indapur factory. The statements reveal that the appellant receives purchase orders from Patan....
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.... to check whether the goods that have been supplied are the same that have been ordered and in case they are not, the goods are rejected. 23. This is also clear from the Purchase Agreement dated 01.12.2014 executed between Patanjali and the appellant and the relevant portions of the Purchase Agreement are reproduced below: "PURCHASE AGREEMENT This Agreement made on this 1st December, 2014 at Haridwar, Uttarakhand BETWEEN PATANJALI AYURVED LIMITED (hereinafter referred to as "PATANJALI") ***** AND M/s. Indapur Dairy and Milk Products Ltd. (hereinafter referred to as "Indapur Dairy") AND WHEREAS PATANJALI is a committed organization in the business of procuring, processing manufacturing and marketing of herbal products including medicines, cosmetics and food products, beverages, personal and home care products, extracts and so many similar commodities at Haridwar, India and is willing to trade/market for Whole Milk Powder (WMP). AND WHEREAS INDAPUR DAIRY is engaged in manufacturing/trading of Whole Milk Powder (WMP) and have agreed to supply the same to PATANJALI as per terms and conditions as mutually may be ....
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....l consent in writing. 11. Payment shall be made by PATANJALI within 30 days after receipt of Material and Invoice, whichever is later. 12. PATANJALI reserves the right to hold any outstanding payment of INDAPUR DAIRY, in case of any disputes that arises as to quality, quantity, timely delivery of materials and / or other matters and in such cases, INDAPUR DAIRY will fully cooperate with PATANJALI till amicable settlement of such disputes. 13. Damaged Bags, Short Quantity and Open Bags shall be at the sole risk and cost of INDAPUR DAIRY and that PATANJALI will adjust the cost of damaged bags, short quantity and / or open bags, if any, against the Bill raised by INDAPUR DAIRY." (emphasis supplied) 24. A perusal of the said Purchase Agreement clearly shows that Indapur Dairy at Pune will manufacture whole milk powder as per the specifications and standards fixed by Patanjali from time to time. It also provides that the quantity and standard of the whole milk powder supplied by the appellant to Patanjali shall be subject to checking and verification by the quality control department of Patanjali at the final delivery point as mentioned in each pur....
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....te Tribunal that may call for any interference in these appeals. 29. The next issue that arises for consideration is whether penalty could have been imposed upon the appellant. 30. It has been contended by the learned counsel for the appellant that the show cause notice did not call upon the appellant to show cause as to why penalty should not be imposed upon the appellant under section 9(2) of the CST Act read with section 29(3) of the MVAT Act and it is only in the communication dated 03.01.2019 sent by the Deputy Commissioner of Sales Tax to the appellant that it was stated that in case certain documents were not produced to prove the claim of branch transfer to Haridwar, the said branch transfer would be disallowed while passing the assessment order and consequential penalty under section 29(3) of the MVAT Act would be levied. 31. Learned counsel for the State of Maharashtra has placed reliance on the said letter dated 03.01.2019 to contend that penalty was correctly imposed upon the appellant. 32. The submission made by the learned counsel by the appellant deserves to be accepted. The relevant portions of the Communication dated 03.01.2019 sent by the Deputy Commis....
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.... dis-allowed and taxed at the relevant rate while passing an assessment order and as to why the consequential interest u/s 30 (3) and penalty u/s 29 (3) equal to amount of tax so levied should not be levied on it. You are instructed to attend on dated 10 Jan 2019 at 11.30 am and produced the documents and record as said above, in the case of failure of which it will be presumed that you have nothing to say in the matter and tax, interest and penalty will be levied as said above which may please note." 33. The show cause notice did not call upon the appellant to show cause why penalty should not be imposed. The letter dated 03.01.2019 merely called upon the appellant to produce documents failing which penalty under section 29(3) MVAT Act could be levied. 34. The imposition of penalty upon the appellant, therefore, cannot be sustained and deserves to be set aside. 35. Learned counsel for the appellant submitted that even if the transaction is held to be an inter-State sale from the State of Maharashtra, than the appellant should be granted refund of the amount paid in the destination State under the provisions of the section 22(1B) of the CST Act. 36. This submis....