2008 (1) TMI 841 - HC - VAT and Sales Tax

Whether, in facts and in the circumstances of the case, the stock of cement said to have been moved from the petitioner s factory to West Bengal can be held to be inter-State sales? Held that - In the case at hand, the goods in question are cement which are standard goods. Cement has not been manufactured by the dealer according to any specification stipulated by the buyer in West Bengal and the same were delivered to them as a result of covenant in any contract of sale. This case is of no help to the Revenue. Thus answer the question in negative, i.e., in favour of the dealer and against the Revenue

Summary

Issues Involved:
1. Whether the stock of cement moved from the petitioner's factory to West Bengal can be held to be inter-State sales.

Detailed Analysis:

Issue 1: Nature of Stock Movement - Inter-State Sale or Branch Transfer

Background and Facts:
The petitioner, a cement manufacturing company, transferred 74,829.2 MT of cement valued at Rs. 14,21,40,127 from its factory in Orissa to its branch office in West Bengal during the year 1993-94. The petitioner claimed these transfers as branch transfers under Section 6A of the CST Act, supported by Form "F" declarations. The assessing officer, however, treated these transfers as inter-State sales, leading to a tax dispute.

Legal Provisions:
- Section 3(a) of the CST Act: Defines inter-State trade as a sale that occasions the movement of goods from one state to another.
- Section 6A of the CST Act: Places the burden of proof on the dealer to show that the movement of goods was due to a branch transfer and not a sale.

Arguments by the Petitioner:
The petitioner argued that the cement was transferred to the branch in Kolkata and then sold to stockists and other dealers from there, with no pre-existing contract linking the dispatch from Orissa to the sale in West Bengal. They cited several Supreme Court judgments (Tata Engineering and Locomotive Co. Ltd., Kelvinator of India Ltd., and Commissioner of Sales Tax, U.P. v. Suresh Chand Jain) to support their claim that there was no inseparable link between the dispatch and the sale.

Arguments by the Revenue:
The Revenue contended that clauses 21 and 22 of the stockist application form indicated a pre-existing contract, making the movement of cement an inter-State sale. They relied on the Supreme Court's decision in Sahney Steel and Press Works Ltd. and Balabhagas Hulaschand v. State of Orissa to argue that the transfers were indeed inter-State sales.

Tribunal's Findings:
The Tribunal initially upheld the assessing officer's view, stating that the goods were dispatched to identified stockists in West Bengal, thereby constituting inter-State sales. However, they also noted that not all dispatches were to stockists, remanding the case to the assessing officer to re-determine the turnover.

High Court's Analysis:
The High Court examined the legal provisions and precedents in detail:

- Section 3(a) CST Act: Requires a sale to occasion the movement of goods from one state to another.
- Section 6A CST Act: The dealer must prove that the movement was due to a branch transfer.

The court noted that the Revenue failed to establish an inseparable link between the dispatch from Orissa and the sale in West Bengal. The information in clauses 21 and 22 of the stockist application form was general and did not constitute a specific contract of sale.

Key Judgments Referenced:
- Tata Engineering and Locomotive Co. Ltd.: Emphasized the need to examine each transaction individually to determine if it constitutes an inter-State sale.
- Kelvinator of India Ltd.: Highlighted that the movement of goods must be under a contract of sale.
- Commissioner of Sales Tax, U.P. v. Suresh Chand Jain: The onus is on the Revenue to disprove the dealer's claim of local sales.
- Sahney Steel and Press Works Ltd.: Distinguished as it involved specific goods manufactured to buyer specifications, unlike the standard cement in this case.

Conclusion:
The High Court concluded that the Revenue failed to establish that the movement of cement was occasioned by a contract of sale. The transfers were deemed branch transfers, not inter-State sales. The question was answered in favor of the petitioner, and the tax revision was disposed of with no costs.

Separate Judgment:
A.K. Ganguly C.J. concurred with the judgment.

Summary:
The High Court ruled that the movement of cement from Orissa to West Bengal by the petitioner was a branch transfer and not an inter-State sale. The Revenue failed to establish an inseparable link between the dispatch and subsequent sale, and the petitioner's claim was supported by Form "F" declarations. The court relied on several Supreme Court judgments to conclude that the transfers did not meet the criteria for inter-State sales under Section 3(a) of the CST Act. The tax revision was disposed of in favor of the petitioner.