2024 (4) TMI 813 - HC - VAT and Sales Tax

Benefit of Exemption from CST - stock transfer or inter-state sale - Whether the movement of goods in the instant case is only a stock transfer to the branches and liable to be exempted under Section 6A of the CST Act 1956 or the transaction is an interstate sale under Section 3(a) of the CST Act and liable for tax under CST Act 1956? - HELD THAT - The impugned order shows that the works orders sent by the HO contain the details of individual customer companies and item wise description of the rubber sheets with specific design and quantity which manifests that rubber sheets are being tailor-made to suit the needs of the individual customers. The invoices are also raised on customers. It may be true that the finished goods are dispatched to the different branches. However, that fact is insignificant because in the entire process the branches are acting only as conduits between the manufacturing unit and customers. Where once movement of goods from one state to another state takes place on account of sale or purchase, the transaction assumes the character of inter-state sales in terms of Section 3(a) of CST Act, 1956. The judgment in SAHNEY STEEL AND PRESS WORKS LTD. AND ANOTHER VERSUS COMMERCIAL TAX OFFICER AND OTHERS 1985 (9) TMI 313 - SUPREME COURT squarely apply to the case on hand. In the instant case also the movement of goods shall be regarded as inter-state sales rather than mere stock transfer - the argument of the petitioner in this regard, cannot be countenanced. The other contention of the petitioner is concerned, as rightly submitted by learned Government Pleader, the 2nd respondent has exercised his power under Section 9(2) of CST Act, r/w Section 20 (2) of APGST Act but not under Section 6A(3) of CST Act. There are no merits in the petitioner s case and accordingly the Writ Petition is dismissed.

Summary

Issues Involved:
1. Whether the movement of goods is a stock transfer exempted u/s 6A of CST Act, 1956 or an interstate sale taxable u/s 3(a) of CST Act, 1956.
2. Jurisdiction and authority of the 2nd respondent to reassess under Section 9(2) of CST Act, 1956.

Summary of Judgment:

Issue 1: Nature of Goods Movement
The petitioner, a manufacturer of rubber sheets and adhesives with its head office in Chennai and manufacturing unit in Gudur, claimed that the movement of goods to its branches was a stock transfer exempted u/s 6A of CST Act, 1956. The branches procured rate contracts for lagging work, and the goods were used during the execution of these contracts. The petitioner argued that the goods were standard products and not custom-made for specific customers.

The 2nd respondent, however, observed that the goods were manufactured as per customer specifications and dispatched directly to branches with invoices indicating the purchase order number. The goods were not standard but tailor-made, and the movement of goods was occasioned by pre-existing contracts, making it an interstate sale u/s 3(a) of CST Act, 1956. The court agreed with the 2nd respondent, citing the Sahney Steels case, which clarified that movement of goods from one state to another due to a sale contract constitutes interstate trade.

Issue 2: Jurisdiction and Authority
The petitioner contended that the reassessment was without jurisdiction as Section 6A(3) of CST Act, 1956, conferring re-assessment powers, was introduced prospectively in 2010. The 2nd respondent, however, exercised power under Section 9(2) of CST Act, r/w Section 20(2) of APGST Act, not under Section 6A(3). The court upheld the respondent's jurisdiction and dismissed the petitioner's argument.

Conclusion:
The court dismissed the writ petition, affirming that the movement of goods was an interstate sale taxable u/s 3(a) of CST Act, 1956, and the reassessment by the 2nd respondent was within jurisdiction. No costs were awarded, and any pending interlocutory applications were closed.