2024 (10) TMI 1124 - AT - VAT / Sales Tax

Demand of central sales tax on movement of goods from the manufacturing units of the appellants situated in the State of Rajasthan to their depots in the State of Bihar and the State of Jharkhand - inter-state supply of goods or inter-state stock transfers? - HELD THAT - 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 interstate 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. A contract of sale of goods would be effective when a seller agrees to transfer the property in goods to the buyer for a price and that such a contract may be either absolute or conditional. If the transfer is in presenti, it is called a sale ; but if the transfer is to take place at a future time and subject to some conditions to be fulfilled subsequently, the contract is called an agreement to sell . When the conditions subject to which the property in goods is to be transferred are fulfilled, the agreement to sell becomes a sale . When the sale or agreement to sell causes or has the effect of occasioning 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) of the Central Sales Tax Act. Under the Liquor Policy, the Corporation is the wholesaler for all kinds of liquor, including beer. A manufacturer desirous of supplying beer to the Corporation for subsequent distribution shall have to submit documents, including the Master Agreement. The Corporation issues OFS on the depots of Carlsberg in the State of Bihar based on the stock requirements of the Corporation, but the Corporation has the right to decide the quantity for which OFS can be issued and the Corporation is also under no obligation to procure any specified minimum quantities of any brand of beer during the currency of the contract - The stocks have to be delivered at the concerned depots of the Corporation at the cost and risk of the manufacturer. Any delivery that deviates from the OFS is not acknowledged by the Corporation and would not be unloaded at the depots. 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 - 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 as sale and paid local VAT. There can, therefore, be no manner of doubt that the movement of goods from the manufacturing units of the appellants situated in the State of Rajasthan to the depots of the appellants in the State of Bihar or the State of Jharkhand was not occasioned by any prior contract of sale or agreement to sell. The appellants had merely stock transferred beer from the manufacturing units of the appellants situated in the State of Rajasthan to the depots of the appellants situated in the State of Bihar or the State of Jharkhand. The movement of goods did not occur from the State of Rajasthan to the State of Bihar or the State of Jharkhand pursuant to the Master Agreement or the Liquor Policy. The Master Agreement, therefore, cannot be treated to be an agreement to sell. It would, in fact, be in the nature of a standing order or a tender which does not amount to a sale or an agreement to sell. It is, therefore, clear that none of the clauses of the Master Agreement contemplate or refer to any inter-state delivery of the goods from the State of Rajasthan to the State of Bihar or the State of Jharkhand. The movement of goods cannot also be considered incidental to the Master Agreement. Reliance placed by the Rajasthan Tax Board and the learned senior counsel for the State of Rajasthan on clause 2 of the Master Agreement to justify that the movement of goods occurred incidental to the Master Agreement, is not correct. It will, therefore, not be possible to sustain the order dated 24.11.2014 passed by the Rajasthan Tax Board. It is, accordingly, set aside and all the fourteen appeals filed by Carlsberg, United Breweries and Mount Shivalik are allowed.

Summary

Issues Involved:
1. Determination of whether the movement of goods from Rajasthan to Bihar and Jharkhand was an inter-state supply of goods or an inter-state stock transfer.
2. Examination of the applicability of the Master Agreement and Liquor Policy in determining the nature of the transaction.
3. Evaluation of the legal precedents and their relevance to the current case.

Issue-Wise Detailed Analysis:

1. Determination of the Nature of Movement of Goods:
The core issue was whether the movement of goods from the appellants' manufacturing units in Rajasthan to their depots in Bihar and Jharkhand constituted an inter-state supply of goods or an inter-state stock transfer. The appellants argued that the movement was a stock transfer, not occasioned by any sale agreement, and treated the subsequent sale from their depots to the Bihar State Beverages Corporation (BSBCL) as a local sale, paying local VAT. The Rajasthan Tax Board, however, treated it as an inter-state sale under Section 3(a) of the Central Sales Tax Act, asserting that the movement was occasioned by a contract of sale.

2. Examination of the Master Agreement and Liquor Policy:
The appellants contended that the Master Agreement and Liquor Policy did not constitute an agreement to sell but were frameworks for potential future sales. The Master Agreement allowed the Corporation to determine the quantity of beer to be procured based on demand, with no obligation to purchase any specific quantity. The OFS (Order for Supply) issued by the Corporation was argued to be the actual contract of sale, not the Master Agreement. The Tribunal found that the Master Agreement did not specify quantities or prices and was more akin to a standing offer rather than a binding contract of sale.

3. Evaluation of Legal Precedents:
The Tribunal considered several legal precedents to determine the nature of the transaction. The decision in *Central Distillery and Breweries* was particularly relevant, where a similar situation was held to be stock transfers, not inter-state sales. The Tribunal also noted the Supreme Court's decision in *Kelvinator of India*, which held that agreements lacking specific quantities and prices do not constitute contracts of sale. The Tribunal distinguished the present case from the *Indian Oil Corporation* case, where specific contractual terms necessitated inter-state movement, which was not present here.

Conclusion:
The Tribunal concluded that the movement of goods from Rajasthan to Bihar and Jharkhand was not occasioned by any prior contract of sale or agreement to sell. The appellants had merely stock transferred beer to their depots, and the subsequent sale occurred only upon the issuance of OFS by the Corporation. Therefore, the movement was not an inter-state sale under Section 3(a) of the Central Sales Tax Act. The order of the Rajasthan Tax Board was set aside, and the appeals filed by the appellants were allowed.