2022 (8) TMI 58 - HC - VAT and Sales Tax

Interstate sale or Stock transfer - evidence of prior contract of sale having occasioned the movement of goods from Bareilly to Delhi - HELD THAT - There is no dispute to the fact that the assessee's factory is situated at Bareilly. Also, there is no dispute to the Franchise Agreement executed between the parties, wherein the assessee was obligated to make supplies of camphor and camphor products both for the purposes of processing and trading. Again, it is not in dispute, the Franchise had its place of business in Delhi. The movement of goods from factory premises of the assessee located in the State of U.P. to the Delhi is also not disputed. Any sale or purchase may be deemed to be an inter-State sale, if such sale or purchase occasions the movement of goods from one State to another. The consequence of such fiction arising would be the charge of tax being created under the Central Act and rights being governed accordingly. Therefore, in each case, a critical link to be established is, whether the movement of goods from one State to another occasioned by an identifiable or visible contract of sale or purchase of goods. If yes, the deeming fiction would attach with full force. If however, that contract of sale or purchase is not visible, suspicions howsoever strong may not lead to levy of central sales tax. Though, under the Franchise Agreement quantities of camphor and camphor products were to be supplied by the assessee to the Franchise at Delhi yet, there was no firm order in existence as may have been placed on the assessee on the date of transfer of camphor and camphor products made by it from its factory at Bareilly to Delhi. Besides strong suspicion expressed by the revenue authorities, no credible material or evidence could be gathered by them to establish existence of a single contract of sale that may have occasioned the movement of goods from Bareilly to Delhi. In fact, undisputed statement of account as has been noted, reveals only part quantity of camphor and camphor products transferred by the assessee to its branch at Delhi were sold to the franchise at Delhi. The remaining quantities were sold to other persons. The fact that the assessee's branch was found situated within the factory premises of the Franchise would also not create a presumption of existence of prior contract of sale. Letting of premises and setting up of businesses is governed by separate set of laws. Those laws do not create any presumption of single identity or presumption of sale. That material considered by the revenue authorities may have raised a suspicion, that may have only warranted an enquiry - Merely because quantities of camphor may have been transferred in entirety or soon after receipt at the branch also did not create any presumption of prior contract of sale. Further, the fact that tax may not have been paid by the assessee at Delhi would remain a matter outside the jurisdictional sphere of the taxing authority in the State of U.P. Non payment of tax in one State does not create liability to pay tax in another State. In any case, in the context of inter-State sale, existence of prior contract of sale was mandatory as may have occasioned the movement of goods from UP to Delhi was necessary to be established - After that remand orders made by this Court, the authorities have yet not been able to unearth any material as may lead to that finding. In fact, in the first remand order, the Court had required the authorities to make a proper reading of Clause 6 of the Franchise agreement. Plainly, that clause is in favour of the assessee's case. It indicates, the parties had agreed not to perform inter- State sale from Bareilly to Delhi. Whatever it may be worth, it was for the revenue to lead evidence of prior contract of sale as may have caused movement of goods. That burden remained undischarged in face of other findings of fact recorded by the Tribunal. Answered in the negative i.e. in favour of the assessee against the revenue - the present revision is allowed.

Summary

Issues:
Challenge to order of Commercial Tax Tribunal regarding rejection of claim of stock transfer from factory premises to branch.

Analysis:
1. The revision was filed against the order of the Commercial Tax Tribunal, Bareilly Bench, dismissing the appeal filed by the assessee regarding the rejection of the claim of stock transfer from its factory premises at Bareilly to its branch at Delhi for A.Y. 2004-05 (Central).

2. The main question of law pressed in the revision was whether the inference of inter-State sale from Bareilly to Delhi could be raised in the absence of clear evidence of a prior contract of sale causing the movement of goods.

3. The Franchise Agreement between the assessee and a firm in Delhi required the assessee to supply camphor products to the Franchise for processing. The agreement specified that the sale of camphor powder/tablets would be at the discretion of the Company's Sales Department in Delhi based on availability, without any fixed quantity or firm order for sale.

4. The assessing authority rejected the claim of stock transfer to the Franchise in the assessment order. The matter went through multiple revisions and remands, with the Tribunal ultimately rejecting the appeal filed by the assessee.

5. The High Court analyzed the provisions of the Central Sales Tax Act, emphasizing that for a sale to be deemed as inter-State, it must occasion the movement of goods from one state to another based on an identifiable contract of sale. The Court referred to the case of Kelvinator of India Ltd. vs. The State of Haryana to illustrate the importance of a visible contract of sale in determining inter-State sales.

6. The Court found that despite the undisputed facts of the factory location, the Franchise Agreement, and the movement of goods from Bareilly to Delhi, there was no visible contract of sale that could establish an inter-State sale. The Tribunal's findings did not provide credible evidence of a prior contract of sale causing the movement of goods.

7. The Court concluded that the burden of proving the existence of a prior contract of sale causing the movement of goods was on the revenue authorities, which remained undischarged. The Franchise Agreement and the transfer of goods from Bareilly to Delhi did not establish an inter-State sale, leading to the revision being allowed in favor of the assessee against the revenue.