2022 (11) TMI 434 - HC - VAT and Sales Tax

Open purchase order - agreement to sell - inter-state sale or not - stock transfers - argument of Shri Sridharan in substance, is open purchase orders do not stipulate any specified quantity and therefore, it cannot be construed as an agreement to sell - whether in the facts of this case, inter-state transfer of goods under Form-F to petitioner's depots situated in different states amounts to inter-state sale under Section 3(a) of the CST Act? HELD THAT - The Open Purchase Orders do not mention the quantity of the goods supplied. We may record that in order to avoid inventory, manufacturers have been using the 'JIT' (Just in time) supply model. It was argued on behalf of the assessee that to ensure prompt delivery of the goods as and when called upon, the assessee transfers the goods and stocks it in its depot. Shri. Sridharan also urged that the automobile manufacturing Industries nor the ancilliary units had any obligation to place purchase orders. In case the paint had remained unsold, the option for the assessee is to either destroy it or to take it back to its Manufacturing unit. It is not in dispute that goods were transferred from Mangaluru to various depots situated in different States under Form-F and assessments for the years 2006-07 and 2007-08 were concluded by accepting the Statutory declarations filed in Form-F. The Open Purchase Orders do not constitute any Contract. The Purchase Orders issued from time to time for supply of goods constituted Contract between parties. Thus, the sale effected pursuant to such Purchase Orders is an Intra-State sale in that State. It is so because, whilst Goods were stored in various States, the ownership and title of goods vested with the assessee. Pursuant to the Purchase Orders received from time to time, assessee has delivered the goods from its depot in that State to the respective purchasers. Order dated 27th June 2019 Annexure-A is quashed holding that Open Purchase Orders are only standing offers and do not constitute a confirmed 'Agreement to sell' and movement of goods are mere stock transfers - petition allowed.

Summary

Issues Involved:
1. Validity of the impugned orders dated 27.06.2019.
2. Nature of open purchase orders and whether they constitute an 'agreement to sell'.
3. Classification of inter-state movement of goods under Section 3(a) of the CST Act.
4. Determination of whether the transactions are inter-state sales or mere stock transfers.

Detailed Analysis:

1. Validity of the Impugned Orders Dated 27.06.2019:
The petitioner sought a writ of certiorari to quash the impugned orders CST/1-6/2016 and CST/9-50/2016 dated 27.06.2019. The High Court examined the facts and legal arguments presented by both parties. It concluded that the orders were based on an incorrect interpretation of the nature of open purchase orders and the classification of inter-state movement of goods. Consequently, the court quashed the impugned orders.

2. Nature of Open Purchase Orders:
The petitioner argued that the open purchase orders did not stipulate any specified quantity and thus could not be construed as an 'agreement to sell'. The court noted that the open purchase orders from companies like Mercedes Benz, Mahindra Renault, and Motherson Automotive Technologies & Engineering did not specify quantities, and some even mentioned quantities as 'zero' or used dummy numbers. The court referenced the Supreme Court's decisions in Budh Prakash Jai Prakash and Maddala Thathiah, which distinguished between an agreement to sell and a sale. The court held that open purchase orders were merely standing offers and did not constitute a confirmed 'agreement to sell'.

3. Classification of Inter-State Movement of Goods:
The Revenue contended that the open purchase orders were agreements to sell, and thus the movement of goods from Mangaluru to various depots in other states amounted to inter-state sales under Section 3(a) of the CST Act. The court examined Section 3 of the CST Act and concluded that for a transaction to be classified as an inter-state sale, it must occasion the movement of goods from one state to another pursuant to an agreement to sell. The court found that the goods were moved under Form-F and stored in depots before being sold based on specific indents received from purchasers. Therefore, the initial movement was not occasioned by a sale but was a stock transfer.

4. Determination of Inter-State Sales vs. Stock Transfers:
The court analyzed whether the transactions were inter-state sales or mere stock transfers. It referred to the Supreme Court's rulings in Kelvinator of India Ltd. and Coramandal Paints, which held that standing offers without specified quantities do not constitute sales or agreements to sell. The court concluded that the open purchase orders did not amount to contracts of sale, and the movement of goods was for stocking purposes. The actual sale occurred when specific purchase orders were placed and fulfilled from the depots, making these intra-state sales.

Conclusion:
The High Court allowed the writ petition, quashing the impugned orders and holding that open purchase orders are standing offers and do not constitute a confirmed 'agreement to sell'. The inter-state movement of goods was deemed mere stock transfers, not inter-state sales. The court emphasized that the ownership and title of goods remained with the petitioner until specific purchase orders were fulfilled from the depots, making the final transactions intra-state sales. No costs were awarded.