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TMI Blog2024 (7) TMI 540X X X X Extracts X X X X X X X X Extracts X X X X ..... tock transferring the goods to its depots and it is only when the subsidiaries of Coal India place indents on the appellant and the goods are supplied by the appellant that the sale takes place. The sale does not take place on the basis of the Running Contract dated 28.11.2008. It cannot, therefore, be said that the movement of packaged explosives from the manufacturing unit of the appellant at Nagpur in the State of Maharashtra to the depots of the appellant in the State of Jharkhand and the State of West Bengal has resulted in a sale taking place during the course of inter-state trade or commerce. It is clearly a case of branch transfer of goods by the appellant to its depots in the States of Jharkhand and West Bengal. The impugned order dated 26.09.2017 passed by the Maharashtra Sales Tax Tribunal, therefore, cannot be sustained and is set aside - Appeal allowed. - MR. DILIP GUPTA, PRESIDENT AND MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Shri Sriram Sridharan, Advocate for the Appellant Ms. Rama Ahluwalia, Advocate for the State of Maharashtra Ms. Madhumita Bhattacharjee, Advocate for the State of West Bengal ORDER This appeal has been filed by M/s. Keltech Energies Ltd.[ the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts a minimum of five vendors for supply to each subsidiary to maintain the reliability of supplies. 4. The appellant entered into a Running Contract dated 28.11.2008 [the Running Contract] with Coal India. This agreement provides for the supply of explosives by the appellant to the subsidiaries of Coal India. The relevant portions of the Rate Contract are reproduced below: Your above mentioned offer has been accepted and accordingly, we, for and on behalf of all the subsidiary companies of Coal India Limited including NEC are hereby pleased to enter into a RUNNING CONTRACT (RC) with you for supply of CARTRIDGE EXPLOSIVES and ACCESSORIES to all subsidiary companies of Coal India Limited including NEC at the following price and terms and conditions, ***** 02. Item description, quantity, unit price subsidiary allocation- As per Annexure A . The Running Contract quantity (2008-09) is mentioned at Annexure- A . The monthly allocation will be placed by the respective subsidiary companies and NEC individually within their share of the RC qty as indicated at Annexure-A. Supplies would be strictly governed by the actual requirement of the collieries and as per the allocation/order to be pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he depots was not accepted by the Deputy Commissioner and this order was upheld in the appeal filed by the appellant before the Joint Commissioner (Appeals) as also by the Sales Tax Tribunal. 6. The issue, therefore, that arises for consideration in this appeal is as to whether the movement of the packaged explosives from the manufacturing unit of the appellant at Nagpur in the State of Maharashtra to the branch offices/depots of the appellant in the State of Jharkhand and the State of West Bengal have resulted in a sale taking place during the course of inter-state trade or commerce pursuant to the Running Contract entered between Coal India and the appellant or whether it would be a case of branch transfer of the goods by the appellant to its depots/branch offices in the State of Jharkhand and the State of West Bengal. 7. To appreciate this issue, it would be appropriate to examine sections 3 and 6 of the Central Sales Tax Act, 1956 [the CST Act ] and the relevant portions of these sections are reproduced below: 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- A sale or purchase of goods shall be deemed to take place in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has been given the quantities of explosives and accessories to be purchased from the appellant only at the fixed price. This purchase order was issued from the Apex body i.e. Coal India to its subsidiary spreading over different states. They cannot purchase goods from any other supplier. The contention of the appellant that the goods were supplied as per indents provided i.e. purchase order and running contract dated 28/11/2008 is agreement to sale. But, indent subjected to the branches and supplies made accordingly is the convenient device, which was worked out by the appellant and Coal India Ltd so as to have uninterrupted supplies of the impugned goods. We are not agreed with the contention of the appellant that supplies are made as per indent received from time to time in the branch office. Various other evidences were produced to show that, in fact there was independent transaction with the subsidiaries and branch office of the appellant, and the order dated 28/11/2008 does not constitute firm purchase order. But we regret that cannot be of any avail for the simple reason that all supplies were made in pursuance of the order of Coal India Ltd., with reference to tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act does not obligate the subsidiaries of Coal India to place indents on the appellant for the supply of explosives. It only provides a limit for the maximum quantity of explosives that can be indented by each subsidiary and the rates at which the same is to be supplied. Therefore, if subsidiaries of Coal India do not place indents on the appellant, it cannot sue Coal India for damages, because the Running Contract has not been breached; (iv) The appellant is under no obligation to supply explosives based on the Running Contract itself. As per the stipulation contained in the Running Contract, the explosives are only supplied from the local depots of the appellant after receipt of an indent from the subsidiaries of Coal India. It is only when subsidiaries of Coal India place an indent on the appellant that the standing offer is accepted, and a contract comes into existence. In case the subsidiaries of Coal India do not place indents on the appellant, the appellant is not obligated to make any supplies to the subsidiaries of Coal India; (v) The remedy for a breach of sale is a suit for the price of the goods. The remedy for the breach of an agreement to sell is a suit for damages. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted by Coal India in the Running Contract dated 28.11.2008. Thus, the contract stood concluded with the issuance of the Running Contract. The appellant executed the contract by supplying the goods to all the subsidiary companies of Coal India as and when the indents were raised by the subsidiary companies on the depots of the appellant in the State of Jharkhand and the State of West Bengal. Thus, the contention of the appellant that the Running Contract is not a contract for sale is mis-conceived and mere submission of a declaration in Form-F before the assessing authority is not a conclusive proof of the fact that the movement of goods from the State of Maharashtra to other States had occasioned otherwise than by sale; (ii) The contention of the appellant that only when indents are raised by the subsidiary companies of Coal India on the depots of the appellant in the States of Jharkhand and West Bengal that there is an acceptance of the standing offer and sale takes place is not tenable in law. It is the Running Contract that is the fountainhead from which all the supply take place. To support the contention, learned counsel placed reliance upon the judgment of the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Balabhagas and to the judgment of the Delhi High Court in MX Media and Entertainment Pte Ltd. vs. M/s. Contagious Online Media Networks Private Limited [O.M.P. (I) (Comm.) 106/2021 decided on 05.04.2021] . 12. The contentions advanced by the learned counsel appearing for the appellant and the learned counsel appearing for the State of Maharashtra and the State of West Bengal have been considered. 13. What transpires from the records is that the appellant, which is engaged in the manufacture and sale of explosives, has a manufacturing unit in the State of Maharashtra but as the subsidiaries of Coal India to whom these explosives have to be supplied are situated at a distance and it takes about fifteen days time for the explosives to reach the destination States, the appellant maintains licensed stock depots for the explosives in the States of Jharkhand and West Bengal for supply of explosives. On such sale by the depots of the appellant to the subsidiaries of Coal India in the States of Jharkhand and West Bengal, the applicable local VAT is paid by the appellant. 14. According to the appellant, the Running Contract with Coal India results in neither a sale nor can it be ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiaries of Coal India in the State of Jharkhand and State of West Bengal; (vii) The appellant is, therefore, compelled to maintain licensed stock depots for the explosives in the States of Jharkhand and West Bengal for ECL, BCCL and CCL. Hence, each of the individual subsidiaries of Coal India place indents, i.e. supply orders, on the depots of the appellant in the two States; and (viii) The subsidiaries of Coal India are not obligated to purchase the explosives from the appellant alone. 16. It is in the light of the aforesaid facts that the contention of the learned counsel for the appellant that the Running Contract is merely a standing offer and not a sale or an agreement to sell has to be examined. It would, therefore, be necessary to understand what a standing offer is. 17. In Benjamin s Sale of Goods (7 th Edition) it is described as: Standing Offer - A party may offer to sell such quantities of goods of a certain description as the other party may from time to time order, usually within stated limits. Similarly, a party may offer to buy such quantities as the other may acquire (or produce) and tender from time to time. The acceptance of such an offer does not create any b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f make a contract; it was merely an intimation by the company that they regarded the defendant s tender as a standing offer, which on their part they would be willing to accept as and when they required the articles to be supplied. Each fresh order constituted an acceptance of this standing offer. If the defendant wished to revoke his offer he could have done so, but only as to the future; in the meantime he was bound to perform any order already made. The Court therefore held that he was liable for breach of contract. (emphasis supplied) 20. In Sanjiva Row s Commentary on Law Relating to Contract Act, 1872 and Tenders (11th Edition) it is described as: 8. Standing offers There are, certainly, cases in which, if it appears that the party never was bound on his part to do the act which forms the consideration for the promise of the other, the agreement will be void for want of mutuality but there are other in which this rule does not hold. Thus, an agreement by A to supply goods to B at certain prices and in such quantities as B may order for from time to time is not bad for want of mutuality, although, until B had given an order for goods he cannot sue A upon his agreement. A writi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies to the effect that they may do business in the future under certain terms and conditions. It is a contract which merely establishes the prices at which the goods may be traded at, if they do happen to be traded. It only provides a limit for the maximum quantity of explosives that can be indented by each subsidiary and the rates at which the same is to be supplied. Therefore, if subsidiaries of Coal India do not place indents on the appellant, the appellant cannot sue Coal India for damages because the Running Contract has not been breached. 24. In common or industrial parlance, a Running Contract is also known as a rate contract. A rate contract is a contract which only determines the prices at which goods are bought and sold between the contracting parties. A rate contract does not itself convey property or agree to convey property on a future date. The Running Contract entered into between the appellant and Coal India would, therefore, be in the nature of a rate contract. 25. It would now be appropriate to examine the decisions on which reliance has been placed by the learned counsel for the appellant. 26. In Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram and others [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period it was wanted and expressed its readiness to abide by the terms and conditions of the tender. He agreed to supply the jaggery at the rate mentioned in his letter. This tender was accepted by the letter dated January 29, 1948. So far, the offer of a supply of a definite quantity of jaggery during a specified period at a certain rate and the acceptance of the offer would constitute an agreement, but would fall short of amounting to a legal contract inasmuch as the date of delivery of the jaggery was not specified. Only the period was mentioned. The agreement arrived at therefore could be said, as urged for the appellant, to be a contract in a popular sense with respect to the terms which would govern the order for supply of jaggery. The acceptance of the tender did not amount to the placing of the order for any definite quantity of jaggery on a definite date. Paragraph 9 of the tender referred to the placing of a formal order for the supply of jaggery, after the respondent had not only made a security deposit as required by the provisions of para 8 but had also furnished a receipt issued for that deposit to the Deputy General Manager, Grain Shops. So construed, the note i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contract purports to be made between Her Majesty the Queen, represented by the provincial secretary and the respondent Demers. It does not purport to contain any covenant or obligation of any sort on the part of the Crown. The respondent undertakes to print certain public documents at certain specified rates. For all work given to him on the footing of the contract the Government was undoubtedly bound to pay according to the agreed tariff. But the contract imposes no obligation on the Crown to pay the respondent for work not given to him for execution. There is nothing in the contract binding the Government to give to the respondent all or any of the printing work referred to in the contract, nor is there anything in it to present the Government for giving the whole of the work or such part as they think fit to any other printer. (emphasis supplied) 31. In Secretary of State vs. Madho Ram [AIR 1929 Lah 114] , the Lahore High Court held: It appears to me on the proper construction of the document in question that there has been no breach on the part of the appellant and the suit should for this reason have been dismissed. The plaintiff s tender is merely an offer to supply certain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en purchase orders and thereafter transfers the stock to its godowns situated near the manufacturing unit of the customers and supplies the paint as and when the indent is received. The department believed that this was an inter-state movement of goods from the manufacturing unit of the petitioner at Mangaluru to various depots in other States against pre-existing contract and, therefore, would amount to inter-state sale liable to tax under section 3 of the CST Act. The contention that was advanced on behalf of the writ petitioner was that the open purchase orders do not stipulate any specified quantity and so it cannot be construed as an agreement to sell . The question, therefore, that fell for consideration before the High Court was whether the transfer of the goods under Form-F to the depots of the petitioner situated in different States would amount to inter-state sale under section 3(a) of the CST Act. After taking note of the fact that the open purchase orders did not mention the quantity of the goods supplied and it was only to ensure prompt delivery of goods as and when called upon that BASF India transferred the goods and stocks to its depot, the High Court held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pursuant to the said agreement. Therefore, the transaction is an inter-state sale within the meaning of Section 3(a) of the CST Act. 19. Thus, the question that falls for consideration is, 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? ***** 21. Shri Sridharan urged that for a transaction to be defined as inter-state sale, two conditions must to be fulfilled. Firstly, movement of inter-state goods and secondly, transfer of title to the goods during their movement from one State to another. He submitted that the original equipment manufacturers and ancillaries who purchase goods from petitioner stipulate the quality standers and other technical specifications in the open purchase orders which do not contain the quantity and date of supply. The purchaser/s issue specific purchase order containing the quantity based on the requirement from time to time and the same is supplied from petitioner s depots immediately on just in time model. ***** 28. In order to hold that a transaction falls under Section 3(a) of the CST Act, the sale or purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority in BASF India , which decision had been set aside by the Karnataka High Court, had placed reliance on the judgment of the Supreme Court in IDL Chemicals , which judgment has also been relied upon by the Sales Tax Tribunal in the present case and has also been relied upon both by the learned counsel for appearing for the State of Maharashtra and the learned counsel appearing for the State of West Bengal. 36. It would, therefore, be appropriate to reproduce the relevant portions of the judgment of the Supreme Court in IDL Chemicals and they are as follows: 11. The important feature of this order is that all the Managers of the collieries in the three States will have to place order with the consignment agents of IDL Chemicals from their depots. This is a modality adopted by the appellant with a view to dispatch their goods from Rourkela to various consignment agents and from there all the collieries of CIL are bound to purchase through their agents mentioned in the order above. Though each colliery has to give its indents for purchase of explosives, detonators etc. as per the requirement but the fixed quantity has been given in the schedule appended to this order. The transit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collieries at fixed price was firm, the insurance and freight was to be borne by CIL and 98% of the payment was to be made by the collieries of CIL. 13. From these facts it appears that this was a purchase order issued by the apex body, CIL by fixing the price and the quantities to be purchased by their collieries. Various other evidence was produced to show that in fact there was independent transaction with the subsidiaries and the consignment agents of the appellant and the order dated 24-9-1976 does not constitute a firm purchase order. But we regret that cannot be of any avail for the simple reason that all supplies were made in pursuance of the order of CIL. Therefore, that was fountainhead from where all supplies followed. If the terms of the order is to be construed as purchase order, then other evidence is secondary and irrelevant. In fact both the parties understood that way only and paid CST for some time but subsequently discontinued. Therefore, from this it follows that the whole movement of the goods from the factory at Rourkela was triggered in pursuance of the order dated 24-9-1976. There was no independent contract by the subsidiaries of CIL with the appellant. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the transport of the goods was borne by the appellant and not by Coal India. The said goods were not insured and were transported on a risk basis; (e) The appellant conducted sales to customers other than subsidiaries of Coal India. This clearly evidences the fact that the appellant has retained the right to divert the explosives and sell it to other customers; (f) The goods were never earmarked for any customer at the time when the truck left the Nagpur Unit. The goods are standardized goods (and not customized goods) and appropriation of the goods to the contract occurs only when the appellant separates out and earmarks the goods for a specific customer at its depots in the destination States; (g) It is clear that the appellant is stock-transferring the goods to its depots on the basis of the internal forecasts for replenishing the stocks of its depots. Subsequently, the goods are transported from the depot of the appellant in terms of the indents received from subsidiaries of Coal India; (h) There is no one-to-one correlation between the goods despatched from the Nagpur Unit and goods sold from the depots to the subsidiaries of Coal India. This clearly shows a break in the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all subsidiaries of Coal India were under an obligation to purchase the goods from the appellant or its branches situated in the respective States. The Sales Tax Tribunal held that each subsidiary of Coal India had been given the quantities of explosives and accessories to be purchased from the appellant only at the fixed price. This finding is clearly erroneous. The subsidiaries of Coal India had the option to purchase the goods according to their requirement from any one of the five Running Contract Holders. The Sales Tax Tribunal also fell in error in assuming that it was the contention of the appellant that supply of goods in accordance with the indents and the Running Contract would be an agreement to sell, for it was the contention of the appellant that the Running Contract was neither a sale or an agreement to sell and was merely a standing offer. 42. It has been submitted by the learned counsel for the appellant that as the Running Contract specifically provides that all taxes are to be reimbursed, the appellant will not get any benefit in paying local VAT over the central sales tax as both are liable to be reimbursed to the appellant on actuals. Learned counsel, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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