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TMI Blog2025 (1) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... taken place, which would be leviable to tax under the CST Act with interest and penalty. 2. It needs to be noted that the State Tribunal set aside the order of the Assessing Officer in regard to two categories of transactions and allowed the branch transfer claim of CMS Computers. However, in regard to the third category of transaction, the State Tribunal remanded the matter to the Assessing Officer to examine the issue afresh in the light of the observations made in the order. 3. CMS Computers claims to be a dealer in computer systems and peripherals and also carries out manufacturing, trading, leasing and works contract activity across India. The case set up by CMS Computers is as follows: (i) It had filed regular returns under the provisions of the Maharashtra VAT Act, 2002 [the MVAT Act] and the CST Act in the State of Maharashtra. In the returns filed under the CST Act, it claimed stock transfer of goods, other than by way of sale under section 6A of the CST Act which would not be leviable to central sales tax in the State of Maharashtra; (ii) The said CST returns were taken up for assessment by the Assessing Officer in the State of Maharashtra. During the assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract, it will be a local sale in the State of execution of works contract. 3. Trading/resale of servers, computers 8,31,52,930/- Remanded to the Assessing Officer The Assessing Officer to verify documents such as lorry receipts/ dispatch proof to determine whether the movement is against any pre-existing order and re-determine the allowability of stock transfer. 4. Trading/resale of printers and networking items 5,60,00,672/- Remanded to the Assessing Officer The Assessing Officer to verify documents such as lorry receipts/ dispatch proof to determine whether the movement is against any pre-existing order and re-determine the allowability of stock transfer. 6. It is against the aforesaid order of the State Tribunal that the present appeals have been filed by the State of Maharashtra. 7. It is seen that the decision of the State Tribunal relates to three matters, namely, maintenance material for consumption in the Annual Maintenance Contract; consumables for printing and card personalization; and trading/resale of servers, computers, printers and networking items. The State Tribunal has treated the first two as stock transfers and has granted relief to CMS Computers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntive Maintenance (PM): ***** V. Support for Upgradations/Feasibility Support: ***** VI. Third Party Maintenance: ***** IX. Exclusion of certain parts from AMC (a) The AMC is on comprehensive basis and ALL PARTS will be covered under AMC except the following: (1) Print head & print cartridges for Dot Matrix Printers (2) Toner cartridges and drum for laser printers (3) Ink Ribbons, Print Bands and spools for Line Printers. (4) Laptop Battery. ***** XII. List of items under AMC * The Manager (IT)/RM (IT)/Secretary (IT) CO, as the case may be, will communicate to the Vendors, details about the systems to be covered under AMC at the respective offices * The Vendors should maintain proper Inventory of various systems provided and/or maintained by them at various locations. A copy of such Inventory under AMC reflecting the hardware cost and the Quarterly Maintenance charges payable to the Vendor shall be submitted by the Vendor along with the Invoice. This will be subject to verification by Central Office/Zonal Office/Divisional Office as the case may be. * On demand from the Vendor, LIC's Zones/Divisions would supply the list of Hardware that would get re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of service engineers would be reckoned on the 'basis of the daily login to the hardware complaint tracking module by the Vendor's service engineers. Penalty of 10% of quarterly AMC will be deducted Vendor not making the spares available as envisaged in VII-'Stocking of Spares/Immediate replacement of faulty parts/equipment'. 5% of total breakdown penalty in addition to the regular breakdown charges will be deducted. If Vendor's Zonal Account Manager for LIC does not plan/attend Monthly meetings with RM (IT) A penalty of Rs. 1000/- for every monthly meeting not attended will be deducted from the QMC payable by ZO for Hardware in respect of Zonal Office subject to a maximum of 5% of QMC payable for that quarter. If Contract details changes in service engineers and escalation matrix upto 3 levels is not provided by the Vendor as per clause X(i) 0.5% of QMC payable by ZO for Hardware in respect of Zonal Officer or Rs. 2000/- whichever is more If Stand-by equipment not provided Penalty as per the Breakdown charges defined in the AMC Contract will be applicable." (emphasis supplied) 10. The State Tribunal examined the aforesaid Annual Maintenance Contract and after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emphasis supplied) 11. Ms. Rama Ahluwalia, learned counsel for the State of Maharashtra, submitted that when the name of the customer in whose favour the consumables will be used at the branch office is given in the stock transfer note, it clearly implies that the transfer of the consumables to be used in the Annual Maintenance Contract is as a result of a pre-existing order and thus central sales tax has been correctly levied by the Assessing Officer. In support of this contention, learned counsel placed reliance upon the following decisions: (a) Hyderabad Engineering Industries vs. State of Andhra Pradesh (2011) 4 SCC 705; (b) English Electric Company of India Ltd. vs. The Deputy Commercial Tax Officer and others (1976) 4 SCC 460; (c) Oil India Ltd. vs. The Superintendent of Taxes and others (1975) 1 SCC 733; (d) Commissioner of Commercial Taxes, Hyderabad vs. Desai Beedi Company, Andhra Pradesh (2015) 17 SCC 13; (e) The State of Tamil Nadu vs. M/s. Sun Paper Mill Ltd., Cheranmahadevi 2009 SCC Online Mad 433; and (f) Electric Construction and Equipment Co. Ltd. vs. State of Haryana 1989 SCC Online P&H 1448. 12. Shri Rahul S. Thakkar, learned counsel appearing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o another." 16. The provisions of section 3 of the Central Sales Tax Act were examined by the Supreme Court in Hyderabad Engineering and the relevant portion of the judgment is reproduced below: "20. For a sale to be in the course of inter-State trade or commerce under Section 3(a), two conditions must be fulfilled. There must be sale of goods. Such sale should occasion the movement of the goods from one State to another. A sale would be deemed to have occasioned the movement of the goods from one State to another within the meaning of clause (a) of Section 3 of the Act when the movement of those goods is the result of a covenant or incidence of the contract of sale, even though the property in the goods passes in either State. With a view to find out whether a particular transaction is an inter-State sale or not, it is essential to see whether there was movement of the goods from one State to another as a result of prior contract of sale or purchase. ***** 23. It is an accepted position in law that a mere transfer of goods from a head office to a branch office or an inter-branch transfer of goods, which are broadly brought under the phrase 'Branch transfers' cannot be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciate the contentions that have been advanced, it would be appropriate to examine the relevant clauses of the Annual Maintenance Contract. It reveals that though the contract has been executed by the head office of CMS Computers and the Life Insurance Corporation of India, but CMS Computers is required to carry out onsite comprehensive maintenance of the computer systems and all the tools, test equipment and fixtures required for the onsite comprehensive maintenance of equipments have to be provided by CMS Computers. During the period of Annual Maintenance Contract, CMS Computers has to keep the systems in 100% working condition by rectifying the problems and replacing the faulty components. In order to ensure that the systems are kept 100% working during the period of the Annual Maintenance Contract, it is necessary for CMS Computers to ensure that all the parts are kept in store at the branch level from where the calls are attended. It cannot be said from a perusal of the Annual Maintenance Contract that after a fault has been identified, the spare parts are purchased from the head office. CMS Computers is obliged under the said contract to maintain adequate inventory for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vehicles to the contract of sale out of the stocks available with it. Until such appropriation was made, the vehicles could be sold to any customers and, therefore, it was concluded that the transaction of sales of vehicles cannot be treated as inter-state sale from Jamshedpur factory but they were local sale in the State where the stock yards were located. 21. It needs to be noted that the Annual Maintenance Contract in the present case, does not speak about specific goods that are to be replaced or sold. Some of the spares may be replaced depending on the inspection report, while some parts may not be replaced at all and only repairing or servicing may have to be carried out under the contract. 22. Learned counsel for the State of Maharashtra has, however, placed reliance upon the decision of the Supreme Court in English Electric and the portions on which reliance has been placed are reproduced below: "16. When a branch of a company forwards a buyer's order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , held that the Bombay branch merely acted as an intermediary between the Madras factory and the buyer. 24. Learned counsel for the State of Maharashtra also placed reliance upon the following paragraphs of the judgment of the Supreme Court in Hyderabad Engineering: "13. It is further submitted that the assessing authority was not justified in relying on the letters of allocation issued by UIL as a contract of firm commitment for purchase of goods manufactured by the assessee. According to Shri Bagaria, the letters of allocation issued by UIL cannot be construed to be a contract of firm commitment to purchase the goods manufactured by the assessee and those letters of allocation were mere forecast of UIL's estimate of their requirements. It is further contended that there was no firm commitment on the part of UIL to purchase specific number of specified varieties of fans and for that matter the assessee had not allotted any specific number of specified varieties of fans in favour of UIL at the time the goods manufactured by the assessee were being transferred from their factory to their godowns.***** ***** 21. Section 6-A of the Central Act provides that if any dealer claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the option of UIL. 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 time in the agreement to sell lapses or the conditions therein subject to which the property in goods is to be transferred are fulfilled, the "agreement to sell" becomes a 'sale'. ***** 47. We have already noticed the relevant clauses in the 'sales agreement'. A close reading of the clauses would clearly indicate that the parties have agreed to discharge certain obligations cast on them under the agreement. The agreement provides for the products to be supplied, sales zone, to organize sales and service for UIL to make purchases an sell products as an independent principal, selling prices to be informed from time to time, payments against purchases to be made within a particular time and the goods to be delivered to UIL either at the assessee's fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the godowns in different States to be delivered and it is because of these covenants that the assessee is obliged to move the goods from its factory to the godowns situated in other States to fulfill its parts of the contract. This judgment would, therefore, not come to the aid of the State of Maharashtra for the simple reason that the clauses of the present Annual Maintenance Contract which are stated to be the reason for movement of the goods from the State of Maharashtra to other States does not envisage such a situation. 26. Learned counsel for the State of Maharashtra has also placed reliance upon Oil India, Desai Beedi Company, Sun Paper Mill, and Electric Construction. 27. In Oil India, it was found as a fact that the movement of goods was in pursuance of and incidental to the contract of sale. 28. In Desai Beedi Company, it was found that the movement of goods from the godown took place at the instance of the purchaser. 29. In Sun Paper Mill, it was found that the seller and buyer had contemplated movement of goods from the State of Tamil Nadu to the State of Kerala and the goods were dispatched at the instance of the buyer. 30. In Electric Construction, it was fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and include its successors and assigns) of the Other Part: WHEREAS: (A) The Bank is carrying on the business of Banking in its various branches, extension counters and other offices in India. (B) The Bank is catering to various banking needs and is providing banking services to its various customers. (C) The Bank is now interested in arranging for the printing of Statements of Customers' Accounts, Certificates of tax-deducted at source, certificates of interest paid etc., among other items (herein after referred to as "deliverables") for the purposes of periodical, timely deliveries to its respective customers at their residences, shops and/or offices, without requiring them to visit the Bank's premises, for the said purpose. (D) ***** (E) ***** (F) ***** NOW THIS AGREEMENT WITNESSETH AS UNDER: 1. Subject to the compliance of the terms and conditions contained herein more particularly as provided in this agreement with regard to termination of the same in accordance with the clause (8) hereinafter stated, the Bank is appointing the said Company for the printing of Statements of Accounts of Customers, for a period of 12 (twelve) months from the date hereof. It is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mooth functioning of the Bank's job of periodically printing the Statements of Accounts for its various customers and therefore, it shall be the entire discretion of the Company as to the salary, other perks to be paid, or any other terms of employment, inter-se, between the company and its employees who shall work for the Bank as per this Agreement. 6. It is agreed by the parties that this Agreement does not create any right of employment in favour of the Company and the Company shall not be entitles to claim any amount other than what is specified in Cl. 3 above or any other benefit from the Bank that may generally arise in favour of the employee of the Bank by operation of any law governing the Employer-Employee relations. ***** ANNEXURE - I ***** ANNEXURE - II I. The Bank to pay for such services as follows: Rate a) For each Sheet of standard specified format, complete with Bank's pre-specified printing material (as directed by the Bank from time to time - presently being done in 4 colours pre-printing) Rs.0.50 b) Variable Data Printing charge of Statement of Account per page ..... Rs.0.50 Total ..... Rs.1.00 II. Cost of envelope in which Statement of Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilitate minimal interruption of the printing process. You Telecom shall permit 2% wastage of stationery and additional wastage shall be at the cost of CMS. 5. CMS shall ensure that for the purpose of providing cost-effective services to You Telecom it shall maintain the highest standard of quality, which is to be evaluated and approved by You Telecom from time to time. 6. CMS shall carry out all printing and post-printing operation (optional) in a manner as set. 7. CMS commits that during the course of printing operation, the confidential and proprietary information that is obtained will not be taken out of CMS print shop and will ensure that this does not reach the possession of any other public agency/entity. 8. The Agreement unless terminated earlier as per the terms of this agreement shall be valid for a period of two years w.e.f. 1st October 2006. Both the parties will review the pricing every 12 months on mutual consent. 9. Current quote is based on current Euro Value (INR 60). Any appreciable change in Paper, Petroleum, Customs Duty etc value beyond 5% year by year will have impact on the per copy cost. Revised prices will be worked out mutually based on the Dol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is brought out in Tata Motors v/s. State of Jharkhand and others (2009) 24 VST 167 (CSTAA) - "The specification of model and description of vehicle for the sake of clarity did not lead to the inference that the goods ordered were to be specifically manufactured to suit the requirement of the particular customer, it did not mean that they were custom built or tailor made. By placing an order for a specific model, the customer could only be buying one of the models that was in the normal course manufactured by the Appellant." 26. Appellant is not a manufacturer of paper, ink or toner. A4 and particular gsm of paper is among other sizes and quality of paper that are standard in the market. They are not custom built or tailor made to the specific requirement of customers as envisaged in case of BHEL - where the parts and components were made as per design and specification of the customer or in Sahaney Steel or K.G. Khosala case (supra) where they were non-standard goods and goods made to specification of customer. 27. This being so, it is only necessary to see if the movement of goods, in interstate is a necessary covenant of works contract. The agreement cited above do not mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consumables is in pursuance of the works contract agreement and, therefore, are inter-state works contract liable to tax in the State of Maharashtra on the transfer of goods. In this connection, learned counsel placed reliance upon the judgment of the Supreme Court in State of Karnataka and anr. vs. M/s. Durga Projects Inc Civil Appeal No. 811 of 2018 decided on 06.03.2018. 38. Learned counsel for CMS Computers, however, supported the findings recorded by the State Tribunal and submitted that the consumables are first stock transferred to the branches. These consumables are then used by the branches for printing of bills and preparation of cards by transferring them to the printing machines at the site of CMS Computers or at the clients place. The Agreement does not require any inter-state movement of goods. The Agreement could be satisfied even if CMS Computers makes local purchases in the respective States. For a works contract to be an inter-state works contract, the contract itself should specify or require inter-state movement of goods. 39. The submissions advanced by the learned counsel for the State of Maharashtra and the learned counsel for CMS Computers have been consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CMS Computers in other States was not pursuant to the works contract. It is a clear case of stock transfer of consumables. The judgment of the Supreme Court in Durga Projects would, therefore, not come to the aid of the State of Maharashtra. 44. There is, therefore, no error in the findings recorded by the State Tribunal on this issue. C Trading or Resale 45. The State Tribunal examined the trading or resale of servers, computers, printers and networking items and the relevant portions of the order are reproduced below: "46. Thus what emerges from this is that in case of tailor made goods to the requirement of buyer, the intervention of branch or even order placed on branch would not matter to decide interstate sale. In case of standard goods, there is a conceivable link between and manufacturer / procurer causing movement of goods interstate. 47. In light of this, we have examined some of the documents submitted by the department. These consist of various branch transfer memo from H.O. and invoices raised by the branches. We have examined box file No. 13 out of many such documents filed. No doubt that there are supplies of standard computer products and its peripherals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r supplies made against one or two purchase orders from time to time to various branches of State Bank of India, it is necessary to see if firm purchase order has been placed with Appellant H.O. in Maharashtra and to see whether the circumstances as in IDL case are applicable i.e. supplies being against firm order on H.O. and from branch supplies made as per individual indent of branch. In short, whether there is firm purchase order placed on Appellant and subsequent dispatches to branches is only to handover the goods to the customer. It is also noticed from documents in box files No. 12 from Page 1 to 133 that dispatches are shown to branch office at Ahmedabad. The tax invoice by Ahmedabad prepared on very next date (page 1 & 3). Surprisingly, the supply is to State Bank of India in South (Virudhnagar, Sivakasi, Tuticorin) which is logistically improbable, particularly when the Appellant has branches in Chennai and Securandabad. Looking closely, it appears that CST is exempted in Gujarat. Appellant has paid 4% tax on sales in Chennai. Further it is seen that the supply is against the same order No. 28/2005-2006 referred to above in para 47(b) against supplies are from Chennai bra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes an inter-state sale, particularly when the goods are stock transferred in the regular course of business. CMS Computers had to maintain ample stock at the branch office to fulfill the orders placed by the different customers. The Assessing Officer was obliged to evaluate each transaction involving the transfer of goods before deciding whether to allow or disallow the branch transfer. . 52. In this connection reference can be made to the judgment of the Supreme Court in Tata Engineering Locomotive, wherein it was held: "12. Another serious infirmity in the order of the Assistant Commissioner was (a matter which even the Advocate General quite fairly had to concede) that instead of looking into each transaction in order to find out whether a completed contract of sale had taken place which could be brought to tax only if the movement of vehicles from Jamshedpur had been occasioned under a covenant or incident of that contract the Assistant Commissioner based his order on mere generalities. It has been suggested that all the transactions were of similar nature and the appellant's representative had himself submitted that a specimen transaction alone need be examined. In our ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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