Branch transfer vis-à-vis dispatch against estimated demand

In continuation of that discussion we now analyse a judgment on similar issue by the Central Sales Tax Appellate Authority (CSTAA). The said authority has analysed legal position in detail and has given observations which will be useful in deciding correct nature of branch transfer vis-à-vis interstate sale.

Judgment in case of Indian Oil Corporation Ltd. vs. State of Haryana (72 VST 1)(CSTAA-New Delhi).

The facts leading to the litigation as narrated by the CSTAA are as under:

“The appellant, a Central Government public sector undertaking, was engaged in the business of refining, distribution, marketing and sale of petroleum products. In pursuit of its obligation to maintain uninterrupted supply of petroleum products, storage points were set up across the country to cater to the needs of various markets/ consumers including general public. The appellant made supplies of aviation turbine fuel to the Air Force and the Army at various locations outside the State under contract for supply by first branch transferring aviation turbine fuel to its bulk petroleum installations, which were large storage facilities at Air Force stations and then making supplies to aircrafts on demand by designated officers. The assessing officer rejected the claim of stock transfer by the appellant. By an assessment order passed pursuant to an order of remand in appeal, the claim of stock transfer of aviation turbine fuel was allowed in respect of sale to private airlines at the receiving locations and rejected in respect of sale to the Air Force and the Army. An appeal against this assessment order was dismissed as not maintainable. An appeal before the Tribunal was dismissed by a majority of two Members, out of the three Members’ Bench. The minority view was that the levy of Central Sales Tax in respect of supplies to the Air Force at various locations outside State was bad in law but the majority held that the levy was correct. On appeal, to the Central Sales Tax Appellate Authority, by the appellant contending that the supply order was only confined to quality and pricing of the product and there was no obligation upon the Air Force to purchase any particular quantity of the product from the appellant-corporation as the supply was only to be made on a requirement placed by designated officers and the payment was only to be made for such supply:”

Thus, there was dispatch of goods for meeting requirement of customer and there was over all contract about rate and quality etc. However, there was no obligation on the buyer to purchase particular quantity. The buyer used to purchase as per his requirement from time to time. Under such circumstances the learned CSTAA observed that contract is in the nature of standing order.

After reproducing section 3 of the CST Act, the learned CSTAA has observed as under;

“A perusal of the provisions, extracted above, shows that it raises a presumption of law and that is—a sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, if the sale or purchase . . . (a) occasions the movement of goods from one State to another, or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. For purposes of clause (b) of section 3, Explanation I says that where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

Explanation 2 deals with a situation where the movement of goods commences in one State and terminates in the same State but in the course of movement it passes through another State, and enjoins that it should not be treated as a movement of goods from one State to another State.

It would also be relevant to note section 6A of the Act. It provides that if any dealer claims that he is not liable to pay tax under the Act in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, and not by reason of sale, then the burden of proving that the movement of goods was so occasioned shall be on the dealer. It also provides the mode of discharge of that burden of proof. To discharge the burden the dealer has to furnish to the assessing authority, within the prescribed time, a declaration duly filled and signed by the principal officer of the other place of business, for his agent or principal, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of dispatch of such goods. On production of such a declaration, if the assessing authority is satisfied, after making such enquiry as he may consider necessary, that the particulars contained in the declaration furnished by the dealer are true, he is authorized, either at the time of, or at any time before, the assessment of the tax payable by the dealer under the Act, to make an order to that effect and on his so doing, the movement of the goods, to which the declaration relates, shall be deemed for the purpose of the Act to have been occasioned otherwise than as a result of sale.”

After, observing as above learned CSTAA stated the General principles about branch transfer and interstate sale in following words;

“General principles for determining any transaction, as “inter-State” sale are as follows:

(1) That an inter-State sale takes place when there is movement of goods from one State to another.

(2) That such inter-State movement must be the result of a covenant, express or implied in the contract of sale or as an incident of the contract.

(3) That such a covenant need not be specified in the contract itself, and it would be enough if the movement was in pursuance of and incidental to the contract of sale.

(4) That there should be a conceivable link between a contract of sale and the movement of goods from one State to another.

Following factors are necessary to constitute a branchtransfer:

(i) The branch office looks to and estimates the bulk requirements of the area falling in its circle.
(ii) It requires the head office/terminal to supply to it such estimated bulk quantities.
(iii) The head office/terminal sends the quantity accordingly from time to time to meet out the said requirement of its branch office.
(iv)The appropriation of goods to customers takes places in the branch office only.
(v) The branch office has always a choice to supply/sell goods in the branch which means that it has the option of diversion of goods.
(vi)The movement of goods in case of “branch transfers” is from head office/terminal to the branch office and there is no appropriation of goods to a particular customer at the time of such movement from head office.”

Thus, certain principles are now available to distinguish between branch transfer and interstate sale. We hope that it will be useful for future guidance.

Conclusion
Thus,   though 
 the 
 issue   about   branch   transfer   and
interstate sale largely depends
upon facts of each case, the above guidelines will
certainly help in determining the nature of transaction. the overall
legal position appears
is
that though dispatch may be in relation to demand from customer, if there is no obligation on the buyer
to purchase particular
quantity and the actual ascertainment of the goods to be sold
and delivered is done at the branch,
then there will be branch transfer
and not interstate sale.

The judgment of the Hon. Tribunal cited above is required
to be seen in the light of the above judgment of the   Hon. CSTAA.