Stock transfer versus inter state sale

A dealer can stock transfer the goods from his one place of business to another place of business and this transaction is not taxable under the Central Sales Tax Act, 1956. The goods transferred to another place of business for sale may be treated as inter state sale under Section 3 of the Central Act if the goods moved with prior contract of sale of goods.

Honourable Supreme Court in the case of Sahney Steel and Press Works Ltd. and another V. Commercial Tax Officer and Others reported as 60 STC 301 (SC) held that even if the customer placed an order with the branch office and the branch office communicated the terms and specification of the order to registered office and the branch office itself was concerned with dispatching, billing and receiving of the sale price, the order placed by the customer was an order placed with the company, and for the purpose of fulfilling that order the manufactured goods commenced their journey from the registered office in the State of Andhra Pradesh to the branch outside the State for delivery of the goods to the customer.  Both the registered office and the branch office were offices of the same company; they did not possess separate juridical personalities.  The movement of the goods from the registered office at Hyderabad was occasioned by the order placed by the customer and was an incident of the contract, and therefore, from the very beginning from Hyderabad all the way until delivery to the customer it was an inter-State movement.  The sale transactions were inter-State sale under section 3(a) of the Act.

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 tile to the goods during their movement from one State to another; further to section 3 of The Central Sales Tax Act, 1956 Explanation 1 : Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), 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; Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.

Section 6A(1) Where any dealer claims that he is not liable to pay tax under this 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 as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of despatch of such goods and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale.

As per para 38 of the judgment of Central Sales Tax Appellate Authority New Delhi in the case of M/s Indian Oil Corporation Ltd. Panipat Vs State of Haryana and others 48PHT401 what follows from combined reading of these provisions is that every dealer is liable to pay tax under the Act. One the sale of goods effected by him in the course of inter-state trade or commerce during the year of assessment. Where the Revenue takes advantage of the presumption under section 3(a) and /or (b) to show that there has been a sale or purchase of goods in the course of inter-state trade or commerce and if the assessee disputes that there has been a sale or purchase in the course of inter-state trade or commerce then the assessee can rebut the presumption by filling declaration in form “F” under section 6A of the Act to prove that the movement of goods was occasion not by reason of sale but otherwise then by virtue of sale. Whether the Revenue does not take advantage of the presumption under section 3(a) of the Act but shows positive case of inter-state sale in the course of inter-state trade or commerce to make it liable to tax under section 6.  The declaration in form “F” under section 6A would be of no avail.

Para 43 of the above judgment say that general principles for determining any transaction as inter state sale are as follows:

(1) That an interstate 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 contact of sale and the movement of goods from one State to another.

Further para 44 states that following factors are necessary to constitute a branch-transfer:

(i) The branch office looks to and estimates the bulk requirement of the area falling in its circle.

(ii) It requires the Head Office/Terminal to supply to it such estimates 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 appropriation of goods to customers takes places in the Branch office only.

(vi) 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.

(vii) The movement of goods in case of ‘Branch Transfer’ 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 move from Head office.

Goods sent from Head Office to the branch office only for sale as and when orders are placed on it subsequently, in routine, it will not be an inter-state sale but will be stock transfer not liable to tax in the State where the Head Office is located. Goods move from one state to another in consequence of an order placed on the Head office or Branch Office by specific buyer for specific goods then it will be an inter-state sale.

BY RK JAIN,

M. COM. LLB,

ADVOCATE, SONEPAT

DISCLAIMER: The contents of this article are solely for informational purpose.  It does not constitute professional advice or recommendation.  Author does not accept any liabilities for any loss or damage of any kind arising out of information in this article nor for any action taken in reliance thereon.