Custom, Excise & Service Tax Tribunal
M/S. Keltech Energies Ltd vs The State Of Maharashtra on 8 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
CENTRAL SALES TAX APPEAL NO. 01 OF 2018
(Arising order out of in dated 26.09.2017 passed by the Maharashtra Sales Tax
Tribunal, Mumbai VAT Appeal No. 298 of 2014)
M/s. Keltech Energies Ltd., .....Appellant
24-A, Vidya Vihar, Pratap Nagar,
Nagpur, Maharashtra-440022
VERSUS
1. The State of Maharashtra
Through Commissioner of Sales Tax,
8th Floor, Vikrikar Bhawan,
Mazgaon, Mumbai - 400010
2. The State of Jharkhand,
Through the Commissioner of Commercial Taxes,
Project Bhavan, Near Gol Chakar,
Dhurwa, Ranchi-834004
3. The State of West Bengal,
Through the Commissioner of Commercial Taxes,
Directorate of Commercial Taxes,
14, Beliaghata Road,
Kolkata-700015
4. The Maharashtra Sales Tax Tribunal,
7th Floor, Vikrikar Bhawan,
Mazgaon, Mumbai - 400010
5. The Joint Commissioner of
Sales Tax (Appeals),
Nagpur Division,
Nagpur
6. The Deputy Commissioner of .....Respondents
Sales Tax (NAG-VAT-E-010),
VAT Refund and Refund Audit,
Unit-I, Nagpur
APPEARANCE:
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
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 19.03.2024
Date of Decision: 08.07.2024
FINAL ORDER NO. 56007/2024
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JUSTICE DILIP GUPTA:
This appeal has been filed by M/s. Keltech Energies Ltd.1 for
setting aside the order dated 26.09.2017 passed by the Maharashtra
Sales Tax Tribunal2 dismissing the appeal that had been filed by the
present appellant against order dated 26.08.2014 passed by the Joint
Commissioner of Sales Tax (Appeals)3. The Joint Commissioner
(Appeals) had decided the appeal filed by the appellant against the
assessment order dated 30.03.2014 of the Deputy Commissioner of
Sales Tax4 for the period from 01.04.2009 to 31.03.2010. The Deputy
Commissioner had held that the sale of explosives by the appellant to
the subsidiaries of Coal India Limited5 in the State of Jharkhand and the
State of West Bengal were inter-state sales by Coal India originating
from the State of Maharashtra and rejected the claim of the appellant
that they were branch transfers by Coal India to its subsidiaries situated
in the State of Jharkhand and the State of West Bengal. The Joint
Commissioner (Appeals) and the Sales Tax Tribunal maintained this part
of the order.
2. The appellant is engaged in the manufacture and sale of
explosives and has a manufacturing unit at Nagpur6 in the State of
Maharashtra. The products manufactured by the appellant at the
Nagpur Unit are packaged explosives and are sold under the trade
name 'kelvex'. The said products are controlled substances covered
under the provisions of the Explosives Act, 18847 and the provisions of
1. the appellant
2. the Sales Tax Tribunal
3. the Joint Commissioner (Appeals)
4. the Deputy Commissioner
5. Coal India
6. the Nagpur Unit
7. the Explosives Act
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the Explosives Rules, 20088 which regulate the manufacture, sale and
transport of explosives to a considerable extent. The Rules govern the
activities concerning explosives as they are a sensitive commodity and
cannot be treated as regular commercial cargo. Rules 47 and 63 provide
that the movement of the vans can commence only after intimation to
the police authorities and such movements are also monitored to a
great extent. The vans have to reach the destination as per the
specified/appointed dates.
3. Coal India has several subsidiaries which are the actual
consumers of such explosives. For the purpose of purchasing these
packaged explosives, Coal India floats tenders for the supply of these
explosives on a Rate Contract basis. This exercise is undertaken for
subsidiaries of Coal India like NCL, SECL, MCL, WCL, BCCL, ECL, CCL
and NECL. Coal India selects 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 28.11.20089
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,
*****
8. the Explosives Rules
9. the Running Contract
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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 placed by the subsidiary
companies & NEC in every month against their
specific approved indents only. Initially monthly
allocations shall be issued against the RC qty only.
The quantity indicated under column "Indicative
quantity for 2nd year" and "Indicative quantity for 3rd
year" are the indicative quantity for two years after
the RC period of 2008-09, in accordance with clause
01 "Duration of Contract".
*****
12 Delivery
*****
The dispatch of the products indicated at Annexure -
'A' should be effected only after the receipt of the
proper indent in Form-37 from the respective users
of the Subsidiary Companies. *****
*****
It would be mandatory for the RC holder to
maintain 90% delivery performance (supply
against allocation) to be evaluated on yearly
basis for all consignees taken together. In case
the delivery performance for the RC holder falls
below 90%, CIL reserves the right to rescind
the RC for that particular item and the balance
RC quantity for that item may be purchased
from any of the existing RC holders or
empanelled "Reserve RC holders" or outside
vendors by CIL/Subsidiary on risk purchase basis.
*****
26 Statutory Obligation
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*****
b) You are requested to ensure to get proper
indents in FORM-37 and no explosives van should be
sent with without any indent in FORM-37. This is
absolutely imperative."
(emphasis supplied)
5. Some of the subsidiaries of Coal India like ECL, BCCL and CCL are
located at significant distances from the Nagpur Unit in the State of
Jharkhand and State of West Bengal and it takes about fifteen days for
the explosives to reach the aforesaid destination States from the
Nagpur Unit. The appellant contends that since it is not possible to
supply the explosives directly from the Nagpur Unit of the appellant to
such collieries, the appellant has to maintain licensed stock depots for
the explosives in the States of Jharkhand and West Bengal to facilitate
the supply of explosives to these subsidiaries. The appellant further
contends that each of the aforesaid individual subsidiaries of Coal India
like ECL, BCCL and CCL place indents on the depots/branches of the
appellant in the two States and the depots/branches of the appellant
sell the explosives supplied from the Nagpur Unit to the subsidiaries.
The appellant, on such sale, paid the applicable local VAT in the two
States. This claim of the appellant of branch transfer from the Nagpur
Unit to the 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
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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, 195610 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 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.
6. Liability to tax on inter-State sales.-
(1) Subject to the other provisions contained
in this Act, every dealer shall, with effect from
such date as the Central Government may, by
notification in the Official Gazette, appoint, not being
earlier than thirty days from the date of such
notification, be liable to pay tax under this Act
on all sales of goods other than electrical
energy effected by him in the course of inter-
State trade or commerce during any year on
and from the date so notified:
Provided that a dealer shall not be liable to pay tax
under this Act on any sale of goods which, in
accordance with the provisions of sub-section (3) of
section 5, is a sale in the course of export of those
goods out of the territory of India. "
(emphasis supplied)
10. the CST Act
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8. The Sales Tax Tribunal found the Running Contract to be a
purchase order and the subsequent indent issued by the subsidiaries of
Coal India upon the depots of the appellant from time to time to be only
a convenient mode for uninterrupted supply of explosives and,
therefore, treated it as a requisition for supply of material and not as an
independent contract of sale. The Sales Tax Tribunal, therefore,
concluded that sale of goods had taken place in the course of inter-state
trade or commerce as contemplated under section 3(a) of the CST Act,
which would attract tax in the State of Maharashtra. The relevant
portion of the order dated 26.09.2017 passed by the Sales Tax Tribunal
is reproduced below:
"7. ***** Appellant is having branches/agent in
the respective states. They will supply
explosives and accessories to mines on the
basis of convenience against the order
mentioned as running contract. Subsidiary
company will follow the existing system of drawing
requirement from the appellant or its agent who will
pay bills. Accordingly, payments will be made to the
appellant. Instructions contained in Annexure A
should be strictly and invariably followed.
Therefore, what it transpires is that all
subsidiaries of Coal India Ltd. were under
obligation to purchases the said goods from the
appellant or its agent, branches situated in the
respective states. Each subsidiary company 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
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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 dated 04/07/2008. On going
through the terms and conditions of running contract
it is to be construed as purchase order then, other
evidence is secondary and irrelevant. Therefore, it is
not a case in which there was independent contract
between the subsidiaries of Coal India Ltd. and that
of the appellant.
*****
10. On the basis of factual aspect of the case,
we have come to the conclusion that, appellant
is entered into contract with coal India Ltd. for
supply of cartridge explosive to all subsidiary
companies of Coal India Ltd. including NVC as
per the tender dated 04/07/2008 and
subsequent correspondence as referred in
contract dated 28/11/2008. We held this
running contract as purchase order because of
the terms and conditions agreed therein. In our
opinion, indent issued by subsidiary companies
from time to time is convenient mode for
uninterrupted supply of impugned goods. It
should be treated as requisition of material and
cannot be treated as independent contract of
sale. Therefore, we come to the conclusion
that, impugned transactions are covered u/s.
3(a) of the C.S.T. Act, it is liable to tax in the
State of Maharashtra."
(emphasis supplied)
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9. Shri Sriram Sridharan, learned counsel for the appellant made the
following submissions:
(i) It is a well-settled position of law that for the purpose of
interpreting section 3 of the CST Act, the term 'sale'
includes both a completed sale and an agreement to sell.
This principle was laid down by the Supreme Court in
Balabhagas Hulaschand vs. State of Orissa11;
(ii) Section 4 of the Sales of Goods Act, 193012 provides that
when a contract of sale transfers the property in goods
from the seller to the buyer, the said contract is known as
a sale i.e. a completed sale. However, when a contract of
sale stipulates that the transfer of property in goods will
take place at a later date, such a contract of sale is known
as an agreement to sell. In the present case, there is no
transfer of the property from the appellant to the
subsidiaries of Coal India under the Running Contract. It
cannot, therefore, be a sale i.e. a completed sale. This
apart, the Running Contract does not contain the identity
of the goods sold; the quantity; or the description. The
destination of the goods is also not known. Hence, it also
cannot be said to be an agreement to sell;
(iii) The Running Contract 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
11. (1976) 2 SCC 44
12. the Sales of Goods Act
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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. Neither of the above remedies
are applicable if the Running Contract between the
appellant and Coal India is breached. This clearly
evidences that the Running Contract is not a sale or an
agreement to sell;
(vi) The Running Contract is merely an intimation from Coal
India agreeing to the terms of the standing offer of the
appellant when indents are eventually placed by the
subsidiaries of Coal India. It is merely an understanding to
conduct business in the future on the basis of pre-agreed
terms and conditions. The Running Contract is merely an
agreement to enter into an agreement on a future date.
In other words, the Running Contract is merely a standing
offer by the appellant and not a sale or any agreement to
sell. It is settled law that a standing offer is a contractual
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arrangement that is distinct and different from a sale or
an agreement to sell;
(vii) In this connection, reliance has been placed on the
decision of the Karnataka High Court in BASF India Ltd.
vs. State of Karnataka and ors.13, wherein it was held
that the purchase orders which do not specify quantities
are merely standing offers and do not constitute any
contract of sale. It was also specifically held that such
purchase orders do not constitute an 'agreement to sell'
and that the inter-state movement of goods are mere
stock transfers not occasioned by such purchase orders;
(viii) In any case, it is settled law that a sale cannot be an
inter-state sale if the appropriation of goods to the
purchaser occurs in the destination States. In this regard,
reliance has been placed on the decisions of the Supreme
Court in Tata Engineering and Locomotive Co. Ltd. vs.
Asst. Commissioner, Commercial Taxes14 and
Kelvinator of India vs. State of Haryana15; and
(ix) The appellant has not chosen to conduct stock transfer
transactions to avoid payment of central sales tax as the
reason for stock transferring the goods and subsequently
selling them locally are entirely logistical and technical. In
fact, by choosing this model of operation, the appellant
looses out on revenue;
10. Ms. Rama Ahluwalia, learned counsel for the State of
Maharashtra, however, supported the impugned order and made the
following submissions:
13. 2022 (11) TMI 434
14. 1970 (26) STC 354 (SC)
15. 1973 (32) STC 629 (SC)
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(i) The invitation to offer by tender dated 04.07.2008 floated
by Coal India was accepted and the offer of the appellant
was accepted 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 Court in IDL Chemicals Limited vs. State of
Orissa16 and Hyderabad Engineering Industries vs.
State of Andhra Pradesh17;
(iii) The Sales Tax Tribunal correctly held that the Running
Contract is the firm purchase order and the indents issued
16. (2007) 14 SCC 386
17. (2011) 4 SCC 705
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by subsidiary companies of Coal India from time to time
on the depots of the appellant are merely a convenient
mode for uninterrupted supply of goods. The indents are
merely requisitions for material and cannot be treated as
an independent contract for sale;
(iv) Even if there is movement of goods from one State to
another, not in pursuance of the sale itself, but in
pursuance of an agreement to sell which later merges into
the sale itself, the movement of goods would be deemed
to have been occasioned by the sale itself wherever it
takes place and in this connection reliance has been
placed upon the decision of the Supreme Court
Balabhagas ;
(v) The inter-state movement of goods must be as a result of
a covenant, express or implied, in the contract of sale or
an incident of contract and it is not necessary that the
sale must precede the inter-state movement in order that
the sale may be deemed to have been occasioned by such
movement. In this connection, reliance has been placed
on the judgments of the Supreme Court in English
Electric Company of India Ltd. vs. The Deputy
Commercial Tax Officer and others18; Oil India Ltd.
vs. The Superintendent of taxes and others19; and
Union of India and another vs. M/s. K.G. Khosla &
Co. Ltd. and others20; and
(vi) Reliance has also been placed on the decision of the
Central Sales Tax Appellate Authority in M/s. Solar
Industries Limited vs. The State of Maharashtra &
18. (1976) 4 SCC 460
19. (1975) 1 SCC 733
20. (1979) 2 SCC 242
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ors.21, wherein Coal India had executed a similar Running
Contract dated 28.11.2008 with another vendor M/s.
Solar Industries Limited. In the decision rendered on
27.06.2019, the Central Sales Tax Appellate Authority
held that all transfers of goods/explosives from the State
of Maharashtra to branches/depots of M/s. Solar
Industries Limited in other States were inter-state sale.
11. Ms. Madhumita Bhattacharjee, learned counsel appearing for the
State of West Bengal adopted the submissions made by the learned
counsel for the appellant and placed reliance upon the judgment of the
Supreme 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 Limited22.
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
21. CST/9-10/2017 and CST/26/2017 decided on 27.06.2019
22. O.M.P. (I) (Comm.) 106/2021 decided on 05.04.2021
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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 termed as agreement to sell. The
Running Contract, according to the appellant, is merely a standing offer
by the appellant. The depots of the appellant sell the explosives
supplied from the Nagpur Unit of the appellant. Thus, there is no
appropriation of goods to any contract prior to the goods reaching the
depots of the appellant in the two States. The Running Contracts
awarded by Coal India to various manufacturers of explosives are for
pre-determining the price for supplying explosives. There is no one-to-
one correlation between the goods received by the depots of the
appellant and the goods dispatched from such depots on the receipt of
indents from the subsidiaries of Coal India in the two States.
15. The following crucial facts emerge from the records:
(i) The actual quantities supplied by the appellant to the
subsidiaries of Coal India are far lesser than the quantities
specified in the Running Contract;
(ii) The cost of freight is entirely borne by the appellant and
the risk is also borne by the appellant;
(iii) The license issued to the subsidiaries specifies the
maximum quantity of explosives that can be stored in the
magazine at any point of time. The license also specifies
the maximum monthly rotation of explosives i.e. the
maximum quantity that can be transacted through the
magazine;
(iv) The subsidiaries of Coal India like NCL, SECL, MCL and
WCL possess magazines with larger licensed storage
capacities. These subsidiaries are also situated within
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reasonable distances from the Nagpur Unit of the
appellant. Hence, each of the subsidiaries place indents
directly on the Nagpur Unit of the appellant in the State of
Maharashtra;
(v) The subsidiaries of Coal India like ECL, BCCL and CCL are
located at significant distances from the Nagpur Unit of
the appellant in the States of Jharkhand and West Bengal.
The time required for the explosives to reach the
subsidiaries after dispatch from Nagpur Unit of the
appellant is approximately about fifteen days. The
capacity of these subsidiaries is very small;
(vi) The carrying capacity of the vans used by the appellant is
either 9 MT or 15 MT. The magazines of the subsidiaries of
Coal India do not have sufficient licensed capacity to store
all the explosives dispatched in the vans. Therefore, it
would be impossible to execute the supply order directly
from the Nagpur Unit of the appellant to the ECL, BCCL
and CCL subsidiaries 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
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'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 (7th 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 binding obligation; but on each occasion
when an order is placed or a consignment tendered, the
party who has made the offer is bound to sell or buy the
quantity in question. Apart from this, the offer may be
withdrawn at any time, unless consideration has been given in
return for an undertaking to keep it open. The offeree for his
part is not bound to place any order or tender any goods
unless he has expressly or impliedly promised to do so."
(emphasis supplied)
18. In Chitty's Treatise on the Law of Contract (29th Edition) it
is described as:
"Tender - A tender to supply goods up to a certain
quantity at a certain price is an offer to supply on those
terms if and when the offeree chooses to given an order
and this, qua that order, creates a binding contract. Even
where the probable quantities which may be required have
been specified in the invitation to tender, the offeror has no
remedy if the offeree does not give any orders at all or fails to
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order up to the specified quantities, although the offeror is
bound to deliver the specified goods as and when ordered by
the offeree."
(emphasis supplied)
19. In Anson's Law of Contract (24th Edition) it is described in the
following manner:
"The rule that an offer is made irrecoverable by acceptance is
illustrated by the Great Northern Railway Co. v. Witham, a
transaction which, like that in Offord v. Davies, involved a
continuing relationship:
The plaintiff company advertised for tenders for the supply of
such iron articles as they might require between 1st November,
1871 and 31st October, 1872. The defendant sent in a tender
to supply the articles required on certain terms and in such
quantities as the company 'might order from time to time', and
his tender was accepted by the company. Orders were given
and executed for some time on the terms of the tender but
finally the defendant was given an order which he refused to
execute. The Company sued him for breach of contract in that
he had failed to perform this order.
It is important to note the exact relationship of the parties. The
company by advertisement invited all dealers in iron to make
tenders, that is, to state the terms of the offers which they
were prepared to make. The tender of the defendant stated the
terms of an offer which might be accepted at any time, or any
number of times, in the ensuing twelve months. The
acceptance of the tender did not in itself make a
contract; it was merely an intimation by the company
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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
writing whereby A agrees to supply certain goods to B a
certain prices and up to stated quantity, or in any
quantity which may be required, for a certain period, is
not a contract unless B binds himself to take some
certain quantity, but a mere continuing offer which may
be accepted by B, from time to time, by ordering goods
upon the terms of the offer. In such a case each order given
by B is an acceptance of the offer, and A can withdraw the
20
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offer, at any time before its acceptance by an order of B. This
principle has been affirmed by Their Lordships of the Privy
Council in the under-noted case."
(emphasis supplied)
21. It transpires from the aforesaid that a tender to supply goods
upto to a certain quantity at a certain price would merely be an offer to
supply goods on those terms and it does not create a binding obligation
as this does not bind the party to place any order for tender of goods
and it is only when an order is placed that a binding contract between
the parties comes into existence. Thus, a standing offer is to supply
goods at a fixed price and it would not amount to a sale or an
agreement to sell.
22. In the present case, the salient features of the Running Contract
dated 28.11.2008 entered into between the appellant and Coal India
are as follows:
(i) The Running Contract determines the price at which the
goods would be bought and sold between the two parties;
(ii) The quantities of explosives supplied would be as per the
actual requirements of the subsidiaries of Coal India;
(iii) The quantities mentioned in the Running Contract merely
relate to the maximum quantity of explosives which the
appellant is eligible to supply to the subsidiaries of Coal
India i.e. the quantity specified are not relatable to the
actual quantities of explosives to be supplied;
(iv) The cost of freight for these explosives from the Nagpur
Unit of the appellant to the depots of the appellant outside
the State of Maharashtra and subsequently to the
21
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subsidiaries of Coal India is borne wholly by the appellant;
and
(v) The goods are moved at the risk of the appellant since no
transit insurance is undertaken.
23. The Running Contract dated 28.11.2008 would not amount to a
contract of sale as it does not obligate the subsidiaries of Coal India to
purchase the explosives from the appellant or obligate the appellant to
supply explosives. It is merely an agreement between the parties 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.
22
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26. In Chatturbhuj Vithaldas Jasani vs. Moreshwar Parashram
and others23, the appellant was a partner of a firm of Moolji Sicka &
Company, which is a firm of bidi manufacturers. The Supreme Court
observed that no binding engagement could be spelt out from the
letters as they merely set out the terms on which the parties were
ready to do business with each other, if and when the orders were
placed and it is only when the order was placed and accepted that a
contract would arise. The relevant portion of the judgment of the
Supreme Court is reproduced below:
"9. We do not intend to analyse these letters in
detail here. It is enough to say that in our
opinion no binding engagement can be spelt
out of them except to this extent: Moolji Sicka &
Company undertook to sell to the canteen
contractors only through the Canteen Stores and not
direct and undertook to pay a commission on all
sales. This, in our opinion, constituted a continuing
arrangement under which the Canteen Stores, i.e.,
the Government, would be entitled to the
commission on all orders placed and accepted in
accordance with the arrangement; and in fact the
Canteen Stores did obtain a sum of Rs. 7500 in
satisfaction of a claim of this kind. This money was
paid long before the dates which are crucial here
but the settlement illustrates that there was an
arrangement of that nature and that it was a
continuing one. In our opinion, it continued in
being even after that and the mere fact that there
was no occasion for any claim subsequent to the
settlement does not indicate that it was no longer
alive. But except for this, the letters merely set
out the terms on which the parties were ready
to do business with each other if and when
orders were placed and executed. As soon as
an order was placed and accepted a contract
arose. It is true this contract would be
governed by the terms set out in the letters but
23. 1954 SCR 817
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until an order was placed and accepted there
was no contract. Also, each separate order and
acceptance constituted a different and distinct
contract: see Rose and Frank Co. v. J. R. Crompton
& Bros. Ltd."
(emphasis supplied)
27. In Union of India vs. Maddala Thathiah24, the Supreme Court
held that acceptance of a tender would not amount to placing of the
order for any definite quantity of jaggery on a definite date. The
observations of the Supreme Court are as follows:
"6. The respondent made an offer to supply the
necessary quantity of jaggery during 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 in para 2 of the tender would
refer to cancel this agreement, loosely called a
24. (1964) 3 SCR 774
24
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contract, at any stage during the tenure of that
agreement without calling up the outstandings on
the unexpired portion of the contract."
(emphasis supplied)
28. In State of Andhra Pradesh vs. Coromandel Paints &
Chemicals Ltd.25, the Andhra Pradesh High Court held:
"16. It is thus clear that where the terms of the
agreement enjoin supply of goods against an order
already placed, it amounts to a contract if the goods
are specified but they are to be delivered at a future
date as and when specified. But, where neither
the quantity nor the goods have been specified
and the supply has to be made at a stated
period of the required quantity, it cannot be
said that there was a sale or even an
agreement to sell, it is merely a standing
offer."
(emphasis supplied)
29. In Central Distillery & Breweries Ltd. vs. Commissioner of
Trade Tax, U.P., Lucknow26, the Allahabad High Court held:
"9. As is evident from the terms of the
agreement, the intention of the parties was to
bring about intra-State sales at Delhi from
warehouse of the dealer that it was required to
establish within the territory of Delhi where
the dealer was required to maintain a buffer
stock of atleast two trucks without any
guarantee of any purchase being actually made
by the Delhi Administration. As and when the
Delhi Administration would make the purchases, the
dealer who was to be a L1-A licensee would supply
the goods and replenish the stocks and the things
would go on like that during the currency of the
agreement. Therefore, as is indicated by the
agreement, the movement of the goods to
Delhi was not in pursuance of any transaction
of sale but in pursuance of the licence under
25. (1995) 98 STC 82 (AP)
26. (1999) 115 STC 296
25
CST/01/2018
which the dealer was to maintain a warehouse
with a minimum stock within the territory of
Delhi. The agreement by itself did not bring
about any sale or purchase and, therefore, the
transport of goods from the distillery in U.P. to
warehouse in Delhi could not be treated as a
movement of goods occasioned by any sale or
purchase.*****"
(emphasis supplied)
30. In The Queen vs. Demers (Quebec)27, the Court of Queen's
Bench for lower Canada, Province of Quebec, The Judicial Committee of
the Privy Council held:
"The 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 Ram28, the Lahore High Court
held:
27. 1900 AC 103/ [1899] UKPC 66 (9 December 1899)
(https://www.bailii.org/uk/cases/UKPC/1899/1899_66.html)
28. AIR 1929 Lah 114
26
CST/01/2018
"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 classes of goods at certain
prices during a fixed period, and so long as the
offer remains open the plaintiff is bound to
supply the goods at those prices, when called
upon to do so, up to at least the estimated
quantities. The plaintiff can at any time withdraw
his offer upon proper notice to the other party, and
upon such withdrawal his liability to supply all or any
of the goods not already ordered terminates. The
Military authorities on the other hand are not
bound to order all or any of the goods offered,
but if they do give an order they are bound to
pay the price set out in the schedule. They are
free to accept the offer or not, as they may
think fit, and it follows that they may buy the
goods in question from any other source
without reference to the plaintiff."
(emphasis supplied)
32. In Speech & Software Technologies (India) Pvt. Ltd. vs.
Neos Interactive Ltd.29, the Supreme Court held:
"11. ***** It is well settled legal position that an
agreement to enter into an agreement is not
enforceable nor does it confer any right upon the
parties.*****"
33. The aforesaid decisions have considered cases where the
document merely sets out the terms on which the parties agree to do
business without specifying the exact quantity of goods to be supplied
and it is only when orders are placed that a contract would come into
existence. The movement of goods from the manufacturing unit to the
29. 2009 (1) SCC 475
27
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depots, in such a case, cannot be said to have been occasioned by any
sale.
34. The judgment of the Karnataka High Court in BASF India is a
judgment which squarely applies to the facts of the present case. This is
for the reason that the Writ Petition that was filed before the Karnataka
High Court arose out of a decision dated 27.06.2019 of the Central
Sales Tax Appellate Authority in the matter of BASF India in which the
same issue namely whether a pre-existing rate contract, which is like
the Running Contract in the present case, occasioned inter-state
movement of goods or it was a standing offer. The Central Sales Tax
Appellate Authority held that it would amount to inter-state movement
of goods, but this decision was specifically overruled by the Karnataka
High Court and it was held that the agreement was merely a 'standing
offer'. The case that BASF India set up in the writ petition was that the
product is approved by the customers, the petitioner receives open
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
28
CST/01/2018
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 open purchase order would not constitute any contract for sale and
that only the purchase orders issued from time to time for supply of
goods would constitute a contract between the parties. Thus, the sales
effected pursuant to such purchase orders would be an intra-state sale
and not inter-state sale. The relevant portions of the judgment of the
Karnataka High Court are reproduced below:
"3. Brief facts of the case are, petitioner is
in the business of manufacture and sale of
automotive paints. It is a registered dealer under
the provisions of K-VAT Act (Karnataka Value Added
Tax Act, 2003 - 'K-VAT Act' for short). Its
manufacturing unit is situated near Mangaluru
in Karnataka. It has warehouses (Branch
offices) in Maharashtra, Tamilnadu, Haryana
and Uttarakhand.
4. Petitioner manufactures automotive paints
for original equipment manufacturers and supplies to
Tata Motors, Mahindra and Mahindra, Maruti Udyog
Ltd., etc., who procure raw materials on just-in-time
(JIT) basis. To cater to their needs, petitioner
has developed a business model to ensure that
stock is maintained at warehouses located near
the factories of OEM Customers.
5. Petitioner's case in substance is, after
the product is approved by the customers,
petitioner receives open purchase orders.
Petitioner transfers the stock to its godowns
situated near the customer's manufacturing
unit and supplies the paint as and when the
indent is received.
*****
29
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8. Based on the Investigation Report, the
Department issued proposition notices for
reopening the assessment proceedings and
concluded the proceedings by rejecting 'F-
forms' on the Stock Transfer turnover on the
ground that Inter-state movement of goods
from the manufacturing unit at Mangaluru to
various depots in other States was against pre-
existing Contract and amounted to Inter-State
sale liable to tax under Section 3 of the CST
Act.
*****
17. The argument of Shri Sridharan in
substance, is open purchase orders do not
stipulate any specified quantity. Therefore, it
cannot be construed as an 'agreement to sell'.
In order to satisfy the requirement under Section
3(a) of the CST Act, there must be inter-state
movement of goods pursuant to an agreement to sell
or a contract.
18. Revenue's case is, the open purchase
order given by customers is an agreement to
sell. The movement of goods occurs from
Mangaluru to petitioner's depots situated at
various places 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
30
CST/01/2018
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
purchase must cause movement of goods from one
State to another or transfer of title to the goods
must take place during their movement from one
State to another.
29. In the case on hand, goods have been
moved to different State under Form-F.
Assessee's specific case is, sale is effected
based on the indents received from time to
time from the purchasers.
*****
35. Adverting to the facts of this case, the Open
Purchase Orders referred to hereinabove, 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.
36. 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.
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37. In view of the Authorities in the case of
Maddala Thathiah and Kelvinator, we are of the
considered view that 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. We say 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.
38. In view of the above discussion, this writ petition
merits consideration. Hence the following:
ORDER
(a) Writ petition is allowed.
(b) 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.
No costs."
(emphasis supplied)
35. It needs to be noted that the Central Sales Tax Appellate Authority 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.
32
CST/01/2018
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 insurance was to be borne by the collieries. The mode of dispatches was also mentioned. It further says that excess supply made, if any, shall be acceptable to the extent of 15% over the quantities against each item in respect of each area as indicated in Schedules I to IV. The price is firm for contract period. Then there is a clause of price variation also. The respective General Managers are to be contacted for monthwise allocation of explosives. IDL Chemicals Limited, and/or their consignment agents, namely, (i) M/s. B.P.Agarwalla & Sons (P) Ltd., P.O.Dhansar, Dist- Dhanbad, (ii) M/s. William Jacks & Co (India) Pvt. Ltd. Asansol/ Calcutta, and (iii) Abdul Hussain Mulla Allabuxji, Nagpur (Maharashtra), will supply explosives and accessories to mines on the basis of convenience and locations against this order. Mines will follow the existing system of drawing their requirements from IDL and/or their consignment agents who will raise the bills accordingly and payments will be made by cheques drawn in favour of IDL Chemicals Ltd. Instructions contained in the attached Schedule VI should be strictly and invariably followed.33
CST/01/2018
12. Copy of this letter was sent to respective collieries all over. Therefore, what it transpires is that all collieries of CIL were under an obligation to purchase the explosives, detonators etc. from the appellant only through their agents situated in the States of West Bengal, Bihar and Maharashtra and each colliery has been given the quantities of explosives, detonators and detonating/safety fuses to be purchased from the appellant only at the price fixed. This purchase order was issued from the apex body i.e. the CIL to its subsidiaries i.e. the collieries spreading over these three States. They cannot purchase the goods from any other company other than the appellant. Therefore, this firm order issued by CIL is in the nature of purchase order specifying the quantities and the price thereof. It was only the convenient mode of supply, instead of sending the goods directly from Rourkela to various States. This convenient device was worked out by the appellant and CIL so that the goods need not directly be sent from the company at Rourkela but would be sent through their agents in various States. This order is definitely a purchase order, the nature of indent and the modalities were agreed, the quantity of the goods to be supplied to various 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 34 CST/01/2018 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 subsidiaries were issuing indents on the agents of the appellant in pursuance of the order dated 24-9-1976. In fact the appellant instructed its consignment agents to supply the goods to the collieries as per the indents placed by them. The collieries were also asked by the very same order that they would place their indents to the consignment agents of the appellant on the price fixed in this order and the quantity mentioned therein. Therefore, it is not a case in which there was any independent contract between the subsidiaries of CIL with that of the appellant. It is in pursuance of this order dated 24-9-1976 that the collieries were placing their indents for supply of the goods and the payment was made on the basis of the terms and conditions fixed in the order dated 24- 9-1976. Therefore, the goods were moved from the appellant's factory for supply to CIL in pursuance of this order."
(emphasis supplied)
37. In IDL Chemicals, the Supreme Court concluded that the contract was a contract of sale based on the fixed quantities of the explosives that were to be sold by IDL Chemicals to Coal India and were enumerated in the contract itself; the contract placed an obligation on the collieries of Coal India to purchase all their explosives from IDL Chemicals only; the collieries could only purchase explosives as per the fixed quantities in the contract and not on a rolling basis as per their requirement; and the insurance and freight of the explosives 35 CST/01/2018 transported was borne by Coal India. The Supreme Court, therefore, concluded that the contract amounted to a contract of sale.
38. The Running Contract involved in this appeal is different from the contract in IDL Chemicals, as would be apparent from the following facts:
(a) The Running Contract does not mention the fixed quantities of explosives that are to be sold by the appellant or the fixed quantities of explosives that may be purchased by the subsidiaries of Coal India;
(b) There is no obligation on the subsidiaries of Coal India to purchase explosives only from the appellant. In fact, Coal India was simultaneously engaged in multiple Running Contracts with multiple manufacturers of explosives in the relevant period;
(c) The subsidiaries of Coal India purchased explosives on the basis of their actual requirements and not on the basis of any fixed quantities specified in the Running Contract;
(d) The freight 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 36 CST/01/2018 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 movement; and
(i) The transactions are clearly stock transfers and the movements of goods is not occasioned by pre-determined contract of sale.
39. The judgment of the Supreme Court in IDL Chemicals would, therefore, not be applicable in the present case. On the other hand, the judgments of the Supreme Court Chatturbhuj Vithaldas and Maddala Thathiah, on which reliance has been placed by the learned counsel for the appellant, would apply to the facts of the present case.
40. Ms. Rama Ahluwalia, learned counsel appearing for the State of Maharashtra which has been impleaded as respondent no. 1 heavily relied upon the earlier decision of the Central Sales Tax Appellate Authority in Solar Industries, in which the facts are almost identical to the facts involved in BASF India. It needs to be noted that both Solar Industries and BASF India were decided by the same bench of the Central Sales Tax Appellate Authority on the same date i.e. 27.06.2019. They dealt with same issue namely whether the pre-existing rate 37 CST/01/2018 contract occasioned inter-state movement of goods or it was merely a standing offer. As noticed above, the decision of the Appellate Authority in BASF India was challenged before the Karnataka High Court and the Karnataka High Court set aside the decision of the Appellate Authority and held that the pre-existing rate contract was merely a standing offer and it did not occasion inter-state movement of goods. Learned counsel for the State of Maharashtra is, therefore, not justified in placing reliance upon the decision of the Appellate Authority in Solar Industries.
41. The Sales Tax Tribunal was, in such circumstances, not justified in holding that the supply of explosives to Coal India and its subsidiaries were made under the Running Contract dated 28.11.2008. The Running Contract, as noticed above, was merely a standing offer. The Sales Tax Tribunal was also not justified in rejecting the contention advanced by the appellant that each subsidiary of Coal India had to issue indent for supply of the explosives as per its requirement for the reason that the schedule to the Running Contract mentions the quantities. The quantities mentioned in the schedule were tentative and it has been demonstrated by the appellant that the actual quantities supplied were far lesser than indicated in the schedule to the Running Contract. The Sales Tax Tribunal also held that 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 38 CST/01/2018 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, submitted that the appellant had not chosen the model of operation to avoid payment of central sales tax and the reason for stock-transferring the goods and subsequently selling them locally were entirely for logistic and technical reasons.
43. It, therefore, follows from the aforesaid discussion that the appellant is merely stock 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.
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44. The impugned order dated 26.09.2017 passed by the Maharashtra Sales Tax Tribunal, therefore, cannot be sustained and is set aside. The appeal is, accordingly, allowed.
(Order pronounced on 08.07.2024) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Shreya