Andhra Pradesh High Court - Amravati

M/S. Thejo Engg. Services P Ltd., ... vs Commercial Tax Officer Another on 2 April, 2024

Author: U. Durga Prasad Rao

Bench: U.Durga Prasad Rao

APHC010105992006
                   IN THE HIGH COURT OF ANDHRA PRADESH
                                 AT AMARAVATI              [3438]
                           (Special Original Jurisdiction)


            TUESDAY, THE SECOND DAY OF APRIL
            TWO THOUSAND AND TWENTY FOUR

                   PRESENT
 THE HONOURABLE SRI JUSTICE U.DURGA PRASAD RAO
  THE HONOURABLE SRI JUSTICE A V RAVINDRA BABU

                   WRIT PETITION NO: 19074/2006
Between:

M/s. Thejo Engg. Services (p) Ltd., Chennai.        ...PETITIONER

                                AND

Commercial Tax Officer Another and Others       ...RESPONDENT(S)

Counsel for the Petitioner:

   1. C V NARASIMHAM

Counsel for the Respondent(S):

   1. GP FOR COMMERCIAL TAX

   2. 9460/SURIBABU S(SPL SC FOR CT AP)

The Court made the following:

ORDER:

(Per Hon'ble Sri Justice U. Durga Prasad Rao)

The petitioner seeks writ of certiorari challenging the order in

Ref.RV No.88/05-06/A6, dt: 24.05.2006 passed by the 2nd and

consequential order in G.I No.5845/00-01 (CST) dt: 13.07.2006 passed

by the 1st respondent and seeks to quash the same.

2. The petitioner's case succinctly is thus:

(a) The petitioner is a private limited company having its head

office at Chennai. It is engaged in manufacture and sale of rubber

products and adhesives. The petitioner is specialized in rubber lagging

works. The works contract entered into / carried out by the petitioner's

branches throughout the Country.

(b)The petitioner has manufacturing units at Gudur in Andhra

Pradesh and Ponneri and Athipetti in Tamilnadu. Those units

manufacture rubber sheets and adhesives which are standard and also

rubber sheets manufactured in accordance with the specification of a

particular customer. Standard rubber sheets normally of 4 varieties of

rubber sheets and adhesives which could be employed for different

types of applications. These standard rubber sheets and adhesives on

manufacture are stock transferred in a routine manner from Gudur to

various branches as per the schedule provided by the Head Office

(HO) at Chennai which in turn will send to various branches as per

their requirement. The whole operation simply stating is thus:

(i) The petitioner's branches outside A.P. secure order for pulley lagging with rubber sheets and adhesives for jointing the conveyor belts

(ii) The contracts for work are communicated by respective branches to corporate office at Chennai.

(iii) The corporate office at Chennai in turn would place orders on Gudur factory for manufacturing of rubber sheets and adhesives as per specifications.

(iv) The manufactured rubber sheets and adhesives are stock transferred to respective branches.

(v) The branches on receipt of materials enter it into their stock ledgers.

(vi) Thereafter, the branches as per the need for lagging the equipment arises take from the stock and use the same in lagging works of their customers.

(vii) The rubber sheets and adhesives are appropriated towards a particular work only by the branches.

(viii)The taxes on transactions are assessed under the CST Act and they have been paid in Andhra Pradesh treating the transactions as intra-state transactions of work contract in the respective states.

(ix) While so, during AY 2000-2001 the petitioner's stock transferred rubber products and adhesives (standard goods) to its branches outside the State was worth Rs.1,38,25,291/- for execution of lagging contracts (works contract). Therefore, the pettioenr claimed exemption under Section 6A of CST Act on such stock transfers to its branches by filing Form F in support thereof.

(x) The petitioner during AY 2000-2001 also affected inter-state sales of specific rubber products and adhesives to an extent of Rs.91,77,829/- to buyers outside the State, in respect of which buyers outside the state placed purchase orders. Those stocks were dispatched directly to the customers outside the State of A.P. and such sales were treated by the petitioner as inter-state sales and tax was paid under CST Act.

(c) The petitioner submitted monthly returns for the year 2000-01

claiming exemption under Section 6-A for the stock transfer to the

branches and the 2nd respondent vide order in GI No.5848/2000-

01/CST, dated 28.02.2002 accepted the same in terms of Section 6A

and passed the Assessment Order. However, the 1st respondent issued a

show cause noticed dt.29.08.2005 and proposed to revise the

assessment particularly rejecting the claim of stock transfer U/s 6A of

the CST Act on the main ground that the rubber sheets and adhesives

were manufactured to the specifications of the clients and dispatched

directly to the client industries which amounts to inter-state sales

taxable U/s 3(a) of CST Act 1956. The petitioner filed detailed

objections dt. 09.12.2005 explaining that the branches of the petitioner

entered into annual rate contract for lagging and the works contract

was for that particular period and the rubber sheets and adhesive stocks

transferred were standard goods which could be used/employed in the

execution of all rate contracts and not made in terms of specifications

provided by a particular customer and the property which was made a

stock transfer continued to the property of assessee till it is used by the

clients. Thus the petitioner requested to drop the proposed revision.

However, despite the detailed objections of the petitioner, the 2nd

respondent proceeded to confirm the proposal for revision and marked

a re-assessment by deserving the claim under Section 6A of the Act

and passed the impugned order dated 24.05.2006.

Hence the Writ Petition.

3. 2nd respondent filed counter and inter alia contended thus:

(a) The petitioner is a manufacturer of rubber sheets and

adhesives with its HO at Chennai and manufacturing unit at Gudur.

Petitioner got branches in some parts of the Country.

(b) The petitioner is specialized in rubber lagging i.e., fixing the

rubber sheets on pulleys and conveyor belts. The Assessment of the

petitioner for the year 2000-01 was completed by the 1st respondent on

28.02.2002 under the CST Act, 1956.

of the APGST, 1957 Act r/w Section 9(2) of the CST Act, 1956

reviewed the assessment made by the 1st respondent and found that the

assessing authority erroneously granted exemption on a turnover of

Rs.1,38,25,291/- as a stock transfers U/s 6A of CST Act, 1956. This

turnover was held to be related to direct inter-state sales of rubber

sheets to the customers outside the State through their branches.

(d) The Revisional Authority noticed the modus operandi of the

petitioner. The HO receives the orders of other branches placed on

them by the respective customers for supply of rubber sheets of

specific dimensions. Then the HO issues works order to the petitioner.

The petitioner accordingly manufactures the rubber sheets for required

dimensions and dispatches the same directly to the branches by raising

invoice for the material supplied by indicating the purchase order

number and the date. Therefore, the goods manufactured and sold by

the petitioner are not standard goods but are tailor made goods against

the orders of the customers outside the State and placed on their

branches as communicated by the HO by way of work order.

Therefore, the movement of goods from Guduru to outside the State is

nothing but a contract of sale between petitioner's branches and

customer outside the State. The petitioner's HO and branches

constitute one single legal entity and therefore orders placed on the

branches by the customers outside the State amounts to placing the

order on the petitioner who in turn manufactures the goods and sold the

same in the course of interstate trade U/s 3(a) of CST Act. Therefore,

the revision order is perfectly valid and within the jurisdiction of the

2nd respondent.

(e) The respondent put up its objections to the para wise

pleadings of the petitioner's affidavit and contended that the petition is

not maintainable and prayed to dismiss the writ petition.

4. The petitioner filed reply affidavit opposing the averments in the

counter filed by the 2nd respondent.

5. Heard arguments of Sri C.V. Narasimham, learned counsel for

the petitioner and learned Government Pleader for Commercial Tax for

respondents.

6. The main plank of argument of learned counsel for the petitioner

is dipronged. Firstly, that the activities of the petitioner company

would only manifest that its branches involved in works contract in

different States and the rubber sheets and adhesives manufactured at

Gudur are being made as stock transfer covered by Form-F and there is

no involvement of inter-state sales between the manufacturing unit at

Gudur and the customers located in different States and the stock was

transferred from manufacturing unit at Gudur to respective branches

who in turn use the rubber sheets in their lagging contract works. The

petitioner raises invoices for the material supplied to its branches since

goods manufactured cannot be cleared from the factory without

invoice and payment of central excise duty. Secondly, on point of law

it is argued that Sub Section 3 of Section 6A of CST Act, 1956 which

confers the power of re-assessment by the Assessing Authority on the

ground of discovery of new facts or the revision by a higher authority

on the ground that findings of the assessing authority are contrary to

law was introduced for the first time by Finance Act No.14/2010

w.e.f., 01.04.2010. The said provision being prospective in operation

cannot be make applicable in the instant case as Assessment was

completed by the 1st respondent way back on 28.02.2002 itself.

Therefore, the impugned revision undertaken by the 1st respondent is

without jurisdiction and authority and the same is liable to be set aside.

He thus prayed to allow the Writ Petition.

7. Per contra, learned Government Pleader while opposing the

Writ Petition argued that the movement of the manufactured rubber

goods and adhesives from Gudur in Andhra Pradesh to the respective

branches outside the State of Andhra Pradesh was occasioned on

account of orders placed by the customers outside the state with

specific dimensions and the branches who collect the orders and

submit to the Head Office at Madras acted only as conduits between

the manufacturing unit at Gudur and respective customers and

therefore when once goods are moved from the manufacturing unit at

Gudur to the respective branches outside the state, inter-state sale as

contemplated under Section 3(a) of CST Act, 1956 shall be deemed to

have occasioned and the transactions are liable to be taxed under CST

Act, 1956. To buttress his point that the if the movement of goods from

one state to another has occasioned on account of sale or purchase, the

transaction shall be recorded as interstate trade or commerce, he placed

reliance on Sahney Steel and Press Works Limited and another v.

Commercial Tax Officer and others 1 and Assam Company (India)

Ltd. v. Commissioner of Taxes, Assam, Guwahati and Others2.

8. So far as the contention of the petitioner that Section 6A(3) was

introduced prospectively in the year 2010 is concerned, learned

Government Pleader argued that the 2nd respondent has exercised his

(1985) 4 SCC 173

1997 SCC OnLine Gau 207=(1997) 107 STC 154

power of re-assessment/revision under section9(2) of the CST Act and

therefore the said argument is not sustainable. He thus prayed to

dismiss the Writ Petition.

9. The point for consideration is:

Whether the movement of goods in the instant case is only a

stock transfer to the branches and liable to be exempted under Section

6A of the CST Act 1956 or the transaction is an interstate sale under

Section 3(a) of the CST Act and liable for tax under CST Act 1956?

10. Point: Admittedly the petitioner is a manufacturer of rubber

sheets and adhesives with its HO at Chennai and manufacturing unit at

Gudur. Petitioner got branches in some parts of the country. The

petitioner is specialized in rubber lagging i.e., fixing the rubber sheets

on pulleys on conveyor belts. The branches procure the purchase

orders from different customer companies for rubber sheets with

specific dimensions and submit to the HO. In turn the HO issues works

order to the petitioner and the petitioner's manufacturing unit at Gudur

manufactures the rubber sheets for required dimensions and dispatches

the same directly to the branches by raising invoice for the material

supplied by indicating the purchase order number and the date. The

contention of the petitioner is that the branches at the different places

enter into an annual rate contract for various items of work and the rate

per unit as per the contract is indivisible including the cost of the

material and the contract will be for a period of one year. The rubber

sheets stock transferred by the assesse are standard sheets which can be

used in common for all the rate contracts obtained by all branches from

all the clients in the nearby locality and so these stocks manufactured

are not custom made. The stock till arranged on to the pulleys of the

customer continues to be the property of the assessee. Therefore, the

movement of the manufactured rubber sheets and adhesives to the

branches can only be regarded as stock transfer but not as inter-state

sale.

(a) Per contra, the observation by the 2nd respondent in the

impugned order is that at Gudur the goods are being manufactured as

per the customers' specification and for every movement of the goods

from Gudur to various branches invoices are being raised in the name

of the customers. The specimen copies of work order placed by the HO

at Chennai on Gudur would show that orders were made by the

different customers with specific description which indicate that goods

are tailor-made to suit the requirement of the different customers but

they are not standard type of manufactured goods. The rubber sheets

and adhesives were thus manufactured in pursuance of the contract or

work order and pursuant to such pre-existing contracts, the interstate

movement of goods has occasioned. The situs of sale occurred in

Andhra Pradesh and hence the state of A.P. is the appropriate state to

tax the interstate sales under Section 3(a) of CST Act, 1956. The 2 nd

respondent specifically held that the goods manufactured by the

assessee are not standard in nature but there are only three types of

rubber sheets being manufactured which are not available in market

like a table fan or iron box which can be considered to be standard

goods. It was also observed that goods were never sent as a routine

practice for the branches to make sales. Therefore, the branches which

are located outside the state acted only as conduits between the

customer industries and the assessee. Their role was to procure orders

for the company. It was also held that the documents produced by the

assessee show that no sales were made from the branch office because

the invoicing was done by the Gudur office. The 2nd respondent turn

down the argument of the petitioner that the property vest with the

petitioner till the goods are fixed as per rate contract it was held that

the goods were appropriated to the contract of sale the movement they

were produced as per the specifications of the customer industries.

11. We have given a thoughtful consideration to the above

respective arguments. The bone of contention is that it is the case of

the petitioner that the branches procure the rate contract for lagging

work which include the cost of rubber sheets fixed to the pulleys of the

customers and after obtaining rate contracts per year from different

customers those work orders will be submitted to the HO which in turn

place the order on the manufacturing unit at Gudur for manufacture of

the rubber sheets and adhesives and makes a stock transfer to various

branches. Later, the branches will use those rubber sheets and

adhesives during the course of execution of works contract. The costs

of execution of work contract and rubber sheets are inseparable and

included in the rate contract and therefore, the movement of goods

from manufacturing unit at Gudur to different branches shall be

regarded only as a stock transfer and liable to be exempted from tax

under Section 6A of CST Act. On the other hand, the contention of the

respondents is that the rubber sheets manufactured are of specific type

and design to suit the requirement of the different customers but they

are not of standard dimension intended to be supplied to the branches

for general sale and in that view, and as the invoices are raised by the

manufacturing unit on the individual customers before dispatch of the

manufacture goods to the branches, the entire transaction shall be

viewed only as inter-state sales in terms of Section 3(a) of CST Act.

12. On perusal of the impugned order, we find force in the

contention of the respondents. The impugned order shows that the

works orders sent by the HO contain the details of individual customer

companies and item wise description of the rubber sheets with specific

design and quantity which manifests that rubber sheets are being tailor-

made to suit the needs of the individual customers. The invoices are

also raised on customers. It may be true that the finished goods are

dispatched to the different branches. However, that fact is insignificant

because in the entire process the branches are acting only as conduits

between the manufacturing unit and customers. Where once movement

of goods from one state to another state takes place on account of sale

or purchase, the transaction assumes the character of inter-state sales in

terms of Section 3(a) of CST Act, 1956. This aspect has been vividly

explicated by Hon'ble Apex Court in Sahney Steels case (supra 1) as

follows:

"8. The petitioners challenge the finding of the Commercial fax Officer that the transactions in question constitute inter-State sales. The petitioner contend that when the registered office of the company at Hyderabad dispatched the manufactured goods to its branch office it was merely a transfer of stock from the registered office to the branch office, and thereafter the movement of the goods started from the branch office to the buyer. It is urged that the registered office and the branch office were separately registered as dealers under the Sales Tax law and transactions effected by the branch office could not be identified with transactions effected by the registered office. The movement of the goods from Hyderabad to the branch office, it is said, was only for the purpose of enabling the sale by the branch office and was not in the course of fulfilment of the contract of sale. We are unable to agree. Even if, as in the present case, the buyer places an order with the branch office and the branch office communicates the terms and specifications of the orders to the registered office and the branch office itself is concerned with the sales dispatching, billing and receiving of the sale price, the conclusions must be that the order placed by the buyer is an order placed with Company, and for the purpose of fulfilling that order the manufactured goods commence their journey from the registered office within the State of Andhra Pradesh to the branch office outside the State for delivery of the goods to the buyer. We must not forget that both the registered office and the branch office are offices of the same Company, and what in effect does take place is that the Company from its registered office in Hyderabad takes the goods to its branch office outside the State and arranges to deliver them to the buyer. The registered office and the branch office do not possess separate juridical personalities. The question really is whether the movement of the goods from the registered office at Hyderabad is occasioned by the order placed by the buyer or is an incident of the contract. If it is so, as it appears no doubt to us, its movement from the very beginning from Hyderabad all the way until delivery is received by the buyer is an inter-State movement. In English Electric Co. of India Ltd. v. The Deputy Commercial Tax Officer and Ors. MANU/SC/0393/1976 :

[1977]1SCR631 this Court held that when the movement of the goods from one State to another is an incident of the contract it is a sale in the course of inter-State sale, and it does not matter which is the State in which property in the goods passes. What is decisive is whether the

sale is one which occasions the movement of goods from one State to another. It was also pointed out that the branches had no independent and separate entity, that they were merely different agencies, and even where a branch office sold the goods to the buyer it was a sale between the Company and the buyer. It is true that in that case the goods, on manufacture at the Madras branch factory, were directly dispatched to the Bombay buyer at his risk, and all prices were shown F.O.R. Madras, and the goods were delivered to the Bombay buyer at Bhandup through clearing agents. In the instant case, the goods were dispatched by the branch office situated outside the State of Andhra Pradesh to the buyer and not by the registered office at Hyderabad. In our opinion, that makes no difference at all. The manufacture of the goods at the Hyderabad factory and their movement thereafter from Hyderabad to the branch office outside the State was an Incident of the contract entered into with the buyer, for it was intended that the same goods should be delivered by the branch office to the buyer. There was no break in the movement of the goods. The branch office merely acted as a conduit through which the goods passed on their way to the buyer. It would have been a different matter if the particular goods had been dispatched by the registered office at Hyderabad to the branch office outside the State for sale in the open market and without reference to any order placed by the buyer. In such a case if the goods are purchased from the branch office, it is not a sale under which the goods commenced their movement from Hyderabad. It is a sale where the goods moved merely from the branch office to the buyer. The movement of the goods from the registered office at Hyderabad to the branch office outside the State cannot be regarded as an incident of the sale made to the buyer."

13. Similar view was expressed by the High Court of Gauhati in

Assam Company case (Supra 2).

14. The above judgments squarely apply to the case on hand. In the

instant case also the movement of goods shall be regarded as inter-state

sales rather than mere stock transfer. We are unable to countenance the

argument of the petitioner in this regard. The other contention of the

petitioner is concerned, as rightly submitted by learned Government

Pleader, the 2nd respondent has exercised his power under Section 9(2)

of CST Act, r/w Section 20 (2) of APGST Act but not under Section

6A(3) of CST Act.

15. Accordingly, on a conspectus facts and law, we find no merits in

the petitioner's case and accordingly the Writ Petition is dismissed. No