Open Purchase Orders are Not ‘Agreement to Sell’, Movement of Goods are Mere Stock Transfers: Karnataka HC Quashes Sales Tax Demand [Read Order]

A division bench of the Karnataka High Court, while quashing a sales tax demand, has held that the open purchase orders are only standing offers and do not constitute a confirmed ‘Agreement to sell’ and movement of goods are mere stock transfers.

Justice P.S. Dinesh Kumar and Justice M.G. Uma was considering a writ petition by M/s BASF India Ltd who is in the business of manufacture and sale of automotive paints. It is a registered dealer under the provisions of K-VAT Act. On appeal, the CSTAA4 has confirmed the view taken by the KAT that the sale is an Inter-State sale and dismissed the appeals.

A division bench of the High Court has held that 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.

“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.”

“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,” the bench observed.

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