Relief to SAIL: Orissa HC Quashes Sales Tax Proceedings as Dept could not Prove Inter-State Sales even after 35 Years [Read Order]

As a relief to Steel Authority of India Limited ( SAIL ), the Orissa High Court (HC) quashed the sales tax proceedings as the department could not prove inter-state sales even after 35 Years.

The question before the court was whether the Tribunal was justified in holding that goods manufactured by sale in its Rourkela Steel Plant and despatch from the plant to different branches outside the State of Odisha under the time-bound supply scheme and the demand registration scheme be treated as transactions of interstate sales coming within the purview of Section 3(a) of the Central Sales Tax Act, 1956 (CST Act)

It was submitted that in Tata Engineering and Locomotive Co. Ltd. v. The Assistant Commissioner of Commercial Taxes,were held similar branch transfers as ‘interstate sale’ which according to the Sales Tax Authorities in Bihar. The time-bound supply scheme (TBSS) and the demand registration scheme (DRS) is similar to the ‘stock transfer authorization’ that formed the subject matter of the above decision.

The stocks available in the stockyards were distributed from time to time to dealers taking care to ensure that the overall supply to the dealers in any State would be in proportion to the number of orders pending with the dealer on May 1, 1963, or based on the off-take by the dealer during the year ending September 30, 1962, as required by the Control Order.

It was claimed that the transfer of the vehicles from works to the various stockyards was a continuous process and was not related to the requirement of any particular customer whether a dealer or a corporation or a private individual.

It was viewed that the assessee undertakes stock transfers to its branches located outside the State of Odisha and that the goods are then offered for sale to customers in those respective States. Sales tax is then collected at such place of sale as per the law of that State and deposited with the said State. 

Further submitted that once the Assessee discharges the initial burden of showing that the transaction was nothing but a branch transfer, it was for the Department to demonstrate that the movement of goods from Odisha to outside of Odisha was a result of the concluded contract arrived at between the Petitioner and the ultimate customer.

It was noted that in its order in Steel Authority of India Ltd. (supra) the CESTAT did not agree with the Department that the TBSS itself was like an offer of sale.

A two-member bench consisting of Justice Dr S. Muralidhar and M.S.Raman observed that “while the Assessee has discharged its initial burden of showing that the transaction was only a branch transfer, the Department has been unable to discharge its burden of showing that the transaction was not merely a branch transfer but was a movement of goods by way of interstate sale occasioned by a concluded contract.”

While allowing the petition, the Court held that “nearly 35 years have already elapsed since the year 1988-89 and these proceedings cannot interminably carry on. ”Further, the impugned order of the Tribunal and the corresponding orders of the First Appellate Authority and the AO was set aside.

To Read the full text of the Order CLICK HERE

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