Stock Transfers of Explosives to WB and Jharkhand Depots are Branch Transfers, Not Inter-State Sales: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that the movement of explosives from Maharashtra to company depots in West Bengal and Jharkhand under a running contract with Coal India Ltd. constituted branch transfers and not inter-State sales.

Solar Industries India Ltd., the appellant, is engaged in the manufacture and trade of industrial explosives. The company participates in Coal India’s tender process and enters into running contracts that fix prices and maximum supply quantities, but do not guarantee purchase obligations.

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Subsidiary companies of Coal India place monthly indents for explosives based on operational needs. Due to storage limitations at the collieries, Solar often moved stock from its Nagpur plant to depots in West Bengal and Jharkhand for later local sales.

The Maharashtra sales tax authorities treated these movements as inter-State sales under the Central Sales Tax Act, 1956, and demanded CST, relying on the Supreme Court’s decision in IDL Chemicals. The Maharashtra Sales Tax Tribunal upheld this view, holding that the running contract occasioned the movement of goods from Maharashtra.

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The appellant’s counsel argued that the running contract was only a rate contract, not a sale agreement. Subsidiaries of Coal India were free to purchase from other approved suppliers, quantities mentioned were tentative, and the goods were moved to depots based on stock requirements, not specific customer orders.

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The revenue’s counsel argued that the contractual terms effectively predetermined the movement of goods to fulfil Coal India’s requirements, and that the depots acted merely as transit points.

The two-member bench comprising Mr. JusticeDilip Gupta (President) and Mr. P.V. Subba Rao (Technical Member) observed that there was no one-to-one correlation between goods moved from Nagpur and goods sold to collieries. The movement to depots was an internal stock transfer, with appropriation occurring only at the depot before local sale.

The tribunal found IDL Chemicals distinguishable on facts and agreed with the principles explained in Keltech Energies and BASF India.

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The tribunal ruled that these were branch transfers under Section 6A of the CST Act, not inter-State sales. It set aside the order of the Maharashtra Sales Tax Tribunal and allowed all six appeals filed by the appellant.

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