The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the sales tax demand on movement of liquor from manufacturing units in Rajasthan to depots in Bihar and Jharkhand.
The bench of Justice Dilip Gupta (President) and P.V. Subba Rao, (Technical Member) has observed that the appellants had merely stock transferred beer from the manufacturing units of the appellants situated in the State of Rajasthan to the depots of the appellants situated in the State of Bihar or the State of Jharkhand. The movement of goods did not occur from the State of Rajasthan to the State of Bihar or the State of Jharkhand pursuant to the Master Agreement or the Liquor Policy.
Table of Contents – Sales Tax Demand On Movement Of Liquor
Background
The appellant/assessee has challenged the demand of central sales tax on movement of goods from the manufacturing units of the appellants situated in the State of Rajasthan to their depots in the State of Bihar and the State of Jharkhand. The order has treated the movement to be arising out of inter-state supply of goods instead of inter-state stock transfers as claimed by the appellants.
The appellants hold licences for manufacture and sale of liquor under the Rajasthan Excise Act, 1950 and are also registered dealers under the Rajasthan Value Added Tax Act, 2003 as well as under the Central Sales Tax Act, 1956. The appellants manufacture beer under various brand names at their breweries located in the State of Rajasthan.
Various States have created separate entities which are State Beverages Corporations to facilitate and regulate retail sale of liquor, including beer, in their States. The State of Bihar has established The Bihar State Beverages Corporation Limited, while the State of Jharkhand has established The Jharkhand State Beverages Corporation Limited.
Carlsberg has depots in the State of Bihar, while United Breweries and Mount Shivalik have depots both in the State of Bihar and the State of Jharkhand.
The State of Bihar framed a policy known as the Liquor Sourcing Policy8 for sourcing all kinds of liquor, including beer. Clause 6 of the Liquor Policy provides that the supplies to the Corporation shall be based on Order for Supply, to be issued by the Corporation. The Corporation shall be under no obligation to procure any specified minimum quantities of liquor and the quantity to be procured shall depend upon the demand of the product.
Accordingly, the Corporation issues OFS on the local depots of the appellants situated in State of Bihar for supply of specified quantity of the beer. The OFS has a validity period within which goods are required to be delivered to the depots of the Corporation.
The period generally varies from 3 to 4 days. Clause 10.1 of the Liquor Policy provides that the supply of liquor to the Corporation against OFS shall be construed as an agreement to sell under section 4(3) of the Sale of Goods Act, 1930. It provides that the stock of liquor lying unsold for a period of over six months shall be drained out by the Corporation.
A person desiring to sell liquor in the State of Bihar is also required to enter into a Master Agreement with the Corporation in terms of the Liquor Policy.
The Master Agreement provides that the quantity of beer to be procured and distributed shall be determined by the Corporation from time to time keeping in view the demand of beer supplied by the manufacturer and the manufacturer has to bottle, seal, pack, load, transport, unload and stock the beer at the depots of the Corporation at its cost and risk.
Delivery has to be in line with the OFS placed by the Corporation and shall be completed within the period specified by the Corporation. The Corporation also has the right to forthwith terminate any or all OFS placed on the manufacturer and forfeit the deposits on certain conditions.
The manufacturer has to deliver the beer at a price indicated by the Corporation but payment for the beer delivered shall be made only after the disposal of beer.
Carlsberg established depots in the State of Bihar and obtained Wholesale License 19C. Clause 5A of the License requires Carlsberg to maintain a minimum stock of liquor at its depots in the State of Bihar as prescribed by the Commissioner from time to time and to recoup the stock within seven days in case the stock goes below the minimum limits.
Carlsberg alleged that in order to comply with the requirement of maintaining a minimum stock of beer at the local depots in the State of Bihar and also to ensure delivery of beer to the Corporation within the validity period prescribed in the OFS, it effected inter-state stock transfers of beer from its factory in the State of Rajasthan to its depots in the State of Bihar from time to time through Form-F, depending on an estimated market demand.
In pursuance of the OFS placed by the Corporation on the local depots of Carlsberg in the State of Bihar, the goods were sold from the said depots to the Corporation. Accordingly, Carlsberg treated transfer of beer from its factory in the State of Rajasthan to its depots in the State of Bihar as stock-transfer. Carlsberg believed that such movement of goods was not occasioned by reason of any sale agreement.
The sale of goods from its depots in the State of Bihar to the Corporation in terms of the OFS issued by the Corporation was treated by Carlsberg as local sale in the State of Bihar, on which local VAT at the rate of 50% was paid.
The State of Rajasthan treated the movement as one arising out of inter-state supply of goods, while the appellants treated it as inter-state stock transfers.
Arguments
The assessee argued that the terms of the Liquor Policy, the Master Agreement and the Licence issued to the appellants leave no manner of doubt that the appellants had stock transferred beer from the manufacturing units situated in the State of Rajasthan to their depots in the State of Bihar or the State of Jharkhand.
The assessee contended that Movement of goods did not occur from the State of Rajasthan to the State of Bihar or the State of Jharkhand in pursuance to the Master Agreement, incidental or otherwise.
The department contended that even though the movement of goods seems to have two limbs, namely, movement from the factory of the appellants in the State of Rajasthan to the depots of the appellants in the State of Bihar or the State of Jharkhand and the movement from the depots of the appellants to the Corporations in the State of Bihar or the State of Jharkhand, but, in fact, there is only one movement from the factory of the appellants in the State of Rajasthan to the depots of the Corporations in the State of Bihar or the State of Jharkhand. The two limbs are only a mechanism devised to facilitate the transfer.
The department contended that the liquor manufactured by the appellants and sold to the Corporation could only be under the aforesaid Policy and on the terms contained in it. The Policy indisputably contemplates supply to be made from the factory of the appellants situated in the State of Rajasthan. In such a situation, the contract of supply must be deemed to have contained a covenant that the goods would be supplied in the two States from a place situated outside the State. A sale under such a contract would clearly be an inter-state sale as defined in section 3(a) of the Central Sales Tax Act.
Conclusion – Sales Tax Demand On Movement Of Liquor
The tribunal noted that the Master Agreement merely grants an option to the Corporation to purchase goods at a subsequent date as and when required by the Corporation. The Corporation does not actually purchase or agree to purchase beer from the appellants under the Master Agreement. If the Corporation does not place OFS on the appellants, the latter cannot sue the Corporation for damages because the Master Agreement has not been breached. There is no binding obligation that the Corporation has to purchase the goods under the Master Agreement. The Master Agreement, therefore, cannot be treated to be an agreement to sell.
The court quashed the order passed by the Rajasthan Tax Board.
The tribunal allowed all the fourteen appeals filed by the appellants namely Carlsberg, United Breweries and Mount Shivalik.
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Sales Tax Demand On Movement Of Liquor Valid or Not?
The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed the sales tax demand on movement of liquor from manufacturing units in Rajasthan to depots in Bihar and Jharkhand.
Case Details
Case Title: M/s Carlsberg India Pvt. Ltd. v/s The State of Rajasthan
Case No.: Central Sales Tax Appeal No. 21 Of 2014
Date: 21.10.2024
Counsel For Appellant: B.L. Narasimhan and Dhruv Tiwari
Counsel For Respondent: Arijit Prasad, Senior Advocate
