Kimberly Clark's Goods Movement To Other States Was Stock Transfer, Not Inter-State Sale: CESTAT New Delhi

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has held that Kimberly Clark Lever Pvt. Ltd.'s movement of goods from Maharashtra to its depots in other States for subsequent sales amounted to stock transfers and not inter-State sales liable to Central Sales Tax.

A bench of President Justice Dilip Gupta and Technical Member P.V. Subba Rao observed that the agreement between Kimberly Clark and Hindustan Lever Limited was merely a broad framework or standing offer, with the contract of sale arising only when specific purchase orders were placed.

“The inevitable conclusion, therefore, that follows from the aforesaid discussion is that the transfer of goods from the State of Maharashtra to the Buffer Depots and Satellite Depots in other States is by way stock transfer and cannot be treated as inter-State sale under section 3(a) of the Central Sales Tax Act.”

The issue before the Tribunal was whether the movement of sanitary napkins and baby diapers from Maharashtra to the company's depots in other States under its arrangement with Hindustan Lever Limited constituted inter-State sales liable to Central Sales Tax, or stock transfers supported by Form-F declarations.

The appellant contended that goods were first moved to depots for inventory replenishment based on estimated market demand and that sales took place only later when specific purchase orders were placed by Hindustan Lever Limited, Canteen Stores Department and other buyers.

It was also argued that the goods at the depots formed part of a mixed and unascertained inventory pool and were not earmarked for any particular buyer at the time of movement.

The Maharashtra Sales Tax authorities had treated the movement of goods as pre-determined inter-State sales and raised CST demands running into crores, contending that the arrangement reflected a pre-existing sales arrangement.

However, the Tribunal disagreed and held that the movement of goods was not occasioned by any prior contract of sale.

It noted that the agreement did not specify quantity, product specification, or determinative price and merely provided a commercial framework.

The tribunal further observed that appropriation of goods occurred only after placement and acceptance of purchase orders at the depot level.

Relying upon decisions including BASF India, Coromandel Paints and Carlsberg India, the Tribunal held that framework arrangements or open purchase orders without specification of quantity or binding obligation cannot be treated as contracts of sale so as to attract levy of Central Sales Tax as inter-State sales.

The tribunal also held that Form-F declarations could not be rejected merely because lorry receipt numbers or vehicle details were not mentioned when supporting transport documents were otherwise available on record.

Accordingly, the tribunal set aside the Maharashtra Sales Tax Tribunal's orders and allowed both appeals filed by Kimberly Clark Lever Pvt. Ltd.

For Appellant: Advocates Naresh Thacker, Kumar Visalaksh, Supreme Kothari, Udit Jain and Vibhor Sharma

For Respondent: Advocates Rama Ahluwalia for the State of Maharashtra