Telangana High Court Rules inter-state "Stock Transfers" Based on Dealer Orders are Taxable Sales.

The Telangana High Court dismissed the Writ petitions filed by Ms Mahindra & Mahindra challenging the levying of Central Sales Tax on movement of Vehicles between two states.

The impugned assessment orders, levied Central Sales Tax on the movement of vehicles from Mahindra & Mahindra's Zaheerabad manufacturing unit to Regional Sales Offices (RSOs) in different States. The petitioner company contended that the transactions were not inter-State sales under Section 3(a) but a branch stock transfers, and are exempted under Section 6A of the Central Sales Tax Act, 1956.

The Commercial Taxes Department, however, treated the transactions as inter-State sales on the ground that the movement of vehicles was occasioned by pre-existing dealer orders routed through the company's Advance Planning Optimization (APO) system.

The Court examined whether the movement of vehicles from the petitioner's manufacturing unit to its branches in other States constituted exempt branch transfers under Section 6A of the Central Sales Tax Act, 1956, or taxable inter-State sales under Section 3(a) of the Act.

The High Court held that the petitioner's "Advance Planning Optimization" (APO) and "Rolling plan" mechanism was not merely a sales forecast, but in substance, it was an indent or purchase order originating from dealer demand. The evidence revealed that dealers placed orders with advance payments through the respective branches, which were consolidated into APOs and directly triggered the manufacture and dispatch of vehicles from the Zaheerabad (Telangana) unit. This established a direct nexus between the dealer orders and the inter-State movement of goods, satisfying the requirements of Section 3(a) of the CST Act.

The High Court further held that production of Form F declarations does not automatically establish a branch transfer. The statutory presumption arising from Form F is rebuttable, and where the material demonstrates that the movement of goods was occasioned by a pre-existing contract of sale, the transaction constitutes an inter-State sale. The audit trail shows a direct causal link between specific demand and dispatch and the exemption claimed under Section 6A was rightly denied.

Dismissing both writ petitions, the High Court upheld the assessment orders, holding that the impugned transactions were taxable inter-State sales under Section 3(a) of the Central Sales Tax Act, 1956, and that the levy of tax was neither illegal nor without jurisdiction.

Coram: Justice P. Sam Koshy and Justice Narsing Rao Nandikonda