Movement of Goods to Depots for Inventory Replenishment Can’t Be Treated as Inter-State Sale: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that the movement of goods by Kimberly Clark Lever Pvt. Ltd. from Maharashtra to its depots across different States for inventory replenishment cannot automatically be treated as inter-State sales merely because a broader distribution arrangement existed with Hindustan Lever Limited (HLL). The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that for a transaction to qualify as an inter-State sale under Section 3(a), movement of goods from one State to another must occur because of a prior contract of sale. Mere stock movement between branches or depots of the same entity cannot be treated as an inter-State sale. The dispute revolved around assessment years 2005–06 and 2008–09, where the tax authorities had denied the company's claim of stock transfer exemptions supported by Form-F declarations and treated the transactions as pre-determined inter-State sales under Section 3(a) of the Central Sales Tax Act. The authorities had consequently raised substantial CST demands running into more than ₹31 crore. Kimberly Clark Lever manufactures products such as Kotex sanitary napkins and Huggies baby diapers and distributes them through a pan-India logistics network consisting of Buffer Depots and Satellite Depots. The company had entered into a Distribution and Consignment Agreement with Hindustan Lever Limited in 1995 and later executed a Memorandum of Understanding (MOU) in 2000 that altered certain operational arrangements. The Maharashtra tax authorities and the Sales Tax Tribunal had taken the view that the MOU effectively created a sale arrangement between Kimberly Clark and HLL. According to the department, once the agreement contemplated sales to HLL, movement of goods from Maharashtra itself became movement pursuant to a prior agreement of sale, thereby satisfying the conditions of inter-State sale under Section 3(a) of the CST Act. The authorities also observed that a large proportion of products—about 97%—were sold to HLL and concluded that the depots merely acted as “conduit pipes” for executing pre-determined sales. Kimberly Clark challenged this interpretation and argued that goods moved initially to depots solely for inventory and replenishment purposes based on market estimates. The company submitted that actual sales occurred only after specific purchase orders were received and accepted at the depot level. It contended that the agreement with HLL merely established a commercial framework and did not itself create a binding sale contract. The Tribunal carefully examined the Agreement and MOU and observed that they did not specify essential elements necessary to create a concluded contract of sale, such as quantities, specific products, or determinative prices. Instead, purchase orders were subsequently placed from the depot level, and those purchase orders constituted the actual contracts of sale. CESTAT emphasized that movement of goods from manufacturing units to Buffer and Satellite Depots was undertaken under stock transfer notes and lorry receipts, with the company itself remaining both consignor and consignee. The goods reached depots and entered a common inventory pool before any specific appropriation occurred. Sales took place later from these depots under local VAT laws. The Tribunal relied heavily upon earlier judicial precedents, particularly the Karnataka High Court judgment in BASF India Ltd., where so-called “open purchase orders” were treated merely as standing offers rather than binding contracts. CESTAT observed that an arrangement without specific quantities or fixed obligations does not amount to a concluded sale agreement. Distinguishing decisions cited by the State authorities, including Hyderabad Engineering, English Electric, Oil India, and IDL Chemicals, the Tribunal noted that those cases involved specific binding contracts under which goods moved pursuant to clearly identified customer orders. In Kimberly Clark’s case, goods moved for inventory purposes and not because of any existing contractual obligation requiring movement. The Tribunal also granted relief concerning Form-F declarations for assessment year 2008–09. The authorities had rejected certain forms due to procedural deficiencies such as absence of lorry receipt numbers and vehicle details. CESTAT held that such defects were merely technical in nature because the company possessed lorry receipts and other valid evidence proving movement of goods. Therefore, Form-F declarations could not be rejected solely on minor procedural lapses. CESTAT set aside the Maharashtra Sales Tax Tribunal's orders and allowed both appeals filed by Kimberly Clark Lever Pvt. Ltd., holding that the movement of goods from Maharashtra to Buffer Depots and Satellite Depots constituted stock transfers rather than inter-State sales under Section 3(a) of the CST Act. Case Details Case Title: M/s. Kimberly Clark Lever Pvt. Ltd. Versus The State of Maharashtra Citation: JURISHOUR-1349-CES-2026(DEL) Case No.: Central Sales Tax Appeal No. 12 Of 2015 Date: 22/05/2026 Counsel For Appellant: Naresh Thacker Counsel For Respondent: C. Kranthi Kumar Click Here To Read Order Read More: Customs Broker Can’t Be Penalised for Export of Ergotamine Preparation; S. 117 Not Invocable Where Specific Penalty Provision Exists: CESTAT

Movement of Goods to Depots for Inventory Replenishment Can’t Be Treated as Inter-State Sale: CESTAT

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