A. Section 6A of Central Sales Tax Act, 1956 – Stock / Branch Transfer
The amendment to several Sections of the Central Sales Tax Act, 1956 (in short ‘CST Act’) through The Finance Act, 2002 has caused a lot of uncertainty, confusion and definitely large-scale litigations. The changes reflected in The Finance Act 2002 and their consequential amendment to the CST Act has far reaching business implications on certain specified nature of transactions. In fact, the settled position of Central Sales Tax Laws on such transactions has invited a thorough re-look and has lead to litigations. In this paper we have attempted to bring out the issues relating to the mandatory requirement of Form F in respect of stock transfers effected under the CST Act.
II. Objects of Section 6A of the CST Act, 1956
1. The presumptions in law have a very vital role and the legislature has the power vested in it to presume certain things under certain circumstances. In this backdrop Section 6-A of the CST Act is in exercise of such power by the Parliament of India. The said Section 6A was inserted in the CST Act by CST (Amendment Act) 1972 with the following objects:
a. “Central Sales tax is not leviable in respect of transactions of transfer of goods from a head office (or a principal) to branch (or an agent) or vice-versa as these transactions do not amount to sales. This aids evasion, in that the dealers try to reflect even genuine sales to third parties as transactions of this nature.
Accordingly it is proposed to provide that the burden of proving that the transfer of goods in such cases is “otherwise than by way of sale” shall lie on the dealer who claims exemption from tax on the ground that there was in fact no sale.”
b. The situation stands since altered by the Finance Act 2002, which inserted the words “and if the
dealer fails to furnish such declarations, then the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale.”
2. It has resulted in a controversy that the relevant declaration in Form F (in short ‘Form F’) has now become mandatory and the transaction of stock transfer or consignment sale duly supported by the evidence of transportation and other documents will now be taxable as sales if Form F is not furnished.
3. Section 6A of the CST Act provides that where the dealer claims that he is not liable to pay tax in respect of the goods sent as aforesaid to another State i.e., to his own place of business or to his agent or to his principal, on the ground that the movement of goods was not by reason of sale, then the burden of proving that the movement of goods was so occasioned, is on the dealer. It may be noted that this Section applies only in those cases where the movement of good is to the place of business of the dealer in another State or to his agent or principal in another State.
4. The Section has no applicability where the goods are sent to another State for purposes other than those enumerated in Section 6A of the CST Act, 1956 (say for instance an inter-State sale). However, its amendment in 2002 will apply, only when the goods are sent by a dealer to another State to the dealer’s own place ofbusiness or to his agent or where the dealer is an agent to the place of his principal.
III. Legislative enactment
Section 6A was inserted by Central Sales Tax (Amendment) Act, 1972 (61 of 1972), with effect from 1st April, 1973. Section 6A of the CST Act stood amended with effect from 11.05.2002 and the relevant part of the amended Section reads thus:
“And if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of the Act to have been occasioned as a result of sale”.
The Finance Act, 2002 (20 of 2002) dated 11.05.2002 sought to amend Section 6A so as to make it compulsory, the furnishing of Form F together with the evidence by the dealer and authorizing levy of tax in cases where the dealer fails to furnish Form F. Thus by virtue of the amendment, the production of Form F and proof of movement of goods by dispatching branch to its assessing authority has been made mandatory.
IV. Effective date of the amendment
There was some confusion and guesses with regard to the effective date from which the amendment came into force. There were a few experts who opined that it will be effective from 01.04.2002 when the Financial Year commences, some others said it is 11.05.2002 when the President gave his assent and still others who opined that it was 13.05.2002 when the amendments were officially published in the Gazette of India as Act no. 20 of 2002. However, the Finance Act, 2002 does not specify the effective date or date of enforcement.
In this scenario, we are inclined to fall back on Section 5 of The General Clauses Act which reads “where any Central Act is not expressed to come into operation on a particular day, then it shall come into operation on the date on which it receives the assent of the President”. Thus, by relying on The General Clauses Act, we are of the view that the correct date on which the amendment takes effect would be 11.05.2002.
V. Stock Transfer
Section 6A of the CST Act relating to movement of goods otherwise than by way of sale (viz., Stock transfers / Consignment sales), had been amended to make the furnishing of declaration in From-F together with an evidence of dispatch of such goods mandatory. In the event such evidence together with declaration in Form-F is not furnished, the transaction will be treated as a sale in the course of inter-State trade or commerce and subjected to tax accordingly.
Thus, it will now be imperative for dealers to produce proof such as, LRs, RRs, Courier receipts, Airway bills etc., along with Form F to claim such transactions as exempt from payment of tax.
It must be borne in mind that in respect of transfers effected from branch to head office / head office to branches / branches to other branches / consignment agents etc., the transit documents assume significance. That is the relevant column in the transit document such as LR / RR / Courier receipts / Airway bills etc., the consignor / consignee columns must be correctly and properly filled in with addresses of the branches / head office / agents etc. In case such particulars are incorrectly filled in by the transporter there is every possibility of the assessing authority rejecting such evidence and fastening the burden of tax on the dispatching dealer.
It would also be advisable for the receiving branch / head office / agent to maintain the relevant records and documents relating to movement of goods such as
LR / RR / Courier receipts / Airway bills etc., together with stock transfer memos and clearly indicate such particulars in the Form F to be furnished to the dispatch entity. Such receiving branch / head office / agent are also required to maintain such other records viz., stock registers, transport register, sales / purchase registers, general ledger / cash or bank book etc.
VI. Burden of Proof
From the language employed in Section 6A of the CST Act it is clear that the provisions are merely procedural. It has shifted the burden of proof on the dealer in case of transfer of goods claimed otherwise than by way of sale – Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer.
For this purpose he may furnish to the assessing authority, a declaration in form F along with the evidence of dispatch of such goods. However, the latter part of the Section mandates the requirement of Form F / evidence of movement of goods. Up to 10.05.2002 furnishing of Form F is not mandatory and alternative evidence can be furnished to the satisfaction of the assessing authority.
Attention is invited to the mode / method of filling in the prescribed Form F. The following particulars are to be correctly and completely filled in:
1. Name and address of the
transferor and his RC no.
2. Description, quantity and value of goods (market value or prevailing market price);
3. Stock transfer memo no. / date etc.,
4. Transporter details (if space is insufficient copies of such document can be attached)
5. Date of taking delivery by the transferee
6. Signature and designation of the
VII. Prescription of Form “F”
a. In terms of sub-Rule 5 of Rule 12 of the CST (R&T) Rules, 1957, the declaration with respect to branch transfer shall be in Form ‘F’. A single Form ‘F’ could be used that may cover transfer of goods, by a dealer, to any other place of his business or to his agent or principal, as the case may be, effected during a period of one calendar month.
b. If the space provided in the Form ‘F’ is not sufficient for making entries, the dealer may provide an annexure in this regard and the authorised signatory should duly sign such annexure.
c. Form F shall be obtained by the transferee in the State in which the goods covered by such Form are delivered.
d. In terms of sub-Rule (7) of Rule 12 of the CST (R&T) Rules, 1957, the declarations in Form F should be filed within 3 months from the end of the month to which it relates. If the prescribed authority is satisfied that the person concerned was prevented by sufficient cause from furnishing such declaration within the aforesaid time, that authority may allow such declaration to be furnished within such further time as that authority may permit.
VIII. Non furnishing of Form F – whether transaction can be subjected to tax
In the event of non-furnishing of Form F together with the evidence of movement of goods the assessing authority is at liberty to treat such movement as an inter-State sale under Section 3(a) of the CST Act and subject such transactions to tax in terms of Section 8 of the CST Act at full rate of tax. Whether such a levy is possible and to what extent the amendments are proper is a question that remains to be answered. To the best of my knowledge, as on date, there are no precedents on this issue. In order to subject such stock transfers to the levy of tax let us examine the possibilities in various scenarios.
Scenario 1 – In light of the relevant definitions
a. In order to constitute a “Sale” in terms of Section 4 “The Sale of Goods Act” all the following conditions should be cumulatively present:
• A bargain or agreement of sale;
• The payment or promise of payment of price in cash;
• The delivery of goods, and
• The transfer of property (title) from the seller to the buyer
PS: The Indian Contract Act comprising Sections 76 to 123 was repealed by the Sale of Goods Act, 1930.
The amended definition of sale in terms of Section 2(g) of the CST Act, does not take within its sweep and ambit, or provide for a scenario to treat such transactions (where Form F is not furnished) as a sale.
In the background of the definition of the word “sale” under the Sales of Goods Act and the CST Act:
• Whether one can sell goods to himself or whether there can be a deemed transfer of property from one branch to another? [In our opinion – NO]
• Whether branches / units / divisions have independent existence apart from the Company itself? [In our opinion – NO]
PS: It would be of interest to note that Section 2(h) and 2(j) of the Karnataka Profession tax Act / AP Profession Tax Act carries an explanation to the definition of the word “Person” which reads “every branch of a firm, company, corporation or other corporate body, society, club or association shall be deemed to be a person.
By inserting the above explanation the AP and Karnataka States sought to levy profession tax on branches separately. This matter was carried before the High Court. The Honourable AP High Court in the case of
Karnataka Bank Limited v. State of AP (125 STC 48) held that “Although the State Legislature is not competent to impose profession tax at a rate more than Rs. 2,500 per person per annum by virtue of the ceiling contained in article 276(2) of the Constitution, the Legislature is competent to enact a fiction in the definition of “person” that every branch of a firm, company, corporation or other corporate body, any society, club or association shall be deemed to be a person. The effect of the Explanation to the definition of the term “person” in Section 2(j) of the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987, as well as Explanation I of the First Schedule to the Act as amended by Act 29 of 1996 is not to tax a person at a rate higher than Rs. 2,500 per year, but to treat even a branch of a firm, company, corporation or other corporate body, any society, club or association, as a separate person and a separate “assessee” within the meaning of Section 2(b) of the Act. This the Legislature was competent to do. Therefore, the Explanation to the definition of the term “person” in Section 2(j) of the Act as well as Explanation I of the First Schedule to the Act as amended by Act 29 of 1996 are valid and are not violative of article 276(2) of the Constitution.
[Similar amendments are not forthcoming in any of the definition clauses of the CST Act.]
• Whether the ingredients constituting a sale under the provisions of Section 4 of the Sale of Goods Act are cumulatively fulfilled? [In our opinion – NO]
Scenario 2 –Formulation of the principles of inter-State sale in accordance with Section 3 of the CST Act
A sale or purchase of goods is deemed to take place in the course of inter-State trade or commerce, inter-alia, if the sale or purchase:
• occasions the movement of goods from one State to another; or
• is effected by a transfer of documents of titles to the goods during their movement from one State to another.
It may be noted that the words “sale occasions movement” means goods moved by reason of sale. A sale can occasion the movement of goods only when the terms of sale provide that the goods would be moved i.e., when the contract of sale so provides. The principles relating to inter-State transactions were enunciated by the Supreme Court in
Oil India v. Supt. of Taxes-35 STC 445, TISCO v. S.R.Sarkar-11 STC 655, Amritsagar Mills v. CST – 17 STC 405, etc., From a study of these cases the following points emerge:
• The inter-State movement must be as a result of a covenant, express or implied in the contract of sale or in an incident of the contract;
• It is not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself;
• It would be enough if the movement was in pursuance of and incidental to the contract of sale;
• Passing of property is not relevant. The locale of the goods within the State at the time of sale or later at the time of appropriation is to be regarded;
• Where the transaction is inside that State and yet be causing the goods to move, it would be inter-State sale.
Movement of goods pursuant to stock transfers do not fall within the scope and ambit of any of the above principles formulated by the Apex Court and do not satisfy the conditions stipulated in Section 3 of the CST Act. [Thus even on this count, in our opinion stock transfers cannot be treated as sales and subjected to tax on account of non filing of Form F].
Scenario 3 – Legislative Enactment
The Parliament is empowered to levy tax under CST Act, vide Article 246 of the Constitution of India under the following entries listed in the Seventh Schedule of the Union List:
• Entry 92A relating to taxes on sale or purchase of goods (other than newspaper) where such sale or purchase takes place in the course of inter-State trade or commerce.
• Entry 92B relating to taxes on the Consignment of goods, where such consignment takes place in the course of inter-State trade or commerce.
Article 269(3) of the Indian Constitution provides for formulation of principles for levy of tax on sale or purchase of goods (other than newspaper) or for consignment of goods, in the course of inter-State trade or commerce, to be levied and collected by the Government of India, but assigned to the States in which the tax is leviable. Chapter II of the CST Act, as on date has not formulated any principle to levy tax on such transactions not covered by the declaration in Form F. As such, subjecting stock transfers not covered by Form F will be ultra vires Article 269 of the Constitution of India.
[Thus, in our opinion stock transfers cannot be treated as sales and subjected to tax on account of non filing of Form F].
Scenario 4 – Pre v. Post amendment
Up to 10.05.2002 furnishing of Form-F was not mandatory, and the dealer was permitted to discharge the burden of proof of such movement by any other alternative evidence convincing the Assessing Authority. This was on the premise that, what is taxable is a “sale” and not mere movement and further sub Section (1) to Section 6A uses the word “may” and not “shall”. Section 6A of the CST Act merely prescribes a mode of proof and its effect is that if a dispatching dealer can produce a “Form F” in terms of the Section read with Rule 12 of the CST (R & T) Rules, the assessing authority shall not insist on production of any other evidence. Thus, a dealer was left with the option of proving it by any other method if he so desires that the movement was occasioned as a result of transfer of goods to branch or agent. The facts cited in the above paras have been upheld in the following cases:
• CST v. Agra Food products Pvt Ltd., (67 STC 266)
• State of Orissa v. Orissa Small Industries Corporation (67 STC 262)
• Sree Hanuman Rice Mill v. State of Orissa (70 STC 316)
• State of Orissa v. RamnarayanSitaram (68 STC 153)
• VijayaMohini Mills v. State of Kerala (75 STC 63)
In the case of SheoSankar Trading Co v. State of Orissa (50 STC 389)(Orissa), it was held that “the assessee was entitled to prove that the goods had so moved on the basis of his books of account without production of the declaration form”. However, in the post amendment scenario the Section mandates the requirement of Form F / evidence of movement of goods. Upto 10.05.2002 furnishing of Form F is not mandatory and alternative evidence can be furnished to the satisfaction of the assessing authority.
The amendment effective 11.05.2002 reads “……..and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale”. How far such deeming intendment stands the test of law before Tribunals and Courts is anybody’s guess. In my view reference to “all purposes of this Act” would include central sales tax also. Without prejudice to this fact, and in spite of the amendment, in my view, the dealer will be entitled to claim exemption if he is able to establish with evidences that such movement was not as a result of sale. This is because:
Section 6A provides only a Rule of evidence and such Rule of evidence cannot override the statutory provision of the levy of tax. The Honourable Supreme Court in the case of Bimal Chanda Banerjee v. State of Madhya Pradesh (81 ITR 105) observed:
“that the basis of statutory power conferred by the statute (which includes Constitutional law) cannot be transgressed by the rule making authority. A rule making authority has no plenary power and has to act within the power granted to it”.
It appears that these observations of the Apex Court run counter to the provisions of Section 6A of the CST Act. Further the word “may” still continues to exist in Section 6A of the CST Act, which implies that even post amendment it is possible to interpret that the dealer will be permitted to choose to discharge the burden of movement not on account of sale by alternative methods. It may be noted that stock transfers and movement of goods not on account of sale cannot be subjected to tax till the provisions of consignment tax specified in sub-clause (h) in clause (1) of Article 269 of the Constitution are implemented and the Parliament formulates the principles for determining when such transactions take place in the course of inter-State trade or commerce as provided in Article 269(3) of the Constitution.
Scenario 5 – Unregistered dealers – compliance of statutory evidence of Form F
The main Rule 12(6) of the CST (R&T) Rules, 1957 talks of Form C and Form F which shall be those obtained by the purchasing dealer in which the goods are delivered. Attention is invited to the Explanation to sub-Rule 6 of Rule 12 to the CST (R&T) Rules 1957 wherein the said Explanation speaks of Form C which can be issued by a dealer in the State in which he is registered, if for any reason, he is not able to issue Form C in the State where the goods are delivered. It may be noted that the Explanation is silent about Form F.
It therefore necessarily implies that Form F can be obtained even by un-registered dealers in the State (where there is no compulsion to register), in which the goods are delivered. If this is not the meaning, then the question that arises is whether the fundamental right of an unregistered dealer to carry on business will be affected since he is not compulsorily required to register.
We are given to understand that Surat in Gujarat does not require a dealer in Textiles to get compulsorily registered under the local or CST Act. What happens when say – A textile dealer in Hyderabad dispatches goods to his branch office in Surat, Gujarat. Is the Surat dealer required to issue Form F to the consignor in Hyderabad under the amended provisions? If yes, how does he obtain the prescribed Form F from the prescribed officer in Surat, Gujarat since he is neither registered nor he is required to mandatorily register?
Scenario 6 – Issue of Form F in case of goods not listed in RC
Any registered dealer under the local and CST Act are bound to include the goods to be imported from other States or sale / export to other States or out of Country. One school of thought is such inclusion for the purpose of purchase would ipso facto apply to stock transfers under Section 6A of the CST Act. Therefore, there is no necessity to specifically include goods that are stock transferred and Form F is free from such restriction / prohibition. Since there is no such restriction a dealer say – in coffee may well issue Form F in respect of Tea received by way of stock transfers although Tea has not been listed in the certificate of registration in Form B. The other school of thought is that non-inclusion of goods in the certificate of registration would necessarily contemplate penal consequences under Section 10(a) of the CST Act.
Scenario 7 – Issue of Form C in case of a branch unable to issue Form F
It appears that certain dealers who do not declare stock transfer amounts in their returns are unable to obtain Form F from their assessing authorities. The question is whether such dealers can issue Form C from Delhi to the consignor branches to reduce the incidence of the levy of tax?
On a combined reading of Section 8(1), 8(3) & 8(4) of the CST Act, the question of issue of Form C for stock transfers does not arise since there is no sale involved in respect of inter-branch movement of goods. In the event of issue of Form C, consequential penalties under Section 10 / 10A of the CST Act automatically flow.
IX. Stock transfer treated as inter-State sale
1. If the movement of goods to branch is occasioned on account of sale, the movement to branch will be treated as inter-State sale. The following case laws throws light on the said type of transaction
a. Electric Construction and Equipment Co. Ltd.77 STC 424 (P&H) – The Honourable Punjab and Haryana High Court held the following
‘When the movement of goods from one State to another is an incident of the contract of sale, it is a sale in the course of inter-State trade falling under section 3(a) of the Central Sales Tax Act, 1956 and it does not matter in which State the property in the goods passes. The decisive circumstance is whether the sale is one which occasions the movement of goods from one State to another.
The applicant-dealer manufactured electrical equipments including transformers at its factory at Sonepat in the State of Haryana. Its head office was at Delhi and it had branch offices at Rajpura in Punjab and other places. The Punjab State Electricity Board placed two purchase orders. After manufacture of the transformers at Sonepat, these were despatched to the branch office at Rajpura to be made ready for delivery by filling with oil and fixing of copper thimbles, arcing horns, silicagel breathers and name-plates. The dealers claimed exemption from payment of Central sales tax on the transformers supplied to its Rajpura branch on the ground that they were branch transfers. The claim was rejected and Central sales tax was levied. This was confirmed by the first and second appellate authorities.’
b. Hyderabad Engineering Industries 39 VST 257 (SC)
– The Honourable Supreme Court held the following
‘When the sale or agreement for sale causes or has the effect of occasioning the movement of goods from one State to another, irrespective of whether the movement of goods is provided for in the contract of sale or not, or when the order is placed with any branch office or the head office, which resulted in the movement of goods, irrespective of whether the property in the goods passed in one State or the other, if the effect of such sale is to have the movement of goods from one State to another, an inter-State sale would ensue and would result in exigibility to tax under section 3(a) of the Central Sales Tax Act, 1956, on the turnover of such transaction. It is only when the turnover relates to sale or purchase of goods during the course of inter-State trade or commerce that it would be taxable under the Central Act.
The assessee claimed exemption in respect of turnover of stocks transferred to depot outside the State. Under an agreement, Usha International Ltd., had agreed to purchase the products and sell them as an independent principal. The assessee had its godown in every State including Delhi. Pursuant to sales agreement, Usha International Ltd. placed monthly indents on the assessee with instructions to dispatch the goods of given size and quantity to the named destination, and the assessee dispatched the goods to its godowns to the given destination and sent goods dispatch intimation directly to the concerned Usha International Ltd. divisional office at the destination, furnishing size and quantity dispatched with lorry receipt number and name of the transport company:
Held, that it did not matter how much goods were delivered to the branch office which just acted as a conduit pipe before goods ultimately reached the purchaser’s hands. All that mattered was that the movement of the goods was in pursuance of the contract of sale or as a necessary incident to the sale itself. The movement of goods from the assessee’s factory to its various godowns situated in different parts of the country was pursuant to “sales agreement” coupled with “forecasts” which were nothing but “indents” or firm orders. Therefore, the transaction between the assessee and its branch offices was a clear case of inter-State sales and not branch transfers.
The inter-State movement must be the result of a sale or an incident of the contract: it is not necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement. It is also not necessary for a sale to be deemed to have taken place in the course of inter-State trade or commerce, that the covenant regarding inter-State movement must be specified in the contract itself: it would be enough if the movement was in pursuance of and incidental to the contract of sale.’
2. If goods are dispatched and delivered directly to buyers outside State without unloading at seller’s depot will be treated as inter-State sale. The Honourable Madhya Pradesh High Court in the case of Sanghi Beverages Private Limited 106 STC 358 held the following
‘When the movement of goods from one State to another is an incident of the contract of sale then it is a sale in the course of inter-State trade falling under section 3(a) of the Central Sales Tax Act, 1956. It does not matter in which State the property in the goods passes. What is in fact decisive is whether the sale is one which occasions the movement of goods from one State to another. The inter-State movement must be the result of a covenant, express or implied in the contract of sale or an incident of the contract. It is not at all necessary that the sale must precede the inter-State movement in order that the sale may be deemed to have occasioned such movement.
Held accordingly, that where goods were directly despatched to buyers in other States and were not unloaded at the seller’s depot but delivered to the buyers, the transactions constituted inter-State sales.’
X. Levy of CST – Job Work related issues
1. It is clear from the wording of Section 6A of the CST Act, 1956 cited supra that it applies only in the following circumstances:
(a) when the goods are sent inter-State to one’s principal place of business in other State or to one’s agent or one’s principal; and
(b) the inter-State movement of goods from one State to the other is otherwise than as sale.
2. It is made clear that both the above conditions should be cumulatively satisfied before the provisions of Section 6A of the CST Act stand attracted. The Honourable Allahabad High Court in Ambica Steels Ltd. 12 VST 216 (ALL HC DB)] has held that “Form F is required to be issued even if goods are sent outside the State for job work or repairs on returnable basis. The facts and judgement in brief are as follows:
M/s Ambica Steels Limited filed writ petitions challenging the circular dated November 28, 2005 issued by the Commissioner of Trade Tax, U.P. mentioning that under Section 6A of the CST Act, 1956 Form F is required to be filed in respect of all transfer of goods which are otherwise than by way of sale including goods sent or received for jobwork & returned of it. Unfortunately the petition filed by the M/S Ambica Steel Ltd was dismissed and U.P. High Court while dismissing the petition held that;
Section 6 of the Central Sales Tax Act, 1956 is the charging Section creating liability to tax on inter-State sales and by reason of Section 6A(2) a legal fiction has been created for the purpose of the Act that transaction has occasioned otherwise than as a result of sale. Section 6A puts the burden of proof on the person claiming transfer of goods otherwise than by way of sale and not liable to tax under the Central Act. The burden would be on dealer to show that movement of the goods had been occasioned not by reason of any transaction involving any sale of goods but by reason of transfer of such goods to any other place of business or to the agent or principal, as the case may be, for which the dealer is required to furnish prescribed declaration form. If the dealer fails to furnish such declaration, by reason of legal fiction, such movement of goods would be deemed for all purposes of the Act to have been occasioned as a result of sale. The submission that the transactions, where the goods are sent for job work or received for doing job work, do not amount to sale would depend upon the contract entered into between the parties and would be the subject-matter of examination by the assessing authority. Even otherwise, under Section 2(g)(ii) of the Central Act, transfer of goods used in execution of works contract is treated to be a sale.
If the petitioner claims that it is not liable to tax on transfer of goods from U. P. to a place outside State then it would have to discharge the burden placed upon it under Section 6A by filing declaration in form F. It would be immaterial whether the person to whom the goods are sent for or received after job work is a bailee. The requirement to file declaration in form F is applicable in cases of even goods sent for job work and returned thereof.
Being aggrieved by the above decision Ambica Steels Ltd filed a Civil Appeal before the Hon’ble Supreme Court which held that – Since the assessee has requested time for filing of declaration in Form F, the issue raised could not be decided on merits. However the decision of Allahabad High Court stands and by virtue of the said High Court decision, filing of Form F is mandatory unless the issue is decided otherwise by Allahabad High Court or Apex Court.Hence declaration in Form F has become mandatory.
3. In such a case it will be practically impossible for the job worker or the person doing the repair work to get the relevant Form F from the sales tax department as he is not registered with the sales tax department. This will badly effect inter-State movement of goods, which will be violative of Article 301 as well as of freedom of trade guaranteed under Article 19(1)(g) of the Constitution of India. In my considered view, this interpretation of Section 6A by Allahabad High Court in the above case needs reconsideration as it involves a lot of practical difficulties. In any case where two interpretations are possible, the one which does not violate the provisions of Constitutional mandate should be followed.
4. In case goods are sent inter-State for job work or for repair outside the State then the movement of goods takes place otherwise than as sales. A pure job work or repair work does not come under the ambit of tax as there is no transfer of property in goods and therefore, the job worker he will not be required to get registered under CST Act or concerned State VAT Act.
However, the relationship between the job worker and the owner of the goods is not of Principal-Agent but that of Principal to Principal. In this context the question of Form F may not arise at all. However, the decision of the Allahabad High Court cited supra, comes in the way. It is for this reason that we stated earlier that the issues need re-consideration.
5. However, in the case of
A.C.P.L.Jewels Private Limited 39 VST 44, the Honourable Allahabad High Court held the following after considering the judgement of the Honourable Supreme Court in the case of Ambica Steels Limited discussed supra –
‘We have taken into account the submissions, the judgment of the Supreme Court dated March 31, 2009, arising out of the judgment of the Division Bench of this court in Ambica Steels  12 VST 216 as well as the circular letter issued by the Commissioner, Trade Tax Departmentdated June 26, 2009, and consequently without going into the merits of the challenge to the vires of section 6A of the Act or other submissions, we dispose of all the writ petitions with the following directions:
In all the cases, in which transactions of job-work and goods returned are involved, the assessment orders only to the extent that the tax was imposed on such transactions for want of form F of the Central sales tax are set aside. The petitioners will appear and submit before the assessing authority a certified copy of this judgment in six weeks to complete the assessment proceedings with regard to such transactions only, on its own merits, after examining the transactions between the parties, and keeping in mind that the assessee is not in a position to obtain form F for no fault of his; and
In the cases where the assessee has been subjected to reassessment proceedings in which the transactions of job-work and goods-returned are involved, the reassessment orders only to the extent that the tax was imposed on such transaction/s for want of form F of the Central sales taxare set aside. The assessee will appear before the reassessing authority and submit a certified copy of this judgment in six weeks, to complete the reassessment proceedings in respect of such transactions only, on its own merits after examining the transactions between the parties, keeping in mind the findings recorded earlier on such transactions, and also that the assessee is not in a position to obtain form F, for no fault of his.’
6. Following the decision of A.C.P.L.Jewels Private Limited 39 VST 44, the Honourable Allahabad High Court in the case of
Noida Offset Printers Association & Others 2013 (12) TMI 502 held the following
‘It is always open to the petitioners to satisfy the assessing authority by any cogent evidence other than the certificate of the assessing officer of the place where the business place of the principal is situate or Form-F of the Central Sales Tax Act that the goods imported in the State of U.P. were brought in only for job work and that the finished goods were returned to the principals outside the State of U.P.
We need not adjudicate the issue all over again as the issue has already been decided by this Court. It will be open to the petitioners to satisfy the assessing authority, if the assessments are pending in reassessments proceedings, or before the appellate authority that the petitioners had only carried out the job work on the imported goods and returned goods imported in the State, to its principals outside the State.
With these observations the application is disposed of.’
XI. Prosecution for giving false declaration in Form – F
If any person furnishes a false declaration in Form – F, then in terms of Section 10(a) of the CST Act such person shall be punishable with simple imprisonment which may extend to six months, or with fine, or with both; and when the offence is a continuing offence, with a daily fine which may extend to fifty rupees for every day during which the offence continues.
B. Export Sales – Section 5(3) of CST Act, 1956 – Penultimate sale exemption in relation to export
1. The following 3 conditions to be fulfilled for claim of exemption under Section 5(3) of the CST Act, 1956
• The transaction of such last sale or purchase takes place after the agreement or pursuant to the order received by the exporter from his foreign buyer;
• The last purchase is of goods, which are exported. The section refers to “those goods”;
• The transaction of such last sale or purchase was entered into for the purpose of complying with the agreement or order received by the exporter from his foreign buyer.
If the three conditions are satisfied the transactions fall under section 5(3) of the CST Act, and such preceding sale is entitled to exemption under that section. The main controversy in this section is in relation to the words “those goods”. An inextricable link is required between sale of goods to the buyer and its actual export by the buyer. The following cases laws will help in understanding the meaning of the word ‘those goods’.
a. Sterling Foods (63 STC 239)(SC) – When raw Shrimps, Prawns and Lobsters are subjected to the process of cutting, peeling, freezing etc.. They do not cease to be Shrimps, Prawns and Lobsters. Both are commercially the same commodities.
b. Ram Bahadur P Ltd. (80 STC 199)(Madras) –
Expression “those goods” in Section 5(3) of the CST Act, does not mean “such goods”. It is sufficient if identity of goods is not lost. Coffee beans purchased by a registered Coffee Exporter from Coffee Board pursuant to order for export of Coffee powder roasting and grinding of beans before export does not result in the emergence of a new commodity. Exemption available under CST Act, Section 5.
c. Lakshmi Rice Mills (87 STC 31)(P & H) – Purchase of Paddy and export after producing rice – paddy and rice are different marketable commodities. Purchase tax on Paddy is not exempt.
d. Same goods purchased should be exported though they need not be in same form
Kalaish Nath 8 STC 358 (SC) – Assessee purchased cotton cloth and it was exported after dyeing and printing. It was held that the cloth exported remains the same cloth which was purchased despite the change in colour of cloth by printing and processing.
Azad Coach Builders 36 VST 1 – Exporter (manufacturer of bus chassis) sent chassis to dealer for supply of bus bodies. The body was fitted on chassis and then whole bus was exported. Held that if there is an inextricable connection between sale of goods to the buyer and its actual export by the buyer, it will be ‘sale in the course of export’. In such case, the ‘same goods’ theory has no application.
2. The exemption under Section 5(3) is available to the penultimate seller only if the dealer furnishes a certificate in Form H issued by the exporter. Whether furnishing of certificate in Form H is sufficient compliance is discussed below:
a. Rule 12(10)(a) of CST Rules, 1957 prior to 14.07.2005 – The Rule prior to 14.07.2005 read as under –
“a dealer may, in support of his claim that he is not liable to pay tax under this Act in respect of any sale of goods on the ground that the sale of such goods is a sale in the course of export out of the territory of India within the meaning of sub-Section (3) of Section 5, furnish to the prescribed authority a certificate in Form H duly filled and signed by the exporter
along with the evidence of export of such goods.”
Therefore, in terms of the above Rule upto 14.07.2005 along with certificate in Form-H, evidence of export of goods needs to be provided. The Honourable Karnataka High Court in the case of
A.R.Associates 122 STC 134 held the following
‘The appellants claimed exemption in respect of a consignment of coffee beans supplied to R by producing the requisite form H and the bills of lading to prove that the goods were exported. This was disallowed by the assessing authority by an order dated April 17, 1996 on the ground that the assessee-appellant had failed to establish the factum of export within the framework of the requirement of section 5(3) of the Central Sales Tax Act, 1956 read with rule 12(10)(a) of the Central Sales Tax (Registration and Turnover) Rules, 1957. Theappellants thereafter preferred an appeal which was allowed by the appellate authority by the order dated August 23, 1996. The revisional authority thereafter issued notice to the appellants indicating its intention to review the order in question. The appellants did not appear before the revisional authority and by an order dated May 15, 1997 the revisional authority set aside the appellate order dated August 23, 1996. In appeal assailing correctness of the order:
Held, dismissing the appeal, that from a reading of the requirement of section 5(3) of the Central Sales Tax Act read with rule 12(10)(a) of the Central Sales Tax (Registration and Turnover) Rules, 1957 it is clear that it is insufficient for the assessee to merely produce the form ‘H’ and the bill of lading because the most important evidence that is required to be produced as per the requirements of law is the export agreement. The purpose behind the insistance of this provision is in order to ensure that there was not only in existence a valid agreement for export and an order but also to be able to identify the particular export goods and to establish a link or nexus between those goods and the export agreement. Non-fulfilment of those requirements will be fatal to the case of the appellant. There is no ground for interference with the revisional order.’
b. Rule 12(10)(a) of CST Rules, 1957 effective 14.07.2005 – The Rule effective 14.07.2005 read as under-
“the declaration referred to in sub Section (4) of Section 5 shall be in Form H and shall be furnished to the prescribed authority upto the time of assessment by the first assessing authority”.
On a plain reading of the amended position, it becomes clear that the requirement of filing evidence of export of goods is not mandatory on and from 14.07.2005. Whereas filing of the declaration in Form H is mandatory. The Honourable Madras High Court in the case of V. Win Garments 42 VST 330 held the following-
‘ The petitioner-dealer, a manufacturer of hosiery goods, sought exemption on the basis of form H, for the transaction effected outside India. The dealer also produced documents such as bills of lading to prove the transactions but did not produce the copy of the agreement entered into by the dealer with the foreign buyers. The assessing authority denied the claim of the dealer. On a writ petition:
Held, allowing the petition, that what is required on the part of the dealer is to prove the factum of the transaction and once he is able to do so with sufficient and satisfactory documents, the value thereof is exempt from tax liability and no rule says it is mandatory to produce the agreement with the foreign buyers. That being so, the failure on the part of the assessing authority to consider the documents already produced by the dealer and to pass appropriate orders in the light thereof amounted to non-application of mind. The order passed by the Additional Deputy Commercial Tax Officer was to be set aside and the matter remanded with a direction to decide the matter afresh in the light of form H and other documents available on record and fresh documents if any produced by the dealer.’
The Circular No. KSA. CR. 198/11-12 dated 16.12.2011 issued by the Office of Commissioner of Commercial Taxes states that, subsequent to amendment of Rule 12(10)(a) of CST (R&T) Rules from 14.07.2005, it is not required to produce proof of exports and the decision of Honorable High Court of Karnataka in the case of A. R. Associates Vs. Commissioner of Commercial Taxes is not applicable as it relates to the law prevailed to the period prior to the amendment. The said Circular is reproduced below:
“With reference to the above, it is informed that CST (R&T) Rules 12(10))a) which existed prior to 13-07-2005 has been amended from 14-07-2005 by substituting a different provision which does not require production of evidence of exports. The decision of the Hon’ble High Court relied upon in case of A.R. Associates Vs. Commissioner of Commercial Taxes (2001) No. 122 STC 134 (Kar) relates to the earlier rule which existed upto 14-7-2005. Hence this decision is not applicable to Rule substituted with effect from 14-07-2005.Hence, you are here by instructed to take action in terms of the amended provision of Rule 12(10)(a) of CST (R&T) Rules.”
The information contained in this write up are the views of the paper writer and is not intended to address the facts and circumstances of any particular individual or entity. There can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
Every effort has been made to avoid errors or omissions in this write-up. In-spite of this, errors may have crept in. Any mistake, error or discrepancy noted may be brought to the notice of the paper writers.
[Source: Article published in Souvenir of National Tax Conference held at Darjeeling on 18th and 19th April, 2015.]
S. Venkataramani & Siddeshwar Yelamali