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Issues in Inter-state transfer
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Q.1. A dealer transfers goods
from Maharashtra to his site in Gujarat State and fabricates the materials to
be used in the contract at such place. The issues are as under:
(i) Whether the dealer will be required to obtain ‘F’ form for such transfer.
(ii) Whether he can get registration in Gujarat though he has no place of
business in Gujarat.
(iii) Whether above transfer can be liable to CST in Maharashtra as well as
local tax in Gujarat?
Ans. The issues are required to be seen in light of provisions of section 6A
and the principles of inter-state sales contained in section 3(a) of CST Act,
1956.
Section 6A of CST Act, 1956 reads as under.
“6A. Burden of proof, etc. in case of transfer of goods claimed otherwise by
way of sale. – (1) 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 and for this purpose he may furnish to the assessing authority, within
the prescribed time or within such further time as that authority may, for
sufficient cause, permit, a declaration, duly filled and signed by the
principal officer of the other place of business, or his agent, or principal,
as the case may be, containing the prescribed particulars in the prescribed
form obtained from the prescribed authority, along with the evidence of
despatch of such goods 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.”
Thus if the transfer is to the place of business of the dealer then ‘F’ form
is required. The term ‘place of business’ is defined as under, in section
2(dd) of CST Act, 1956.
“[(dd)”place of business” includes –
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in any case where a dealer
carries on business through an agent (by whatever name called), the place of
business of such agent;
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a warehouse, godown or
other place where a dealer stores his goods; and
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a place where a dealer
keeps his books of account;]”
The term ‘warehouse’ is
further defined in Rule 2(e) of CST (R & T) Rules, 1957 as under.
“(e) ‘warehouse’ means any
enclosure, building or vessel in which a dealer keeps a stock of goods for
sale.”
It can be seen that storing of goods for sale is also a place of business.
When the materials transferred to the site are fabricated into finished goods
for use, it can be said that there is storing of goods for sale. As such it
becomes the place of business.
The transfer of goods will thus be considered to be at place of business,
requiring ‘F’ form.
Normally in every State there is facility of granting Registration on Non
Resident basis; i.e., on the basis of address in other State.
A registration can be obtained on above basis on Maharashtra address.
For an inter-State sale the movement of the goods should be of the same goods
which are subject matter of sale. This position is clear from provisions of
section 3(a) of CST Act read with catena of judgments. Attention can be had to
judgment of Supreme Court in Sahaney Steel & Pressing Works (60 STC 301)(SC).
On given facts it appears that the raw materials are being transferred to site
where the finished goods, to be used in contract, will be manufactured.
Under above circumstances there is no movement of goods from Maharashtra which
are subject matter of sale and hence the question of attracting section 3(a)
does not arise. The transfer is branch transfer, not liable to tax in
Maharashtra, subject to production of ‘F’ form. The sale will be local sale in
Gujarat.
Inter-state Works Contracts
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The works contractor in
Gujarat has a contract outside the State; i.e., in A.P.. The dealer effects
purchases in A.P. and uses there in the contract. However dealer transfers his
equipments and machineries from Gujarat to A.P. for use in execution. After
the work is over the above equipments are retransferred to Gujarat. Whether
‘F’ form formalities are required in relation to above transfers.
Ans. The reply again depends upon the provisions of section 6A of CST Act,
1956. The said section is already reproduced above. It can be seen that the
section has not distinguished between the nature of goods transferred. There
is no warrant to say that for transfer of capital goods, ‘F’ form is not
required. The section suggests that any transfer of goods to other State, if
not supported by ‘F’ form, will be deemed to be sale. Therefore even for
transfer of capital goods also the ‘F’ form formalities will be necessary.
Inter-state Branch Transfer
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The H.O. in Maharashtra
dispatches goods to his place of business in M.P.. However the branch is not
in position to issue ‘F’ form to H.O. and hence the transfer is going to be
deemed as inter-State sale as per section 6A. Whether the legislature has
power to deem such transfers as inter-State sale? If yes, whether the branch
can issue ‘C’ form so as to lower the liability to tax?
Ans. The issue is very pertinent. Under CST Act the Parliament has power to
levy tax on ‘sale’. The meaning of sale is well understood by number of
judgments including Gannon Dunkerly & Co. (9 STC 353). In light of above
judgments, unless there are two separate entities as seller/purchaser no sale
transaction can take place. Therefore apparently on branch transfers the
Parliament cannot levy tax under CST Act, 1956, there being no sale as per
statutory meaning. Under Constitution by separate entry in List I, the
Parliament has power to levy tax on consignments also. However the said power
is separate and Parliament can exercise the same by enacting a separate
Legislation for said purpose. When tax is sought to be levied on branch
transfers, as deemed sale, in my opinion, the said levy is not Constitutional.
However till the law is challenged and the position is got clarified from
proper courts, the above section will be a binding section and the
transactions will be deemed to be sale in absence of ‘F’ form.
The next issue is about receipt of ‘C’ forms. As clear from the above section
6A on failure to produce ‘F’ form the transaction is deemed to be sale.
The deemed provisions bring the transaction at par with any other normal sale
transactions and all the incidents of sale will get attracted here also. Like
a normal sale can be effected against ‘C’ form, this deemed sale can also be
against ‘C’ form. Accordingly ‘C’ forms received from branch can be valid for
such deemed sales.
Registration across the State
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The dealer was not registered
in other State when he transferred the goods to such state. He got
registration subsequently and obtained ‘F’ forms. Can the dealer issue ‘F’
form even for the transfers which have taken place prior to such date of
registration.
Ans. The provisions regarding issue of ‘F’ forms, are not like ‘C’ form. In
case of ‘C’ form it is necessary that the dealer, willing to issue ‘C’ form,
should be a registered dealer at the time of purchase though ‘C’ form may be
issued subsequently. ‘F’ form only requires that it should be issued by a
registered dealer. However there is no requirement that on date of transfer he
should be a registered dealer.
Under above circumstances, ‘F’ form can be issued even for unregistered
period. The above position is also duly settled by Madras High Court in case
of State of Tamil Nadu vs. Cocoa Products & Beverages Ltd. (109 STC 634)(Mad).
In that case Hon. Madras High Court has held that the ‘F’ form can be issued
even for unregistered period also. In view of same the ‘F’ forms can be issued
for transfers which have taken place prior to date of registration.
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