From the language employed
under section 6A of the CST Act, 1956, 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
10-5-2002 furnishing of Form F was 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:
Name and address of the
transferor and his RC No.;
Description, quantity and
value of goods;
Stock transfer memo No./date
etc.;
Transporter details (if space
is insufficient copies of such document can be attached);
Date of taking delivery by
the transferee;
Signature and designation of
the transferee.
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. 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
-
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 India 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 my opinion – NO]
-
Whether branches / units
/ divisions have independent existence apart from the company itself? [In
my opinion – NO]
PS: It would be of interest
to note that sections 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 Hon’ble AP High Court in the case of Karnataka Bank Limited vs.
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.
[To the best of my knowledge
the matters are now pending hearing before the Hon’ble Supreme Court vide SLP
Nos. 22694/200]. Similar amendments are not forthcoming in any of the
definition clauses of the CST Act.
Scenario 2 – Formulation
of the principles of interstate 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 vs. Supt. of Taxes-35 STC
445, TISCO vs. S.R. Sarkar–11 STC 655, Amritsagar Mills vs. 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 my
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 my opinion stock transfers cannot
be treated as sales and subjected to tax on account of non filing of Form F].
Scenario 4 – Pre vs. post
amendment
Up to 10-5-2002 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 vs. Agra Food Products
Pvt Ltd., (67 STC 266)
-
Sree Hanuman Rice Mill vs.
State of Orissa (70 STC 216)
-
State of Orissa vs. Orissa
Small Industries Corporation (67 STC 262)
-
State of Orissa vs
Ramnarayan Sitaram (68 STC 153)
-
Vijaya Mohini Mills vs
State of Kerala (75 STC 63)
In the case of Sheo Sankar
Trading Co vs. 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. Up to 10-5-2002 furnishing of Form F is not mandatory
and alternative evidence can be furnished to the satisfaction of the assessing
authority.
The amendment effective
14-11-2002 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 provide only a
rule of evidence and such rule of evidence cannot override the statutory
provision of the levy of tax. The Hon’ble Supreme Court in the case of Bimal
Chanda Banerjee vs. 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 unregistered 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.
I am 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 is he 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 Acts 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
sections 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.