Query 1

1. One of my client’s is holding Entitlement Certificate and carries on activities of manufacture of cottonseed oil, cottonseed oil cake and gad from out of sarki (cottonseed).

2. Cotton seed i.e. raw material is taxable, while oil and gad are taxable and cottonseed oil cake is tax free;

3. In the circumstances, as to whether my client is entitled to full set-off or will be entitled to set off only on raw material i.e. sarki (cotton-seed) proportionally used in the manufacture of cotton-seed and gad.

Kindly enlighten me in view of latest decision of M. P. High Court in the case of Ruchi Soya vs. State of M. P. and Others (2014) 70 VST 40 (MP) in which their Lordship of M. P. High Court have held that entire set-off is allowable on raw material in the circumstances of the case. In the said case, decision of Supreme Court has been also referred on identical issue and it had been held that the assessee is entitled to full set-off.

The photocopy of judgment is submitted herewith for ready reference.

In the circumstances, I may kindly be enlightened as to whether my client will be entitled to full set-off or proportionally to the extent of manufacture of cotton seed oil and gad.

Kindly enlighten me along with case law, circular, notification and provisions of law and particularly in view of the provision contained in Sec. 55(f), 57(2), Sec. 88, Rules 79, 80, 81(2)(f)(g), Rule 81(3), Rule 91 and other relevant section and rule.

My client is a small manufacturer and holds Entitlement Certificate under 1993 scheme.


As per Rule 53(2)(a) if there is manufacture of tax free goods then set-off reduction is applicable. In the present case oil and gad are taxable commodities. The oil cake i.e. sarki pend will be tax free item and therefore, set-off reduction might have been attracted. However, by Explanation – in Rule 53(2)(a) sarki pend is not to be considered as tax free item i.e. it is treated as taxable item. Therefore, there will not by any reduction in the present case and full set-off will be eligible.

‘F’ Form

Query 2

There are several Ltd. companies having registered office at Mumbai and having VAT and CST TIN numbers and filing NIL returns because they do not have any sale or purchase in the State of Maharashtra.

These companies are having manufacturing units at Himachal Pradesh and Uttarakhand and all the sales are effected from that end, because they have excise and VAT benefits in those States.

On purchase side they have large quantity of imports of raw materials which are imported at Mumbai port. The orders are placed to foreign exporters in the name of factories, bills of lading are also shown the address of the factory – the goods are cleared by clearing agents on behalf of factories the dispatches from Mumbai to factories are also by, clearing agents as consignor and factories as consignee. Custom duty is also paid directly by clearing agents in their name on behalf of the factories.

The only work done by Mumbai office is to finance the clearing agents and keep an account of total payments and even the payment to foreign parties is made through L/C etc. by the Mumbai office.

Now some intelligent people in the department feels that these are imports by Mumbai office and transfer to factories in other States and mischief of Section 6A of the CST Act 1956 is attracted and they want ‘F’ Form.

If we follow their advice then we have to show imports in Mumbai return and show these transfers as Branch transfers and obtain monthly ‘F’ Form from the factories and similar returns are to be filed in other states.

At present factories, we are showing direct imports.

Now query is –

1. Whether this objection of the department at Mumbai is correct and the dealer at Mumbai should start filing return accordingly.

2. Any case law.

3. In case we do not adopt the system of ‘F’ Form collection, then what is risk factor?

4. Generally.


Section 6A of the CST Act contemplates to obtain ‘F’ Forms from the transferee. The said section reads as under;

“S. 6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.-

(1) Where any dealer claims that the 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 dispatch 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, the ‘F’ Form requirement can arise, where there is transfer of goods from one branch to another branch or from principal to agent etc.

On the given facts, it appears that the goods are meant for outside places and the whole import documents are accordingly in the name of branch. It appears that the imported goods are unloaded at Mumbai port for onward journey as there is no direct port facility for given outside places. The goods are also directly moving from port to factory. Under above circumstances, the import material is reaching to the factory place in other State and it is import by factory. It cannot be said that there is transfer by Maharashtra branch to other branch. Therefore, requirement of Section 6A cannot apply. However, after clearing goods are stored by the branch in Maharashtra and then dispatched as per convenience then probably requirement for ‘F’ Form will arise but not otherwise.

C. B. Thakar

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