1. There are disputes all over India relating to the appeals filed under Section 18-A of the Central Sales Tax Act, 1956. The assessing officers are passing composite orders in relation to the declarations produced and not produced, which lead to such disputes. Since there are no specific orders under Section 6, 6-A (1) and 6-A (2) of the Act, the dealers are filing appeals against the entire order directly to the Tribunal. The Revenue naturally raises objection for such filing on the ground of maintainability. We propose to discuss the correct position of law in this regard. The scheme of the CST Act, 1956 qua Branch Transfers is discussed here in below.

2. “Sale” has been defined under Clause (g) of Section 2 to mean any transfer of property in goods by one person to another…. . Thus, if there is no transfer of property to another, there is no sale. Section 6 of the CST Act, 1956 is the charging section and the tax under that Section can be levied on the sales i.e. transfer of property in goods to another person.

3. Commercially, the dealers themselves do not always effect transfer of property in goods to another person. They do it either through their Branches, Depots, RSOs (Regional Sales Offices), Consignment Agents etc. The dispatch of goods by such dealers to their Depots etc. is commercially called Branch Transfer or Stock Transfer. Such Depots, RSOs may be within a particular State or may be out side that State. In either case the tax is not leviable u/s 6 of the Act, since one cannot sale to oneself.

4. However, u/s 6-A a rule of evidence has been incorporated. If such Branch Transfer or transfer to an Agent or Principal is effected from a particular State to other States and if the dealer claims that he is not liable to pay tax due to such transfer, a burden is cast on the dealer, under sub- section (1) of 6-A to support such transfer by furnishing to the authority a declaration in form F. Such Form F certifies the description, quantity or weight and value of goods received by the recipient in other State. However, if such declaration is not furnished by the dealer/assessee to the assessing officer then the Act under that sub-section (1) of Section 6-A has incorporated a deeming fiction to hold the same as an Inter-State Sale.

5. If the assessing officer to whom such declarations have been furnished, after making enquiry is satisfied that the particulars in such declarations are true and no inter-State sales have been effected then the law requires such assessing officer to pass an order under in sub-section (2) of Section 6-A to make an order to that effect.

6. Sub- section (3) empowers the assessing authority to reassess or higher authority to revise, the order already made under sub-section (2), if subsequently, contrary facts are found.

7. If the person is aggrieved by an order passed under sub-section (1) of Section 6-A, an appeal is provided under Section 9(2) of the CST Act,1956 read with the State Act.

8. If the person is aggrieved by an order passed under sub-section (2) or sub-section (3) of Section 6 –A then, Section 18 A empowers the aggrieved person to approach the highest appellate authority of the State (Tribunal) by filing an appeal under sub-section (1) of the said Section 18 A. Any incidental issues like rate of tax, computation of assessable turnover and penalty etc. may be raised before such authority.

9. Under sub-section (5) of Section 18 A, the said authority is empowered to stay the recovery, after considering the fact of the taxes paid in other States.

10. The Supreme Court of India in the case of Ashok Leyland Limited v. The State of Tamil Nadu and Another, (2004) 134 STC 473has explained the law relating to the Branch Transfer Vs. Inter-State sale in detail. The mechanism provided under Section 18 A is the result of this judgment. The relevant observations of the Hon’ble Court are reproduced below:

    On Page 498

‘32. The history of legislation as also constitutional amendments in relation to inter-State movement of goods has been noticed in State of A.P. etc v. National Thermal Power Corpn. Ltd.* (2002) 5 SCC 203 and as such it may not be necessary to reiterate the same once over again.

SECTION 6-A OF THE CENTRAL ACT:

Prior to amendment of section 6-A of the Central Act, filing of form F was optional. The dealer was, thus, entitled either to file such form or not to file the same. Only because such form is not filed, the same would not mean that the dealer was prohibited from raising a plea that stock of transfer from his head office to regional offices or regional sales offices has taken place. It was entitled to plead that by reason of such transactions which are intra-organisation, sale was not occasioned by movement of goods. The question which was required to be posed and answered by the assessing authority was, thus, required to be confined only to the fact as to whether any sale has occasioned by movement of goods or not. In other words, an exception had been made to the concept of inter-State sale by invoking the provisions of the Central Act; when such movement of goods was by way of transfer of stock; in terms whereof no tax under the Central Act was payable. Indisputably determination of such a question at the hands of the assessing authority was required for arriving at a finding of fact as to whether the Central sales tax or the local sales tax would become payable. The States, where manufacturing of goods takes place in case involving such nature of transaction, presumably would like to invoke the provisions of the Central sales tax as in terms of article 270 of the Constitution of India despite the fact that the Central sales tax is payable to the Central Government, the amount is invariably passed on to the State concerned. On the other hand, the purchaser when it is a public sector undertaking, would like to see that the purchase and sale takes place within the State so as to entitle the concerned State to collect the local sales tax, a rate therefor would normally be higher. There, thus, exists conflict in interest of the States particularly having regard to the financial crunches faced by them.

33.. Having regard to the Statement of Objects and Reasons of the Central Sales Tax Act vis-a-vis the recommendations made by the law commission, as referred to hereinbefore, it would appear that the Parliament with a view to bring in expediency in such a matter so that the dispute can be determined as expeditiously as possible amended section 6-A. Section 6 of the Act provides for liability to tax on inter-State sales in terms whereof every dealer is liable to pay tax thereunder on sales effected by him in the course of inter-State trade or commerce subject to the exception contained in the proviso appended thereto. Such tax would be leviable notwithstanding the fact that no tax is leviable either on seller or the purchaser under the State tax laws of the appropriate State if that sale had taken place inside the State.

34.. The liability to tax on inter-State sale as contained in section 6 is expressly made subject to the other provisions contained in the Act. Sub-section (2) of section 9, on the other hand, which is a procedural provision starts with the words “subject to the other provisions of this Act and the rules made thereunder”. Section 6-A provides for exception as regard the burden of proof in the event a claim is made that transfer of goods had taken place otherwise than by way of sale. Indisputably, the burden would be on the dealer to show that the movement of goods had occasioned not by reason of any transaction involving sale of goods but by reason of transfer of such goods to any other place of his business or to his agent or principal, as the case may be. For the purpose of discharge of such burden of proof, the dealer is required to furnish to the assessing authority within the prescribed time a declaration duly filled and signed by the principal officer of the other place of business or his agent or principal. Such declaration would contain the prescribed particulars in the prescribed form obtained from the prescribed authority. Along with such declaration, the dealer is required to furnish the evidence of such dispatch of goods by reason of Act 20 of 2002. In the event, if it fails to furnish such declaration, by reason of legal fiction, such movement of goods would be deemed for all purposes of the said Act to have occasioned as a result of sale. Such declaration indisputably is to be filed in form F. The said form is to be filled in triplicate. The prescribed authority of the transferee State supplies the said form. The original of the said form is to be filed with the transferor State and the duplicate thereof is to be filed before the authorities of the transferee State whereas the counter-foil is to be preserved by the person where the agent or principal of the place of business of the company is situated.

35.. When the dealer furnishes the original of form F to its assessing authority, an enquiry is required to be held. Such enquiry is held by the assessing authority himself. He may pass an order on such declaration before the assessment or along with the assessment. Once an order in terms of sub-section (2) of section 6-A of the Central Act is passed, the transactions involved therein would go out of the purview of the Central Act. In other words, in relation to such transactions, a finding is arrived at that they are not subjected to the provisions of the Central Sales Tax Act. It is not in dispute there- under no appeal is provided thereagainst.

36…………………………….

37. By reason of sub-section (2) of section 6-A, a legal fiction has been created for the purpose of the said Act to the effect that transaction has occasioned otherwise than as a result of sale.

On an analysis of the aforementioned provisions, therefore, the following propositions of law emerge:

(i) The initial burden of proof is on the dealer to show that the movement has occasioned by reason of transfer of such goods which is otherwise than by reason of sale. The assessee may file a declaration.

On a declaration so filed an inquiry is to be made by the assessing authority for the purpose of passing an order on arriving at a satisfaction that movement of goods has occasioned otherwise than as a result of sale.

(ii) Whenever such an order is passed, a legal fiction is created.

Legal fiction, as is well-known, must be given its full effect.’

11. Thus, for non-production of Form-F, Sub-section (1) of Section 6-A contemplates a specific order. Kindly see the following portion of Section 6-A (1).

    ‘and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purpose of this Act to have been occasioned as a result of sale.’

    Such order is to be passed u/s 9(2) of the CST Act, 1956 read with the State Act. The interest and/ or penalty pertaining to such default is also to be assessed u/s 9(2) of the CST Act,1956 read with MVAT Act,2002.

12. If the declarations in form F are produced and those are found to be defective or found to be not as per the prescription of Rule 12 of the CST Rules,1957, even in such cases the order is required to be made as per Section 6-A (1) as if the declarations have not been furnished.

13. However, if the declarations in Form F, complete in all respects are furnished, the Stock transfers covered by the same are either to be allowed or the assessing authority after due enquiry should give a finding of back-to-back transfer amounting to an inter-State sale. An appeal against the same is required to be filed u/s 18A directly to the Tribunal.

14. The author must also record here that for non-production of C-Forms the levy of tax is contemplated u/s 6 of the CST Act,1956 read with Section 8 of that Act. An order pertaining to the allowance or disallowance of such sales against C Forms is also required to be passed u/s 9(2) read with the State Act. The interest and/ or penalty pertaining to such default is also to be assessed u/s 9(2) of the CST Act,1956 read with the State Act. .

15. In all the cases of non-production of declarations or production of defective declarations, Section 18-A of the CST Act, 1956 is not relevant.

16. Section 9 (2) of the CST Act,1956 in clear terms states that it is subject to other provisions of that Act. Thus, if an appeal against an order passed u/s 6A (2) is provided u/s 18-A of the Act then no appeal lies u/s 9(2) read with the State Act.

17. The assessing officer is expected to pass two orders. One order relating to the allowance /disallowance of declarations /certificates. Second order should be u/s 6A(2) of that Act wherein tax could be levied on the interstate movement of goods despite being production of declarations. The offences relating to ‘non-production of declarations and offences relating to ‘Branch transfers amounting to interstate sale’ are different. The assessing officer is expected to apply his mind to the mens rea or guilty mind involved in committing such offences. The penalty can’t be composite. The Interest u/s 9(2) read with Section 30(3) should also be levied independently. The reason being the appeal against the order relating to disallowance of declarations would go to first appellate authority and an appeal against the order passed u/s 6A (2) would go directly to the Tribunal. The Second appeal against an order passed u/s 9(2) would go to the Tribunal and the Second appeal against an order passed u/s 18-A would go to the Central Sales Tax Appellate Tribunal at Delhi. This being the position in law, the Parliament has consciously specified two separate appellate powers for the orders passed u/s 6A (2) and the order passed u/s 9(2).

18. Kindly now see Section 18-A of the CST Act, 1956. The said Section commences with non obstante clause. It clearly says that notwithstanding anything contained in a State Act an appeal against an order passed under sub-section (2) of Section 6A is to be filed to the Highest Appellate Authority of the State i.e. the Tribunal. Thus, the State Act cannot be pressed into service for appeals against the orders passed u/s 6A (2). It is to be used for all other orders.

19. Section 18-A has provided independent mechanism for order passed under sub -section (2) of Section 6A. Any dispute relating to the rate of tax, penalty etc. imposed in such order passed under sub-section (2) of Section 6A has also to be raised in that appeal u/s 18-A of the Act.

20. Sub-section (5) of Section 18-A is again the non obstante provision and it gives discretion to the Tribunal to determine the pre deposit considering the taxes paid in the other States, wherein the stock transferred goods are sold.

21. The Larger Bench of the Supreme Court of India has elaborately explained the provisions of Sections 6A, 9 etc. in their Lordships’ judgement in Ashok Leyland Ltd. Vs. State of Tamil Nadu and another, Judgement dated 07.01.2004. The author has already explained this judgment. The mechanism enacted u/s 18-A was provided by the Parliament in the year 2010 by Act No. 14 of 2010.

22. Let us now see the judgement in Tropicana Beverages. This judgement of the Karnataka High Court reported in (2012) 54 VST 472(KARN) is relevant to the controversy under consideration. In this case, the appellant had submitted to the assessing authority the declarations in Form-F received by them from different States. The assessing authority granted the exemption in respect of the amounts which were covered by the Form-F and called upon assessee to pay taxes in respect of transfer of stock which was not supported by Form-F. Thus, the assessing authority proceeded to pass order under Sec. 9(2) of CST Act, 1956. The appellant filed appeal against the assessment order so passed Under Sec. 62 of the Karnataka Value Added Tax Act, 2003[read with Sec 9(2) of The CST Act,1956]. However, the appellate authority dismissed the appeal on the ground that it was not maintainable in view of Sec. 18A (1) of CST Act.

    On these facts, the Hon’ble Karnataka High Court held that the impugned order of the Tribunal saying that the appeal, which was validly preferred against an order u/s 9 (2) of the CST Act, as not maintainable in view of Sec. 18-A (1) of the Act was not proper.

23. The author submits that in view of discussion made herein above, the readers must have been convinced that there is no other alternative for the assessing officer but to pass two separate orders, one u/s 9 (2) of the CST Act, 1956 and another u/s 18-A of that Act. Such orders will avoid confusion and enable the dealers to approach proper forum for redressal.