TMI Blog2007 (10) TMI 560X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfers to Pune, etc., were excluded from the taxable turnover under the Central Sales Tax Act, 1956 (hereafter referred to as, the CST Act ). It is not in dispute that in respect of such stock transfers to Pune, sales tax was paid to the Maharashtra State on the footing that local sales were effected in Pune by the branch. The assessment orders were passed accordingly for the four assessment years under section 9(2) of the CST Act read with rule 18(3) of the Karnataka Sales Tax Rules, 1957. Subsequently, it appears that the Deputy Commissioner, CT (Intelligence-I) South Zone, along with his team of officials inspected the office premises at the Bhadravati factory premises and its Bangalore office. The report together with the relevant material obtained as a result of the inspection were sent to the assessing authority concerned. The assessing officer thereupon issued a notice for reopening the assessments by issuing show cause notices in that behalf on December 6, 1997. Having overruled the objections of the appellant/assessee, the assessing authority (Deputy Commissioner, C.T.) passed reassessment orders on March 5, 1998 under section 9(2) of the CST Act read with section 12A(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een impleaded as a party in this appeal. The case of the appellant as set out in its reply to the show cause and in the memo of appeal is that the goods manufactured and stock-transferred were standard goods and not meant for specific customers, that no firm orders were received before the inter-State movement, that the goods were sent to the branches on stock transfer basis for the purpose of enabling the branches to effect local sales and it is the branch that appropriated the goods and sold the same to the customers in Maharashtra. It was also contended that reopening of assessment on mere change of opinion was not permitted in view of the provisions of section 6A(2) of the CST Act as the stock transfers evidenced by F forms were accepted by the original assessing authority. The case of the Karnataka Sales Tax Department is that direct inter-State sales to the customers in Maharashtra were camouflaged as stock transfers to the Pune branch and this fact had come to light when an inspection was made by the officials of the intelligence wing in the year 1996 and therefore the assessments were reopened. The assessing officer, Pune, who is a party before us supports the stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scrutiny of the exhibits DI to DXII and exhibit 1 to 8 revealed that the order for supply of steel has been placed by Patheja Group of Industries, Bharath Forge Ltd., and ISMT, etc., all from Pune and to meet the order placed, the goods came to be manufactured and the same were transferred to branch at Pune stock yard on stock transfer basis and subsequently sold to the customer fulfilling the pre-existing contract with the branch. The goods lying either at VISL, Bhadravathi, or at branch stock yard at Pune is not on account of either head office or the branch but on account of customers who placed the orders. This clearly shows that there is clear nexus between the inter-State movement of the goods from Bhadravathi and sale to the customer at Pune by the Pune branch. The facts of the case leads one to the inescapable conclusion that the transaction in question is a clear case of inter-State sale. The concrete examples given by the appellate authority bring out the factual position in nut-shell. In one of the illustrations given, the appellate authority narrated in sequence the details relating to the order (exhibit B-36) placed on the Bangalore office by M/S. Patheja Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasers. However, they are delivered through its branch office situated at Pune and the said branch has also made some other activities like receiving of sale price, etc., as an intermediary. But on the basis of the same, it is not possible to say that the nature of the transactions is changed from inter-State sales to stock transfers as contended by the appellant, since the head office and the branch office are one and the same entity in the eye of law. The Tribunal then concluded that there was escapement of turnover due to non-disclosure of the same by the appellant-company and therefore the assessing authority had rightly resorted to reassessment and imposed penalty. Brief comment on the Tribunal's finding. In our view, the decision of the Tribunal rests on a correct appreciation of the legal position and the findings are based on a plethora of material on record. However, before we enter into a further scrutiny of the findings arrived at, it would be proper to refer to section 3 which is the core provision and other relevant provisions of the CST Act. We will also notice the principles laid down in decided cases to determine the inter-State character of sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contained in section 3. Section 8 lays down the rates of tax on inter-State sale of goods. Section 6A, on which the applicant's case rests, deals with burden of proof in the case of transfer goods claimed to have been effected otherwise than by way of sale. We shall advert to that section in more detail later on. Section 9 makes it clear that the tax under the CST Act shall be levied by the Government of India. At the same time, the appropriate State in which the Central sales tax shall be collected on behalf of the Government of India is specified in section 9(1). It reads: 9. Levy and collection of tax and penalties. (1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce, whether such sales fall within clause (a) or clause (b) of section 3, shall be levied by the Government of India and the tax so levied shall be collected by the Government in accordance with the provisions of sub-section (2), in the State from which the movement of the goods commenced. The appropriate State to collect tax in relation to a subsequent sale effected during inter-State movement of goods sold is specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of a covenant or incident of the contract of sale, and property in the goods passes in either State. After referring to the TISCO's case [1960] 11 STC 655, another fiveJudge bench of the Supreme Court in Tata Engineering Locomotive Co. Ltd. v. Assistant Commissioner of Commercial Taxes, Jemshedpur [1970] 26 STC 354 further elucidated the legal position as follows (at page 376): As observed in Tata Iron and Steel Co. Ltd. v. S.R. Sarkar [1960] 11 STC 655, a transaction of sale is subject to tax under the Act on the completion of the sale. A mere contract of sale is not a sale within the definition of sale in section 2(g). A sale being transfer of property becomes taxable under section 3(a) 'if the movement of goods from one State to another is under a covenant or incident of the contract of sale'. In Ben Gorm Nilgiri Plantations Co. v. Sales Tax Officer, Special Circle, Ernakulam [1964] 15 STC 753 (SC), the provisions of section 5 of the Act came up for consideration and the principle settled by that decision would indisputably be applicable to section 3(a) of the Act. It has been laid down that the sale in the course of export predicated connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction. The true ratio of the decision in Balabhagas Hulaschand v. State of Orissa [1976] 37 STC 207 which is often relied on by the assessees was explained in that case. The observations of the Supreme Court in the case of Kelvinator of India Ltd. v. State of Haryana [1973] 32 STC 629 are quite apt and apposite (at page 638): . . . A movement of goods which takes place independently of a contract of sale would not fall within the ambit of the above clause. Perusal of section 3(a) further makes it manifest that there must be a contract of sale preceding the movement of the goods from one State to another, and the movement of goods should have been caused by and be the result of that contract of sale. If there was no contract of sale preceding the movement of goods, the movement can obviously be not ascribed to a contract of sale nor can it be said that the sale has occasioned the movement of goods from one State to the other. It is useful to refer to one more judgment of the Supreme Court Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 the facts of which are quite close to the facts of the case we are dealing with, though not ident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Andhra Pradesh to the buyer and not by the registered office at Hyderabad. In our opinion, that makes no difference at all. The manufacture of the goods at the Hyderabad factory and their movement thereafter from Hyderabad to the branch office outside the State was an incident of the contract entered into with the buyer, for it was intended that the same goods should be delivered by the branch office to the buyer. There was no break in the movement of the goods. The branch office merely acted as conduit through which the goods passed on their way to the buyer. A situation in contrast was highlighted by the learned Judges in the following passage (at page 306 of 60 STC): It would have been a different matter if the particular goods had been despatched by the registered office at Hyderabad to the branch office outside the State for sale in the open market and without reference to any order placed by the buyer. In such a case, if the goods are purchased from the branch office, it is not a sale under which the goods commenced their movement from Hyderabad. It is a sale where the goods moved merely from the branch office to the buyer. The Karnataka Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarification given by the assessing officer in his affidavit that the seized books/documents were returned to the appellant pursuant to the order of the High Court of Karnataka in W.P. No. 10789/1994. Moreover, it is hard to believe that the appellant will not preserve the material documents in view of the pendency of proceedings and appeals throughout. It is obvious that the burden lies on the appellant who assails the factual findings recorded against it and the appellant should have come forward with the relevant particulars and documents if it was serious about dislodging the clear findings arrived at by the Appellate Tribunal and other authorities. Inspite of this failure on the part of the appellant, we directed the concerned officials of the Karnataka State to produce for our perusal the statements prepared by the Intelligence Wing which have been relied upon by the Tribunal as well as the assessing authority. Even the departmental officials defaulted in producing the said statements. They were content with filing a bunch of papers relating to seizure of documents and books from the business premises of the appellant at various places. The question of drawing adverse infere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isting law, the assessing authority resorted to reassessment without realising that it had no jurisdiction to do so in the face of deeming fiction in section 6A(2) and that the appellate authorities also could not give effect to the legal position subsequently laid down by the Supreme Court in the said case. Now, we have to consider this legal point. Section 6A and F form. To appreciate the legal issue raised by the appellant in proper perspective, we start with a reference to section 6A and form F. Section 6A reads as follows: 6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signing it has to mention his status in relation to the transferor. The form is in triplicate. The contents of form F are as follows: FORM OF DECLARATION TO BE ISSUED BY THE TRANSFEREE [See rule 12(5)] Serial No. . . . . . . . . Name of the issuing State . . . . . . . . . . . . . . . . . Office of issue . . . . . . . . . . . . . . . . . . Date of issue . . . . . . . . . . . . . . . . . . Name and address of the person to whom issued along with his Registration Certificate No. . . . . . . . . . . Date from which registration is valid . . . . . . . . . . . . . Seal of Issuing Authority To . . . . . . . . . . . . . (Transferor) Registration Certificate No. of the Transferor . . . . . . . Certified that the goods transferred to me/us as per details below have been received and duly accounted for: Description of the goods sent . . . . . . . . . . . . . Quantity or weight . . . . . . . . . . . . . . . . . . . . . Value of the goods . . . . . . . . . . . . . . . . . . . . . Number and date of invoice or challan or any other document under which goods were sent. Name of railway, steamer or ferry station or air port or post office or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 of the Act . We shall get into some more details as to the propositions laid down in 2nd Leyland case [2004] 134 STC 473; [2004] 3 SCC 1 on the scope and effect of section. At paragraph 45 (para 35 in STC), the legal position is stated thus: 45. 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 6A 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. (emphasis(1) supplied) The above statement of law was elaborated further as follows (at para 37 in STC): 48. On an analysis of the aforementioned provisions, . . . , 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 112 (para 93 in STC). It reads: 112. However, we may hasten to add that the same would not mean that even wherein such an order has been obtained by commission of fraud, collusion, misrepresentation or suppression of material facts or giving or furnishing false particulars, the order being vitiated in law would not (sic) come within the purview of the aforementioned principle. The observations at paragraph 113 (para 94 in STC) may also be noticed: 113 . . . . mere change in the opinion of the assessing authority or to have a relook at the matter would not confer any jurisdiction upon him to get the proceedings reopened. Discovery of a new material although may be a ground but that itself may not be a ground for reopening the proceedings unless and until it is found that by reason of such discovery, a jurisdictional error has been committed. In other words, when an order passed in terms of sub-section (2) of section 6-A is found to be illegal or void ab initio or otherwise voidable, the assessing authority derives jurisdiction to direct reopening of the proceedings and not otherwise. (emphasis(1) supplied) (1)Here italicised. Scope of enquiry under section 6A how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racted supra), it is stated that an order under section 6A(2) has to be passed after arriving at a satisfaction that movement of goods was otherwise than as a result of sale. So also, the observations at para 110 (para 91 in STC) convey that idea. But, as we point out later, the enquiry into the correctness of particulars of F form by itself does not help reaching such satisfaction. The enquiry has to extend beyond that. Is such extended enquiry pointedly directed towards the possible link between the movement and antecedent contract permissible in the light of the law laid down in 2nd Leyland case [2004] 134 STC 473 (SC); [2004] 3 SCC 1? Viewed from another angle, if an order accepting the correctness of F forms is passed without making a probe into the existence or otherwise of prior contracts of sale and without reaching a satisfaction in that behalf, can the conclusive presumption be still raised? What is the view and approach of the Supreme Court on this aspect? It is not free from doubt. We have already extracted the relevant observations which give room for such doubt. (vide paras 43 and 44; 33 and 34 in STC) We are referring to this aspect for the reason that in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w laid down by the Supreme Court in 2nd Leyland case [2004] 134 STC 473 (SC); [2004] 3 SCC 1, we hold that the reassessments in the instant case fly in the face of deeming fiction and conclusive presumption embodied in section 6A(2) and they are without jurisdiction. We recall that there is an express recital in the CST assessment order for all the years that the F forms were found to be correct after due verification. On such acceptance of F forms, the exemption claimed was granted. Consequently, the legal fiction had its full play and the disputed transactions should not be subsequently regarded as inter-State sales irrespective of the fact that a different finding can be recorded on the basis of material detected later on. At the same time, be it noted that the Supreme Court carved out certain exceptions to the rule. The reassessment proceedings can be initiated and the effect of statutory fiction be nullified only on grounds of fraud, collusion, misrepresentation and wilful suppression of facts or when the order passed initially is found to be void/voidable or vitiated by a jurisdictional error. [vide paras 79, 112, 113 (paras 61, 93 and 94 in STC) extracted supra]. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word has been used to mean that the act had been done with a bad purpose or without justifiable excuse or stubbornly, obstinately or perversely. United States of America v. Harry Murdock [1933] 78 Law Ed. 381 (389) Some decisions stress the requirement of deliberation or reckless disregard of the fact whether the act was or was not in breach of duty in deciding whether it has been wilful. We shall now proceed to consider whether there was, on the part of the appellant, wilful suppression in the sense in which it is explained in the preceding para. The only observation on this aspect is found at paragraph 3 of the assessment order (page 41 of paper book). It says: What is more important is the assessee-company has not produced the prior orders at the time of verification of the books of accounts, thereby suppressing the fact that the goods (were) manufactured and dispatched out of the State as per the prior order only . The Tribunal commented at paragraph 13 while justifying the imposition of penalty that there was escapement of turnover on account of the conduct of the appellant in suppressing the turnover. As far as this observation of Tribunal is concerned, straightaway, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal sales tax in Maharashtra is also four per cent, the applicant would stand to gain nothing by camouflaging the inter-State sales as stock transfers. Intention to avoid the CST cannot be inferred in these circumstances. The entire issue of wilful suppression or fraud should be viewed in this background. We may, in this connection, refer to the pertinent observations of the Supreme Court in Cosmic Dye Chemical v. Collector of Central Excise [1995] 75 ELT 721 while interpreting section 11A of the Central Excise Act: Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word 'wilful' preceding the words 'mis-statement or suppression of facts' which means with intent to evade duty. On a consideration of the totality of facts and circumstances it is difficult to infer that the VSIL, the predecessor of the appellant, wanted to avoid the tax under the CST by resorting to invidious manipulations such as withholding of material documents. Though the Tribunal did not enter in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... branch or agent. That is of course the first step in the line of inquiry. But, they do not throw light on an equally important aspect, i.e., whether such movement was occasioned by a prior contract of sale. Even if all the particulars in F form are cent per cent correct and the certificate given by the transferee is also true, it does not rule out the sale falling within the ambit of section 3 of the CST Act. Section 3 which is the core provision of the CST Act cannot be thwarted by a legal fiction based on a form which is by no means exhaustive of the relevant and necessary particulars. The conclusive presumption would have made some sense. Surprisingly, the F form has been given a greater sanctity than what it deserves, by virtue of a statutory fiction. With the holding of the Supreme Court in the 2nd Leyland case [2004] 134 STC 473 (SC); [2004] 3 SCC 1, it has even reached greater heights. The Supreme Court, as we have seen earlier, insulated the finding recorded .under section 6A(2) from the reach of reassessment/revisional provisions which are otherwise available to the sales tax authorities administering the CST Act. It is axiomatic that in order to determine the crucia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mination is made that such statements are correct, the curtain is drawn keeping in view the expression 'thereupon'. We may also point out that in the very case of 2nd Leyland case [2004] 134 STC 473 (SC); [2004] 3 SCC 1, their Lordships did recognise the need of enquiry beyond the despatch of goods to the branch while referring to form F. We again quote the passage in paragraph 110 (para 91 in STC): The purpose of verification of the declaration made in form F, therefore, is as to whether the branch office acted merely as a conduit or the transaction took place independent to the agreement to sell entered into by and between the buyer and the registered office or the office of the company situated outside the State. The doubt we have is how far and to what extent the prescribed particulars in F form, even if all of them are correct, throw light on the crucial aspect highlighted by their Lordships in the above passage. If the conclusive presumption has to be maintained with all its vigour, the only course left open is to suitably amend the F form by revising the contents of certification or otherwise. The other course left open is to suitably amend section 6A( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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