TMI Blog2008 (2) TMI 842X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant reported a net turnover of ₹ 3,44,35,518 under the CST Act while claiming exemption on stock transfer of goods to its head office at Kolkata to the tune of ₹ 4,77,17,941 and to the branch office at Bangalore to the extent of ₹ 54,03,544. The appellant's place of business was inspected by the officials of the Enforcement Wing of Commercial Tax Department on October 9, 1995 and certain documents were seized. On examination of the seized record, the inspecting officials sent up a report to the assessing authority, namely, the Commercial Tax Officer, Saligaramam Circle, Ashok Nagar, Chennai. Based on the same, a pre-assessment notice was issued by the said assessing authority proposing to disallow the entire claim of stock transfer. It was stated in the show cause notice that as per the seized record, the goods (ready-made shirts) sent to Kolkata office were dispatched on door delivery basis and in respect of transfers to Bangalore branch, the appellant sent specific instructions to deliver 208 pieces to nine dealers. The assessing officer therefore concluded that the goods sent to the appellant's head office at Kolkata and the branch at Bangalor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Kolkata and Bangalore branches furnished by the appellant showed that the goods were moved to these places in the regular course of business and not pursuant to prior orders. The appellate authority also commented that door delivery instruction given by the appellant was misunderstood by the assessing officer. Aggrieved by the order of the first appellate authority, the State of Tamil Nadu filed an appeal to the Sales Tax Appellate Tribunal at Chennai. The Tribunal, by its order dated November 13, 2000, allowed the State's appeal and dismissed the cross-objection filed by the assessee. The Tribunal referred to the file containing seized correspondence and gave a finding that the goods moved from Chennai office for supply to pre-determined buyer-customers in Bangalore and Kolkata. The Tribunal found an inextricable link between each transfer and supply which was earmarked for a specified buyer . As regards penalty, the Tribunal purported to follow the judgment of the Madras High Court in Appeal No. 1013 of 1997 [Chennai Textile Chemicals Private Ltd. v. State of Tamil Nadu since reported in [2002] 125 STC 107] and restored the order of assessing authority levying p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistance of the counsel and also the departmental official present and got clarifications wherever required. Before we proceed to consider the factual aspects, it would be apposite to briefly advert to the legal position governing taxation of inter-State sales. Section 6 of the CST Act which is the charging provision ordains that subject to the other provisions of the Act, every dealer shall be liable to pay tax on all sales of goods (other than electrical energy) effected by him in the course of inter-State trade or commerce. Under article 269(3) of the Constitution of India, the Parliament may by law formulate principles for determining when a sale or purchase of goods take place in the course of inter-State trade or commerce. It is under entry 92A of List I of the Seventh Schedule to the Constitution that the Parliament derives exclusive power to legislate on the subject of tax on the sale and purchase of goods (other than newspapers) taking place in the course of inter-State trade or commerce . The Parliament, therefore, enacted the Central Sales Tax Act, inter alia, providing for levy and collection of tax on the inter-State sales or purchases of goods. Section 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness unit merely acted as conduit through which the goods passed on their way to the buyer, it still becomes an inter-State sale. The registered office and branch office do not posses separate juridical personalities (vide Sahney Steel and Press Works Ltd. v. Commercial Tax Officer [1985] 60 STC 301 (SC) and English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC). In English Electric Company of India Ltd. [1976] 38 STC 475, a threejudge bench of the Supreme Court after reiterating the settled legal principles for determining the inter-State character of a sale, made the following observations which are relevant to the facts of the present case as well (at page 479): When a branch of a company forwards a buyer's order to the principal factory of the company and instructs them to despatch the goods direct to the buyer and the goods are sent to the buyer under those instructions it would not be a sale between the factory and its branch. If there is a conceivable link between the movement of the goods and the buyer's contract, and if in the course of inter-State movement the goods move only to reach the buyer in satisfaction of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72,347. 2.. Photostat copy of GCN No. 0196057 dated August 30, 1995 of ACE Express Distribution Services, for your reference, vide which the goods have been dispatched to you on door delivery basis. 3.. Packing lists for: (a) Case No. 4978 containing 13 pcs.-meant for Bafna's Tex, Mysore. (b) Case No. 4979 containing 26 pcs.-meant for Prestige Enterprises, Bangalore. (c) Case No 4980 containing 32 pcs.-meant for Panchrathna, Bangalore (d) Case No. 4981 containing 10 pcs-meant for Raymonds retails shop, K.C.C. Bldg. Bangalore (e) Case No. 4982 containing 12 pcs-meant for Vigi Sons, Mangalore. (f) Case No. 4983 containing 11 pcs.-meant for Park Land, Hubli. (g) Case No. 4984, 4985 containing a total of 31 pcs.-meant for Anil Textiles, Devangere. (h) Case No. 4986, 4987 containing a total of 41 pcs.-meant for Yuvaraj, Bangalore. (i) Case No. 4988, 4989 containing a total 32 pcs-meant for Sunil Corporation, Bangalore. You are requested to kindly acknowledge receipt of all the above documents and deliver the goods to the respective parties by raising the bills from SAPL, Bangalore on them. Please send us, in duplicate, copy of the invoices which y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 4055 containing 36 pcs.-meant for Horizon, Calcutta. (14) Case No. 4056 containing 12 pcs.-meant for Men only, Patna. (15) Case No. 4057 containing 20 pcs.-meant for Swagat, Dimapur. (16) Case No. 4058 containing 18 pcs.-meant for Sarvottam, Patna. (17) Case No. 4059 containing 20 pcs.-meant for Kripa, Patna. (18) Case No. 4060 containing 48 pcs.-and 4061 meant for Park Avenue, Aizwal, Mizoram. (19) Case No. 4062, 4063, 4064 containing a total of 79 pcs.meant for Gentleman, Siliguri. (20) Case No. 4065, 4066, 4067 containing a total of 102 pcs.-meant for Thakkars, Jamshedpur. (21) Case No. 4068, 4069, 4070, 4071, 4072, 4073 containing a total of 173 pcs.-meant for Bodyline, Calcutta. (22) Case No.4074, 4075 containing a total of 52 pcs.-meant for Devasis, Calcutta. (23) Case No.4076, 4077, 4078 containing a total of 79 pcs.meant for Eleventh Hour, Calcutta. (24) Case No. 4079, 4080, 4081, 4082, 4083 containing a total of 245 pcs-meant for you. Sd/- Siddhartha Apparels (P) Ltd. 53. Dr. Ambedkar Road IV. Avenue, Ashok Nagar Encl: a/a. Remaining letters (addressed to Kolkata office) forming part of the seized record are on simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate authority. We cannot at this stage permit the appellant to make out a new version on facts. Moreover, we find that dispatches to the same dealers were being repeated periodically. The argument regarding despatch of small quantities to some of the dealers, therefore, pales into insignificance. Having regard to the facts and circumstances adverted to above, we cannot find fault with the findings of the Appellate Tribunal that there was an inextricable link between the movement of goods and prior orders. In other words, the goods can be said to have moved from the State of Tamil Nadu to the other States pursuant to and in the course of fulfilment of antecedent orders (in the nature of contracts) for the supply of goods of particular description. It is true that the fact that consignments were sent on door delivery basis has been misunderstood by the assessing officer, as rightly pointed out by the first appellant authority. The instruction to the carrier to effect door delivery only means that instead of storing the goods at the godown in Kolkata or Bangalore, the parcels should be unloaded at the appellant's business place in those cities. Even after esch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon by the department and the break up of turnover for each month placed before us, the disputed turnover relating to stock transfers treated as inter-State sales, needs to be substantially reduced for the following reasons: (a) The incriminating material in the form of correspondence which was seized at the time of inspection on October 9, 1995 only relates to the period June, 1995 to September, 1995. As already noticed, the stock transfers effected from January, 1996 to March, 1996 to the tune of about ₹ 1.25 crores were exempted by the assessing officer himself. So also the stock transfers to Kolkata in the months of April, 1995 and May, 1995 were not included by him in the taxable turnover probably because there was no adverse material relating to those months. As regards Bangalore branch, there was no stock transfer at all in April and May, 1995. What remains is the stock transfer effected in the months of October to December, 1995. We are unable to find any basis on which the stock transfers effected during the months of October to December, 1995 were regarded as interState sales. No reasons were given by the assessing officer or by the Tribunal in this beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nter-State sales effected from Tamil Nadu. The turnover attributable to such transfers should therefore be excluded from the taxable turnover. (c) The value of 32 shirts which were initially meant for delivery to Sunil Textile Corporation, Bangalore, should also be excluded from the taxable turnover, the reason being that those shirts were not sold to that party but sold to some other party namely, Dazzle Collections, Bangalore under invoice Nos. 334 and 339 dated August 31, 1995. In relation to this transaction, it cannot be said that when the goods moved from Tamil Nadu to Karnataka, a contract of sale was already there between the appellant and the ultimate buyer. The assessing authority in the State of Tamil Nadu should work out taxable turnover in the light of the above three directions [at paras 7(a) to (c)], amend the assessment order accordingly and tax the turnover at the applicable rates depending on whether C forms will be filed or not within a stipulated time to be set by the assessing authority. It is needless to state that the net turnover taxable should also include the admitted turnover which the appellant itself treated as inter-State sales. A revised demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is Authority in a recent case of Steel Authority of India Limited v. Secretary, Finance Department, Govt. of Karnataka [2007] 10 VST 451 as follows (at page 472): . . . That does not however mean that an enquiry whether the goods moved to another State in the guise of stock transfers in order to fulfil the prior contracts of sale is ruled out because such enquiry is essential to make the charging provision workable. In fact, there are enough indications in 2nd Leyland judgment [2004] 134 STC 473 (SC); [2004] 3 SCC 1 that such enquiry is permissible before an order accepting F forms is passed-for instance, see paras 48 and 110 (paras 37 and 91 in STC) of the judgment. No doubt, these observations in paras 48 and 110 (paras 37 and 91 in STC) cannot be strictly reconciled with the view expressed by the Kerala High Court. In so far as the Kerala High Court said that an enquiry cannot go beyond ascertaining the truth of particulars in F forms, such statement of law apparently conflicts with the explicit observations of the Supreme Court in paras 48, 110, etc. To this extent, the dicta in C.P.K. Trading Company [1990] 76 STC 211 (Ker) cannot be given effect to, though the passage as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hy section 26 has been advisedly enacted in the CST Act. As we have held that substantial part of the stocks transferred during June to September, 1995 were in the nature of inter-State sales liable to be taxed under the CST Act by the Tamil Nadu State, that turnover cannot be subjected to tax by the sales tax authorities of the transferee States, i.e., West Bengal or Karnataka. Whatever sales tax has been collected either under the local sales tax or Central Sales Tax Acts on the sales of identical goods made to the buyers named by the appellant in its forwarding letters is liable to be refunded by those two States. A perusal of the assessment orders passed by the concerned assessing officers at Kolkata and Bangalore prima facie reveals that the goods received on stock transfer from Chennai were subjected to tax under the Karnataka General Sales Tax Act in the case of Bangalore Branch and under the West Bengal Sales Tax Act, Central Sales Tax Act in the case of Kolkata head office. We may recall here that some of the dealers to whom goods were earmarked by Chennai branch, were outside West Bengal. Hence, Central sales tax would have been paid on sales to those parties. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment. The quantum of penalty leviable under section 12(3)(b) is on a graded scale depending on the extent of shortfall of the tax paid as per the return when compared to the tax finally assessed. There are as many as six rates prescribed on that basis, ranging between 25 per cent and 150 per cent. Sub-section (3) of section 12 was substituted for earlier sub-sections (3) to (5) by TN Act 25 of 1993 with effect from August 25, 1993. For the assessment year in question, i.e., 1995-96, the relevant part of section 12(3) is as follows: Section 12(3): In addition to the tax assessed under sub-section (2), the assessing authority shall, in the same order of assessment passed under sub-section (2) or by a separate order, direct the dealer to pay by way of penalty, a sum- (a) which shall be, in the case of failure to submit return one hundred and fifty per cent of the tax assessed on final assessment; (b) which shall be, in the case of submission of incorrect or incomplete return- (i) to (iv) . . . (v) one hundred and fifty per cent of the difference of the tax assessed and the tax paid as per the return, if the tax paid as per the return, falls short of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aler to the best of its judgment: Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of proving the correctness or completeness of any return submitted by him. As already noticed, the penalty provision under section 12(3) is attracted in a case of assessment made under sub-section (2) of section 12. That means it applies to a case of non-submission of return or submission of incomplete or incorrect return. There is scope for debate whether the return filed by appellant showing inter-State sales as stock transfers is an incorrect return. However, it admits of no doubt that an assessment to the best of judgment is what is contemplated by section 12(2) and in the absence of such assessment, penalty cannot be levied, as held by the Supreme Court in the case of State of Madras v. S.G. Jayaraj Nadar Sons [1971] 28 STC 700. The Supreme Court observed (at page 702): . . . It is well-known that the best judgment assessment has to be on an estimate which the assessing authority has to make not capriciously but on settled and recognised principles of justice. An element of guess-work is bound to be present in best jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t totally accepted because the assessing authority felt that the alleged stock transfers should in law be treated as inter-State sales. The appellant made a complete disclosure in the return based on the account books. The fact that the goods actually reached the head office/branch office in the two States is not in dispute. The ratio of the Supreme Court's decision in S.G. Jayaraj Nadar Sons case [1971] 28 STC 700 should therefore apply a fortiori to the case of the appellant. In the case of S.G. Jayaraj Nadar [1971] 28 STC 700 (SC), certain items which the assessee presumably felt were not taxable, were not included in the return. Even then, the Supreme Court held that it was not a case of best judgment assessment as the turnovers were gathered on the basis of account books maintained in the regular course of business. There is a well considered judgment of a division Bench of the Madras High Court in Appollo Saline Pharmaceuticals (P) Ltd. v. Commercial Tax Officer (FAC) [2002] 125 STC 505 on the point. That was also a case in which the imposition of penalty under section 12(3) was assailed. The following facts stated in paragraph 4 are relevant: In so far as the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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