In Pursuit of Knowledge

Controversial Issues under Central Sales Tax – u/s. 6(2) and Declarations

Nikita Badheka, Advocate & Notary, Mumbai

Indirect Taxes

What is discussed herein:

I) To write a paper on controversial issues is a tough job, especially when tax consultant from All India are scrutinizing it. My attempt here is to draw attention of this elite class of Tax Practitioners to some typical but important issues which affect the day to day working of a business class.

2) I always believe that the law makers as also the persons who interpret the Law must see each amendment keeping in mind not only the long settled practice in trade but also practical issues involved therein. Court must move with times, the interpretation cannot be static but may change with ever changing laws, more so with technical and scientific advancement .The trade practice or the manner in which the trade generally functions will also change with time. An interpretation by any Court would definitely result in multiple legal battles. Take the case of A&G Projects and K Raheja by the Apex Court. Supreme Court lays down the Law. The view will hold good till the earlier judgment is overruled or explained or distinguished in later judgment. Each judgment must be studied with reference to the Facts as found by the Court. It should normally be applied under similar facts only.

3) This paper covers some of the controversial issues in relation to provisions under Sec 6(2) of CST act as also those relating to Declarations under CST Act 1956.

4) Subsequent sales under CST Act.

Sec 6 (2) of the CST Act reads as follows:

"Section 6(2)

(2) Notwithstanding anything contained in sub-section (I) or sub-section (IA), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in subsection (3) of section 8, shall be exempt from tax under this Act

Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit—

(a) a certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and

(b) if the subsequent sale is made to a registered dealer, a declaration referred to in sub-section (4) of section 8:

Provided further that it shall not be necessary to furnish the declaration referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if—

(a) the sale or purchase of such goods is, under the sales tax law of the appropriate State exempt from tax generally or is subject to tax generally at a rate which is lower than three per cent or such reduced rate as may be notified by the Central Government, by notification in the Official Gazette, under sub-section (I) of section 8 (whether called a tax or fee or by any other name); and

(b) the dealer effecting such subsequent sale proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in this sub-section.".

5) In the controversial case of A & G Projects before the SC reported in 19 VST 239 , the issue involved was interpretation as to which State has right to levy the Tax.

6) provisions of Sec3(a) and section 3(b) of the Central Sales Tax Act. I 956,reads as follows:.

"sec. 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.—A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase,—

(a) Occasions the movement of goods from one State to another;

or

(b) Is effected by transfer of documents of title to goods during their movement from one State to another.

Explanation I :Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.

Explanation 2 : Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory ofany other State.

7) Sec. 9. Levy and collection of tax and penalties.—(l) The tax payable by any dealer under thisAct 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 ofthe goods commenced:

Provided that, in the case of a sale of goods during their movement from one State to another, being a sale subsequent to the first sale in respect of the same goods and being also a sale which does not fall within sub-section (2) of section 6, the tax shall be levied and collected,—

(a) where such subsequent sale has been effected by a registered dealer in the State from which the registered dealer obtained or, as the case may be, could have obtained, the form prescribed for the purposes of clause (a) of sub-section (4) of section 8 in connection with the purchase ofsuch goods

and,

(b) Where such subsequent sale has been
effected by an unregistered dealer, in the State from which such subsequent sale has been effected."

8) In the case before Supreme Court in A & G Projects and Technologies Ltd. vs. State of Karnataka, (19 VST 239 (SC)), the appellant a contractor in the State of Karnataka was awarded three independent contracts by Karnataka Power Transmission Corporation Ltd. (herein after referred to as "the customer" KPTCL). One of the contracts was relating to supply of capacitor banks. The appellant in turn purchased the goods from Bay West Power Energy Pvt. Ltd. (herein after referred to as "the seller") which was situated outside the State of Karnataka.The seller in turn had purchased capacitor banks from a manufacturer, who was also situated outside the State of Karnataka. The seller (Bay west) in Tamil Nadu purchased the goods from the manufacturer and sold the same to the appellant A&G projects in Karnataka. In turn the appellant sold the said goods to the customer KPTCL also in Karnataka.Thus ultimately from the manufacturer out side Karnataka the goods reached directly to the customer in Karnataka.

9) The appellant contended that the goods originated from the manufacturers and ultimately reached KPTCL though the title to the goods vested originally with M/s. Bay West as the EPC contractor who in turn transferred the title to the goods to the appellant when they were in transit and in turn the appellant transferred the title by endorsing the lorry receipt in favour of KPTCL. According to the appellant, there were three sales. It was the submission of the appellant that the second and the third sales were subsequent sales. Hence,the appellant claimed exemption from tax for such sales under section 6(2).

10) According to the Assessing Officer, the first sale by the manufacturers to M/s. Bay West was a section 3(a) sale, that the second sale by M/s. Bay West to the appellant was also a section 3(a) sale and not a sale under section 3(b) and that even the subsequent sale by the appellant to KPTCL (ultimate purchaser) was also a sale under section 3(a)and not under section 3(b) and consequently it was held that the appellant was not entitled to exemption under section 6(2) of the CST Act, and not a sale under section 3(b)

(11) All the authorities in the case of A &G Projects case i.e the SC, HC and lower authorities proceeded on the basic fact that all the three sales, i.e. the Sale by Chennai Manufacturers to procuring agency M/s Baywest, Bay west to the appellant and the appellant to KPTCL where independent transactions u/s 3 (a) of the CST Act. Whereas the contention of the appellant was that the first sale was basic sale and the transactions there after were subsequent sales under the CST Act, by transfer of document of title to goods.

12) It was the contention of the Authorities that the sale of goods were completed when the goods were appropriated before the commencement of movement of goods from manufacturer’s place to KPTCL and therefore sec 23 of the sale of goods is attracted .The appropriate State is State of Karnataka to levy CST on total turnover. The issue before the Supreme Court was not related to interpretation of section 6(2) but to determine as to which is the appropriate State which will have right to impose tax under the central Sales Tax Act.

13) Before we go further, let us look at the judgment on the identical facts by larger bench of sc , i.e. the judgment of Galia Kotwala and Co. vs. State of Madras (37 STC 536). This judgment is by larger bench of sc and admittedly on identical facts and therefore ,as we shall now see, applying the law of precedent the judgment of Galia Kotwala should prevail over the judgment of A &G Projects. In the case of Galia Kotwala the buyer-mills entered into an agreement with the assessee’s branch at Coimbatore for the purchase of cotton. The assessee in his turn placed orders with the Bombay seller for the purchase of cotton and had directed his Bombay seller to dispatch the goods to his buyer-mills as the consignees. Admittedly there is no privity of contract between the Bombay seller and the buyer mills. The Bombay seller sent the consignments to the buyer-mills, but the railway receipts were sent by the Bombay seller to the assessee, who then endorsed the same in favour of the buyer-mills after collection of a substantial portion of the sale value. After taking delivery of the railway receipts duly endorsed by the assessee, the mills took delivery of the goods.

14) The assessee contended that the consignments having been sent directly by the Bombay seller to the buyer-mills, it should be taken that there is a direct inter-State sale by the Bombay seller to the buyer-mills and that the property in the goods had passed to the buyer-mills when the goods were loaded in the railway at Bombay, which constituted an unconditional appropriation of the goods to the contract and that, therefore, the assessee’s sales to the buyer- mills should be construed as a direct inter-State sale under section 3(a) of the Central Sales Tax Act. But it cannot be forgotten that the railway receipts having been sent to the assessee and the same having been endorsed in favour of the buyer-mills, the property in the goods would pass only when the buyer-mills took delivery of the railway receipts duly endorsed in their favour.

15) The Apex Court observed that It cannot, therefore, be said that there is an unconditional appropriation of the goods at Bombay towards the contract entered into by the assessee with the buyer-mills. That will be an unconditional appropriation of the goods to the contract of sale which the Bombay seller has entered into with the assessee. The Railway receipt was dealt with by the seller in such a way as to show that he did not intend to part with the goods until the payment was made. The Bombay seller had no privity of contract with the buyer mill and they sold the cotton only to the assessee .The railways receipts were send to the assessee who later on endorsed them in favour of buyer mills and collected major portion of sale value.

16) The SC confirmed that the sale by Bombay Seller to assessee would be an interstate Sale u/s 3(a) of the CST Act as it occasioned interstate movement of goods , but the sale by the assessee to the buyer mills cannot be said to have caused interstate movement of goods. The mere fact that the goods were consigned by Bombay Seller to the buyer mill as per the directions of the assessee will not make the transactions interstate sale which have occasioned the movement of goods .The SC was therefore of the view that the sale by seller at Bombay to the assessee alone should be treated as an interstate sale coming u/s 3(a) and the subsequent sale in respect of the same goods by the assessee to the buyer mills cannot be a sale u/s 3(a) , as it was not possible to say that the said sale has occasioned actual movement of goods. Therefore if the second interstate sale is not a sale u/s 3(a) it could only be a sale u/s 3(b). Noting the fact of endorsement the SC held that even otherwise there has been transfer of document of title by assessee to buyer mills during the interstate movement of goods .The SC also confirmed and held that the mere fact that the mills had paid the tax under the local Sales Tax Act treating their purchase as local purchases from the assessee will not exonerate the assessee from payment of tax on his second interstate sale unless he produces the required declaration form in form C and form El.

17) Let us now go back to the case of A&G Projects. Kindly see, at page 244 Para 8 there is an admission of the appellant that there are three sale though interstate but were independent contracts. The assessee claimed second and third sale as interstate sales. The finding of the assessing authority was that since all the three are independent sales. The appellant who also claims to have independent sale cannot claim the sales as covered by sec 6.(2) of CST Act. In Para 9, the S.C has also proceeded on the finding of fact by A.O and therefore it held that if the sales are covered by 3 (a) it cannot be covered by 3( b). The SC therefore held that proviso to section 9.(l) of CST Act is not applicable to the present case since the finding of the A.O. is that there are three independent sales all under section 3(a).The assessee has not challenged or countered this finding of all three sales being u/s 3(a) of CST Act.

18) Thus the Case of A&G Projects is decided purely on the facts of the case as accepted by all the authorities including the assessee. The SC in fact was not concerned with Sec 6.(2) of the CST Act. The case before it was very limited ,i.e. to decide which State has the jurisdiction to impose tax, in respect of interstate sales .ln any case in my humble opinion, with due respect ,to the Hon’ble S C ,the ratio laid down by A & G Projects is not a good law as it has not considered the precedent of the larger bench which has laid down correct law.

19) Practically, and also on account of CENVAT requirements, the excise invoice normally mentions the dealer to whom the CENVAT credit is to be passed on. The Excise invoice normally mentions the Name of the Buyer and the name of the consignee separately. In such case if the original L/R is endorsed in favour of the subsequent buyer, the second interstate sale must get recognition as covered by sec.6(2) of CST Act. The name of buyer and name of consignee are separately stated with this purpose only. Admittedly the seller has no privity of contract with the consignee. He only acts as agent of the buyer. He is acting on instructions of the buyer while delivering goods to the consignee. Here again the consignee presents the L/R duly endorsed by the buyer . Under this circumstances the claim of sec6(2) will be clearly allowable. Moreover the practice has become a trade practice but a line of caution, as observed in case of Galia Kotwala, the buyer must maintain control by way of endorsement on LJR.

20) The transfer as envisaged in sec 6(2) can be mere handing over of the L /R and not necessarily by way of endorsement. Some what similar case was before Gujarat High Court .i.e case of State of Gujrat vs. Haridas MuIji Thakkar. (84 STC 31 7(Guj)). This case confirms the practice followed by dealers. Here the respondent-dealer was a distributor of carbon dioxide manufactured by a concern in Bombay. The respondent received orders from its purchasers in Gujarat. The respondent placed orders with the Bombay supplier which in turn sent the goods directly to the purchasers f.o.r. Bombay, the transport receipts in their names, according to the instructions of the dealer. The price charged by the respondent was higher than that charged by the Bombay supplier. Delivery of the goods was taken by the purchasers by paying the freight charges. The question before the court was whether the sale by the respondent to the purchasers in Gujarat was an inter-State sale within the meaning of section 3(b) of the Central Sales Tax Act, 1956 and not a local sale, liable to tax under the Gujarat Sales Tax Act, 1969.

21) The Gujarat High Court held that there were two deliveries which synchronised in point of time even though both the sales were separate in point of fact and in the eye of law. When the Bombay supplier transported the goods to Gujarat and took out receipts in the name of the purchaser in Gujarat, there was constructive delivery in favour of the respondent-dealer. At the same time there was constructive delivery of the same goods in favour of the purchasers. While affecting the second delivery, the Bombay supplier acted as agent of the respondent. The moment the goods were transported and the transport receipts were taken in the name of the Gujarat purchasers, the property in the goods stood transferred in their favour. The sale was by transfer of documents of title to the goods while the goods were in movement from one State to another although there was no actual endorsement thereon by the respondent. The second sale was, therefore, an inter-State sale within the meaning of section 3(b) of the Central Sales Tax Act, I 956.This is exactly how the business community functions.

22) It must therefore be inferred that the correct judgment which deals with the transactions u/s 6 (2) is Galia Kotwala (cited supra). It is true that the State Sales Tax authorities would use A&G Project as a tool to create huge paper demands which will have to be protested on facts and on legal issues by the Tax Consultants.

23) One more interesting aspect by which A & G project can be distinguished is by referring to the scope of proviso and explanation. Explanation I to sec 3 (a) refers to ‘delivery’. Delivery here must mean Actual delivery of the goods by the bailee to the final consumer. Till such delivery is taken the goods shall continue to remain in the possession and custody of transporter. Unless the buyer produces the original transport receipt duly endorsed in his favour, he will not get delivery of goods and the sale will not be complete.

24) Apart fromA & G Project’s case,the Sale in Transit under CST Act involves multiple other issues.Some of which are discussed herein below along with averyshortgistofJudgments relied on..

25) Few other decision of 6(2) are listed herein below with short gist.

25.1) Cinzec Technical Services reported in (25VST 65)(Kar). Following A &G Projects, Sale or boiler made as to order and specifications of the customer was held as local sale by the petitioner to the Customer in the absence of any proof. It was held that the first sale was interstate sale between the manufacturer and the petitioner. The petitioner acted as an agent or dealer between the manufacturer and the ultimate Customer. Therefore sale by petitioner to Customer —buyer is local sale in the absence of any further proof.

25.2) In case of PA. George 110 STC 253 (Bom), it was held that no power is conferred on the Board of Revenue under the Act or under the Rules to issue any directions of the nature contained in the circulars. (for production of the endorsed copy of the lorry receipt/railway receipt or bill of lading besides the C form and El/E-Il forms). That apart, no authority can prescribe any condition inconsistent with the provisions of the Act. The proviso to section 6(2) only provides for production of E-l and C forms.Any further requirements either in the rules or by any executive orders which have mandatory effect cannot be issued. The circulars issued by the Board of Revenue were non est in law, and that the assessing authority cannot reject the claim for exemption under section 6(2) of the Act, merely on the ground that the petitioners had not produced documents of title to the goods such as endorsed copies of the lorry receipts/railway receipts.

25.3) One view expressed by the Allahabad High Court is that for a second subsequent sale, finding of tax paid under CST Act is required. ((2OVST 768) (All Commissioner of Trade Tax vs. Azad Scrap Traders)).

25.4) The dealer’s claim for exemption of tax under section 6(2) of the Central Sales Tax Act, 1956 cannot be accepted solely on the basis of mere production of declaration form in El and C if the sale in quçstion does not satisfy the required conditions incorporated in section 6(2) of the Central Act. (15 VST 401-OrissaVoltas Limited vs. State of Oriss)

25.5) ExpI.1 to Sec.3(b) of CST Act do not permit expansion of movement goods beyond physical landing (P.U. USha-5VST 484 (Kar))

25.6) By G.O.Ms. No. 423 dated December 31, 1993 the State Government directed, inter alia, that from April 1, 1993, a time limit of 40 days shall be given to the dealers from the date of arrival of the goods to effect subsequent inter-State sale thereof under sub-section (2) of section 6 of the Central Sales Tax Act, 1956 read with section 3(b) of the said Act and any sale taking place after 40 days and falling under section 6(2) read with 3(b) shall be treated as local sales in view of the fact that such sales can be local sales after constructive delivery of the goods by the carriers. The Madras High Court held, a fair reading of Para 4(c) of the G.O. does not either exclude the possibility of or prevent the dealers from proving that in fact even such subsequent sale of goods taking place after the period of 40 days was a sale effected by a transfer of documents of title to the goods during their movement from one State to another in the course of inter-State trade or commerce, and as such, it attracted section 6(2) read with section 3(b) of the Central Sales Tax Act. (I 14 STC 598 (Mad))

25.7) Goods for use in works contract can be transferred UIs. 6(2) (Siemens India 132 STC 418 (Ker)

25.8) The transfer as envisaged under 6(2) must be by transfer of Document of title to goods.What is document of title to goods for Sec. 6(2), Madras High Court has the discussed this elaborately in State V. Ramu. (89 STC 481 (Mad). SLP dismissed (89 STC 0007)

25.9) The goods were to be delivered to S. On the back of the invoice, there was an endorsement made by the manager of the appellant to deliver the goods to S. The goods were carried throughout in the same vehicle. The documents clearly showed that the movement of goods did not terminate earlier on account of the appellant’s endorsement of the documents of title or on account of making entries, invoices, challari, etc. When the appellant effected subsequent inter-State sale by endorsing the documents of title forthwith and accordingly, the transporter who brought the goods from outside the State took the goods to the subsequent buyers, who obtained delivery thereof, there was no question of any notional or constructive delivery to the appellant. The appellant did not take delivery of goods. Inter-State movement of goods continued and terminated only upon the subsequent buyers taking delivery of the goods. Therefore all the subsequent sales effected by the appellant during the course of inter-State movement of the subject goods were exempt in terms of section 3(b) and section 6(2) of the Central Act, (Guljag industries ltd vs. State of Rajasthan((2003) 129 STC 0003)

25.10) There can be 1st local sale and subsequent interstate sale U/s.6(2)( 113 STC 431)

25.11) Claim of 6(2) can be allowed only if the goods are stated in R.C.certificate under CST Act. (1 13 STC 070 Trade Intl.)

25.12) Sale in transit U/s.6(2) is possible in lease transaction. From the findings recorded by the assessing officer it was held that the goods were supplied by the outside State supplier in the course of inter-State sale which is taxable as per provision of section 3(a) of the CST Act,and when title of goods are transferred in course of transit by endorsement of the transit document in favour of the lessee, subsequent sales are transit sale under section 3(b) of the C.S.T. Act. (125 STC565 (On) Sundaram Finance)

25.13) E1, E2 & C can be produced at later stage. Matter remanded by High Court to produce E1 & C. (85 STC 117 (All)

Other Controversial issues under CST Act relating to declarations:

The statutory declarations under the CST Act are form C, E1 & E2, F,H and 1.1 will take up some practical and other legal issues relating to them.

26) Section 8 of the CST Act governs the rate of tax on interstate transactions.With the amendment to definition of Sale under CST Act w.e.f 11-05-2002,all the provisions relating to sale under the CST act apply to works contracts and lease transactions as well. Whether C form can be given for goods to be used in works contract is no more a controversy now. I have pointed out earlier there can be sec 6(2) transaction for supply of goods to be used in execution of works contracts as also in lease.

27) The provisions in relation to Sales against Declaration C is Sec 8(l) of the Central Sales Tax Act. The notification reducing the rate of Tax to 2 % for interstate sale to a Registered Dealer is Notification No. Finance Dept. GOl Notification No I of 08- CST28/ I 1/2007-ST dated may 30th 2008. Pursuant to the said notification the Commissioner of Sales Tax Maharashtra State has issued a circular 20T of 2008 dated 3 l/05/2008.This 2% rate of tax against C form is effective from I stJune 2008.Therefore for all the Inter State sale made on or after 1st June 08 rate of tax under CST would be 2% subject to receipt of C forms.

28) Rule 12 of the Central Sales Tax (registration and turnover) Rules .provides the manner in which C form is to be obtained from the Department. The process of obtaining C/F/H etc in Maharashtra has become simpler with online applications. Of course as we are relying on Computerized system some issues will always remain. No system is perfect. Once the Application is found in order, the C forms are couriered directly to the Registered Dealer, who has applied for the same. The C form now comes duly filled in and printed with all the details by the computer only. The issues about interpolation on the C form or list of transactions for which one C Form is issued being not signed do not arise . For further procedural details please refer to circular no 2T of 09 dated 23-01-09 by Commissioner of Sales Tax Maharashtra State. With the advancement in the Technology and the Infrastructure in the Department this was made possible in the State of Maharashtra. However not all the States have followed online application till date. This is mainly on Account on lack of Infrastructure. Under the proposed Goods and Service Tax regime, it is only the advanced technology which will help the dealer to get Input Tax credit from a dealer situated in Another State.

29) Rule I 2(7):- ln terms of the Central Sales Tax (R and T) Rule 12(1), 2nd proviso on and with effect from 01-10-2005, one single declaration is allowed to cover all the transactions of Sale in a quarter of a Financial year between the same two dealers. This is a welcome provision ,however Rule 12(7) introduced w.e.f. from 01- 10-05 creates lots of practical problems . In terms of Rule 12(7) a dealer is required to furnish to the prescribed Authority within 3 months after the end of the period to which the declaration or the certificate -Form C, F, E I or E2. The proviso to this sub rule permits the prescribed authority to furnish the declaration within further extended time .The intention in introducing the proviso was to streamline the furnishing of declaration in time, however the State Sales Tax department do not have proper management ,facility and Infrastructure to store the C Form. The tendency of the dealer is to submit the declarations as and when received by them, this would also result in continuous flow of declarations into the Office of the Commissioner over a period of Time. Under VAT, the Assessments are by exception and therefore who would preserve the declaration sent by Iakhs of dealers was a big issue for the department. In Maharashtra on account of decentralization, It was impossible to find the authority to whom the forms/declarations are to be submitted. Among the Authorities also there was total chaos, as to who would accept the declarations and how to preserve them. Therefore burden was shifted by the Commissioner of Sales Tax Maharashtra State, by directing the dealers by way of Circular to not to furnish the declarations to the prescribed authority (who the prescribed Authority was not known), instead the dealers were asked to furnish list of declarations not received by him in the format prescribed by the Commissioner. (Circular No 28T of 05 dated 24-10-2005 issued by Commissioner of Sales Tax Maharashtra State)

30) Again here, this was a complete U turn then the requirement under the law .ln any case when the majority of dealers are covered by the Audit by an "Accountant" and that the said Accountant already reports about the declarations not received, this Amendment to Rule 12 does not serve any purpose. It only enables the State a right to refuse to issue Declaration after a year or so. As for Maharashtra State it is very difficult to get Declarations for the period prior to 0 1-04-2008.1 believe the situation is almost the same in Other States. Whether this is Legal? The answer is No. The Law no where provided any limitations for submitting C/F etc forms prior to October 2005 . In fact there are instances where even the Supreme Court and High Court have remanded the matter for giving chance to the assessee to submit the declaration. It is for this reason that majority of the dealers were slow in coIIecting the declarations. Similarly the departmental authority also issued the declarations for the past period without much fuss. However now in view of the Amendment made to Rule I 2(7) the Department may be justified in taking a strict view. Here again the Act nowhere provides limitation of time . Proviso to Rule I 2(7) clearly enables the prescribed authority to allow declarations of certificates to be furnished" within such further time as that Authority may permit". The position prior to the insertion of 12(7) was almost the same . Looking to the over all scenario, legally the Tax

Authorities cannot refuse to issue C forms for Old periods provided the dealer is able to give proper reasons for not applying earlier. On going litigation can be one of the reasons The Authorities under VAT somehow wants to close the old cupboards with the old files of Sales Tax regime and therefore every now and then there is an attempt by them to somehow put an end to the proceedings under the Earlier Law.

31) An issue which comes regularly before the courts is regarding contravention of ‘C’ Forms or those relating to penalties u/s 10 of the CST Act ,that the goods are not specified in the R C in terms of Sec.8(3).ln terms of Sec.8 of CST Act the goods purchased for C Forms must be of the description referred to in sec 8(3) as also such goods must be mentioned in the registration certificate issued to such dealers. This mentioning of Class or Class of goods in the certificate of registration plays vital role especially when the dealers are not particular about incorporating in their certificate of Registration the goods or Class of the goods they are dealing in or intend to deal in. At times the Authority directs the dealers to produce purchase bills before incorporating the said article in registration certificate, this is not a correct approach. Under the provisions of CST Act, before the goods are purchased the goods should be specified in the certificate of registration , therefore the insertion must be made before the goods are actually purchased. There are instances where even if the insertion is made at a later date the Court have held that the amendments in R C should be from the date of application. (see Orient pàer mill 23 STC 308(MP) and 97 STC 102 (Pat FB)). The authorities have normally taken lenient view if at the time of or before Assessment at least the mistake of not registering the goods is corrected.

32) The courts have avoided taking hyper technical view generally, However contrary view is also taken by some courts (goods not in R C – Penalty valid-22VST 224 (All), Also see, 144 STC 452) Goods not covered by R C. No bonafide proved. Penalty justified). Therefore a cautious approach by the dealer is advisable. Practically when the list of goods dealt with is big it is advisable to give 4 to 5 copies of the list along with the Amendment Application as also the soft copy of the list on the CD so that the same details can be uploaded by the department. This would ensure that there is no mistake in copying the list of goods by the Department. There can be multiple application for addition of products. While taking back the certificate, one must check the authority’s signature and date near or under the amendment made by him. Practically a R C Certificate of Big Corporate House normally is on Sales Tax record only as every day some new product is added.

33) In the case of State of Tamil Nadu vs. Trade lnternational, ( [19991 113 STC 0070), The Madras High Court observed that Sub-section (2) of section 6 of the Central Sales Tax Act, 1956 contains specific requirements for a subsequent sale effected during movement of goods by transfer of documents for exemption from tax. The specific requirements are that the sale of such goods must be effected to the Government or to a registered dealer other than the Government and that apart, the sale of the goods effected must be of the description referred to in sub-section (3) of section 8. Unless these requirements are fulfilled, the exemption under the said sub-section is impermissible.

34) Coming to the purpose for which the C Forms should be issued ,the law is more or less settled. C Form can be used for purchase of goods.

i) As being intended for resale by him.

ii) For use by him in manufacture.

iii) Or processing of goods for sale.

iv) Or in the telecommunication network

v) Orinmining.

vi) Or in the generation or distribution of electricity or any other form of power.

35) The very basic requirement is C form is for interstate sale, i.e sale u/s 3(a) of CST Act. and not otherwise. For the purposes of section 3(a) of the Central Sales Tax Act, 1956, the actual transfer of property in the goods need not necessarily take place in the State in which the movement commences, nor is it essential that it takes place in the State in which the movement terminates. There is no bar to the seller as also the purchaser being within the same State. A contract of sale may be entered into in the State wherein the goods are at the time of contract, or such a contract can be entered into in a different State. What is material for the purpose of section 3 is the movement of the goods from one State to another as a result of a sale or purchase, and it is not essential that a direction for the movement of the goods be expressly set out in the contract. It can also be incidental to the transaction of sale. (1999] 113 STC 0431 – Duvent Fans Pvt. Ltd vs. State of Tamil Nadu)

36) C form can also be issued for containers or other materials specified in the RC of the dealer purchasing the goods and such containers or materials are intended for use of packing of goods for sale. C form can also be used to purchasing containers and other materials used for packing of any class of goods specified in RC or for packing of containers and other materials specified in RC. It is thus clear that for the purpose of Sec.8(3)(d), the goods used for packing of goods specified in RC need not be stated in the certificate of RC. I shall take up issues involved for each of the above purposes.

37) The phrase ‘goods intended for resale’ must be interpreted keeping in mind the Scheme of the act and the purpose behind putting such prohibition. The goods need not actually be re sold immediately it need not also be re sold in the same State (see 79 STC 209 – (Ker) Iakshmichand Vasanji.slp also dismissed)

38) After the Amendment to the definition of ‘Sale’ under the CST Act, re sale would include transfer of property in goods in execution of Works Contract in the same form. The previous battle about whether C Form can be used for Works Contract or not is taken care of by 11/05/2002 Amendment. (see MJ Devani 99 STC 506 (Guj))

39) The goods purchased can be used for any one or the other use specified in Sec. 8(3)(b), therefore if a paper is purchased for re sale there would not be any contravention is the same is used for manufacture of books. It is also true that the Assessing Authority need not investigate the truth or otherwise in the manifest representation made by a purchasing dealer at the same time false re presentation would expose the buyer to consequences of breach of provisions of law and levy of penalty. In the absence of phrase" by him" after sale or re sale such sale or re sale can be by the agent or the branch of the dealer in
the other state. (polestar electronics 41 STC 409 (SC)).

40) The phrase ‘for use in manufacturing’ has invited long drawn litigation right up to Supreme Court, the case laws remain the same and keep on multiplying. (State of MaharashtraThe phrase ‘for use in manufacturing’ has invited long drawn litigation right up to Supreme Court. State of Maha vs. Shiv Datta and Sons 84 STC 497), (Food Corporation of India vs. State of Maharashtra 88 STC 500 (Bom)). If the goods purchased by a dealer on form C are used for Manufacturing of goods for Sale by other dealers then also there would not be any contravention (East India Cotton Manufacturing Company Ltd. 48 STC 239 SC), (CST vs. Jasmine Mills Pvt. Ltd. 47 STC 357 (Mum)).

41) The observation in case of Empire Dying and mfg are worth noting. The Bombay High Court held that ‘(i) that utilising the materials purchased in form C for processing cotton fabrics belonging to others and not to the applicants would not amount to failure to make use of the goods for the purpose mentioned in form C, inasmuch as what was required by section 8(3)(b) was not the sale by the purchasing dealer himself but the use by the purchasing dealer himself of goods purchased in the manufacture or processing of goods, which manufactured or processed goods should be for sale, irrespective of whether such sale would be by the purchasing dealer himself or by others;

(ii) that in any case it could not be said that the applicants had acted without reasonable excuse and they were, therefore, not liable to any penalty.

Since, the object of section 8 was to keep the price of manufactured goods within reasonable limits, it would be illogical for the Parliament to have provided that a lower rate of tax would be attracted where the goods were manufactured or processed by the manufacturer or processor himself but not where the goods were got manufactured or processed by him in someone else’s factory.

It is a misnomer to characterise the rate of tax specified in section 8(1) as a concessional rate of tax.It may be a lower rate of tax but the reason for it is purely economic. It is not a concession or exemption granted to a dealer. The purpose of it is to maintain the price structure."

42) What is telecommunication net work? Kindly note the word is not only telecommunication equipment, it also adds ‘net work’ The phrase ‘telecommunication net work’ will have to be given much larger scope and meaning. In case of O.E.N. Connectors Ltd. vs. State of Kerala reported in (87 STC 335(Ker)the Kerala High Court empathetically stated that the entry is one inserted with reference to a particular trade or business and so it should be understood in the sense in which persons concerned in the said trade or business understand it. The Tribunal was in error in surmising that the "multipin connectors", manufactured and sold by the petitioner were telecommunication apparatus, without at least examining a few persons connected in the trade with reference to the meaning of the expression. The matter was remanded.

43) The world of telecommunication is moving very fast with rapid scientific advancement. What is new system today would be out dated and obsolete next year. In my opinion all the equipments, apparatus, the wires or infrastructures connecting them and the instruments which ultimately comes in to existence would be covered by the phrase telecommunication network. This is just an example. Scope can be wider. Kerala High Court was confronted with similar issue.The first decision by Kerala H C was that amendment to sec 8 (3) (b) was not effective for the periods 93-94. This is a judgment wherein the absence of inclusion of word telecommunications network, it was held that penalty was leviable for availing of the concessional rate of sales tax on inter-State purchases of dish antenna, battery, digitiser, etc., which were used for transmitting television signals to customers. The issue here was whether the purchases can be said to be for Generation and Distribution of electricity. It was held That electronic television signals could not be equated to a form of power and therefore, the use of C form was not for an eligible purpose. This judgment needs to be distinguished as shown above.

44) The Supreme Court has explained down law as to what is generation and distribution of electricity in case of CTO vs. Rajasthan electricity (104 STC 89 (SC). The High Court, on a reference, held (i) that the respondent, the Rajasthan Electricity Board, which was engaged in the business of generation and distribution of electricity, could purchase, in the course of inter-State trade, at concessional rate of tax under section 8(1) of the Central Sales Tax Act, 1956, trucks, trolleys, trailers and the like (but not passenger vehicles), as also their accessories and spare parts, tyres and tubes, and that the Board was entitled to have its certificate of registration altered to include "tools and plants, including vehicles and other transportable goods, including their spare parts, tubes and tyres"; (ii) that purchase of soaps and paints and varnishes was permissible at concessional rate of tax only in so far as they were intended to be used for the purpose of cleaning boilers and machinery and other equipment and for the purpose of painting machinery and electrical goods; and (iii) that raincoats could be purchased at concessional rate of tax so far as they were necessary for use of the linesmen working on transmission lines during the rainy season and winter and similarly battery cells to the extent they were necessary for use by linesmen for working on transmission lines during the night. On appeal to the Supreme Court, affirming the decision of the High Court It was held that the motor vehicles, etc., soaps, paints, raincoats and battery cells, to the extent mentioned by the High Court, were integrally related to the distribution of electricity and their non-use would make distribution of electricity commercially in expedient.

45) The issue about authorities refusing to grant the declarations has also been before various high courts the punch line in all cases is that ,merely for that reason that the dealer has not paid taxes or for any other technical reasons, the issue of C Form cannot be denied .The Supreme Court has also held that the issue of C Forms cannot be refused on the ground that the concerned transaction is not eligible under the CST Act. The Sales Tax Authority at the
time of issuance of C Form cannot prejudice the issue.

46) That the C Form can be issued at any time before the Assessment prior to the Amendment to Rule 12(7). The courts have allowed C Form to be submitted even at a later date that is when the matter is before High Court or even Supreme Court (104 STC 75 SC), (15 VST 484 Orissa). Advance C Form is however not permitted under the Law in case of Salem Magnesite (116 STC 110 Mad). The Madras High Court was concerned with Blank C Form being given in advance on the basis of the orders placed wherein the particulars concerning invoice no Dates and Sales price were entered in the C Form by the Petitioner, it was held that under the Central Sales Tax Act, 1956, the concessional rate of tax can be availed of by a selling dealer only if, in terms of section 8(4)(a) of the Act and rule 12 of the Central Sales Tax (Registration and Turnover) Rules, I 957,the selling dealer furnishes declarations in "C" forms obtained from the buyer in the prescribed form, duly filled in and signed by the latter, containing all the particulars required to be filled in and the goods are covered by the certificate of registration issued under the Act. The dealer has to strictly comply with the provisions of law requiring him to furnish declarations in the prescribed forms and he cannot be allowed to produce other evidence to prove that the sales were to registered dealers. The petitioner, therefore, was not entitled to the benefit of the concessional rate of tax on the turnover in question.

47) However in case of defective C Form, the rules of Natural Justice require that the Authorities must give reasonable opportunity to remove the defect (KV Mathai 123 STC 503 Kr). Once the C Form is issued no interpolation would be allowed unless counter signed with rubber stamp of the issuer please see (104 STC 001, 18 STC 22, 16 STC 607). In the e- application era , the amendment to the C form already issued becomes more tedious and lengthy process . In Maharashtra the Correction in declaration can be done only on Friday and on no other day, at times on account of the Computer program, the dealers are advised to cancel the earlier C form and apply for the fresh one.

48) That the date of effect of the RC Certificate on C form is the pointer to confirm whether, the dealer was registered at the time of issuance of declaration .With the introduction of TIN Nos the system do not write the effective no. In Maharashtra all the dealers’ who are existing as on 31st December 2005 and if they have applied in time ,they have obtained TIN no w.e.f. from 1st January 2006 .The Department has the computerized check to find out about the effective date of an declaration.

49) That the submission of original C Form is mandatory is laid down by Supreme Court in India Agencies 139 STC 329 (SC) The Supreme Court held that .The dealer has to strictly follow the procedure and produce the relevant materials required under that rule. Without producing the specified documents as prescribed thereunder a dealer cannot claim the benefits provided under section 8 of the Central Sales Tax Act, 1956. Under the Central Sales Tax (Karnataka) Rules, 1957, the dealer is required to submit along with his return the original of the prescribed forms. A registered dealer who claims that he has made a sale to another registered dealer is required to attach the original of the declaration form received by him from the purchasing dealer along with the return filed by him. The requirement in rule 6(b)(ii) that, in order to claim concessional rate of tax, the original C form has to be attached to the return as provided under rule 6(b)(ii), is not a mere formality or technicality but it is intended to achieve the object of preventing the form being misused for the commission of fraud and collusion with a view to evading payment of taxes. Rule 6(b)(ii), which is clear and categorical, cannot be liberally construed: it should be construed strictly. Without producing the original of the C form as prescribed in rule 6(b)(ii) the dealer is not entitled for concessional rate of tax under section 8(4) of the Central Sales Tax Act, 1956.

50) When the C form is lost elaborate process is prescribed for issuance of duplicate C Form , in case of Delhi Automobiles Pvt. Ltd, the liquidator allowed the Appellant to take photo stat of few declaration, the Supreme Court observed 104 STC 075 SC) affirming the decision of the High Court, that in view of the clear language of rule 12(3), it could not be said that there was substantial compliance with the requirements. Nor could this case be said to be a hard one since the appellant had not done all that it could: it ought to have preferred an appeal against the order of the company Judge and persisted in its application for obtaining from the official liquidator duplicates of the declaration forms as required by rule 12(3). The view is re confirmed by Supreme Court in Shrikrishna Rice Mills (104 STC 475).

51) A question arose before Madhya Pradesh High Court in case of Manganese Ore India Ltd. (83 STC 116 MP) in which the issue before MP high court was whether dealer can file duplicate part of C form instead of original ,the MP High Court held that there was sufficient compliance with the provisions of section 8(4) of the Central Sales Tax Act and those of rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules so as to entitle the dealer to get the benefit of concessional rate of tax under section 8(l) of the Central Sales Tax Act, 1956. It must be remembered here that the SC in the later case of lndia Agencies again re iterated that original C Form is compulsory for claim of Sales at Concessional Rates, I 39 STC 329 (SC) . In some states there is procedure described for attaching Original C Form at the time of return only, In Maharashtra till date no such formality is prescribed. Apart from being right or wrong, such formality shifts the burden on the Government and therefore it appears no such step is taken in the State of Maharashtra. More over the due date for filling the returns specially monthly returns is 21 days whereas the C Forms are given per quarter and therefore it would be practically impossible to have such prescription under law.

52) In case of El Form however the Calcutta High Court has in case of Priya Chemicals( I 32 STC 145 (Cal) held that if E I form is printed in dealers Stationery and Counter signed by Commercial Tax Authority, then it would be sufficient proof and the E I form would be allowed.

53) When the sellers claim of concessional rate of tax depends on the issuance of C Forms by the buyer in other States, over whom he has no control, possibilities are always there that the C Forms are withheld to settle personal scores, at times the dealers do not receive the money consideration nor the C Forms, but that will not stop the Government from levying the Tax on the turnover of Sales, where the amount is received or receivable.

54) In case of Agfa Gavert India Ltd.,.(123ST C 108) the Madras High Court was confronted with a different issue. In the assessment the petitioners, dealers in photographic goods, affected inter-State sales to dealers in Andhra Pradesh against the issue of ‘C’ forms. Originally, assessment orders, were passed by the assessing officer, on the basis of ‘C’ forms furnished by the dealers, giving the benefit of concessional rate of tax to them. On verification, it was found that the purchasing dealers at Andhra Pradesh furnished ‘C’ forms for the purchases effected by them issued to other dealers. The assessing officer revised the assessments and subjected the inter-State sales turnover to tax at the appropriate rate and refused to allow to the dealers the concessional rate of tax. This was confirmed by the Tribunal. On Revision Petitions before the High Court it was held that there was no material to show that a notification had been published in the Gazette of Andhra Pradesh making it known to the public that the certificate of registration of the registered dealers, whose ‘C’ forms had been utilised by the purchasing dealers, had been cancelled and also that the said registered dealers surrendered the unused ‘C’ forms to the concerned authority. There was also no material pointing out that such cancellation of registration certificates of those dealers had been duly intimated to the State Government of Tamil Nadu for due publication in its official Gazette. In such state of affairs, there was no possibility for the dealer to have knowledge of the cancellation of the registration certificate of those dealers, whose ‘C’ forms had been misused by their purchasing dealers at Andhra Pradesh. Such being the case, the dealers could not be deprived of the benefit of concessional rate of tax.

55) In case of Deputy Commissioner vs. Bharat refinery 42 STC 225, the Kerala High Court has taken same view, by holding that Seller is not responsible for any misdeeds of the buyer. In PA George’s Case 110 STC 253 (Bom) ,the Bombay High Court has held that in such cases first enquiry should be with the issuer then with the recipient of C Form . If C Form duly filled in is submitted ,then no further enquiry can be made. It is possible that the buyer uses the C form for the purpose other than those mentioned in his registration certificate, however the seller has no control over buyer it is for the buyer to defend himself, that there was no misuse of C Form or that the penalty is leviable or not In Veg Industries’ case (143 STC 308 All), the High Court has held that there is no misuse by the buyer . However in all cases that the buyer could not have purchased the goods on C Form and therefore Seller ought not to have sold against C Form will not be a proper argument. Recently Bombay High Court has in some what different context under the provisions of BST Act, held that buyer only is responsible for misuse of or contravention of declaration. (MRF Limited (29VST 566 (Born.)). In these context the Bombay High Court has specifically mentioned that the procedure laid down in the Section (BST Act) is not followed by the Commissioner. So in case of the C and E Form also as pointed out in case of PA. George’s, in all the cases of misuse, misdeed or contravention, the first inquiry should be made with the issuer of the declaration. At times the department has by way of evidence only a copy of letter issued by the Officer in the other State without any proof of previous correspondence or even original of such evidence.. Such copies are not accepted as genuine by the Sales Tax Maharashtra Tribunal and the actions of the Authorities are set aside {Deepak Spices S.A. No.1641 of 1994 dated 28-02-2008}.The reference Application filed by the Commissioner is also rejected by the Tribunal. .This case was with reference to claim under sec 6A of CST act.

56) Sec 6A starts with "Burden of proof etc in case of transfer of goods claimed otherwise then by way of sale". How to discharge the burden is also stated in the said section. The burden to be discharged after I 1-05-2002 is by producing the declaration duly filled and signed by the principal officer. If such declaration is not furnished then It would amount to Interstate sale. In case of Larson and Toubro (15 VST 484 (Ori)), the branch transfer claim was disallowed and the matter was remanded with the permission to file C form.

57) When the claim is made to Branch and disallowed, the issue is who will issue C form. Ideally, the ultimate customer must issue declaration as the disallowance of branch transfer mean the goods move as a result of sale to the customer and that branch has acted as conduit pipe or agent. However the customer who has effected local purchase and who has obtained VAT credit on such purchase may not want to accept the purchase as inter state purchase and may refuse to issue C form. Such instances occur in day to day life. One disallowance will lead to multiple further consequences. As is often stated law and logic do not go together. Whether in such situation Branch can issue C form to the principal? One can not sale to ones own self and branch can not treat its receipt as branch as its purchase. The legal fiction is created to levy tax when the proof as prescribed is not forthcoming.

58) A very interesting case came up before the Supreme Court in case of Ashok Leyland vs. State of Tamil Nadu reported in 134 STC 473 (S.C.). This is a larger Bench judgment of the Supreme Court where in it is held that

"lf, through the means of a legal fiction, it is determined that the transaction in question is not an inter-State sale, then it amounts to a transfer of stock. This finding is made by the statutory authority who has the jurisdiction to do so and there is no provision for appeal. Therefore the order made by such authority is conclusive, in that it cannot be reopened on the basis that there has been a mere error of judgment. It cannot also be reopened under the sales tax law of the State concerned when the order has been made under the Central Sales Tax Act.Section 9(2) of the Central Sales Tax Act is subject to the other provisions of the Act, which would include section 6-A(2). "Subject to" is an expression whereby limitation is expressed. The order in which a finding is given that the movement of the goods was occasioned by reason of transfer otherwise than by reason of sale, is conclusive for all purposes: it can only be reopened on a small set of grounds such as fraud, misrepresentation, collusion, etc:’

59) Some what similar observation were made by the Larger Bench of Supreme Court in the case of I nd Ashok Leyland Ltd. (105 STC) As also the Central Sales Tax Authoritites in case of Steel Authority of India (1 OVST 451 ). The CST AA followed the Supreme Court judgment. The Central Sales Tax Appellate Authority also express in detail as to what is fraud, misrepresentation etc.

60) All these three judgments which laid down that F Form once accepted and allowed in assessment cannot be disallowed except when there was fraud, collusion, misrepresentation or willful suppression of facts or the earlier order was void or voidable or vitiated by jurisdictional error. Bombay High Court in the recent judgment in case of Killick Nixon Ltd. in STR 1 of 2003 dated 6th May2010 has followed the judgment of Ashok Leyland Ltd.

61) While deciding a case under sec 6 (2) of CST Act, the Court at one point also expressed that the directions to recover from the other States can be given. This was the direction made in case of sale by transfer of document of title to good. The latest amendments made in regard to the CST Act have its moorings in the three judgments cited hereinabove.

62) By the Finance Act, 2010 Section 6A of the Central Sales Tax Act is amended Sub Section 2 of Section 6A enables the Assessing Authority to satisfy himself after making such inquiry as he may deem necessary, that the particulars contained in the declarations Form"F" furnished by the Dealer are true. The Assessing Authority may thereafter allow the Branch Transfer claim of a Dealer.

63) This beneficial position supported by Supreme Court decision appears to have been changed by introduction of sub section (3) to section 6A.At the same time sub section (2) is amended to provide that for making the order under section 6A(2) the Assessing Officer shall in addition to satisfying himself about the truthfulness of the declarations furnished by the dealer shall also satisfy himself that no interstate sales have been effected. Subsection (2) as amended provide that the deeming provision contained in subsection (2) (to the effect that the movement of goods to which the declarations relates shall be deemed for the purpose of the Act to have been occasioned otherwise than as a result of sale) shall be subject to the provisions of new
sub-section (3).

64) Subsection 6A(3) reads as follows: "Nothing contained in sub-section (2) shall preclude reassessment by the assessing authority on the ground of discovery of new facts or revision by a higher authority on the ground that the findings of the assessing authority are contrary to law, and such reassessment or revision maybe done in accordance with the provisions of general sales tax law of the State’

65) Subsection (2) is now subservient to the newly added subsection (3) and the order under subsection (2) is not final or can remain untouched but remains monitored by subsection (3). The provision of sub section (3) overrides the present position and state that notwithstanding what is stated in subsection (2),the assessing authority or reassessing authority may reassess on the ground of discovery of new facts. If reassessment period is over or it is not possible for reassessment, the Revisional Authority under the local Act will revise the assessment order if it is found on the basis of new facts that the finding of the assessing authority is contrary to law. For exact scope and meaning of ‘contrary to law’, we will have to wait for authoritative decision of some High Courts.

66) The amendment by addition of subsection (3) gives wider power to reassess on allegation of new facts or revision in accordance of the general sales tax law of the State. Interestingly, the Maharashtra Value Added Tax Act, 2002 has no provision for reassessment or revision. Section 25 provides for review which is mixture of revision and reassessment with wider scope. The question can be whether in the absence of the provision for reassessment or revision under the MVAT Act subsection (3) can be made applicable in Maharashtra. Looking to the present trend of the decision of the Supreme Court especially decision like Mahim Patram’s case (6 VST 248 (SC)) the phrase "reassessment and revision" will have to look into wider sense to include the powers of the superior authority to review u/s. 25 of MVAT Act.

67) Let us now look at the case of Ambika steels Ltd. (12 VST 216 (All). The case before Allahabad High Court related to challenge by the assessee to a circular dated November 28, 2005 issued by the Commissioner of Trade Tax mentioning that under section 6A of the Central Sales Tax Act, 1956 form F is required to be filed in respect of all transfer of goods which are otherwise than by way of sale including goods sent or received for job work or goods returned:

68) The Allahabad High Court held dismissing the petitions, that section 6 of the Central Sales Tax Act, 1956 is the charging section creating liability to tax on inter-State sales and by reason of section 6A(2) a legal fiction has been created for the purpose of the Act that transaction has occasioned otherwise than as a result of sale. Section 6A puts the burden of proof on the person claiming transfer of goods otherwise than by way of sale and not liable to tax under the Central Act. The burden would be on dealer to show that movement of the goods had been occasioned not by reason of any transaction involving any sale of goods but by reason of transfer of such goods to any other place of business or to the agent or principal, as the case may be, for which the dealer is required to furnish prescribed declaration form. If the dealer fails to furnish such declaration, by reason of legal fiction, such movement of goods would be deemed for all purposes of the Act to have been occasioned as a result of sale. The submission that the transactions, where the goods are sent for job work or received for doing job work, do not amount to sale would depend upon the contract entered into between the parties and would be the subject-matter of examination by the assessing authority. Even otherwise, under section 2(g)(ii) of the Central Act, transfer of goods used in execution of works contract is treated to be a sale. If the petitioner claims that it is not liable to tax on transfer of goods from U. P. to a place outside State then it would have to discharge the burden placed upon it under section 6A by filing declaration in form F. It would be immaterial whether the person to whom the goods are sent for or received after job work is a bailee. The requirement to file declaration in form F is applicable in cases of goods returned also.Ashok Leyland Ltd. vs. State of Tamil Nadu [20041134 STC 473 (SC) was followed.

69) No doubt, burden as per sec 6A shifts to the dealer who claims no tax is leviable. Lets see what form F reads. First of all it can be issued only by a person registered under the provisions of C ST Act 1956.The form only certifies that goods transferred as per details mentioned therein are received and duly accounted for. Technically there should not be much hue and cry over this judgment, which is later confirmed by a very short order of Supreme Court.(24 VST 356 (SC)). The Supreme Court had no occasion to go to the merits of the case as the assessee accepted to submit the declaration in form F. The Supreme Court records that there exists difference of opinion as regards scope and applicability of sec 6A and there for the acceptance by the assessee.. Even the amount as directed by the Supreme Courts direction are paid under protest.

70) Lets understand the situation with an example. A machine is sent for repair outside A state to B state. For the purpose of repair it moves from A state to B state. After repairs in B state the machine comes back to A State. It’s a clear case of interstate works contract which amounts to Sale after 11-05-2002 .When the goods namely machine moves from A state to B state there is no sale. The goods move in pursuance to a future contract for sale-works contracts. At this point if the works contractor in B state if he is registered in B state would not mind giving F form as it helps him during movement and at check posts. By submitting F form he is not committing anything extra but that he will account for it which any ways he wiII. When goods move back after repairs the contractor will ask for C form and not F form as with C form he can offer concessional rate to the buyer.

71) Take another example. In the above example the job work involves no transfer of property in goods, it’s a pure labour job . In that case recipient of finished goods in state B may not mind giving F form with the simple certification as it has. Again it helps him in clearing the goods at check posts and Octroi nakas.

72) In both the cases the VALUE of goods sent out side is substantial but the price for works contract or labour job may be very Iess. The consideration which passes between A to B is such job work charges.Therefore if for non submission of F form transaction is treated as SaIe, the amount available for taxation is the job work price and not value of goods .1 suggest in the accompanying invoice one must write quantity and quality of goods sent for job work but also the job work charges agreed upon. The price should be shown as the job work price and no more.

73) The Supreme Court has not laid down any law. Before the Allahabad High Court only reliance by the State was on Ashok Leyland. (134 STC 473) Admittedly that was case of sale and not works contract and/or pure service contract. The legislature can not provide to regulate a transaction which it can not regulate under Constitution (service contracts).The Central Sales Tax act is to formulate the principals of Sale and Purchase of goods which takes place in the course of interstate trade or commerce. Therefore it would be too early to conclude with Great respect, that Allahabad High Court has concluded the matter. In my opinion many more issues are required to be considered, especially its application to service contracts. The State has no power to regulate service contracts and the Center under the CST Act as stated herein above can not provide for any regulation for service contracts.

[Source : Paper presented at National Tax Conference held on 3rd to 4th July, 2010 at Hyderabad]