The matter is about issue of ‘H’ form to the TN vendor. The
goods are ordered from AP. The TN vendor also supplies the goods to AP place.
The goods are exported from there. Therefore, the movement of goods for all
the purposes is to and from AP. The general scheme of sales tax law is that
the State from which physical movement of goods takes place has control over
such transaction. This position is also clear from section 4 of the CST Act,
1956. The said section, which determines
situs of sale for sales tax purpose, is reproduced below.
“4. When is a sale or purchase of goods said to take place
outside a State
(1) Subject to the provisions contained in section 3, when
a sale or purchase of goods is determined in accordance with sub-section (2)
to take place inside a State, such sale or purchase shall be deemed to have
taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take
place inside a State, if the goods are within the State –
(a) in the case of specific or ascertained goods, at the
time of the contract of sale is made; and
(b) in the case of unascertained or future goods, at the
time of their appropriation to the contract of sale by the seller or by the
buyer, whether assent of the other party is prior or subsequent to such
appropriation.
Explanation:– Where there is a single contract of sale or
purchase of goods situated at more places than one, the provisions of this
sub-section shall apply as if there were separate contracts in respect of the
goods at each of such places”
In above case, the goods are received at AP. They are
exported from there. Therefore, as per above section 4 of the CST Act, 1956,
the situs of such export sale is in AP. Therefore, it is State of AP, which
has jurisdiction over such transaction. The form facility is created to have
control over the purchasing dealer. When the dealer approaches sales tax
department for obtaining the blank forms, the sales tax department is in
position to identify such dealer and can exercise its control over the said
dealer, like they can watch the disposal of the goods purchased against said
form. Therefore, impliedly it means that the purchasing dealer should obtain
the forms from the jurisdictional state. In above case, even if, the vendor’s
invoice is at Maharashtra office, the transaction for the purpose of sales tax
laws is taking place at AP. Therefore, the dealer should use the ‘H’ form of
the AP state.
This position can also be seen from another angle. The
issuing of ‘H’ form to the vendor is provided in Rule 12(10) of the CST
(Registration & Turnover) Rules, 1957. The said Rule is reproduced below for
ready reference.
Rule 12
[(10)(a) A dealer may, in support of his claim that he is
not liable to pay tax under this Act in respect of any goods on the ground
that the sale of such goods is a sale in the course of export of those out of
the territory of India within the meaning of sub-section (3) of section 5,
furnish to the prescribed authority a certificate in Form “H” duly filled and
signed by the exporter along with the evidence of export of such goods. 3[***]
(b) The provisions of the rules framed by the respective
State Governments under sub-sections (3), (4) and (5) of section 13 relating
to the authority from whom and the conditions subject to which any form of
certificate in Form “H” may be obtained, the manner in which such form shall
be kept in custody and records relating thereto maintained and the manner in
which any such form may be used and any such certificate may be furnished in
so far they apply to declaration in Form C prescribed under these rules shall
mutatis mutandis apply to certificate in Form H.]
It can be seen that as per Rule 12(10)(b), the provisions
made by State Government in respect of issue and receipt of ‘C’ form are
applicable to ‘H’ form. In the CST (Bombay) Rules, 1957, Rule 4AA provides for
obtaining or giving declarations in Form ‘C’. The said rule is reproduced
below for ready reference.
4AA. Declaration forms to be obtained and given from
delivery State. —
(1) Where a registered dealer claims to have made a sale in
the course of interstate trade or commerce to another registered dealer and
under instructions has delivered the goods to the purchasing dealer in another
State, the declaration by the purchasing dealer to be produced by the selling
dealer before the assessing authority shall be in a form obtained by the
purchasing dealer from the authority in that State:
Provided that, if the purchasing dealer is not registered
in the State in which the goods have been delivered, then the declaration
shall be in a form obtained by him from the authority in that State in which
he is registered.
(2) Where any goods are sold by a registered dealer to
another registered dealer in the course of inter-State trade or commerce as a
result of which the goods are delivered to the purchasing dealer in the State
of Maharashtra, the declaration to be given by the purchasing dealer if he is
registered in this State, shall be in a form obtained under sub-rule (1) of
rule 4.]
As per sub-rule (2) of above rule 4AA, the ‘C’ form of
Maharashtra is to be issued, if the goods are delivered in Maharashtra and the
purchasing dealer is registered in Maharashtra. Thus, the rule does not
contemplate to issue ‘C’ forms from Maharashtra, if the delivery of the said
goods is not in Maharashtra. If at all, the dealer is not registered in the
actual state of delivery then he can issue ‘C’ form of Maharashtra. The same
position will also apply to ‘H’ form.
In above case, the goods are delivered in AP, as well as
the dealer is also registered in AP under CST Act, 1956. Looking to the above
legal position, the dealer should issue ‘H’ form from AP. The export turnover
in relation to above purchases against ‘H’ form should also be shown in AP
returns and not in VAT returns of Maharashtra.
Reply
Though the issue raised is in relation to sales tax laws it
is required to be seen in light of specific provisions under specific State
Sales Tax Act which is at present referred to as VAT Act. In this query the
issue can be examined in light of provisions of Maharashtra Valued Added Tax
Act, 2002 (MVAT Act, 2002).
The facts appears to be that there may be a unit which has
been closed due to financial losses or for any other reason. When the sick
unit is not in position to repay the loans taken from the financial
institutions like IDBI/UTI, its property being mortgaged to the financial
institutions, the said financial institutions take the charge of the assets.
These units then dispose of assets. Normally, this may be disposed of by
auction sale etc.. Under the authority as per the agreement and as per the
relevant Finance Regulation Act the financial institutions are in position to
dispose of the assets to recover the loan. However such unit may also be
indebted to the sales tax department about its tax arrears. The issue which is
raised is whether such arrears can be recovered from the purchaser of the
assets from the financial institution.
To give an opinion on above issue, it is necessary to refer
to certain relevant provisions of the sales tax law. Under sales tax laws,
normally the person succeeding (transferee) in the business is also made
liable to all the arrears of the transferor. For this purpose specific
provisions are made in the sales tax laws. In relation to the MVAT Act, 2002.
The reference can be made to section 44(4)
of the said Act. The said section is reproduced as under:
“44. Special provision regarding liability to pay tax in
certain cases –
(4) Where a dealer, liable to pay tax under this Act,
transfers or otherwise disposes of his business in whole or in part, or
effects any change in the ownership thereof, in consequence of which he is
succeeded in the business or part thereof by any other person, the dealer and
the person succeeding shall jointly and severally be liable to pay the tax
including any penalty, sum forfeited and interest due from the dealer under
this Act or under any earlier law, up to the time of such transfer, disposal
or change, whether such tax including any penalty, sum forfeited and interest
has been assessed before such transfer, disposal or change but has remained
unpaid, or is assessed thereafter.”
Thus, it is provided that if a dealer transfers his
business then the transferee taking over his business is made liable for all
the arrears of the transferor till the date of transfer, whether assessed
prior to such date of transfer or after the date of transfer.
The important ingredients to attract section 44(4) are that
there should be transfer of business by the transferor to transferee. In other
words the transferee should take over his business. The takeover of business
is something which has many aspects. In contrast there may be only disposal of
land, building and plant and machinery etc.. This is referred to as disposal
of the assets. If it is only the disposal of assets then it cannot be said
that the purchaser is the transferee of the business. In such case he is only
purchaser of the assets as any other normal dealer and no liability can befall
upon him, as can fall in case of transfer of business. However, when a dealer
purchases his assets, some time an issue arises whether it amounts to transfer
of business to him by the transferor so as to liable to pay the arrears or
only purchase of assets. This issue has been discussed at various levels. A
reference can be made to following few important judgments.
1. D’Que Industries (S.A.991 of 1987 dt.12-9-88)
In this case the dealer has purchased the assets including
land, building and plant and machinery. The said assets were purchased in the
auction made by the financial institution for recovery of its loan amount. The
sales tax department on above facts held the dealer as transferee of the sick
unit of whose assets were sold by the financial institution and they wanted to
make the dealer liable as a transferee. The M.S.T. Tribunal held that when it
is only purchase of the assets there is no transfer of business. To become a
transferee of the business, Tribunal, amongst others, observed that the
transfer of business can take place when there is transfer of assets as well
as goodwill of the business and if that is not the position then it is only
the purchase of assets and not transfer of business. In this particular case
the Tribunal held that there is no transfer of business but only purchase of
assets and hence the dealer cannot be liable as transferee of the business.
2. Alpha Silicons vs. Assistant Commissioner of Sales
Tax (Recovery), Gulbarga (77 STC 68) (Kar.)
In this case the dealer purchased the assets of a sick unit
in the auction held by a financial institution. The liabilities about arrears
were thrust upon this dealer and hence he approached the High Court. The High
Court observed that since there is transfer of business the dealer is liable
to arrears also. In this case the Hon’ble High Court observed that transfer of
business takes place when there is, along with assets, transfer of goodwill
etc.. Therefore from the judgment it appears that if the purchase of assets is
along with goodwill then it will be case of transfer and not purchase of
assets and in that case the liability will follow.
3. V. Adinarayan & Others vs. Andhra Bank & Others (142
STC 469) (A.P.)
In this case the dealer has purchased the assets from the
bank under Securitisation Act. The liability as a transferee was tried to be
thrust upon the dealer. High Court held that since there is no transfer of
goodwill etc. there is no question of transfer of business. It is only case of
purchase of assets and hence the liability cannot be attracted to him for
arrears.
4. Shreya Paper Mart (144 STC 331) (SC)
This is a recent case decided by Hon’ble Supreme Court. The
Supreme Court has dealt with the issue similar to where the assets were sold
by the financial institution. Supreme Court has observed upon the legal
position elaborately. It is held that if there is transfer of business then
the liability can be attracted as a transferee. Supreme Court has observed
about the nature of transfer. As per the observations of the Supreme Court it
appears that there should be a transfer of running business with a view to
gain profit out of the same and it should be along with the goodwill.
This is the latest case of the Hon’ble Supreme Court. As
per the said judgment now it can very well be said that if the financial
institution has only sold the assets after the unit is closed, then there is
no possibility that there is transfer of business.
Therefore in relation to above query, we opine that a
purchaser of assets of sick unit in auction by Financial Institution cannot be
liable to arrears of sick unit and sales tax department cannot be justified in
asking such dues from such purchaser.