2004 (1) TMI 365 - SC - VAT / Sales Tax

s.6-A(2) finding is conclusive: movement-based dealings treated as stock transfers, challenge only for fraud, misrepresentation, collusion.

Ashok Leyland Ltd. Versus State of Tamil Nadu and another (and other appeals and a writ petition)

SC held that movement-based dealings can be treated by legal fiction as stock transfers rather than inter-State sales; a determination under sub-s (2) of ... Nature of transaction - liability to tax on inter-State sale as contained in section 6 - sale by movement of goods or not - manufacture of commercial vehicles - transfer of goods to their regional sales offices constituted stock transfers - legal fiction can be applied to determine whether a particular inter-State transaction amounted to an inter-State sale or a mere transfer of stock - Whether as falling under section 3 or under section 4 of the Central Sales Tax Act, 1956, is arbitrary, unworkable and ultra vires articles 14, 19(1)(g) and Chapter XIII of the Constitution of India - elements of transactions taking place in more than one State - Held that:- the case at hand it has to be determined whether the sale in question is an inter-State one. If through the means of a legal fiction it is determined that this is not an inter-State sale, then it amounts to a transfer of stock. This finding is made by a 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 had been a mere error of judgment. It also cannot be reopened under another statute, for examples, the Sales Tax Act of the State concerned, when the order had been made under the Central Act. Section 9(2) of the Act is subject to the other provisions of the Act which would include sub-section (2) of section 6-A of the Act. 'Subject to' is an expression whereby limitation is expressed. The order is conclusive for all purposes. It can only be reopened on a small set of grounds such as fraud, misrepresentation, collusion, etc. It is also to be borne in mind that no presumption when movement of goods has taken place in the course of inter-State sales may be raised in the case of standard goods but the same is not conclusive. It is only one of the factors which is required to be taken into consideration along with others. In a case, however, where the purchaser places order on the manufacturer for manufacturing goods which would be as per his specifications, a presumption that agreement to sell has been entered into may be raised. Once the situs of sale either by way of legal fiction or otherwise is determined, the State Legislature will be denuded of its power to fix another situs having regard to the fact that the Parliament alone has the exclusive jurisdiction therefor. A sale may have several elements and all of them need not necessarily take place in one State and in that view of the matter a presumption had to be provided for by a deeming provision as a logical corollary of the principles laid down by a law of Parliament. It has not been disputed before us that all the requisite particulars are to be stated in form F. Once a determination is made that such statements are correct, the curtain is drawn keeping in view the expression 'thereupon'. The said word is of great significance and must be given its full effect. The purpose of verification of the declaration made in form F, therefore, is as to whether the branch office acted merely as a conduit or the transaction took place independent to the agreement to sell entered into by and between the buyer and the registered office or the office of the company situated outside the State. The said decision therefore, does not run counter to our reading of the said provision. Furthermore, the question which has been raised before us had not been raised therein. We, therefore, are of the opinion that the observations made by this Court in Ashok Leyland [1997 (2) TMI 451 - SUPREME COURT], to the effect that an order passed under sub-section (2) of section 6-A can be subject-matter of reopening of a proceeding under section 16 of the State Act was not correct. However, we may hasten to add that the same would not mean that even wherein such an order has been obtained by commission of fraud, collusion, misrepresentation or suppression of material facts or giving or furnishing false particulars, the order being vitiated in law would not come within the purview of the aforementioned principle. Thus, we are of the opinion that the appellants would be entitled to move the High Court for ventilating their grievances. However, if the Central Government creates a new forum, it would be open to them to approach the same. Issues Involved:1. Interpretation of Section 6-A of the Central Sales Tax Act, 1956.2. Jurisdiction of Tamil Nadu authorities to reopen assessments.3. Conclusiveness of orders under Section 6-A(2) of the Central Act.4. Applicability of the principle of res judicata.5. Validity of reassessment proceedings based on fraud or misrepresentation.Detailed Analysis:1. Interpretation of Section 6-A of the Central Sales Tax Act, 1956:The appeals and writ petition primarily involve the interpretation of Section 6-A of the Central Sales Tax Act, 1956. The appellants, engaged in the manufacture of commercial vehicles, contended that the transfer of goods to their regional sales offices constituted stock transfers, not inter-State sales. They relied on declarations in Form F, which were accepted by the assessing authority. The Supreme Court examined whether Section 6-A creates a conclusive presumption regarding the nature of the transaction.The Court held that Section 6-A(2) creates a legal fiction, making the movement of goods deemed to have been occasioned otherwise than as a result of sale. This legal fiction must be given full effect, making the order of the assessing authority conclusive for all purposes of the Act. Reopening such orders is permissible only on limited grounds such as fraud, misrepresentation, or suppression of material facts.2. Jurisdiction of Tamil Nadu Authorities to Reopen Assessments:The appellants challenged the jurisdiction of Tamil Nadu authorities to reopen assessments, arguing that the orders under Section 6-A(2) attained finality and could not be reopened. The Court noted that the power to reopen assessments depends on the provisions of the concerned State sales tax enactments by virtue of Section 9(2) of the Central Act. The Court emphasized that an order under Section 6-A(2) is part of the assessment order and can be reopened only if the relevant State Act allows it.3. Conclusiveness of Orders Under Section 6-A(2) of the Central Act:The Court overruled its earlier decision in Ashok Leyland, holding that an order under Section 6-A(2) is conclusive and cannot be reopened merely on the ground of error in judgment. The Court emphasized that such orders can only be challenged on limited grounds like fraud or misrepresentation. The Court stated, 'Once an order in terms of sub-section (2) of section 6-A of the Central Act is passed, the transactions involved therein would go out of the purview of the Central Act.'4. Applicability of the Principle of Res Judicata:The principle of res judicata was discussed in the context of reopening assessments. The Court clarified that res judicata is a procedural provision and does not apply where there is inherent lack of jurisdiction. An order passed without jurisdiction is a nullity and cannot be supported by invoking procedural principles like estoppel, waiver, or res judicata.5. Validity of Reassessment Proceedings Based on Fraud or Misrepresentation:The Court acknowledged that orders obtained by fraud, misrepresentation, or suppression of material facts could be reopened. The Court stated, 'An order of assessment is albeit passed under the State Act. But once it is held that the concerned State Act as also the Central Act is not applicable, as a consequence whereof sales tax would be payable under another State Act, it is doubtful as to whether the power to reopen the proceedings under the State Act or the Central Act would be attracted.'Conclusion:The Supreme Court concluded that the appellants could move the High Court to ventilate their grievances. If a new forum is created by the Central Government, the appellants may approach it. The Court emphasized the need for a central mechanism to resolve disputes involving inter-State transactions to avoid conflicting assessments by different States. The appeals and writ petitions were disposed of with these directions and observations.