2022 (8) TMI 223 - HC - VAT and Sales Tax

High Court upholds rejection of CST Act exemption claim due to fraudulent declarations

The High Court of Madras upheld the Tribunal's decision to reject the petitioners' claim for exemption under Section 6A of the CST Act due to consignment ... Interstate sate - consignment transfer/stock transfer - Declaration in Form F by bogus dealer - whether the claim for non-liability on consignment transfer/stock transfer in terms of Section 6 A of the Central Sales Tax Act, 1956 (CST Act) can be sustained, on the strength of declaration in 'Form F' allegedly issued by a dealer, who was found to be bogus/nonexisting/ fictitious? - HELD THAT:- It may be true that once a statutory declaration is furnished, the recipient of such declaration cannot be held responsible for any incorrectness of the details filled in by the dealer issuing such declaration. However, the same cannot be understood to mean that a declaration in 'Form F' or for that matter any declaration form of a dealer found to be non-existent/fictitious, which is nothing but a fraud played on the State, must also be extended the benefit of a valid declaration. Yet another reason, as to why the Form “F” Declaration would be inadequate to claim the benefit under Section 6 A of the CST Act, once the dealer issuing the Form 'F' declaration is found to be non-existent/bogus, is also in view of the settled position that “fraud vitiates most solemn proceedings”. There are no reasons to interfere with the orders of the 1st Respondent/Tamil Nadu Sales Tax Appellate Tribunal - petition dismissed. Issues:1. Interpretation of Section 6A of the Central Sales Tax Act, 1956 regarding non-liability on consignment transfer/stock transfer based on Form F declaration from fictitious dealers.2. Dispute over the claim of exemption on consignment/stock transfer by the petitioners under Section 6A of the CST Act.3. Assessment of liability when consignment agents are found to be bogus or non-existent.4. Legal implications of using Form F declaration from dealers later found to be fraudulent.5. Applicability of legal precedents in cases involving non-existent or sham dealers.Issue 1: Interpretation of Section 6A of the CST Act:The case revolves around the question of whether the petitioners can claim non-liability on consignment transfer/stock transfer under Section 6A of the CST Act based on Form F declarations from dealers later discovered to be bogus. The Assessing Officer rejected the claim on this basis, leading to subsequent appeals.Issue 2: Dispute over Exemption Claim:The petitioners, engaged in the sale of gingelly oil cake, reported turnovers and claimed exemptions under Section 6A of the CST Act for consignment transfers to Kerala dealers later found to be fictitious. The First Appellate authority initially allowed the claim, but the Tribunal ultimately rejected it, prompting the petitioners to file writ petitions challenging the Tribunal's decision.Issue 3: Liability Assessment for Bogus Agents:The core contention is whether the petitioners, despite claiming ignorance about the fictitious dealers, can be absolved of liability for consignment transfers when the dealers are proven to be non-existent. The Tribunal's decision to reject the claim based on this premise is being contested in the writ petitions.Issue 4: Legal Implications of Fraudulent Form F Declarations:The court deliberated on the significance of Form F declarations issued by dealers later identified as bogus. While acknowledging that recipients are generally not liable for inaccuracies in such declarations, the court emphasized that benefits cannot be extended when the dealer issuing the form is fraudulent, as it would amount to fraud on the state.Issue 5: Precedents on Non-existent Dealers:The judgment references legal precedents to underscore that transactions involving sham or non-existent dealers render any benefits claimed null and void. Citing cases like Daluram Pannalal Modi and Rattan Steel, the court reaffirmed that the genuineness of transactions and dealer existence are crucial, and mere production of tax invoices loses relevance when dealer existence is disputed.In conclusion, the High Court of Madras upheld the Tribunal's decision to reject the petitioners' claim for exemption under Section 6A of the CST Act due to consignment transfers to fictitious dealers. The court emphasized that fraudulent Form F declarations cannot confer benefits, citing legal principles that fraud vitiates proceedings. The judgment underscores the importance of dealer genuineness in tax assessments and dismisses the writ petitions, affirming the Tribunal's orders.