2023 (1) TMI 383 - HC - VAT and Sales Tax

High Court deems branch transfers as interstate sales, directs re-examination of penalty imposition

The State of Tamil Nadu, Represented by, The Deputy Commissioner (CT), Coimbatore Division, Coimbatore. Versus Tvl. Sharp Industries, Kalappatti, Coimbatore., The Secretary, The Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Coimbatore.

The High Court overturned the Tribunal's decision, ruling that branch transfers were interstate sales disguised as such. The Court emphasized the lack of ... Disallowance of branch transfer - Penalty under Section 9(2) of the Central Sales Tax Act, 1956 - HELD THAT:- The facts on record indicate that despite, notice being issued prior to passing of order dated 21.04.1997, the first respondent assessee failed to reply to the same. Therefore, the Additional Appellate Assistant Commissioner vide order dated 27.01.1999, confirmed the revision order of the Assistant Commissioner dated 21.04.1997, vide order dated 27.01.1999, dismissed the appeal. Only in so far as levy of penalty, the matter was remanded back to the Assessing Officer to ascertain whether, penalty was to be levied under Section 12(3)(b) of the TNGST Act or under Section 16(2) of the TNGST Act. The Tribunal has however reversed the order of the Appellate Tribunal vide impugned order. Reading of the order of the Tribunal indicates that it is a common order passed for three Assessment Years. There is no discussion in so far as alleged branch transfer in Bangalore. The employee of the first respondent assessee was not only a Branch Manager of the first respondent assessee but also partner of M/s.Karthik Engineering to whom the invoices were raised from the Branch in Bangalore - Mere location of the dealer in Karnataka at Door.No.36, J.C.Bose Road, Bangalore and appellants at 16-B, G.N.Lalbagh Road, Bangalore, ipso facto, would not justify a conclusion that there was a stock transfer first and thereafter a sale to the said dealer. Even then, a first sale would have taken place from a depot to the dealer in Karnataka, thereafter, a second sale from the dealer i.e., M/s.Karthik Engineering to its customer. The order of the Appellate Tribunal allowing the appeal of first respondent assessee is un-sustainable - the case remanded back to the Assessing Officer to determine the penalty is correct and was wrongly interfered by the Appellate Tribunal. Issues:1. Disallowance of branch transfer.2. Penalty under Section 9(2) of the Central Sales Tax Act, 1956.Detailed Analysis:1. Disallowance of Branch Transfer:The Tribunal's impugned order dated 29.05.2003, allowed the appeals for Assessment Years 1992-93, 1993-94, and modified the appeal for 1995-96. The dispute primarily involved the disallowance of branch transfer. The Tribunal found that the sales effected through depots in other states could not be held as interstate sales under Section 3(a) of the CST Act, as there was no conceivable link in the movement of goods from the principal to the depot. Therefore, the Tribunal set aside the orders of the first appellate authority, which had treated the branch transfers as interstate sales.The revenue's challenge to the Tribunal's order was based on the contention that the first respondent's branch at Bangalore was managed by an individual who was also a partner in M/s. Karthik Engineering, Bangalore. It was found that goods were directly delivered to M/s. Karthik Engineering, not to the so-called branch office. The Tribunal's decision was reversed by the High Court, which noted that the movement of goods from Coimbatore to Karnataka was indeed an interstate sale disguised as a branch transfer. The High Court emphasized that the location of the dealer in Karnataka and the appellant's branch did not justify the conclusion of a stock transfer followed by a sale.2. Penalty under Section 9(2) of the Central Sales Tax Act, 1956:The initial assessment for the year 1992-93 was completed on 31.12.1993, with the taxable turnover determined and tax levied. An inspection on 19.09.1995 led to a revision assessment order dated 21.04.1997, which included a penalty under Section 9(2) of the CST Act read with Section 12(3)(b) of the TNGST Act. The Appellate Commissioner partly dismissed and partly remanded the appeals, noting that the penalty should have been examined under Section 16(2) of the TNGST Act instead of Section 12(3)(b).The Tribunal set aside the penalty, but the High Court found this to be an erroneous application of law. The High Court directed the Assessing Officer to re-examine the imposition of penalty under the correct statutory provisions, emphasizing the need to follow the principles of natural justice.Conclusion:The High Court allowed the writ petition, finding the Tribunal's order unsustainable. It reinstated the Appellate Commissioner's decision to remit the case back to the Assessing Officer to determine the penalty within three months, ensuring adherence to natural justice principles. The writ petition was dismissed with these observations, and no costs were awarded.