2025 (10) TMI 1187 - HC - VAT / Sales Tax

Appeal decision affirmed: contested supply deemed inter-state sale, not stock transfer; writ petition dismissed on mixed law-fact grounds

The State of Tamil Nadu, Represented by The Deputy Commissioner (CT), Coimbatore. Versus Tvl. Essorpee Mills Limited, Coimbatore., The Secretary, The Tamil Nadu Sales Tax Appelate Tribunal (Additional Bench), Coimbatore.

HC upheld the Appellate Tribunal's finding that the contested supply constituted inter-state sale rather than a stock transfer, dismissing the writ ... Rejection of petitioners claim of stock transfer under Section 6A, while treating the same to be a transaction constituted inter-state sale within the meaning of Section 3(a) of the Central Sales Tax Act, 1956 - HELD THAT:- The question as to whether a transaction is an inter-State or stock transfer is a mixed question of law and facts and thus, this Court is not inclined to interfere with the finding of fact rendered by the Tribunal, which is the highest fact finding body under the Central Sales Tax Act. That apart contention/ submission/ rejection of claim of stock transfer suffers from infirmity of having generalized the entire claim of stock transfer on the basis of a few random transactions which vitiates the proceedings in view of the law laid down by the Hon'ble Supreme Court in the case of Tata Engineering and Locomotive Company Limited Vs. Assistant Commissioner of Commercial Taxes, Jamshedpur and another [1970 (3) TMI 104 - SUPREME COURT]. The order of the Appellate Tribunal is confirmed and the Writ Petition stands dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether specific transactions claimed as stock transfers under Section 6A of the Central Sales Tax Act were in fact inter-State sales within the meaning of Section 3(a) of the Central Sales Tax Act. 2. Whether the Sales Tax Appellate Tribunal's factual finding that the transactions were stock transfers (and not inter-State sales) was perverse or liable to interference by this Court. 3. Whether the revenue discharged the burden of proving a 'conceivable link' between inter-State movement of goods and specific sales orders so as to treat movements as inter-State sales rather than stock transfers. 4. Whether the assessing authority and first appellate authority improperly generalized and rejected the entire claim of stock transfer on the basis of certain selected/random transactions, thereby vitiating the assessment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation: inter-State sale under Section 3(a) vs stock transfer under Section 6A Legal framework: Section 3(a) of the Central Sales Tax Act defines inter-State sale as a sale where the goods are dispatched from one State to another as a result of a sale; Section 6A provides for treatment of stock transfers (movement not occasioned by sale) and prescribes conditions (including declarations) for non-liability as inter-State sale. Precedent Treatment: The Tribunal applied principles from higher appellate authorities concerning the necessity of establishing a link between movement and specific sale orders; the Court relied on established higher-forum precedents (referred to in the judgment) concerning proof required to treat movement as resulting from sale rather than stock transfer. Interpretation and reasoning: The Tribunal examined documentary material (including Form-F declarations) accepted by the assessing authority and found no material evidence demonstrating that particular movements were pursuant to specific contracts of sale. The Tribunal emphasised that inter-State sales must be proved with reference to specific movements tied to contracts of sale, not by general observations. The Tribunal found no 'conceivable link' between movements to agents in other States and sales there, and concluded movements were stock transfers. Ratio vs. Obiter: The holding that absence of evidence linking particular consignments to specific sales precludes treatment as inter-State sales is ratio on the facts. Observations about the general standard of proof required for classifying movements as sales (as opposed to isolated commentary) support the ratio. Conclusions: On the facts, the movements were stock transfers under Section 6A; they were not inter-State sales under Section 3(a) because the revenue failed to prove that movements were occasioned by specific sales. Issue 2 - Whether Tribunal's factual finding was perverse or interferable by the Court Legal framework: Determination of whether a transaction is an inter-State sale or a stock transfer is a mixed question of law and fact; appellate interference with factual findings requires demonstration of perversity or illegality. Precedent Treatment: The Court applied the settled principle that a factual conclusion by the highest fact-finding forum under the Act (the Tribunal) will not be disturbed unless shown to be contrary to law or perverse. Interpretation and reasoning: The Court interrogated the Government Advocate for material showing perversity or error and found none. Given that the Tribunal accepted documentary evidence and gave reasoned findings, and that alternative views were possible, interference was not warranted. The Tribunal's approach-requiring specific evidence linking movement to sale-was within legal bounds. Ratio vs. Obiter: The conclusion that absent demonstration of perversity this Court will not disturb the Tribunal's factual finding is ratio; any remarks about standards of review constitute explanatory obiter supporting that ratio. Conclusions: The Tribunal's factual finding was not perverse or contrary to law; judicial interference was inappropriate and the finding must stand. Issue 3 - Burden and sufficiency of evidence to establish a 'conceivable link' between movement and sale Legal framework: Liability as an inter-State sale requires proof that the movement of goods was occasioned by a sale - i.e., a discernible connection between dispatch and a contractual sale; declarations and documentary completeness under Section 6A are material. Precedent Treatment: The Tribunal and Court followed higher-forum authority requiring that the characterisation of movements be established by evidence of specific movements in pursuance of contracts, not by general inference. Interpretation and reasoning: The assessing authority purported to infer inter-State sales from earlier realisation of proceeds and other observations. The Tribunal rejected that approach, holding that mere prior receipt of sale proceeds does not conclusively prove movement was pursuant to sale. The Tribunal also found the department produced no material linking particular consignments to specific orders in the other State and did not demonstrate that Form-F and supporting documents were incomplete or untrue. Ratio vs. Obiter: The rule that assessment of inter-State sale requires specific evidentiary linkage (and that mere prior realisation is insufficient) is ratio as applied to these facts. Conclusions: The revenue failed to discharge the burden of proof; absence of specific documentary linkage made the department's contention unsustainable. Issue 4 - Validity of generalized rejection based on selected/random transactions Legal framework: Assessments rejecting claims of stock transfer must be based on particularised findings and evidence; wholesale generalisation from a sample of transactions risks invalidation. Precedent Treatment: The Tribunal's approach is consistent with higher authorities cautioning against generalising entire claims on the basis of a few transactions; the Court relied on those principles to evaluate the assessing authority's methodology. Interpretation and reasoning: The Court observed that the assessment rejected the entire claim of stock transfer by generalising from certain random transactions. The Tribunal found this methodology improper because the department did not show that the documentation for the rest of the transactions was incomplete or untrue. Generalisation without specific proof vitiated the assessment process. Ratio vs. Obiter: The determination that generalized rejection based on sampled/random transactions vitiates assessment is ratio where applied to the challenge of the assessment in this matter. Conclusions: The generalized approach of the assessing authority and first appellate authority was flawed; such generalisation cannot supplant requirement of specific proof and therefore the Tribunal's reversal on this ground was correct. Overall Disposition Because the Tribunal legitimately concluded, on documentary material and for lack of specific evidence linking movements to particular sales, that the transactions constituted stock transfers under Section 6A and not inter-State sales under Section 3(a), and because the Tribunal's factual findings were not shown to be perverse or contrary to law, the Tribunal's order was affirmed and the writ petition was dismissed. No costs were awarded.