goods sold less than the stock inward from the other states

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of our client have received stock transfer from their head office located in mumbai. And they are selling these goods within tamilnadu lesser than the value what they have received. After they are receiving the goods to branch in tamilnadu. Based on the quantity and as per their head office instructions they are selling these goods various customers. Based on the Stock Transfer Inward the branch has to issue form F to their Head Office Full value i.e. Inward Value. While doing so the sales tax enforcement wing came their premises for inspection and stating that, being the sales value is lesser than stock inward value and the authority concerned calculate the trading account. In that, they have made sales value (-) 10% G.P. i.e. cost of purchase worked out and compared with physical stock. Obviously the difference will come. Now, they have treated as sales suppression and made it for higher rate of tax with penalty.

Can u any one provide me any suitable case law to contend the assessment order. Now, they are preferred for an appeal.

With regards,

K. Thyagarajan.

[Rama Krishana]

As per cursory view of the issue with common knowledge the action of the department is not valid. As per the provisions of the CST to the extend I am able to recall from my memory, there is to restriction or condition that goods must be sold on higher price that the price of such stock transfer. If I am not correct, please correct me.

Further, as per the local tax provisions, the question would depend upon the facts and circumstances in which you must be able to prove that sale is at arm's length and free from undervaluation.

[Kailash Singhal]

d/s

IT HAPPENS ALWAYS WHEN GOODS LIKE BASE METAL DISPATCHED FROM FACTORY ,

CHARGE HIGHER RATE FOR CENTRAL EXCISE VALUATION PURPOSES SO SHOULD NOT FACE ANY PROBLEM IN FUTURE .

ALSO PROSPECTIVE BUYER CAN CLAIM FULL AMOUNT OF CENTRAL EXCISE

SALES PRICE ALWAYS BASED ON MARKET DRIVEN FACTOR

REGARDS

CA KC SINGHAL

AI Summary

Undervaluation in inter-state stock transfers: branch must prove arms length sale to rebut suppression assessment and penalties. A branch sold stock transferred from its head office at prices lower than the inward value; the tax authority adjusted the trading account by imputing a margin, found discrepancies with physical stock and treated the difference as sales suppression. The primary legal contention is whether the branch can prove its sales were at arms length and not undervalued; demonstrating transfer pricing rationale, intercompany documentation, stock records and market-based pricing can rebut the department's reconstruction and suppression finding.