TaxTMI 
TaxTMI 
2026 (6) TMI 107
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Shri Ankit Swami, Advocates for the State of Karnataka Shri Soumyajit Pari and Shri Varun, Advocates for the State of Orissa Shri Nishe Rajen Shonker and Mrs. Devika A.L. Advocates for the State of Kerala ORDER JUSTICE DILIP GUPTA: This appeal has been filed by Shree Karthik Papers Limited [the appellant] against that part of the order dated 16.09.2014 passed by the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Coimbatore [the Sales Tax Appellate Tribunal] that has partly allowed CTA Appeal No. 135 of 2009 filed by the State of Tamil Nadu. It needs to be noted that the Additional Appellate Assistant Commissioner, Coimbatore [the Additional Appellate Assistant Commissioner] by order 30.11.2006, for the Assessment Year 1995-96 held that the assessment made on a turnover of Rs. 1,51,28,219/- for sales after 01.08.1995 should be on consignment sale basis and not on inter-State sale basis and, accordingly, penalty of Rs. 25,64,365/- imposed on the appellant was reduced to Rs. 2,21,858/-. The appellant filed CTA Appeal No. 13 of 2007 before the Sales Tax Appellate Tribunal questioning the imposition of penalty of Rs. 2,21,858/-, while the State of Tamil Nadu fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner, by order dated 31.12.1997, set aside the assessment order and remanded the matter for a de-novo examination. 6. The Commercial Tax Officer re-assessed the transaction made by the appellant in the Assessment Year 1995-96 and calculated the turnover by order dated 31.07.1998 in the following manner: (a) inter-State sale of paper covered by C Forms of Rs. 3,44,49,639/-; (b) inter-State sale of paper not covered by C Forms of Rs. 54,17,412/- ; (c) sale returns of Rs. 28,200/- ; (d) stock transfer to branch at Kerala of Rs. 24,28,600/-; and (e) consignment sales to outside the State of Rs. 1,54,28,218/-. 7. The appellant had sought an exemption on the turnover of Rs. 1,54,28,218/- towards consignment sales to other States for the period from 01.08.1995 to 31.03.1996. However, this claim was disallowed by the Commercial Tax Officer by the aforesaid order dated 31.07.1998 for the reason that the appellant had received the full value of goods before despatch of goods by discounting the bills through banks and the goods dispatched to agents were sold as such by the agents in the same quantity. The tax for turnover for the con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... examined all with reference to the records and rival findings. The inspection of the place of business was made on 26.7.95. Certain slip were recovered. From those slips, the facts as stated in (i) to (vi) are found out by the Assessing Authority and based upon which disallowed the claim of consignment sales to the value of Rs. 1,51,28,219/-. Even though the slips revealed only certain facts of advance receipts, blank cheque, debit notes, discounting of bills etc., the respondent-dealer had changed the mind and declared the consignment sales, claimed upto 31.7.95 as inter-state sales. If the inspection had taken place in March, 1996, it is needless to say that the respondent-dealer would have declared all the sale as inter-state sales, including the impugned turnover of Rs. 1,51,28,219/- upto 31.3.1996. By having declared the consignment sales turnover of Rs. 86,60,188/- upto 31.7.95 as inter-state sales, it clearly brings out the camouflaged nature of transaction of inter-state sale as consignment sales for the same dealers from 1.8.95 onwards. 18. Further, there are evidences that blank cheques have been received from the agent by the respondentdealer which proves the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt paid the central sales tax dues for the period from 01.04.1995 to 31.07.1995 but claimed that consignment sale had taken place during the period from 01.08.1995 to 31.03.1996. The assessing authority disallowed the claim of the appellant from 01.08.1995 to 31.03.1996 on the basis of materials found on inspection by the Commercial Tax Officer in the place of business of the appellant on 26.07.1995; (iii) The Sales Tax Appellate Tribunal has wrongly adduced liability for the transaction done between 01.08.1995 and 31.03.1996 on the basis of documents recovered prior to 31.07.1995; (iv) It is a well settled law that merely because there are some discrepancies in the pre-search period, it cannot lead to any presumption that the discrepancies would have continued in the post-search period, particularly when factually there was no evidence at all; (v) Assessment has been made on pure guess work with no material. If no adverse material was found despite scrutiny, the account books cannot be rejected on suspicion and surmises alone. In support of this contention, learned counsel placed reliance on the following decisions: (a) CIT vs. Anand Kumar Deepa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d constitute an inter-State sale, particularly when the goods are stock transferred in the regular course of business. In this connection, reliance has been placed on the decision of the Tribunal in State of Maharashtra vs. CMS Computers Ltd. [CST Appeal No. 01 of 2017 decided on 03.01.2025 (Tri.-Del.)]; (xi) The impugned order heavily relies on certain documents to re-characterize consignment sales as inter-State sales. All the documents relate to the period prior to 01.08.1995. These documents cannot be held to be evidence for transactions carried out subsequent to 31.07.1995; and (xii) The imposition of penalty upon the appellant is not justified. 13. Shri C. Kranthi Kumar, learned counsel for the State of Tamil Nadu assisted by Ms. Misha Rohatgi made the following submissions: (i) The transfer to alleged agents in Karnataka, Kerala, Orissa and West Bengal amounting to a turnover of Rs. 1,51,28,219/- are not consignment sales but are inter-State sales based on a pre-existing contracts and the presence of the agents is merely a camouflage to give the transfers a colour of consignment sale; (ii) As per section 6A(2) of the CST Act, as it then....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng transactions were unsupported by valid statutory declarations; (iv) Under section 6A(1) of the CST Act, the burden of proof lies entirely upon the dealer claiming exemption to establish that the movement of goods was otherwise than by way of sale. The appellant failed to furnish complete Form F declaration and other corroborative evidence and cannot claim the benefit of stock transfer; and (v) The Sales Tax Appellate Tribunal rightly held that the transactions between the appellant and M/s. Satish Brothers and Co., were not genuine stock transfers but inter-State sales. 15. Ms. Pritha Srikumar Iyer and Shri Ankit Swami, learned counsel for the State of Karnataka, Shri Soumyajit Pari and Shri Varun, learned counsel for the State of Orissa, and Shri Nishe Rajen Shonker and Mrs. Devika A.L., learned counsel for the State of Kerala, however, supported the contention advanced on behalf of the appellant. 16. The submissions advanced by the learned counsel for the appellant, learned counsel for the State of Tamil Nadu, learned counsel for the State of West Bengal and the learned counsel for the other respondent States have been considered. 17. The issue that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Principal at the time of rendering the sale details periodically vis., every month / fort-night. 8. As a measure of business convenience, the principals are also at liberty to secure advances by drawing Hundies on the Agents based on the approximate value of the goods consigned. This advance is not considered as sale value and is collected to ensure that the Agents expeditiously dispose of the goods of the principals entrusted to them, as well as to realise the proceeds from the customers on sale of the products on behalf of the principals. 9. The agent will maintain a proper godown and infrastructure to run an office. The agent will employ sufficient number of Staffs to be paid from out of the commission to properly maintain the godown and run the office. The stocks held by the agent as well as the premises of the agent are open to inspection by the Principal at all reasonable times. 10. The agent will not sell the goods at prices less than recommended by the Principal unless authorised by the Principal." (emphasis supplied) 19. It would be seen that the Agreement provides that the agent had agreed to provide services for selling the products of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year on and from the date so notified: Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India. 6A. Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale. - (1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which are broadly brought under the phrase 'Branch transfers' cannot be regarded as sales in the course of inter-State trade, for the simple reason that a head office or branch cannot be treated as having traded with itself or sold articles to itself by means of these stock transfers." (emphasis supplied) 23. What transpires from the aforesaid decision of the Supreme Court in Hyderabad Engineering is that for a sale to be in the course of inter-state trade or commerce under section 3(a) of the Central Sales Tax Act, there must be a sale of goods and such sale should occasion the movement of the goods from one State to another. To find out whether a particular transaction is a inter-state sale or not, it is essential to see whether the movement of the goods from one State to another is as a result of a prior contract of sale. Under section 6A, if the dealer claims that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business and not by reason of sale, then the burden of proving that the movement of goods was so occasioned shall be on the dealer. The mode of discharge of this burden of proo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant as inter-State sale for the period from 01.04.1995 to 31.07.1995. Reliance has been placed on the materials found during inspection at the place of business of the appellant on 26.07.1995. The Sales Tax Appellate Tribunal merely extrapolated the material and reasoning pertaining to the pre-inspection period i.e. 01.04.1995 to 31.07.1995 and applied the same to the subsequent period from 01.08.1995 to 13.03.1996. This view is not correct as the Sales Tax Appellate Tribunal was obliged to examine the Agreement that was entered into between the principal and the agent on 01.08.1995 for a period of two years commencing from 01.08.1995. Reliance on material found on 26.07.1995 is not justified. 26. It is also seen that the Sales Tax Appellate Tribunal upheld the conclusion of the assessing authority that "if the inspection had taken place in March, 1996, it is needless to say that the respondent dealer would have declared all sales as inter-State sale". This finding is based purely on presumption and assumption. Once an Agreement had been entered into between the principal and agent from 01.08.1995, it would be the terms of Agreement that will govern the transactions. The mo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, in some cases, sold the goods in one lot to ultimate buyers which clearly established that the transactions which occasioned the movement of goods from the State of Tamil Nadu to other states were inter-State sales. As narrated earlier, such sale by the agents in bulk quantities, or in one lot could not change the character of the transaction. As rightly explained by the learned Authorised Representative, the immediate demand of the goods in other states necessitated the sales in bulk quantifies or in one lot. The assessing authority had noted in the impugned proceedings that no accounts were produced by the appellants to show that freight and handling charges were borne by the appellants. But the statement of accounts received from the consignment sales agents and filed in the assessment file reveals that the consignment sales agents had debited the accounts of the appellants with the amount paid by them towards freight and handling charges. For instance Tvl.Ashwin Paper Agencies had debited Rs.14535/- towards freight and handling charges in the month of August 95 and Rs.4590/-in the month of December 1995 etc. In fact, clause-6 of the agreement stipulates that the agent will r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndis; (iv) Sale by agents in bulk quantities or in one lot could not change the character of the transaction; (v) The immediate demand of the goods in other states necessitated the sales in bulk quantities or in one lot; (vi) Statement of accounts received from the consignment sales agents and filed in the assessment file reveals that consignment sales agents had debited the accounts of the appellants with the amount paid by them towards freight and handling charges; (vii) Clause 5 of the agreement stipulates that the goods entrusted to the agent will remain the property of the Principal; (viii) The Principal will insure the goods in transit as well as in the custody of the agent till sold; (ix) These clauses in the agreements explain the nature of the transactions; (x) The dominion and control over the goods, till they were sold, vested with the appellant; (xi) Slips, copy of blank cheque, debit notes were all related to the period prior to 01.08.1995; and (xii) The prior transactions could not be held as evidence for rejecting the claim of genuine consignment sales transactions. 31. The Sales Tax ....