2008 (2) TMI 842 - AT - VAT and Sales Tax

Inter-state sale or branch transfer? - section 9(2) of the CST Act read with section 12(3)(b) of the TNGST Act - F forms prescribed under section 6A of the CST Act

Summary

Issues Involved:
1. Disallowance of Stock Transfer Claims
2. Determination of Inter-State Sales
3. Acceptance of F Forms
4. Penalty Imposition

Detailed Analysis:

1. Disallowance of Stock Transfer Claims:
The appellant, a manufacturer of ready-made garments, claimed exemptions on stock transfers to its head office in Kolkata and branch office in Bangalore. However, the assessing officer disallowed a significant portion of these claims, determining that the transfers were actually inter-State sales to specific customers in other states. This conclusion was based on documents seized during an inspection, which indicated that goods were dispatched on a door delivery basis and specific instructions were given for delivery to named dealers.

2. Determination of Inter-State Sales:
The primary legal issue was whether the stock transfers were genuine or if they were inter-State sales. According to Section 3(a) of the CST Act, a sale is considered inter-State if it occasions the movement of goods from one state to another. The Tribunal found an "inextricable link between each transfer and supply which was earmarked for a specified buyer," thereby confirming the assessing officer's conclusion. The Tribunal's decision was based on seized correspondence that showed goods were earmarked for specific customers and moved to fulfill prior orders, thus classifying them as inter-State sales.

3. Acceptance of F Forms:
The appellant filed F forms under Section 6A of the CST Act to prove stock transfers. However, the assessing authority did not accept these forms, concluding that the transfers were inter-State sales. The appellant argued that their head office and branch office paid sales tax in West Bengal and Karnataka, respectively, on the same goods, treating them as local or inter-State sales in those states. The Tribunal upheld the assessing officer's decision, noting that the F forms were not accepted due to the finding that the transfers were inter-State sales.

4. Penalty Imposition:
A penalty of Rs. 61,80,914 was levied under Section 9(2) of the CST Act read with Section 12(3)(b) of the TNGST Act. The Tribunal restored the penalty, following the judgment of the Madras High Court in a similar case. However, the appellate authority later set aside the penalty, finding that the assessing officer did not apply his mind to the relevant aspects and merely relied on the enforcement wing's letter. The Tribunal's approach to penalty imposition was deemed erroneous, and the penalty was ultimately set aside.

Conclusion:
The appeal was partly allowed, providing substantial relief to the appellant concerning the quantum of turnover attributable to inter-State sales. The Tribunal's finding that there was an inextricable link between the movement of goods and prior orders was upheld. However, the stock transfers for the months of October to December 1995 were excluded from taxable turnover due to a lack of incriminating material. The penalty imposed was also set aside, as it was not in accordance with the provisions of the TNGST Act. The appellant was directed to file an application for the refund of sales tax collected by the states of West Bengal and Karnataka on the same goods.