2010 (8) TMI 827 - HC - VAT and Sales Tax

Whether the F forms filed by the appellant are fake or fictitious? Held that - The High Court merely gave liberty to the appellant to raise this contention in appropriate proceedings. Whether or not the evidence in lieu of F forms could be adduced has not been decided by the High Court. The High Court merely left it open to the petitioner to raise that question and nothing more. As the contention has been raised before this Authority, the same has been rejected on consideration of the relevant statutory provision. It is too much to say that the High Court has laid down any principle in this regard which has to be given effect to by this Authority. In the light of above discussion, I uphold the order of the Tribunal confirming the assessment of tax on the disputed turnover under the CST Act. Irrespective of the fact whether the appellant has specifically raised the question of legality of levy of penalty in the appeal, the Tribunal should have gone into the issue inasmuch as the order appealed against is a composite order levying tax, penalty and penal interest. The penalty is, therefore, liable to be set aside and the appeal to the extent of levy of penalty is allowed. In the circumstances of the case, I do not also find any justification to fasten heavy liability by way of interest on the premise that the dealer defaulted in payment of tax. The assessment order in so far as the imposition of tax is concerned is hereby upheld. Thus, the appeal is partly allowed

Issues Involved:
1. Validity of F forms and their implications on tax liability.
2. The burden of proof under Section 6A of the CST Act.
3. The legality of penalty imposition.

Issue-Wise Detailed Analysis:

1. Validity of F Forms and Their Implications on Tax Liability:
The appellant, a manufacturer and dealer of ghee and edible oils, claimed exclusion of the value of goods sent on consignment basis to commission agents outside Gujarat for the assessment year 2003-04. The assessing authority rejected the F forms submitted by the appellant for transactions with two dealers, Sarthak Enterprises (Delhi) and Zarna Corporation (Mumbai), deeming them not genuine. Consequently, the transactions were treated as inter-State sales and taxed at 10% under the CST Act, resulting in a demand of Rs. 4,67,65,037, including penalty and interest.

The Tribunal upheld the assessing authority's decision, noting the appellant's failure to prove the genuineness of the F forms. The appellant argued before this Authority that they should not be penalized for the fake F forms issued by other dealers. However, the Authority emphasized that post-2002 amendments to the CST Act made the filing of genuine F forms mandatory to substantiate claims of non-inter-State sales. The appellant's inability to provide valid F forms meant the transactions were deemed inter-State sales, triggering the higher tax rate.

2. The Burden of Proof Under Section 6A of the CST Act:
Section 6A of the CST Act places the burden of proof on the dealer to show that the movement of goods was not due to a sale but a transfer to another business place or agent. The dealer must furnish a declaration in the prescribed F form along with evidence of dispatch. Failure to provide a valid F form results in the movement being deemed a sale.

The Authority highlighted that the legal position changed significantly after the 2002 amendment, making the filing of F forms indispensable. The appellant's reliance on other evidence without valid F forms was insufficient. The Supreme Court's ruling in Ashok Leyland Ltd. v. State of Tamil Nadu confirmed that the deeming provision in Section 6A(2) creates a conclusive presumption in favor of the tax authority if valid F forms are not provided.

3. The Legality of Penalty Imposition:
The penalty was levied under Section 45(6) of the Gujarat Sales Tax Act, which requires a reasonable opportunity for the assessee to be heard. The appellant argued that no specific show-cause notice was issued for the penalty, and the assessment record confirmed only a general notice was given.

The Authority found multiple legal infirmities in the penalty imposition. The composite order of assessment and penalty lacked reasons or justification for the penalty, and there was no discussion on whether the appellant's conduct met the criteria for penalty under the relevant provision. The Supreme Court's observations in Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra and Hindustan Steel Ltd. v. State of Orissa emphasize that penalty should not be imposed unless there is deliberate defiance of law or contumacious conduct.

Given the absence of a specific show-cause notice and the lack of reasons in the order, the penalty was deemed unsustainable. The Tribunal should have addressed the legality of the penalty in the appeal, as the order was a composite one.

Conclusion:
The assessment order regarding the imposition of tax was upheld, confirming the transactions as inter-State sales due to the absence of valid F forms. However, the penalty was set aside due to procedural and substantive deficiencies. The appeal was partly allowed, affirming the tax liability but nullifying the penalty.

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