INTER STATE STOCK TRANSFER

[Mr. M. GOVINDARAJAN]

Section 3 of Central Sales Tax, 1956 (‘Act’ for short) provides that a sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce if the sale or purchase-

1. Occasions the movement of goods from one State to another; or
2. Is effected by a transfer of documents of title to the goods during their movement from one State to another.

Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b) be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact in the course of such movement the goods pass through the territory of any other State.

Section 6 of the Act provides for liability to pay tax on the inter-State sales. Any transaction which does not fall within the definition of ‘sale’ would not be eligible to tax, the burden whereof would evidently be on the assessee.  Section 6A of the CST Act deals with burden of proof to claim that an interest to movement of goods by a dealer to any other place of his business is not an inter-State sale.

In ‘State of Andhra Pradesh V. Sree Akkamamba Textiles Limited’ – 2014 (3) TMI 342 - ANDHRA PRADESH HIGH COURT the respondent is an assessee manufacturing, selling and transferring the cotton yarn and waste.  For the financial year 1993-94 the Assessing authority had allowed exemption on certain turnovers under Section 6A of CST Act.   The exemption relates to depot/branch transfer of cotton yarn made from Tanuku to its Maharastra, West Bengal and Tamil Nadu based four selling depot agents.   

The Deputy Commissioner (CT), Eluru Division took up suo motu revision of the CTO’s order, disallowed exemption as turnover, relating to the sales said to have been made through depots, branch in Maharastra, West Bengal and Tamil Nadu on certain grounds.   The respondent challenged the revision order before the Tribunal. The Tribunal allowed the appeal and remanded the appeal to the Deputy Commissioner (CT), Eluru to give fair and reasonable opportunity to the assessee.  The Deputy Commissioner once again disallowed the same and passed the same order. Against this order the assessee filed appeal before the Tribunal.

The Tribunal held that the Deputy Commissioner has merely proceeded on surmises and conjectures without establishing the fact that ingredients of Section 3(a) or Section 3(b) are satisfied in this case.   He has generalized the issue without citing specific instances. He has merely observed that revision is made because of additional information, in the form of three statements received in 1995, throw any light on specific transactions relating to these two assessment years.   The statements recorded are themselves general and are of no assistance to the revisional authority. The Tribunal further held that it was evident that whole consignments of different types and counts of yarns were dispatched on the appellant’s own name and account to depots in different states and were unloaded by the transporters and taken to the appellant’s stocks at the destination and thereafter sold at random. The dispatches are neither inter state sale under Section 3(a) nor under Section 3(b). The sales materialized and culminated only in respect of available stocks at the destination in control of the depots and relevant local tax incurred in these States were borne and paid by the appellant as evidenced by the assessment orders under the Sales Tax Acts in respective states.

The Tribunal observed that the dispatches of yard in self name of the appellant to various destinations in other States terminated when the appellant’s depot agents acknowledged the stocks and took them into account for future disposal to willing buyers.   The lorry receipts from Tanuku to other States lapsed on unloading of the yarn and stock it for safe custody as evidenced by the agreements with the transporters. The subsequent disposal of yarn as per sales finalized by depot agents are nothing but sales in the destination State but not inter State Sales from Andhra Pradesh. If the reasoning of the Deputy Commissioner is accepted, the Tribunal indicated that the dealers can contend that only sales effected physically from their premises is their turnover and the goods stocked and sold at other places cannot be treated as turnover under local Acts.   As long as the ingredients of Section 3(a) and 3(b) are not satisfied factually a transaction cannot be termed as inter-state sales.

The Tribunal further discussed about the place of business.   The place of business is an inclusive definition and covers any place where the dealer keeps his goods.  In this case the dealer has kept the goods at the transporters premises after arrival and thus there is a delivery to the appellant. On the facts and circumstances of the case, effecting deliveries at the transporters premises by the appellant does not amount to a delivery on inter state sale/movement but it is a delivery after germination of inter-state movement covered by the lorry receipts in appellant’s favor from Tanuku to various places.  The definition of ‘place of business’ includes a warehouse, godown or other place where dealer keeps his goods, this will cover transporter’s godown where a dealer keeps his goods after termination of inter-State movement and effects sales to his will and discretion.  The Tribunal held that the Deputy Commissioner has failed to factually establish that the transactions were inter-State sales supported by documentary evidence and set aside the impugned order. 

Against the order of the Tribunal the Department revision petition before the High Court. The Department raised the following questions of law:

• Whether these disputed turnovers are relate to transactions of sales in the course of inter-State trade and commerce?
• Whether the Tribunal is justified in setting aside the orders of the Deputy Commissioner (CT), Eluru, by holding that latter failed to gather sufficient material evidence when essentially the burden of proof under Section 6A of CST Act is on the assessee?
• Whether the Tribunal being revisional-cum-appellate authority failed to examine each and every transaction vis-à-vis the evidence produced by the appellant and then decided about the true nature of the transactions under dispute in this appeal?

The High Court held that at the outset, the questions of law said to have been arisen are not the question of law inasmuch as all the questions relate to the finding of facts.  The Tribunal on appreciation of facts has found which facts are not challenged in the present tax revision case within the scope of Section 22(4), there is no question of law that is required to be answered.   The High Court dismissed the revision petitions filed by the Department.