2021 (4) TMI 413 - HC - VAT and Sales Tax

Exemption from turnover - inter-state sale or not - Form-F declaration - false document - consignment sales or not - AO rejected the claim on inter-state movement of goods in the second round of proceedings after remand - HELD THAT - The Tribunal placed heavy reliance on the conclusion arrived at by the Enforcement Wing Officials, who had caused an inspection of the petitioner's place of business, the statements, which were recorded from the dealer, the inspection conducted in the place of business of the broker, the statements recorded from him, to conclude that the entire dispatches made by the petitioner has to be treated as outright inter-State sales and liable to be taxed accordingly. The appellate Deputy Commissioner noted that the petitioner is in a position to show the closing stock balance available with the various agents in their accounts and if that is so, if there is transfer of goods with the agents, then the petitioner need not even show the value of stocks held with the agents in their accounts. The first appellate authority noted that though these were the observations and directions given by the appellate Deputy Commissioner, while remanding the matter to the Assessing Officer with direction to verify the Form-F declaration, the Assessing Officer failed to carry out the directions issued. After making such an observation, the first appellate authority proceeds to examine the transaction. The first appellate authority concluded that the finding of the Assessing Officer that the goods moved pursuant to an order passed by the broker has not been factually established, the first appellate authority relied on the decision in the case of STATE OF ORISSA VERSUS ROLTA MOTORS LTD. 1992 (1) TMI 319 - ORISSA HIGH COURT - the first appellate authority once again took note of the finding recorded by the appellate Deputy commissioner in the earlier round, where a specific finding has been given regarding the role of the broker and such finding was endorsed by the first appellate authority in its order dated 15.10.1999. Furthermore, we find that the State did not challenge the order passed by the appellate Deputy commissioner in the earlier round and the State cannot be heard to say that it was only an order of remand. The order of remand was after making pointed observations and rendering factual finding and directing the Assessing Officer to verify the Form F declaration. Considering the fact situation, which prompted the first appellate authority to allow the appeal, we find that the Tribunal erroneously reversed such order by glossing over the nature of the documents, which were placed by the petitioner before the first appellate authority not only in the present round of litigation, but in the earlier round as well. That apart, the Tribunal did not advert to the findings rendered by the appellate Deputy Commissioner in the earlier round more particularly, with regard to the documentation, the nature of transaction and the role of the broker - what the Assessing Officer was did is to ignore the finding and merely acted based upon the directions of the Enforcement Wing Officials thereby abdicating its power as an Assessing Officer. That apart, as a subordinate statutory authority, the findings rendered by the appellate authority are binding on the Assessing Officer. These aspects have been ignored by the Tribunal while reversing the order passed by the first appellate authority. The order passed by the Tribunal calls for interference - Petition allowed.

Issues Involved:
1. Legitimacy of consignment sales and stock transfers under the CST Act.
2. Validity of Form-F declarations and their acceptance by the Assessing Authority.
3. Tribunal's justification in reversing the first appellate authority's order.
4. Determination of inter-State sales versus consignment sales.
5. Role of brokers and the nature of transactions.
6. Legal principles governing inter-State sales and consignment transfers.

Detailed Analysis:

1. Legitimacy of Consignment Sales and Stock Transfers under the CST Act:
The petitioner, a spinning mill, claimed exemptions for goods transferred on consignment sale basis to agents in other states under Section 6-A of the CST Act. Initially, the Assessing Authority allowed the exemption but later revised the assessment based on an inspection, disallowing the exemption. The first appellate authority, however, supported the petitioner’s claim, noting that the goods remained the petitioner’s property until sold by the agents.

2. Validity of Form-F Declarations and Their Acceptance by the Assessing Authority:
The petitioner argued that the Form-F declarations, which indicate stock transfers, were accepted by the Assessing Authority, and thus the original assessment should not be reopened. The first appellate authority found that the Assessing Officer failed to properly verify the Form-F declarations as directed in the earlier remand order. The Tribunal, however, disallowed the exemption, stating that the transactions were outright inter-State sales disguised as consignment sales.

3. Tribunal's Justification in Reversing the First Appellate Authority's Order:
The Tribunal relied heavily on the Enforcement Wing's findings, which concluded that the transactions were outright inter-State sales based on specific orders from brokers. The Tribunal did not independently verify the facts and evidence presented by the petitioner, leading to the reversal of the first appellate authority’s well-considered order.

4. Determination of Inter-State Sales versus Consignment Sales:
The Supreme Court in English Electric Company of India Ltd. vs. Deputy Commercial Tax Officer clarified that inter-State sales occur when the movement of goods from one state to another is an incident of the sale contract. The first appellate authority, examining the petitioner’s transactions, found no direct correlation between the broker's instructions and the actual dispatches, thus supporting the consignment sale claim.

5. Role of Brokers and the Nature of Transactions:
The appellate Deputy Commissioner in the earlier round noted that brokers acted merely as intermediaries to facilitate market information and did not alter the nature of consignment sales. The first appellate authority reiterated this, emphasizing that the broker’s role did not change the transaction’s nature. The Tribunal, however, concluded that the brokers’ involvement indicated outright inter-State sales.

6. Legal Principles Governing Inter-State Sales and Consignment Transfers:
Section 3 of the CST Act defines inter-State sales, and the Supreme Court in Ashok Leyland Ltd. vs. State of Tamil Nadu highlighted that once Form-F declarations are accepted, the transactions are deemed stock transfers unless fraud or misrepresentation is proven. The first appellate authority found no evidence of fraud or misrepresentation by the petitioner, thus supporting the consignment sale claim.

Conclusion:
The High Court found that the Tribunal erred in reversing the first appellate authority’s order, which was based on a thorough examination of documents and legal principles. The Tribunal’s reliance on the Enforcement Wing’s findings without independent verification was deemed unjustified. Consequently, the High Court restored the first appellate authority's order, validating the petitioner’s claim of consignment sales and setting aside the Tribunal's order.

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