2025 (2) TMI 138 - AT - VAT / Sales Tax

Requirement to supply declaration in Form-F - transfer of promotional products such as Physician s Samples as well as Brand Reminders free of cost to depots or branches of the appellant located in other States or for supply of promotional products free of cost to the medical representatives of the appellant posted in other States sales in the course of inter-State trade had not taken place - applicability of provisions of section 6A of the CST Act - HELD THAT - Under article 246(1) of the Constitution Parliament has the exclusive power to make laws with any of the matters enumerated in List 1 of the Seventh Schedule. Entry 92A of List 1 of the Seventh Schedule deals with taxes on the sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce. This entry was inserted by Constitution (Sixth Amendment) Act 1956. The Central Sales Tax Act 1956 was accordingly enacted. Section 6 of the CST Act is contained in Chapter III and deals with inter-State sales tax . Sub-section (1) of section 6 in particular deals with liability to tax on inter-State sales . It provides that subject to the provisions contained in the Act every dealer shall be liable to pay tax on all sales effected by him in the course of inter-State trade or commerce during any year. The contention of the appellant is that the transfer of promotional products are not capable of being sold and in fact have not been sold and therefore such a transfer would not amount to sale as defined in section 2 of the CST Act. Elaborating this submission learned counsel pointed out that the taxable event for levy of central sales tax under the charging provisions of section 6 of the CST Act is that a sale has been effected by a dealer in the course of inter-State trade and as the jurisdictional condition constituting a sale is not fulfilled central sales tax cannot be demanded from the appellant - In view of amendment made in sub-section (1) of section 6A of the CST Act w.e.f. 11.05.2002 the filing of Form-F no longer remains optional. Section 6A provides for the only manner in which a dealer can substantiate that transfer of goods was otherwise than by way of sale and that is by furnishing a declaration in Form-F. It is not a case of the appellant that movement of goods had not taken place from the State of Maharashtra to other States. The contention is that the movement of goods was not by reason of sale in the course of inter-State trade or commerce. It was therefore imperative for the appellant in terms of section 6A of the CST Act to have furnished the declaration in Form-F. The Bombay High Court in Johnson Matthey Chemicals India Pvt. Ltd. vs. The State of Maharashtra through the Government Pleader High Court Mumbai and others 2016 (2) TMI 543 - BOMBAY HIGH COURT examined the amended provisions of section 6A of the CST Act and held that for discharging the burden the dealer would have to produce and furnish to the assessing authority a declaration in Form-F and if the dealer fails to furnish the declaration then the movement of goods shall be deemed for all purposes of the CST Act to have occasioned as a result of sale. In Ashok Leyland 2004 (1) TMI 365 - SUPREME COURT the Supreme Court also examined the provisions of the amended section 6A of the CST Act and held that whereas prior to the amendment in sub-section (1) of section 6A a dealer had an option of filing a declaration in Form-F but after the amendment w.e.f. 11.05.2002 a dealer does not have any option and if the dealer fails to file such a declaration the transaction would be deemed to be an inter-State sale. The Supreme Court emphasised on the use of the expression deemed and held that if this is interpreted differently an incongruity would ensue. Thus if a dealer intends to take up a case that transfer of goods was otherwise then by way of sale he has to submit a declaration in Form-F otherwise the deeming fiction contained in sub-section (1) of section 6A will come into play and the movement of goods shall be deemed for all purposes of the CST Act to have been occasioned by reason of sale in the course of inter-State trade or commerce. Conclusion - The appellant must produce Form-F declarations for transfers to depots or branches in other states. For transfers to medical representatives where obtaining Form-F is impractical the assessing authority is to consider the specific circumstances and make a determination based on the merits of each case. There is no infirmity in the order passed by the State Tribunal that may call for any interference in these appeals. The appeals are accordingly dismissed.

Summary

The core legal issue addressed in this judgment is whether the appellant, M/s. Abbott India Limited, is required to supply declarations in Form-F to substantiate that the transfer of promotional products, such as physician's samples and brand reminders, to its depots or branches in other states or to medical representatives in other states, does not constitute sales in the course of inter-State trade under the Central Sales Tax Act, 1956 (CST Act). The appellant contends these transfers are not sales and thus not subject to central sales tax.

The relevant legal framework involves Section 6 and Section 6A of the CST Act. Section 6 is the charging section for central sales tax, applicable to sales in the course of inter-State trade. Section 6A, as amended, places the burden on the dealer to prove that the movement of goods from one state to another was not due to a sale. This proof must be provided via Form-F declarations; failure to do so results in the transaction being deemed an inter-State sale.

The Court's interpretation emphasizes that the amendment to Section 6A made the submission of Form-F mandatory, removing the earlier option of proving non-sale transactions through other means. The Court referenced precedents, including Supreme Court decisions in Ambica Steels Ltd. and Ashok Leyland Ltd., to support this interpretation.

The key evidence and findings include the appellant's practice of transferring promotional products from Maharashtra to other states, claiming these are not for sale and thus not taxable under the CST Act. The appellant argues that these products have no sale value and are distributed free of cost to medical professionals by their representatives.

The Court applied the law to these facts by affirming that the appellant must submit Form-F declarations to substantiate their claim of non-sale transfers. Without these declarations, the transactions are deemed inter-State sales, subject to tax.

In addressing competing arguments, the Court considered the appellant's position that the promotional products are not sold and therefore not taxable. However, it upheld the statutory requirement for Form-F declarations to prove such claims, dismissing the appellant's argument that the absence of a sale price negates the tax liability.

The significant holdings include the affirmation that the burden of proof under Section 6A lies with the dealer, requiring Form-F declarations to establish non-sale transfers. The Court reinforced the legislative intent behind the amendment to Section 6A, which aims to prevent tax evasion by ensuring that all inter-State transfers are accounted for unless proven otherwise through the prescribed declarations.

The final determination on each issue was that the appellant must produce Form-F declarations for transfers to depots or branches in other states. For transfers to medical representatives, where obtaining Form-F is impractical, the assessing authority is to consider the specific circumstances and make a determination based on the merits of each case.

Ultimately, the Court found no error in the State Tribunal's decision, which allowed the appellant an opportunity to submit Form-F declarations for certain transfers and required the assessing authority to verify transactions involving medical representatives. The appeals were dismissed, upholding the Tribunal's directive for fresh verification and assessment of the promotional item transfers.