It is said that sovereignty of
the British Parliament is so vast that if it wish it can change a
man into woman and a woman into a man. The presumptions in law have
very vital role and legislature has power to presume certain things
under certain circumstances. Section 6-A of the Central Sales Tax
Act is exercise of such power by the Parliament of India. The
section was inserted in Central Sales Tax Act by CST (Amendment Act)
1972 with the following object
"Central Sales tax is not
leviable in respect of transactions of transfer of goods from a head
office or a principal to branch or an agent or vice-versa as these
do not amount to sales. This aids evasion in that dealers try to
show even genuine sales to third parties as transactions of this
type. Accordingly it is proposed to provide that the burden of
proving that the transfer of goods in such cases is otherwise than
by way of sale shall lie on the dealer who claims exemption from tax
on the ground that there was in fact no sale."
Notification No. GSR 56(E) Dated
9-3-1973 amended the CST (R& T) Rules and provided for declaration
in Form F for discharge of the aforesaid burden of proof. The rule
provided that transactions of one month will be covered in one
declaration in Form F. Section 6-A used the expression "may" in
respect of discharge of burden of proof by furnishing declaration in
Form F. As such the dealer had option to discharge the onus to the
satisfaction of assessing authority by other evidence. This position
was affirmed by the Government of India by Memo Dated 22-01-1974 and
was upheld in number of judicial decisions. I would refer to only
few of such decisions:-
CST Vs Agra Food Products
Pvt Ltd (1987) 67 STC 266
State of Orissa Vs Small
Scale Industries Corporation 1987 67 STC 262
Vijaya Mohini Mills vs.
State of Kerala (1989) 75 STC 63.
The situation has been changed
by the Finance Act 2002, which inserted the words "and if the
dealer fails to furnish such declarations, then the movement of such
goods shall be deemed for all purposes of this Act to have been
occasioned as a result of sale." The Finance Act, 2002 got
assent of the President of India on May 13, 2002. It has resulted in
controversy that Form F has now became mandatory and transaction of
stock transfer or consignment sale duly supported by the evidence of
transportation and other documents will now be taxable as sales if
declaration in Form F is not furnished.
The Circular of CTT further
aggravates the situation in the State of Uttar Pradesh,. The
Circular provides that in case of receipt or dispatch of goods for
job work furnishing of Form F is mandatory. (Circular
No.841/29-11-2005.) The circular is as under:-
(Circular No. 19 -Reported in
2006 NTN Volume 29 Page 43)
The similar issues were raised
in other States also but no State has issued instructions similar to
the instructions issued in Circular Dated 29-11-2005. In fact the
Commissioner of Sales Tax, Maharashtra has issued a circular wherein
it has been pointed out that transaction with job worker is
principal-to-principal transaction and movement of the goods is not
to the place of business of the dealer or to his agent. As such
declaration in Form F are not required for job work.
The circular of CST Maharashtra
is as under :
Trade Circular No. 16T of
2007, dt. 20.02.2007
No.
VAT/Clarification/1006/202/Adm-3
Mumbai Dt:20.02.07
Circular No. 16 T of 2007
Sub: Tax Treatment of Goods
sent to other States.
Gentlemen/Sir/Madam,
1. Queries have been
received by this office regarding the tax treatment of Goods sent to
other States. A dealer may send his goods to another State for
various reasons. The goods may be sent for minor job work, extensive
job work or for conversion or for manufacture. Apart from this, a
dealer may send the goods to another State for sale or for otherwise
disposal in that State. Queries have been received regarding the tax
treatment of such goods under the Central Tax Act, 1956 as also
under the Maharashtra Value Added Tax Act, 2002. This circular
explains the treatment required to be given to such goods under
these two Acts. Nothing in this circular applies or is intended to
apply to the tax treatment of such goods under the Bombay Sales Tax
Act, 1959 or any of the other Acts repealed by the Maharashtra Value
Added Tax Act, 2002.
2. The C.S.T. Act was
amended in 1972 with effect from the 1st April 1973 by inserting a
new section, namely, Section 6A. This section was further amended in
2002 by the Finance Act, 2002. Section 6A of the CST Act deals with
those contingencies where a dealer has sent any goods from one State
to another, not by way of sale, to the places of his business or to
his agent or to his principal.
3. (1) Section 6A of the Central
Sales Tax Act, 1956 provides that where the dealer claims that he is
not liable to pay tax in respect of the goods sent as aforesaid to
another State to his own place of business or to his agent or to his
principal, on the ground that the movement of goods was not by
reason of sale, then the burden of proving that the movement of
goods was so occasioned, is on the dealer. It may be noted that this
section applies only in those cases where the movement of good is to
the place of business of the dealer in another State or to his agent
or principal in another State. The section has no applicability
where the goods are sent to another State for purposes other than
those enumerated in that section. The word 'Agent' as used in this
section means the Agent as defined in Section 182 of the Indian
Contract Act. That Section reads as follows:
182. “Agent” and “principal”
defined : “An Agent is a person employed to do any act for another
or to represent another in dealing with third persons. The person
for whom such work is done or who is so represented is called the
“principal”.
(2) Normally, persons
acting as brokers, factors, auctioneers, commission agents, del
credere agents etc. are the agents contemplated under this Section.
It may be added that the contract of agency may be in writing, may
be oral or may be inferred from the conduct of the parties and the
circumstances. An agent differs from a servant or an independent
operator. In an agency, the principal has a right to direct what
work the agent has to do. In case of a servant, the principal has a
further right to direct how the work is to be done. An independent
operator is different from an agent or a servant. An agent, in the
matter of agency, is bound to act subject to the direction and
control of the principal. But an independent operator merely
undertakes to perform certain specified work or produce a certain
specified result. The manner and means of performance and production
are at the discretion of the operator except in so far as they are
specified by the contract.
4. Therefore, when a
dealer sends any goods to another person located in a different
State for job work or for manufacturing etc., the transaction will
normally be on a 'principal to principal' basis with an independent
operator and not on a 'principal to agent' basis. Section 6A of the
CST Act will have no applicability as regards the transaction where
the goods are sent on a 'principal to principal' basis. It follows
that in such instances where the contract is on a 'principal to
principal' basis, it will not be required for the dealer to obtain a
declaration in Form F from the person to whom the goods have been
dispatched. Similarly, the amendment to Section 6A in 2002, which
provides that where the dealer fails to produce the declaration in
Form F, the movement of goods shall be deemed to have been
occasioned as a result of sale is not applicable to 'principal to
principal' transaction.
5. Section 6A, as of
course its amendment in 2002, will apply, as stated above, only when
the goods are sent by a dealer to another State to the dealer's own
place of business or to his agent or where the dealer is an agent,
to the place of his principal. In particular, nothing in this
section will apply when the goods are sent to another State, not by
way of sale, to an independent operator. The tax treatment of goods
under the CST Act, 1956 sent to another State, to another principal,
not by way of sale, is to be worked out accordingly.
6. Rule 53 of the
Maharashtra Value Added Tax Rules, 2005 deals with reduction in
set-off. Sub-rules (3) of this rule deals with the case where the
claimant dealer dispatches any taxable goods outside the State, not
be reason of sale, to his own place of business or of his agent or
where the claimant dealer is an agent, to the place of business of
his principal. If the goods are so dispatched, then in the
contingencies described in the said sub-rules, the set-off available
to the dealer is to be reduced as provided therein.
7. It may be noted that
phraseology used in sub-rule (3) of Rule 53 is the same as the
phraseology used in Section 6A of the CST Act. In other words, the
rule regarding reduction of set-off operates in only those
contingencies which are covered by Section 6A of the CST Act. The
rule will not apply in instances where Section 6A of the CST Act has
no applicability. It is, therefore, clear that the reduction in
set-off contemplated under the said sub-rule does not apply where
the goods are sent to another State for job work or for
manufacturing etc. on a 'principal to principal' basis. Subject to
the other provisions of that sub-rule the reduction in set-off will
apply only when the goods are sent to another State, not by reason
of sale, to the dealer's own place of business, or to his agent or
where the dealer is an agent, to the place of his principal.
8. There would be
contingencies where a dealer located in Maharashtra receives goods,
not by way of purchase, from another State. The clarifications given
in this circular would apply, mutates mutandis, to such inward
movement of goods from another State.
9. This circular cannot
be made use of for legal interpretation of provisions of law, as it
is clarificatory in nature. If any member of the trade has any
doubt, he may refer the matter to this office for further
clarification.
10. You are requested to
bring the contents of this circular to the notice of all the members
of your association.
(B.C. KHATUA.)
Commissioner of Sale Tax
Maharashtra State, Mumbai
The Circular Dated 29-11-2005
was so patently unjust and illegal that there was general perception
in the legal, administrative and industry circles that it will not
withstand judicial scrutiny. However unfortunately in the case of
Ambica Steels Vs State of U.P the (Reported in 2007 NTN Volume 35
Page 01) Hon'ble High Court has upheld the circular.. The Hon'ble
Court observed and held as under:-
“The submission that the goods
sent for job work or received for doing job work, do not amount to
sale would depend upon the contract entered into between the parties
and would be the subject matter of examination by the Assessing
Authority. Even otherwise, under Section 2(g)(ii) of Central Act,
transfer of goods used in execution of works contract is treated as
sale. If the petitioner claims that it is not liable to tax on the
transfer of goods from U.P. to ex U.P., then it would have to
discharge the burden placed upon it under section 6A by filing
declaration Form F. It would be immaterial whether the person to
whom the goods are sent for or received after job work is a bailee.”
The matter is now pending for
final adjudication before Hon'ble Supreme Court of India.
This decision has caused dismay
and anxiety in the Trade and Industry and the manufacturers of other
States are diverting business from dealers of Uttar Pradesh to
dealers of other States, because there are no such unjustified
demands by the assessing authorities in other States. In the State
of U.P. huge demands have been created against the dealers despite
the fact that the material for job work has been received against
the departmental Import form for job work and the job work and
dispatch after job work is fully verifiable.
The legal position till now was
that presumption U/s 6-A was rebuttable presumption and the dealer
can rebut initial presumption of sale by evidence proving otherwise.
Form F was one of the methods to prove that transaction was not
sale. The controversy gained momentum from the misinterpretation of
the judgment of the Hon'ble Supreme Court of India in the case of
Ashoka Leyland Vs Union of India (Reported in 2004 NTN Volume 24
Page 165.
In this case the dealer was
engaged in manufacture of commercial vehicles in the state of
Maharashtra and Rajasthan. The dealer has regional offices
throughout the country for receiving, warehousing and selling the
vehicles produced by the appellant. The dealer effected stock
transfer of vehicles and filed declaration in Form F in support of
claim of stock transfer. The claim was accepted in the assessment
proceedings. However the assessing authority issued notices for
revision of assessment order on the ground that the transfer of
vehicles to regional sales office is inter-State sales from the
dispatching state. The dealer challenged the re-assessment order on
the ground that in view of provisions of Section 6-A of the CST Act
the stock transfer was established and it cannot be reopened.
The Supreme Court of India held
that by reason of sub-section (2) of Section 6-A, a legal
presumption has been created for the purpose of the Act to the
effect that transaction has occasioned otherwise than as a result of
sale. In Para 49 of the judgment the Hon'ble Supreme Court observed
and held as under: -
"On the analysis of the
aforementioned provisions, the following propositions of law emerge:
(i) The initial burden
of proof is on the dealer to show that the movement has occasioned
by reason of transfer of such goods, which is otherwise than by
reason of sale. The assessee may file a declaration. On a
declaration so filed an enquiry is to be made by the Assessing
Authority for the purpose of passing an order on arriving at a
satisfaction the movement of goods has occasioned otherwise than as
a result of sale.
(ii) Whenever such an
order is passed, a legal fiction is created.
(iii) Legal fiction, as is
well-know, must be given its full effect."
The Hon'ble Supreme Court
considered the rebuttable presumptions and irrebuttable presumptions
and came to the considered opinion that the assessment order passed
accepting stock transfer is irrebuttable and conclusive presumption.
The issue before Hon'ble Supreme
Court was about the finality of assessment after acceptance of
declaration in Form F and other evidence. The issue was not that
there would be conclusive presumption of sale in the absence of
declaration in Form F. As such the Hon'ble Supreme Court held that
assessment order passed is conclusive presumption of accepting stock
transfer and did not held that presumption of sale is conclusive in
the absence of declaration in Form F.
It is true that in Para No. 74
of the judgment the Hon'ble Supreme Court has made observation
regarding Section 6-A (1) of the CST Act but in my view the
observations are obitar dicta and not ratio-decendi of the judgment.
The sole thrust of the judgment is about the conclusive presumption
U/s 6-A(2) and not about the nature of presumption U/s 6-A(1) of the
Act. In my view the decision of Hon'ble Supreme Court of India in
Sondhi transport case still holds the field.
In my view the amendment made in
Section 6-A by Finance Act, 2002 provides for rebuttable
presumption. It is noteworthy that the words " he may furnish to the
assessing authority, within .... a declaration duly filled and
signed ...." remains the same and word "may" has not been
substituted by word "shall". The additions of words in later half of
the Section 6-A only create a presumption, which can be rebutted by
the dealer.
In this regard I would refer to
the presumption made under Section 28-B of the U.P. Trade Tax Act,
1948 in respect of sales of goods within the State of U.P. if the
transit pass obtained is not discharged at exit check post.( failing
which it shall be presumed that the goods carried thereby have been
sold within the State by the owner or person-in-charge of the
vehicle." )The issue came before Hon'ble Supreme Court of India in
the famous case of Sondhi Transport Company Vs State of
U.P.(Reported in 1982 ATJ-296) the Hon'ble Supreme Court of India
has held that the presumption of sale on non-discharge of transit
pass is rebuttable presumption. Similar view was expressed in the
case of Khurana Roadways, Agra Vs CST (STI 1979 JR Agra 19)
In my view the Parliament has no
power to change a transaction of transfer into transaction of sales
by creating presumption in Central Sales Tax Act. The only way open
for Parliament to impose tax on Stock transfer is by Amendment in
the Constitution of India, which has already been done by 46th
Constitution Amendment in Article 269(1)(h) of the Constitution of
India. By activating the aforesaid provision the Parliament can
authorize imposition of tax on stock transfer or consignment
transfer. Nothing short of it will authorize the Parliament to
impose tax on stock transfer or consignment sales. This view is
fortified by the observation of Hon'ble Supreme Court of India in
the case of State of Orissa Vs Titagarh Paper Mills Company Ltd
(Reported in 60 STC 213). At Page 237 of the judgment the Hon'ble
Supreme Court laid down the following principle of law
"As any attempt on the part of
the State to impose by legislation sales tax or purchase tax in
respect of what would not be a sale or sale of goods under the Sales
of Goods Act, 1930 is unconstitutional, any attempt by it to do so
in the exercise of its power of making subordinate legislation,
either by way of a rule or notification would be equally
unconstitutional and so would such an act on the part of the
authorities under a Sales Tax Act purporting to be done in the
exercise of powers conferred by that Act or any rule made or
notification issued there under."
It will not be out of place to
mention that Stock transfer do not fall under the scheme of things
under Section 3 of CST Act imposing tax on interstate trade or
commerce and taxing the same would be against the provisions of
Article 269 of Constitution of India. For stock transfer declaration
in Form C cannot be issued under Section 8(4) of CST Act read with
Rule 12. Stock transfer does not fit under the ambit of Sale under
Indian Contract Act or Sales of Goods Act.
The observation of Hon'ble
Supreme Court of India in the case of State of Orissa Vs. Titagarh
Paper Mills Company Ltd (supra) is squarely applicable to the
circular of the CTT, U.P. providing that declaration in Form F is
mandatory for dispatch or receipt of goods for job work. (Circular
No.841/29-11-2005.) Unfortunately the above decision was not put up
before the Division bench and the argument of principal to principal
nature of transaction of job work was not appreciated by the
Division Bench of High Court in Ambica Steel case resulting in
confirmation of the illegal and unconstitutional circular.
Moreover in the cases covered
under Section 6-A of the CST Act the inter-State movement of the
goods to branch or consignment agent is for the purpose of sale in
receiving State by the branch or consignment agent whereas in the
case of job work the inter-State movement of the goods is not for
sale but is for some processing on the goods and goods are to be
returned back after the processing on the goods. The movement of the
goods to job worker can not be termed as movement "to any other
place of his business or to his agent or principal, as the case may
be."
The job work is a contract for
doing specific work for labour. The labour work is not covered under
the definition of sale and it cannot be assessed to tax under the
sales tax legislation of the Union or States. The job work is
different from the works contract involving transfer of property in
execution of works contract. The inter-State transfer for works
contract is included in the definition of sales under Section 2(g)
of the CST Act and is not covered U/s 6-A of the Act. Therefore the
above-mentioned circular, which is aimed exclusively to-wards the
labour work, which is totally outside the ambit of sales tax
legislation.
The dealers in the State of U.P.
are very much harassed and hard pressed due to this circular. The
dealers and authorities of the other States to whom such goods have
been sent for job work are not highly intelligent and knowledgeable
like our CTT and are not issuing declaration in Form F to the U.P.
dealer resulting in imposition of heavy tax and unnecessary
litigation. After the decision in Ambika Steel case the only hope
for the dealers is from the Supreme Court of India.
I will
conclude my submission with the suggestion to my brother
professionals and other authorities to examine the cases of stock
transfer or consignment sales on the basis of evidence or dispatch
and other evidence of independent sales in the receiving state. The
presumption of sale U/s 6-A of the CST Act is rebuttable
presumption, which can be rebutted by the aforesaid evidence. Tax
should not be imposed on the transaction of stock transfer,
consignment transfer & job work on mere misplaced technicalities.