Issue of F form for transactions effected prior to date of CST registration; Issue of same between branches

Q.1 The amended section 6A of CST Act, 1956 requires the transferor branch to obtain ‘F’ form from the transferee branch and on failure to obtain the same the transaction is presumed to be sale. Whether such amendment can be said to be constitutionally valid, as it may amount to levy of tax on Consignment?

Ans. The issue is to be seen in light of amendment to section 6A, as effective from 11.5.2002. The said amended section is reproduced below for ready reference.

[6A. Burden of proof, etc., In case of transfer of goods claimed otherwise than by way of sale

(1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for this purpose he may furnish to the assessing authority, within the prescribed time or within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of dispatch of such goods and if the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed for all purposes of this Act to have been occasioned as a result of sale.”

It can be said that prior to amendment the production of ‘F’ form was not mandatory and with other supporting evidence also the claim can be proved. Basically branch transfer is consignment to one’s own branch. Therefore such consignment cannot be considered as sale and no tax can be levied on the same unless proved to be inter-state sale covered by section 3. However, by deeming provision such consignment is deemed to be sale on failure to produce ‘F’ form. In other words, the consignment transfer is converted into sale merely because F form is not produced. Therefore, apparently it seems that the provision can be challenged as unconstitutional. No doubt, Parliament has power to levy tax on consignments also. However, it is under separate entry in List I and hence it appears that such tax cannot be levied under CST Act, 1956 At the most a separate law for levy of tax on consignments can be enacted, but the tax on the same cannot be levied under the garb of deemed sale. However the other opinion can be that Parliament being otherwise entitled to levy tax on consignment, can levy the same under CST Act also. In this relation reference can be made to the judgment of Karnataka High Court in case of New Kiran Cashews vs. Union of India and others [2007] (9 VST 220). In this case the amended provision of section 6A was challenged as unconstitutional. Hon. High Court held that the amendment to section 6A is with a view to exercise control over the dealers and to plug the revenue leakage. Therefore, amendment is justified as constitutional. The short gist of the judgment is as under:

“The Hon. High Court held that section 6A of the Central Sales Tax Act is an enabling provision for persons like petitioner to make good their case that the transaction is one of simple transfer and not one of sale by producing supporting material as provided. The manner in which such proof is to be produced should be in accordance with the prescribed manner according to the amended provision. The mere fact that it may make the task of persons like the petitioner a little more difficult or cumbersome, by itself cannot render the provision unconstitutional. The mere fact that it becomes more rigorous does not change the nature of the provision as it stood before the amendment and as it stands after the amendment. The provision was one which only enabled the assessee to place commensurate material to substantiate its claim that it was not sale but a transfer. In the absence of proof to show that it was only a stock transfer, the deeming provision operates on the premise that it is only a sale in which event the tax liability arises. Such fictions are created under the taxing statute for the purpose of preventing pilferage of revenue. When the provision creating the fiction provides for an opportunity to an assessee or a dealer to make good its case that it is only stock transfer and it is only on its failure to prove the same that the transaction is to be taken as transaction of sale, there is nothing obnoxious in the provisions which can make it unconstitutional.”

Therefore today the validity of amendment is upheld. However the basic argument that this may amount to levy of tax on consignment and hence it should be properly levied by way of law enacted separately under constitutional powers can still be made. Though the amendment appears to be a machinery provision it can still be challenged on above ground. The practical difficulties are that when the transfer is to an unregistered branches etc. the same is affected by above amendment and unexpected tax liability arises.

Q.2 Whether the dealer registered on particular date under CST Act, 1956 can issue F forms for transactions effected prior to such date of registration.

Ans. In case of sale against ‘C’ form the requirement is that the sale is to registered dealer and hence the purchasing dealer is required to be registered on date of purchase. However as per the provisions of section 6A, there is no requirement that the transfer should be to registered branch/agent etc.. In other words, the transfer can be to unregistered branch/agent also. In view of amended provision of section 6A, F form will be required to substantiate the claim of branch transfer. The purpose of making F form mandatory is to have control over the transferee branches etc.. Therefore, there should not be any harm in allowing F form even for the transactions effected prior to date of registration, once registration is obtained under the CST Act. In fact, Hon. Madras High Court has already held above view as clear from the judgment in case of State of Tamil Nadu vs. Cocoa Products and Beverages Limited (109 STC 634) (Mad). The short gist of the said judgment is as under.

In this case the issue was about F forms for transactions prior to date of registration. “Hon. High Court held that the information required on the body of form “F” as to “date from which registration is valid” and the first proviso to rule 12(5) of the Rules, has to be construed in a liberal way so as to foster or develop inter-State trade or commerce. If liberally interpreted, it is permissible for the dealer to obtain declaration form “F” from the appropriate tax officer, even in respect of consignments received during the period he was not registered;”

In light of above the dealers can have sigh of relief as they can obtain F forms for prior transactions also, in case the transfer at initial stage was to unregistered branch etc.

Answered By Shri. C. B. Thakar