CST -Assessment orders u/s. 6A(1) 6A(2) & 6A(3) – Appellate Forum to be approached

K. V. Hari Babu, ACMA, CS

Central Sales Tax Act – Assessment orders under Sections 6A(1), 6A(2) and 6A(3) – Appellate Forum to be approached

There is confusion in the minds of dealers/assessees as to the appellate forum to be approached in case of assessment orders passed under Sections 6A(1), 6A(2) and 6A(3) of the Central Sales Tax Act, 1956 (hereinafter referred to as “CST”). I wish to discuss on the subject in this article, with an intention to clarify the doubts in the minds of the dealers/assessees.

1. Introduction:

1.1.          CST Act deals with taxation of inter-state sales made by the dealers.  A sale which occasions movement of goods from one State to another or is effected by transfer of documents of tile to the goods during the movement from one State to another falls within the ambit of inter-state sale and liable for tax under the CST Act.

1.2.          If the movement of the goods does not takes place as a result of sale, but effected by a dealer to his own place of business or to his agent or principal in another State, then there is no tax liability on the dealer, since there is no sale of goods, subject to establishment of movement of goods otherwise than as a result of sale. CST Act stipulates the conditions to be fulfilled by the dealer, to prove that the material movement has taken place not as a result of sale, but on account of stock transfer to his place of business or to his agent or principal in another State(s).

2. Conditions for granting exemption to stock transfers:

2.1.           The dealer effecting stock transfer of goods from one State to his place of business or to his agent or principal in another State, shall obtain a declaration in Form ‘F’ signed by the authorised signatory in other State(s), issued by the VAT department in those State(s), indicating the details of stock transfers made on the declaration Form, such as stock transfer challan no., date, value of the materials, vehicle no., LR No., date etc. The dealer is also required provide proof evidencing dispatch of goods to his place of business or to his agent or principal in other State(s). If the dealer fails to furnish the Form ‘F’ declarations and prove movement of goods to another State other than by way of sale, then the stock transfers shall be treated as sales.

2.2.           Rule 6A of the CST Act is reproduced hereunder for ready reference:

“6A. (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 despatch 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”.

2.3.           Rule 12(5) of the Central Sales Tax (Registration and Turnover) Rules, 1957 (hereinafter referred to as “CST Rules”) stipulates that the declaration referred to in sub-section (1) of Section 6A shall be in Form ‘F’.

2.4.           A single declaration form shall cover the stock transfers effected by the dealer during one calendar month.

2.5.           In effect, a dealer, who effected stock transfer of goods to his place of business or agent or principal in another State shall obtain one Form ‘F’ for each of the months during the year. If there are stock transfers during all the twelve months in a year, the dealer is required to obtain twelve (12) ‘F’ Forms from his place of business or agent or principal in another State and submit to his assessing authority along with proof of dispatch of goods to get exemption.

2.6.           The dealer has to submit forms obtained from his branch or agent or principal outside the State, within three months from the end of the month in which stock transfers took place.

2.7.           In case the dealer fails to submit the ‘F’ Forms, the movement of goods shall be treated as a result of sale and CST shall be levied, as per Section 6A(1) of the CST Act.

3. Assessment of stock transfers:

3.1.          The assessing authority is required to verify the Form ‘F’ declarations furnished by the dealer and proof of dispatch of goods other than by way of sale and if he is satisfied that the movement of the goods from one State to another State is not as a result of sale, he may pass assessment order, admitting the stock transfers and grant exemption from taxable turnover, since the movement of the goods has been occasioned otherwise than as a result of sale. Rule 6A(2) of the CST Act dealing with assessment is reproduced hereunder for ready reference:

“(2) If the assessing authority is satisfied that after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall, subject to provisions of sub-section (3), be deemed for the purpose of this Act to have been occasioned otherwise than as a result of sale”.

3.2.         The rule stipulates that the assessing authority required to pass assessment order, treating the movement of goods otherwise than as a result of sale and exempt the transaction from CST, in case the assessing authority is satisfied that declarations and documentary evidence furnished by the dealer, in support of claim that goods are moved from one State to another State otherwise than as a result of sale, are true.

3.3.         If the assessing authority after verification of the declaration forms and documentary evidence submitted by the dealer, in support of claim for stock transfers otherwise than as a result of sale, the assessing authority shall pass an order, rejecting the claim for stock transfers. In such a case, the movement of goods shall be treated as a result of sales and CST shall be levied on such transfers from one State to another.

4. Difference between orders under Section 6A(1) and 6A(2):

4.1.          Order under Section 6A(1):      The assessing authorities are required to pass orders under Section 6A(1) of the CST Act, in case the dealer failed to submit Form ‘F’ declarations. In this case, the claim for stock transfers is rejected for non-submission of ‘F’ Forms. Genuineness of the movement of goods otherwise than by way of sale is not decided in the orders passed under this Section. The order is purely on account of non-submission of ‘F’ Forms. Since ‘F’ Forms are not submitted, the claim from stock transfers otherwise by way of sale is rejected and tax is levied.

4.2.         Order under Section 6A(2):     Order under this Section is passed after verification of the ‘F’ Forms and documents in support of claim for inter-state movement of goods otherwise than by way of sale submitted by the dealer. The assessing authority may reject the claim of the dealer for exemption on stock transfers and levy CST on the such inter-state transfers treating the same as inter-state sales, if he is not satisfied about the movement of goods otherwise than by way of sale.

4.3.         The basic difference between order under Section 6A(1) and 6A(2) is that in case of order under Section 6A(1) the demand is due to non-submission of ‘F’ Forms, while in case of order under Section 6A(2) the demand is due to levy of CST treating the movement of goods as a result of sale, rejecting the claim of the dealers that movement is otherwise than as a result of sale.

5. Appellate forum to be approached in case of orders under Section 6A(1) and 6A(2):

5.1.          Orders passed for non-submission of ‘F’ Forms – Section 6A(1):

In case the order is passed under Section 6A(1) of the CST Act, rejecting the dealer’s claim for stock transfers, for non-submission of the ‘F’ Forms, then the appeal lies before the next higher forum in the hierarchy of appellate forums. For ex., if the assessment order is passed by the Commercial/Sales Tax Officer/Asst. Commissioner, the appeal lies before the 1^st appellate authority, who is generally Dy. Commissioner/Jt. Commissioner/Addl. Commissioner (Appeals) depending upon the designation of the 1^st appellate authority.  If the 1^st appellate authority rejects the appeal, then the dealer has to file 2^nd appeal before the 2^nd appellate authority which is called Sales Tax Appellate Tribunal/Board or Tax Board etc., which is the highest appellate authority in the State.

5.2.         The important point to be noted here is that once the assessment order is passed for non-submission of ‘F’ Forms, denying the claim for stock transfers, the appeal lies before the 1^st appellate authority, whether the assessing authority clearly indicates that the order is passed under Section 6A(1) or not.

5.3.         It is understood there is confusion or mis-conception as to the appellate authority to be approached in case of order under Section 6A(1) or order passed for non-submission of ‘F’ Forms. It is understood that VAT/Sales Tax authorities in some of the States have also advised the dealers that appeal lies before the highest appellate forum in the State i.e., Sales Tax Appellate Tribunal/Board, in case of orders passed for non-submission of ‘F’ Forms, citing the provisions of Section 18A of the CST Act.

5.4.         Relevant provisions of Section 18A of the CST are reproduced hereunder for ready reference:

“18A. Appeals to highest appellate authority of State

(1) Notwithstanding anything contained in a State Act, any person aggrieved by an order made by the assessing authority under sub-section (2) of section 6A, or an order made under the provisions of sub-section (3) of that section, may, notwithstanding anything contained in the general sales tax law of the appropriate State, prefer an appeal to the highest appellate authority of the State against such order:

Provided that any incidental issues including the rate of tax, computation of assessable turnover and penalty may be raised in such appeal.

(2)……

(3)……

(4)……

(5)….

Explanation.— For the purposes of this section and sections 20, 21, 22 and 25 highest appellate authority of a State, with its grammatical variations, means any authority or tribunal or court, except the High Court, established or constituted under the general sales tax law of a State, by whatever name called.”

5.5.         It is very much clear from the provisions of Section 18 of CST Act that appeals to highest appellate authority of the State shall be preferred in case of orders passed under Section 6A(2) and 6A(3) of the CST Act.

5.6.         Orders under Section 6A(2) are required to be passed by the assessing authority after verification of the Form ‘F’ declaration forms and documentary evidence in support of movement of goods otherwise than as a result of sale submitted by the dealer. Therefore, orders Section 6A(2) cannot be passed, if the declaration forms are not submitted by the dealer. In such a case, orders under Section 6A(1) can be passed.

5.7.         Section 6A(3) deals with re-assessments by the assessing authority on discovery of new facts or by a higher authority on the ground that the findings of the assessing authority are contrary to the law. Evidently, Section 6A(3) covers re-assessments but not assessments. Therefore, original assessment orders passed by the assessing authorities are not covered by this Section.

5.8.         In effect, Section 18A contemplates appeals to the highest appellate forum in the State in two cases:

(i)            Original assessment orders passed by the assessing authority, wherein CST is charged on the materials moved from one State to another State, rejecting the claim of the assessee towards stock transfer of materials, after verification of the ‘F’ form declarations and documentary evidence submitted by the dealer in support of movement of goods.

(ii)          Re-assessment orders passed by either the assessing authority or any higher authority.

5.9.         The Section does not cover original assessment orders passed by the assessing authority for non-submission of ‘F’ forms, which are required to be passed under Section 6A(1) of the CST Act.

6. The ambiguity in the matter has been succinctly cleared by the judgment of the Hon ‘ble Karnataka High Court in the case of Tropican Beverages Vs. State of Karnataka and Others [(2012) 54 VST 472 (Kar)]. It has been held by the Hon ‘ble High Court that where the assessee could not produce Form ‘F’ to substantiate the exemption, then the question of conducting inquiry under Section 6A(2) does not arise at all. Consequently, the provisions of the Section 18A(1) of the CST Act do not get attracted in this case. Therefore, the appeal lies before the 1^st appellate authority, but not before the highest appellate authority i.e., Appellate Tribunal. Dismissal of the appeals by the 1^st appellate authority, on the ground that provisions of Section 18A(1) get attracted in this case and therefore appeal lies before the Karnataka Appellate Tribunal, is held to be invalid. The appellate authority is directed to decide the appeals as per the directions given by the High Court.

7. Conclusion:

(i)            Dealers are advised to file appeals against the assessment orders passed for non-submission of ‘F’ forms before the 1^st appellate authority, but not before the highest appellate forum in the State.

The assessment order is supposed to mention that the order is passed under Section 6A(1) of the CST Act. Even if the assessment order fails to mention that the order is passed under Section 6A(1) of the CST Act, the dealer is required to prefer appeal before the 1^st appellate authority, but not before the highest appellate forum in the State.

(ii)          Dealers are advised to file appeals before the highest appellate forum in the State i.e., Sales Tax Appellate Tribunal/Board or Tax Board, in case the order is passed either under Section 6A(2) or 6A(3) of the CST Act.

Order under Section 6A(2) relates to rejection of the claim for stock transfers after verifying the genuineness  of the transactions. Re-assessment order is passed under Section 6A(3) by the assessing authority on discovery of new facts or by a higher authority on the ground that the findings of the assessing authority are contrary to the law.