Note by CA Deepak Thakkar dt 17 May 2011

Transcription

1 Interstate Sales u/s 3 & Not an Interstate Stock Transfer u/s. 6A of CST Act Note by CA Deepak Thakkar dt 17 May 2011 CST Act Chapter II : Formulations of principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce or outside a State or in the course of import or export : Sec. 3 : When is a sale or purchase of goods said to take place in the course of inter- State trade or commerce: A sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1 - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2 - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. 1] Movement of goods from State was occasioned by order placed by customer on branch in other State and was an incident of contract. For concessional rate of tax the Transferor company to be given opportunity to collect C forms from customers. Sahney Steel and Press Works Ltd. and Another Vs. Commercial Tax Officer and Others (1985) 60 STC 301 (SC): Inter-State sales Registered office and factory of petitioner-company in Andhra Pradesh Branches outside State Order taken outside State by branches and forwarded to registered office Goods manufactured and sent to branches Branches delivering goods to buyers, raising bills and receiving sale price Transactions amount to sales in the course of inter-state trade Branches not separate juridical personalities Movement of goods from Hyderabad was occasioned by order placed by customer and was an incident of contract Concessional rate of tax Question whether transactions were inter-state sales in doubt and resolved by Court Petitioner-company to be given opportunity to collect C forms from customers Central Sales Tax Act (74 of 1956), Secs. 3(a), 6A, 8(1), (4) Central Sales Tax (Registration and Turnover) Rules, 1957, Forms C, F. The petitioner-company, engaged in the manufacture and sale of stampings and laminations made out of steel sheets which were utilised as raw material for making electric motors, transformers, etc., had its registered office and its factory in Hyderabad. Its branches at Bombay, Calcutta and Coimbatore were mainly engaged in efecting sales and looking after sales promotion and liaison work. Those branches received orders from customers within and outside their respective States for the supply of goods conforming to definite specifications and drawings and advised the Note by CA Deepak Thakkar dt 17 May 2011 Page 1 of 10

2 registered office at Hyderabad. This company manufactured the goods according to the designs and specifications supplied by customers at its factory at Hyderabad and despatched them to the respective branches by way of transfer of stock. Such goods were booked to "self" and sent by lorries. The goods received by the branches were entered in the stock accounts of the branches and kept in stock for ultimate delivery to the customers. On the goods reaching the branches, they were inspected by the customers and accepted by them where the customers were local parties. Where the customers were outside the State the branch despatched the goods to them. The branches raised the bills and received the sale price. They also furnished form F to the registered office at Hyderabad under section 6A of the Central Sales Tax Act, 1956 in the case of stock transfers to the branches. The petitioner-company was assessed to State sales tax in Maharashtra, West Bengal and Tamil Nadu in respect of those goods. The petitioner claimed that there was only a transfer of stock from Hyderabad to the branches outside the State of A.P. and that the sales effected to the customers by the branches were local sales in the respective States. The Commercial Tax Officer, Hyderabad, held the sales to be sales in the course of inter- State trade and made an assessment accordingly for the year and also issued notices for reopening the assessments for the two earlier years and to include such sales. The petitioner-company filed a writ petition in the Supreme Court claiming that the sales were not sales in the course of inter-state trade and praying that, in the event of the transactions being held to be inter-state sales, the petitioner be permitted to avail of the concessional rate envisaged by section 8(1) read with section 8(4) of the Act; and that, in the alternative, the assessments to local sales tax be quashed in so far as they included the turnover of the stock transferred by the registered office to the branches: _Held,_ (i) that even if the customer placed an order with the branch office and the branch office communicated the terms and specifications of the order to registered office and the branch office itself was concerned with despatching, billing and receiving of the sale price, the order placed by the customer was an order placed with the company, and for the purpose of fulfilling that order the manufactured goods commenced their journey from the registered office in the State of Andhra Pradesh to the branch outside the State for delivery of the goods to the customer. Both the registered office and the branch office were offices of the same company: they did not posses separate juridical personalities. The movement of the goods from the registered office at Hyderabad was occasioned by the order placed by the customer and was an incident of the contract, and therefore, from the very beginning from Hyderabad all the way until delivery to the customer it was an inter-state movement. The sale transactions were inter-state sales under section 3(a) of the Act; (ii) that a reasonable opportunity should be given to the petitioner-company to collect C forms from the customers for the purpose of obtaining relief under section 8(1) read with section 8(4), since the question whether the transactions could be treated as inter-state sales was all along in doubt and it was only now that the question could be said to be resolved. [The Court also granted liberty to the petitioner-company to apply to the assessing authority concerned for the deletion of such transactions in the assessments under the State Acts, and directed that, if the application was made within two months, the assessing authority should entertain it notwithstanding any period of limitation prescribed for such a proceedings.] 2] Name of ultimate purchaser mentioned in forwarding note in factory indicates that goods moved pursuant to prior contract hence it is an inter-state sales. Commissioner of Trade Tax, U.P., Lucknow Vs. Kapri Bath Aid Pvt. Ltd. (2010) 33 VST 748 (All): Note by CA Deepak Thakkar dt 17 May 2011 Page 2 of 10

3 Sales tax Stock transfer or inter-state sale Burden of proof of stock transfer Is on dealer Goods moving from factory to head office and thereafter to purchasers in another State Name of ultimate purchaser mentioned in forwarding note in factory Indication that goods moved pursuant to prior contract Transactions inter-state sales That goods entered in stock register in Delhi not material Central Sales Tax Act (74 of 1956), ss. 3(a), 6A. The respondent-dealer engaged in manufacture and sale of sanitary goods had a factory at Noida. The assessing authority rejected a part of the dealer's claim of stock transfer to Delhi on the basis of material collected by the Department in a survey. The dealer appealed against the assessment order whereupon the first appellate authority accepted the claim in respect of certain transactions as stock transfer. In respect of the remaining transactions, the first appellate authority found that goods covered by forwarding notes Nos. 101, 106, 127, 129 and under challan Nos. 58, 16, 17 and 26 moved outside the State of U. P. in pursuance of prior contract of sale between the dealer and the purchaser and, therefore, the transactions covered by the aforesaid documents were inter-state sales. The Tribunal accepted the claim of the dealer with regard to the stock transfer in toto. On a revision petition: _Held,_ allowing the petition, that in the note book titled "forwarding note" seized at the survey forwarding notes Nos. 101, 106, 127 and 129 mentioned the names of the purchasers "L" in Bombay. The fact that in the forwarding note, the name and address of the purchasing dealer found place was a strong circumstance to indicate that the goods moved in the course of inter-state trade or commerce. There was an agreement between the dealer and the party outside the State of U.P. and the agreement occasioned the movement of goods from the State of U.P. to another State such as Bombay, albeit via Delhi. Merely because in the account books an attempt was made to show that the goods were received by the head office at Delhi and thereafter despatched to the party outside the State of U.P. would not change the nature and character of the transaction. Under section 6A of the Central Sales Tax Act, 1956 the burden of proof of transfer of goods claimed otherwise than by way of sale lies on the dealer. Appropriation of goods took place at Noida and they were earmarked for the Bombay party as was evident from the forwarding note. The same goods were sent to the Bombay party. The Tribunal on the basis of transfer challan and sale bill of Delhi and payment of octroi receipts wrongly concluded that it was a case of stock transfer. The movement of goods from the factory to Bombay was in pursuance of prior contract of sale and the transactions were inter-state sales as defined under section 3(a) of the Central Sales Tax Act and not stock transfer. Kelvinator of India Ltd. v. State of Haryana [1973] 32 STC 629 (SC) (para 10) referred to. 3] Burden of proof on dealer to prove that goods moved by way of stock transfer. Failure to produce books of account or documents to establish claim and where Sale invoices of depot and stock transfer memos containing same agreement numbers can result in taxable interstate sales. Modi Spinning And Weaving Mills Vs. Commissioner, Trade Tax, U.P., Lucknow (2008) 13 VST 432 (All): Sales tax Inter-State sale or stock transfer Burden of proof On dealer to prove that goods moved by way of stock transfer Failure to produce books of account or documents to establish claim Sale invoices of depot and stock transfer memos containing same agreement numbers Movement of goods was as result of prior contracts of sale Central Sales Tax Act (74 of 1956), s. 6A. The petitioner engaged in manufacture and sale of cotton yarn, had a depot at Delhi and during the year under consideration, claimed to have transferred yarn to Note by CA Deepak Thakkar dt 17 May 2011 Page 3 of 10

4 the Delhi depot by way of stock transfers. The assessing authority treated the movement of goods to the Delhi depot as inter-state sales, the petitioner not having produced the entire stock transfer memos, builties and sale invoices raised from the Delhi depot. The assessing authority observed that in the copies of the stock transfer memos, the same order numbers were mentioned as in the sale invoices raised by the Delhi depot. In appeal before the Deputy Commissioner (Appeals), the petitioner placed some of the copies of indent but the first appellate authority refused to rely upon them on the ground that they were subsequently prepared. The Tribunal dismissed the petitioner's second appeal on the ground that it had not produced any books of account relating to the stock transfers nor copies of all the agreements. The Tribunal noted that in the stock transfer memos some code names of the purchasers were mentioned and refused to rely upon the copies of the indent produced before the first appellate authority. On a revision petition: _Held,_ dismissing the petition, that even in the absence of section 6A of the Central Sales Tax Act, 1956 the initial burden lay upon the dealer to prove its claim that the movements of goods were by way of stock transfers and not in pursuance of any contract of sale. The assessing authority noticed that there were agreements between the petitioner and the Delhi parties to whom the goods were sold and in the stock transfer memos and the sale invoices raised from the Delhi depot the same agreement numbers were mentioned. This clearly established that the movement of goods was in pursuance of prior contracts of sale. There was no reason why the documents relating to the stock transfers had been withheld by the petitioner which were necessary for determination of the nature of transactions. There was no reason to interfere with the findings of the Tribunal. (see paras 7 and 8) Commissioner of Sales Tax v. Modi Spinning & Weaving Mills [1989] UPTC 1214 (para 2) referred to. 4] Documents & records reveal that it was interstate sales & not stock transfers. Indus Steels & Alloys Ltd. Vs. State of Tamil Nadu and others (2008) 18 VST 546 (CSTA-NDB): Central sales tax Stock transfers Made from assessee's factory to customers in another State Finding that they were Inter-State sales On the basis of material on record Assessment as inter-state sales valid Penalty Law before July 1, 2002 Turnover based on books of account Only claim for exemption on the basis of stock transfer rejected Penalty not leviable Central Sales Tax Act (74 of 1956), ss. 6A, 9(2A) Tamil Nadu General Sales Tax Act (1 of 1959), s. 12(3)(b) (before amendment on July 1, 2002) The appellant was a firm engaged in the business of manufacture and sale of tor steel. Its registered office was in Bangalore in Karnataka. It had its factory in Hosur in Tamil Nadu. On an inspection by the Enforcement Wing it was found that the appellant had disguised a definite quantum of its sales as sales which were not inter-state sales. Rejecting the appellant's claim that it effected stock transfers to its head office-cum-sales depot at Bangalore and thereafter effected local sales in Karnataka, the appellant was assessed on the entire turnover of Rs. 3,04,43,425 for the year and Rs. 6,19,53,768 for the year as inter-state sales under the Central Sales Tax Act, 1956, though the inspecting officials of the Enforcement Wing had arrived at a definite finding on the quantum of turnover disguised as attributable to inter-state sales. Penalty was also levied at one-and-ahalf times the tax due under section 9(2A) read with section 12(3)(b) of the Tamil Nadu General Sales Tax Act, The materials relied upon by the assessing authority were: (i) the sale invoices maintained in the head office/sales depot at Bangalore were found in the factory at Hosur in Tamil Nadu; (ii) stock transfer delivery challans as well as sale invoices were signed by the same person who was the executive director of the appellant; (iii) goods sent from Note by CA Deepak Thakkar dt 17 May 2011 Page 4 of 10

5 the factory were sold by the Bangalore office on the very same day or the next day; (iv) in some of the stock transfer delivery challans of the Hosur (Tamil Nadu) factory, the names of the buyers in Bangalore were noted; and (v) there were some instances of the goods sent on stock transfer to the Bangalore office which were unloaded directly at the customer's premises. On appeal to the Authority: _Held,_ (i) that the conclusion of the assessing authority that direct inter-state sales were camouflaged as stock transfers was based on proved facts and reasonable inferences; (see para 11) (ii) that, however, the assessing authority erred in assessing the entire stock-transfer sales as inter-state sales, though the inspecting officials of the Enforcement Wing had arrived at a definite finding on the quantum of turnover attributable to disguised inter-state sales. (see para 11) (iii) That the taxable turnover under the Central Sales Tax Act, 1956, arrived at by the Enforcement Wing on a verification of the seized records came to Rs. 1,60,23,984 for the year though the total stock transfers made were Rs. 2,78,87,229 and no reason was given for treating the entire stock transfers as inter- State sales. The assessment, so far as it subjected the turnover over and above Rs. 1,60,23,984 to tax was arbitrary and not sustainable. (see paras 11 and 14) (iv) That, similarly, the quantum of turnover for the year arrived at by the Enforcement Wing representing inter-state sales was Rs. 1,35,15,592 and, therefore, only to that extent the turnover of Rs. 4,74,38,176 could be treated as inter-state sales. (see para 15) (v) That the total turnover returned by the appellant and computed by the assessing authority were the same and the difference was only in relation to taxable turnover because the claim for exemption on the ground of stock transfer was not accepted. But the assessment was based on the books of account and records kept in the regular course of business. There was no estimate. This was only a case of rejection of the claim for exemption/exclusion of stock transfers and was not one of best judgment assessment. Penalty was levied prior to the amendment of section 12(3) of the Tamil Nadu General Sales Tax Act with effect from July 1, The levy of penalty was not sustainable under section 12(3) as it stood prior to its amendment with effect from July 1, (see para 18). 5] Hyderabad Engineering Industries (4 March 2011) 11-TIOL-27-SC-CT: Interstate Stock transfers vs Interstate Sales: Supreme Court rules that interstate stock transfer are in fact taxable interstate sales in view of peculiar clauses of the sales agreement executed on 1 May 1979, for five years with customer. o Deliveries/sale shall be made to customers / its nominees, at any of the taxpayer s factories / godowns / regions, at the option of customer o Forecasts or letter of allocations were nothing but the firm orders or indents placed by customer Many other clauses read in conjunction with actual deliveries. 6] The instances of Stock transfers to branches, in which price was received in advance, was interstate sales & hence liable to Central sales tax: Note by CA Deepak Thakkar dt 17 May 2011 Page 5 of 10

6 Erode District Co-Operative Milk Producers' Union Ltd. Vs. Special Commissioner & Commissioner Of Commercial Taxes and others (2008) 18 VST 589 (CSTA-NDB): Inter-State sales Stock transfers to branches and consignment agents Exempted from tax in original assessment Reassessment Transfers to agents do not amount to sale Only those transfers to branches in which price was received in advance liable to Central sales tax Central Sales Tax Act (74 of 1956), s. 6A. The appellant, which dealt in milk and milk products, claimed that the value of goods sent to branches and consignment agents were not inter-state sales. It produced form F declarations issued by the branch-in-charge or the consignment agent as required by section 6A of the Central Sales Tax Act, Originally, the assessing authority excluded the turnover attributable to stock transfers and dispatches to consignments agents, excepting a small portion thereof in relation to which form F had not been produced. On appeal, the appellant filed the forms and the appellate authority remanded the matter to consider them and pass appropriate orders. In the meantime there was inspection by the Enforcement Wing officials. On the basis of material gathered by the Enforcement Wing officials in the course of inspection subsequent to assessment, reassessments were made and demands were raised for tax in relation to the stock transfers and consignments to agents, which were originally exempted. Penalty was also levied. In those transfers (i) the appellant had dispatched the goods after the Federation had determined the price and gave instructions for dispatch; (ii) the goods were dispatched in the guise of stock transfers/consignments to agents only after realization of the full value thereof either in the from of cheque or DD; and (iii) the names of the ultimate buyers outside the State for whom they were meant had been mentioned in the transport records. Appeals therefrom were dismissed by the first appellate authority and the Appellate Tribunal. On appeal to the authority: _Held,_ (i) that the fact that payments were received in full by the appellant before dispatch of the goods was strong ground to treat the transactions in question as inter-state. But, in this case, not all the payments were so received. (ii) That the fact that the goods were dispatched on the instructions of the appellant's Federation in which the price was also specified did not per se give rise to an inference that the Federation had already received orders from the prospective buyers. (iii) That those cases where the payment was received from an agent prior to dispatch of the goods could not be treated as inter-state sales as there could be no sale to an agent. Even if the agents located in another State had sent the price of the goods in advance and later on furnished accounts after effecting the sales, it did not automatically lead to the inference that inter-state sales had taken place. There was no material to conclude that consignments sent to the agents should be treated as inter-state sales. Transactions representing dispatches to consignment agents ought not to have been treated as inter-state sales. (iv) That in cases form F had already been accepted by the assessing authority before the making the assessment after scrutiny of accounts and other documents there could be no re-assessment. The deeming fiction under section 6A came into play and the legal fiction and conclusive presumption implicit in it could not be displaced. (v) That, therefore, and in view of a concession made by the appellant, only the turnover relating to stock transfers to branches in respect of which price was received from the buyers before dispatch of the goods could be treated as inter-state sales. Ashok Leyland Ltd. v. State of Tamil Nadu [2004] 134 STC 473 (SC); [2004] 3 SCC 1 relied on. Appeal allowed in part. Note by CA Deepak Thakkar dt 17 May 2011 Page 6 of 10

7 7] Double taxation Relief when stock transfer held to be inter-state then Local sales tax as well as inter-state sales tax levied by Transferee State shall be refunded: Siddhartha Apparels (P) Ltd. Vs. The Secretary, Commercial Tax Deptt., Chennai and others (2008) 13 VST 222 (CEST-NDB): Central sales tax Movement of goods Should be caused by the result of antecedent contract of sale Goods need not be sent directly to purchaser Can be sent to local office of dealer Intrinsic link between movement and prior order Central Sales Tax Act (74 of 1956). Inter-State sale Goods transferred to assessee's office in another State as intended for X X not taking possession Goods sold to Y Transaction is not inter-state sale. Inter-State sale Transaction whether inter-state Enquiry for Scope of Central Sales Tax Act (74 of 1956), s. 6A. Double taxation Relief Transactions held to be inter-state Local sales tax as well as inter-state sales tax levied by Transferee State To be refunded. For a sale of goods to be an inter-state sale the movement of goods should have been caused by and be the result of an antecedent contract of sale. If the movement of goods from one State to another is attributable to and is the direct result of a contract of sale entered into by the branch or head office of the assessee, it would be an inter-state sale notwithstanding the fact that the goods are sent not directly to the buyer but to the branch or head office which ultimately effects the sale by delivery of goods on collection of price. In other words, if the branch or other business unit merely acted as a conduit through which the goods passed on their way to the buyer, it still becomes an inter-state sale. Kelvinator of India Ltd. v. State of Haryana [1973] 32 STC 629 (SC) and English Electric Company of India Ltd. v. Deputy Commercial Tax Officer [1976] 38 STC 475 (SC) followed In order to provide relief to the assessee who is faced with multiple tax demands on the same transaction of sale and in order to resolve inter-state disputes arising in that context, the Central Sales Tax Appellate Authority has been created. The Madras (Tamil Nadu) branch of the assessee packed goods (readymade shirts) in cartons/cases earmarked for specific, named customers of other States and the goods were moved to its head office at Kolkata or branch office at Bangalore for delivery of the cartons to those customers. From the documents it was apparent that the goods commenced their inter-state journey specifically to fulfil the prior orders placed by the dealers in other States: _Held,_ (i) on the facts, that if the goods were moved to the head office at Kolkata and the branch office at Bangalore for the purpose of effecting the sales in the routine course of business as and when the customers approached, the mention of the customers names and earmarking of the cartons/cases to those customers would be meaningless. It should have been left to Kolkata and Bangalore offices to sell them in the routine course of business after receiving the stocks. There was, therefore, an inextricable link between the movement of goods and prior orders. In other words, the goods could be said to have moved from the State of Tamil Nadu to the other States pursuant to and in the course of fulfilment of antecedent orders (in the nature of contracts) for the supply of goods of particular description. (ii) That the scope of the enquiry in relation to whether the transaction was inter- State under section 6A of the Central Sales Tax Act, 1956, in this behalf is not circumscribed to only ascertaining whether the stock transferred goods factually Note by CA Deepak Thakkar dt 17 May 2011 Page 7 of 10

8 reached the branch or other place of business of the assessee. Further enquiry as to the nature and ambit of the transaction is not ruled out. C.P.K. Trading Company v. Additional Sales Tax Officer [1990] 76 STC 211 (Ker) and Steel Authority of India Ltd. v. Secretary, Finance Department, Govt. of Karnataka [2007] 10 VST 451 (CSTAA-New Delhi) followed. (iii) That, however, in relation those transfer of goods to the branches for which there was no material to establish that the stock sent to and received by the Kolkata and Bangalore offices of the assessee were moved from Chennai pursuant to prior orders, the genuineness of the stock transfers could not be disputed. They were: (a) stock transfers during the months of October to December, 1995; (b) all goods transferred to Kolkata during June and September, 1995, as they were not earmarked to specific customers; and (c) 32 shirts sent to Bangalore earmarked to ST were not sold to them but were sold to DC. These three items had to be excluded from the turnover of inter-state sales. (iv) That a substantial part of the stocks transferred during June to September, 1995, was in the nature of inter-state sales liable to be taxed under the Central Sales Tax Act by the Tamil Nadu State. That turnover could not be subjected to tax by the sales tax authorities of the transferee States, i.e., West Bengal or Karnataka. Whatever sales tax was collected either under the local Sales Tax Act or Central Sales Tax Act on the sales of identical goods made to the buyers named by the assessee in its forwarding letters was liable to be refunded by those two States. (v) That since the assessing authorities admittedly did not accept the F Forms on the view that the stock transfers were inter-state, the presumption under section 6A(2) did not arise.(see para 29) Ashok Leyland Ltd. v. State of Tamil Nadu [2004] 134 STC 473 (SC); [2004] 3 SCC 1 distinguished. 8] In case of stock transfer when matter involves interests of other States, Central Sales Tax Appellate Authority is the proper forum to decide issue: State of Tamil Nadu Vs. Macwin Explosives & Accessories (P) Ltd. (2010) 33 VST 19 (Mad): Sales tax Inter-State sale or stock transfer Central Sales Tax Appellate Authority Dealer claiming transactions stock transfer and tax already paid in other States High Court Matter involving interests of other States Central Sales Tax Appellate Authority proper forum to decide issue Central Sales Tax Act (74 of 1956), s. 6A. The respondent-dealer had its registered head office and factory at Hosur with branch outside the State in Dhanbad and Nagpur. With respect to the assessment year , the assessing officer determined the total and taxable turnover and levied a penalty on the ground that the turnover representing inter-state sales was not correctly brought into account. On appeal before the Appellate Assistant Commissioner contending that the sales turnover in question only represented "stock transfer" to its branches the Appellate Assistant Commissioner found that the turnover claimed as "stock transfer" to its branches for open market sales represented inter-state sales and that the assessing officer was justified in imposing penalty. On further appeal, the Sales Tax Appellate Tribunal set aside the imposition of penalty on the finding that the transaction involved in the matter represented "stock transfer" to the branches of the dealer for open market sale. The Department appealed, the primary question raised being whether the transaction involved in the matter represented stock transfer to the branches of the dealer for Note by CA Deepak Thakkar dt 17 May 2011 Page 8 of 10

9 open market sale or inter-state sales. The court held that the goods moved from the State of Tamil Nadu to Dhanbad and Nagpur pursuant to an incident of contract of sale and that the transaction represented inter-state sales but confirmed the order of the Tribunal with regard to penalty on the ground that it was not the case of the Department that the dealer failed to disclose the entirety of the transactions in its accounts. On appeal, the Supreme Court held that the initial burden of proof was always on the dealer to show that the movement of goods was occasioned by reason of transfer of such goods other than by reason of sale and on a declaration made by a dealer to the said effect, an enquiry has to be made by the assessing authority for the purpose of passing an order and for arriving at a satisfaction that the movement of goods was occasioned otherwise than as a result of sale and remanded the matter to the court for fresh consideration in the light of its decision, observing that in the event of creation of a particular forum to decide the matter between two States by way of a Parliamentary Act, it would be open to the parties to approach the said forum: _Held,_ that admittedly, the interest of other States was also involved and it was the case of the dealer that it had already paid tax in the State of Bihar and Maharashtra. Therefore, necessarily, other States had also to be impleaded as parties and any direction issued by the court would affect their interest. Now that the Central Sales Tax Appellate Authority had been created with jurisdiction throughout India, the matter had to be decided by that authority. When there was a statutory authority now functioning with jurisdiction to decide the issue relating to cases under the Central Sales Tax Act and as the matter involved other States also, it was that authority which alone had jurisdiction to 9] Recovery from retired partner is valid when retirement was not intimated to assessing officer as retiring partners continue to be liable for amount due from firm. However, direction issued, on equitable ground, for recovery against retiring partners only if amount not recovered from continuing partners. Danesh Kumar Gupta Vs. INSPG. ASST. Commissioner (INV. Branch), Calicut and others (2008) 13 VST 461 (Ker): Sales tax Firm Notice No notice of retirement of partners given to assessing officer Retiring partners continue to be liable for amount due from firm Direction on equitable ground for recovery against retiring partners only if amount not recovered from continuing partner Kerala General Sales Tax Act (15 of 1963), s. 21 Kerala General Sales Tax Rules, 1963, r. 5(8)(b) Indian Partnership Act (9 of 1932), s. 45. Penalty Central sales tax Evasion Burden of proof Claim of consignment transfer not substantiated by production of documents On facts levy of penalty justified Central Sales Tax Act (74 of 1956), s. 6A Central Sales Tax (Kerala) Rules, 1957, r. 5A Kerala General Sales Tax Act (15 of 1963), s. 45A. For the assessment year the assessing authority levied penalty under section 45A of the Kerala General Sales Tax Act, 1963 for the alleged evasion of tax on the firm consisting of three partners and the penalty was confirmed in two levels of revision. However two partners of the firm filed petitions and contended that one of them retired in 1990 and the other in 1991 and that the liability, if at all, is only on the third partner who carried on business as proprietorship concern during The third partner also filed petition challenging the levy of penalty contending that the sales were consignment sales effected by the petitioner through agents at Kanpur in U.P.: _Held,_ (i) that clause (b) of rule 5(8) of the Kerala General Sales Tax Rules, 1963 makes it clear that as and when a partner of a firm retires without involving dissolution of the firm the firm or the partner is bound to give notice in form No. 3 within 30 days from date of his retirement. In the case of the petitioners it is conceded that none of the two partners who claimed to have retired in 1990 and Note by CA Deepak Thakkar dt 17 May 2011 Page 9 of 10

10 1991, respectively, gave notice in form 3 to the assessing officer. Consequently retirement of the partners and automatic dissolution of the firm after retirement of two partners out of three was not within the knowledge of the department. It is made mandatory in clause (d) that after a partnership is dissolved and business is taken over by an individual, such individual has to take separate registration to continue business as registered dealer. The petitioners admittedly did not comply with the procedural requirement under the Rules inasmuch as neither the firm nor the partners gave notice of retirement of the partners. Besides this, the continuing partner did not take a fresh registration under the Kerala General Sales Tax Act in April 1991 after dissolution of the firm consequent upon the alleged retirement of the other two partners. The principle laid down in section 45 of the Partnership Act, 1932 is that partners who hold out to be members of the firm to third parties will continue to be liable as such, if retirement or dissolution is not informed to third parties through public notice. It is this principle that is incorporated in rule 5(8)(b) of the Kerala General Sales Tax Rules. Therefore, if retiring partner does not give notice in form No. 3 he will continue to be liable for payment of tax, penalty, etc., payable by the firm or the continuing partners or partner to the department even after his retirement as if he has not retired. In the circumstances, the contention of the petitioners that retired partners are not liable for payment of penalty is rightly rejected by the lower authorities. However, recovery against the retiring partners is to be made only if amount is not recovered from the continuing partner. (see paras 3 and 4) (ii) That it is pertinent to note that section 6A of the Central Sales Tax Act, 1956 casts burden on the dealer who transfers goods outside the State other than under contract of sale to prove the same. Rule 5A of the Central Sales Tax (Kerala) Rules, 1957 prescribes conditions and documents for proving consignment sales. The petitioners have not ventured to prove that sales were effected in U.P. after transfer of goods from Kerala to Kanpur on consignment basis. The petitioners could have produced consignment agency agreements, sale particulars, details of commission paid and even details of tax paid in U.P. for establishing their case. However, not even an attempt is made to prove the transaction as consignment transfers as claimed by the petitioner before the lower authorities. Further since the goods were transported under cover of bogus registration numbers, the inference of evasion of tax drawn by the department cannot be said to be arbitrary or incorrect. Therefore levy of penalty under section 45A of the Act for evasion of tax is justified. (para 5). Note by CA Deepak Thakkar dt 17 May 2011 Page 10 of 10