M/S Sri Rama Sales Corporation vs. Commercial Tax Officer

All these writ petitions have been filed challenging the respective orders passed by the respondents in Form VAT 3O5. Although the assessees in these writ petitions are different, as common question of law relaling to the levl' of VAT on transit sales arises in all writ petitions, they are heard analogouslv treating wP.No.1915 of 2OlO as the lead case and are being disposed of by this common order.

The brief facts of the case are thar, the petitioner is a partnership firm registered both under the AP Value Added Tax Act,

The principal chalienge in the lead u,rit petition is to the impugned order, dt. 18.12.2009, passed by the respondent- authorities in Form VAT 305, ii:manding an additional tax of Rs.64,06,593/- (with variations in amount in the other writ pe'ritions) from the petitioner-firm r-rnder VAT Act, for the tax period frcm 2008-09 ('nrith variations in the assessment years in the connected writ petitions) and the :,aid demand is made in respect of transit sales in all the writ petitions.

Heard Sri S.R. R.Visr,"'anath, lt'a.rncd counsel for petitioners in all the writ petitions ancl Sri Sri aroop Oorilla, learned Special Government Pleader for S tate Tax ::-pcearing lor the respcndents- State.

Learned counsel for the petitioners in all the writ petitions contendedthat the impugned orders passed under VAT Act, 2005 are wholly without juri iction. It is contended that the transactions in question constitute second and transit sales effected in the course of inter-state trade and commerce, falling under Section 3(b) r/w Section 6(21 of the CST Act and such sa-ies are not liable to tax at a,ll under the State enactment and as such the said demand of tax raised under VAT Act is asserted to be iltegal and in violation of Articles 14, 19 & 21 of the Constitution of India, apart lrom Articles 246, 265, 269 al:d 30OA thereof,

It is lurther contended that the petitioner-firm effected inter- State sales by transfer of documents of tifle to goods w,hile the goods u.ere in the course of inter-State movement i.e., transit sales, besides affecting inter-state sales. Further, during the relevant assessment year, the total turnover relating to transit sales amounted to Rs. 15,36,28,512/- while direct inter-State sales eflected amounted to Rs.55,36,322 / -, and that out of the transit sales, transactions to the extent of Rs. 13,74,78,315/ related to the State of Andhra Pradesh, while sales effected through purchases in other states arnounted to Rs.1,61,5O,197 / , and that all such 4 transit sales were ellected strictly in complialce with the provisions of the CST Act and the Rules made thereunder 7. l,earned counsel further contends that on the request of their customers tJ:re petitioners placed purchase orders on suppliers located in other States with clear instructions to dispatch goods directly to its customers at their respective places by transfer of title documents and the said transporters lifted the material from the suppliers' place and issued lorry receipts mentioning the addresses of their customers where the goods were to be delivered and accordingly, the goods were delivered directly to their customers from the supplies and at no point of time the goods have physically reached the place of the petitioners, and thus, in every transaction there was inter-State movement of goods ald the sale was effected by transfer of documents of title to goods and as such, the said transactions confirm to the condition laid dou,n under Section 6(2) of the CST Act, 1956. 8. It is also contended that everv transaction u,as supported by statutory declaration in Form 'C' and Form 'E' and as such the transactions squarely fell within the ambit of Section 3(b) of CST Act, and thus transactions being transit sales, were exempt from tax under Section 6(2) of CST Act and the petitioner-lirm duli, filed CST

It is further contended that, pursuant to an audit conducted by the officials of Vigilance & Enforcement(V&E) Depa-rtment, the respondents-authorities issued show-cause notices in Form VAT 305-A, dt. 18.09.2009, to the petitioners, and the notices relied upon arr extracted paragraph from a statement allegedly made on behalf of the petitioner-firm on 28.11.2008 (date aariation in other utrit petttions) and the respondent by referring to only five transactions, proposed to disallow the claim of exemption claimed by the petitioners under Section 6(2) of the CST Act for tralsit sales and further proposed to levy tax @L2.5o/o under the VAT Act, 2005 on the turnover of Rs.16,01,64,834/-( variation of amounts in other u'rit petitions) 1O. The ground on which the respondent proposed to disallow the claim of exemption under Section 6(2) of the CST Act rvas that the movement of goods from dealers outside the State to the respective states of the customers of tlee assessee was occasioned pursuant to a prior agreement of sale with M/s A.S.Moosani & Co., located in Hyderabad, r.r'hich is a pharmaceutical and drugs manufacturing unit situated in AP and the transfer of documents of title to goods,

The respondent further held that the transactions were covered by Section 3(a) of the CST Act, as the movement of goods from one State to another was occasioned by the Agreement of Sale itself and consequently, the benefit of exemption from tax under Section 6(2) was not available arrd on that ground, the respondent- authority disallowed the claim for exemption under Section 6(21 ot the Act and proposed to levy tax under VAT Act (9.12.5'% u,ithout assigning any valid reason.

It is also contended that though a detailed reply dt.13.10.2009, was submitted by the petitioner, the Department contrary to the law, proposed to levy tax under APVAT Act, 2005 in violation of the settled legal position. It is also submitted that the petitioner-ilrm has not collected the tax demanded under the impugned orders from its customers, and thus, it can in no way pass on tax burden to its customers now and collect the same from 7 its customers. Hence, it is contended that levy of tax under VAT Act for inter-State transit sales is wholly without authority of law and violative of Articles 14 and 19 of the Constitution of India.

It is further contended that for tJle assessment years preceding and succeeding to the impugned assessment year, the respondent- authorities had granted exemption under Section 6(2) of the Act and as such, the respondents are duty bound to take a consistent view for all the assessment years and could not take a contrary stand for the impugned assessment year alone.

In support ol their contentions, reliance is placed on various judicial precedents, particularly, the judgment passed by the Hon'ble Division Bench of Jharkhand High Court in ltt/s Jamshedpur Utilitg and Service Cornpang and the Sto:te ot Jharkhand through its Principal Secretaryt wherein it was held once the goods are transmitted/dispatched from the State where the purchase order is placed(supplies' place) to the State where the customers of rhe assessee-firm received physical delivery, the provisions ol Section 6(21 are attracted and such transactions constitute transit sale s and exempted for levy of tax. It was further held that if such transactions fall under Section 3(a) of the CST Act t wPrfl No.3643 of 2016. dt.Oa.12 2022

However, with regard to the assessment orders preceding and subsequent to the impugned assessment year, wherein exemption unrler Section 6{2) of t}re CST Act had been granted to the petitioner-firm in respect of the very same line of business, learned Special Government Pleader fairly conceded that such exemption under Sectio n 6(21 of the CST Act indeed was a-llowed to the 9 petitioner-flrm, but tried to explain the same by contending that those assessment orders were passed by different Commercial Tax Circles and that the facts and circumstances of the case on hand may not be identical, and as such, supported the impugned orders passed by the respondent assessing authority in levying tax on the alleged transit sales of the petitioner-firm. 17 . We have given earnest consideration to the submissions of the learned counsel appearing on either side and perused the material on record. i8. The principal challenge in all these writ petitions IS that, whether the transit sales which are affected bg tle petitioner-firm (respectiue petitioners) are exempted from tax under Section 6(2) of the CSf Act ancl consequently, whether leug of tax under VAT Act, uide impugned orders, is sustainable in law.

Though the brief facts have already been noted in the foremost paragraphs of this juclgment, at the cost of repetition, are produced for the sake of clarity. That the petitioners are engaged in trade of various commodities like forma,ldehyde, formic acid, acetic acid, soda ash and phenol and it places orders with suppliers located in other States, s'ith instructions to dispatch the goods directly to its 10 customers and that the transporters lift the material from suppliers' place and issue lorry receipts mentioning the addiesses where the goods were to be delivered and in fact, at no stage, tiere was no physical delivery of goods from its vendors to the point where the petitioner-firm placed orders and the goods in every transaction, moved from the suppliers' place in one State directly to the customers located in another State. It is not in dispute that in every transaction there is inter-State movement of goods and sale was affected by transfer of documents of title to the goods and it is also not disputed that every transaction confirms to the conditions laid down under Section 6(2) of CST Act, and is supported by the requisite dcclarations in Forms C' and E' and that being so, evidently, the goods have not reached the State of Andhra Pradesh at any point of time, sufhce it to say, it rather moved directly lrom the States of suppliers to the customers of the petitioners in all these writ petitions.

For better appreciation of law, we deem it appropriate to extract Section 6(21 of the CST Act (2na amendment) as under:

Liabilitv to tax on inter-Slate Sales: ( 1) xxxx (2)Notn,ithstanding anything contained in sub-section (1) or sub- scction (IA), where a sale of any goods in the course of inter-State

A plain reading of Section 6(21 of the CST Act makes it clear that what is contemplated therein is only transfer of documents of tifle of the goods during their movement lrom one State to another, and in the instant case also, there is no movement of goods from or trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act:

Moreso, in the instant case, the goods have been transmitted from one state to another, pursuant to transfer of documents of title supported by Forms 'C' and 'B' and the transactions were effected through registered dealers, and as ntc}:, pima facie, the contention of the counsel for petitioners that the said goods cannot be subjected to lerv of ta-x at the state where the petitioners-firrns are situated under the APVAT Act, appears to be germane and valid.

Though several judgments are cited by the learned counsel for the petitioners, in thc case of M/s Jamshedpur Utility's case (supra), the Division Bench of Jharkhand High Court categorically heid that "tt ought to be kept in mind that mere narration of the goods given by this petitioner to the dealer for their purchase from outside the State is nothing, but, an understanding on purchase of the goods or at the highest it can be said to be arr agreement to sale between the petitioner and the dealer of the goods or in the worst case, it can be 13 a "present sale of future goods", (which is known as agreement to sale as per Section 6(3) of the Central Sales Tax Act 1956). Sale of goods between this petitioner and the dealer. will come into existence, when the dealer puts an endorsement during transit of the goods in favour of this petitioner. This endorsement made by the dealer of the goods converts "agreemcnt to sale" into'sale" or by this endorsement it can be said that "prcsent sale of future goods' is converted into "sale". Present sale of future goods is also "an agreement to sale" (as per Section 6(2) of the Centra-l Sales Tax Act, 1956). Thus, by no stretch of imagination it can be said that there was pre-determined or pre-decided contract of sale between petitioner and the dealer of the goods, prior to the purchase of the goods by the dealer from the manufacturer of the goods (from another State). Sale between pctitioner and the dealer comes into edstence only upon the endorscmcnt made b1, this dealer of the goods, during transit of the goods. It appears that the respondent- State authorities has lost sight of the correct meaning of: (a) Agreement to sale u'hich is in pre-existence between petitioner and the dealcr of the goods. (b) Present sale of future goods is also knorvn as agreement to sale (as per Section 6(3) of the Salc of goocls Act). (c) The incidence of tax is on a sale and not an agreement to sale. Thus, the aforesaid aspect of the matter has not been properly appreciated and mechanicall-y the reason has been given in paragraph no.1l of the counter alfidavit by u'rong interpretation of the aforesaid decision rendercd b1' the Hon'blc Supreme Court and hence, the reasons given in parztgraph no.l I for denial of grant of Form-C is not teruable at lau' "

The Division Bench further held that even if it were to be assumed that the movement of goods had taken place pursuant to a pre-existing contract and that such transactions cannot be treated as a transaction of Transit SaJe' falling under section 3(b) of the CST. Act, then also no liabilit]' of tax can be fastened upon the petitioner in respect of the a-foresaid transaction by the State of Jharkhand as admittedly, assessee had purchased the goods in l4 question from various State situated outside tl-re State of Jharkhand and had duly discharged its liability of pa5rment of'central sales tax to the respective State Government. It was further held that if the aforesaid transaction of Transit Sale' is deemed to have been rejected, the transaction would not fall under the purview of Section 3(a) of the CST Act and the State could not fasten any further tax liability where the transactions would otherwise fall under Section 3 (a) of the CST Act. Further, the entire Central Sales Tax Iiability had already been discharged by the petitioner to the respective State Governments, and as such, no further tax liability can be imposed by the State of Jharkhand (in the present case, Andhra Pradesh in all the writ petitions).

Applying the said principle to the facts of the present cAse, it is evident that the sales were alfected by transfer of documents of title in favour of the petitioners' customers during inter-State movement and that the goods never entered the State of Andhra Pradesh. The applicable taxes had alread,y been paid to the respective States in which the movement of goods originated. Consequenfly, no additional tax liability could be imposed under the APVAT Act, 20O5, and on this ground alone, the impugned orders are liable to be set aside.

Relying on the judgment referred to above, the counsel for the petitioners has placed on record the orders passed by the respondents granting exemption in respect of similar transit sales for the assessment years 2009-10 up to 2074, as well as for the preceding years. These orders show the authority consistently allowing exemption under Section 6(21 of the CST Act. This fact was not seriously disputed by the learned Special Government Pleader for the State.

Further, foi" ttre preceding and subsequent years, the exemption granted to the petitioners was justified by the circulars issued by the Commercial Taxes Depar trr,er,L uide CCT's Ref. A3(2l,/91/2OIO, dt.O7.O5.201O and Circular No.11/2O10 dt.04.10.2010, which directed the assessing authorities to grant exemption in respect of second and subsequent inter-State sales, provided the sales are made to pre-determined bu1'ers in transit and the purchasing dealers have not claimed an-v exemption or input tax credit. Circular No. 11/2010 specifically lays dovvn the conditions for such exemption, including the collection of der:laration Forms 'C' from the customers, and treats such sales as valid Section 3(b) transactions under the CST Act. In accordarce with these instructions, the respondent authorities themseives had granted

Though a feeble attempt has been made by the learned special Government Pleader to justify the impugned orders contending tJlat the assessments for the other years were made by difl'erent Commercial Tax circles and that the facts of ttre impugned assessment year may be different, the said contention, however, remains a mere assertion unsupported by any material on record. No distinguishable facts have been pointed out by the respondents to show how the transactions for the impugned year differ from those of tJre preceding or subsequent years. On the contrar5l, a perusal of the documentar-v material placed before this Court shows that the nature of the transactions, the mode of movement of goods, the transfer of documents ol title, and the statutory declarations furnished remain identica l throughout

In view of the above findings, \\'e are of the considered view, that the impugned orders issued in Form VAT-3O5A proposing to levy tax under APVAT Act, 2005 are r"rothing but exceeding the juri iction and rendering inconsistent approach on the part of the respondents-authorities and such lcvr- is contrary to the statutory

In the light of the above findings, the impugned orders passed by the respondent-assessing authorities demanding tax in Form VAT 305A, dt. 18.12.2009 (as in the lead writ petition) and respective assessment orders issued in other writ petitions, under APVAT Act, 2005 for the transit sales are hereby set aside.

All the Writ Petitions are accordingly allowed. No order as to costs. As a sequel, miscellaneous applications pending, if anv, shall stand closed. . B.REKHA RANI A TSTANT REGISTRAR //// SECTION OFFICER To, \r Commercial Tax Officer, ACapqF Circle, S-4-+Mrd Ftoor, Otd Kakativa ;i[b]ruf i:ltil*,i:Ad-stii["1,$#*t"."1i,"._"ni.,,, Kushat Comptex, Abids, HyderiOio _ SOiitioi uommercial Tax Officer. nanig.unj Circle, 3i floor, pavani prestige. R S. Brother Buitd.ll.rgs, Amedrpet, EiO'eijOiO:iO. E ffi iJ?ti-ruiffi :"Pfgf fr i3l3'[i3:,'d' Froo r' P a va n P re st i s e R S iff i*::?ft ?3f "x;,HtN8ill+tr:ff €:y_%r,hes,a,eof TWO CCS tO SRI SWAROOP OORIL.!& SPL GP FOR STATE TAX, High Court^for the State of Telangana. fOUTj - Two CD Copies TKS Slct 1 2 3 4 5 6 7. o_