As per the provisions of the CST Act, 1956, inter-State sales covered by S. 3(a) are liable to CST in the moving State. Normally any movement outside the State is looked upon by the Sales Tax authorities as liable to tax. Therefore, even if the goods are moved to one’s own branch in other State or agent in other State, the sales tax authorities of the moving State may make presumption that the movement is because of sale and hence liable to tax. The movement of goods to own branch or agent cannot be considered to be sale, as there are no two separate entities to constitute such transfer as sale. However, it is possible that the dispatch to a branch may be in pursuance of pre-existing purchase order from any customer and in such case the transaction can be considered as inter-State sale. In fact such issues create lot of litigation. To overcome such disputes at the assessment stage itself, the CST Act has provided mechanism by way of S. 6A. The said Section is reproduced below for ready reference.
“S. 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 [1] 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) If the assessing authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer U/ss.(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 be deemed for the purpose of this Act to have been occasioned otherwise than as a result of sale.
Explanation : In this Section, ‘assessing authority’, in relation to a dealer, means the authority for the time being competent to assess the tax payable by the dealer under this Act.”
As seen from the Section, the burden is cast upon the moving dealer to prove that the movement to branch/agent or principal, as the case may be, is not in pursuance of any sale. Prior to 11-5-2002, the moving dealer can produce satisfactory evidence about dispatch, etc. It was also optional on his part to produce ‘F form’ to support his claim, but it was not mandatory. After amendment on 11-5-2002 in the CST Act the production of F form to establish the claim of branch transfer/transfer to agent, etc. has become compulsory. Therefore the production of F form has got importance and it is also sometime a cause of litigation. In this brief note the requirement of production of F form has been discussed in light of certain circulars/judgments.
As is clear from S. 6A of the CST Act, the F form is required when the goods are transferred to branch or agent. The concept of branch as well as agent is well known in the commercial world. Branch is a part of the transferor entity. Agent relationship will be created based on terms of the parties. As known, an agent is a separate entity than the transferor, but he represents the transferor and acts on his behalf. It is said that agent steps in the shoes of principal. There may be written agreement for the same or may be inferred from the relevant circumstances or documents. Generally agents work on commission basis. Thus the relationship created is of principal and agent and when the principal transfers the goods to agent he has to obtain F form from the agent.
The other situation is that the dealer may be sending goods to a party in other State for job work. Here the job worker will charge his job work charges to his customer i.e., the transferor. It can be seen that here the relationship is principal to principal. In other words the relationship between transferor and job worker is not of principal and agent or transfer to branch, etc. Therefore the provisions of S. 6A are not applicable in such cases and F forms are not required to be exchanged. However the situation was confusing and many dealers exchanged the F forms or asked for the said forms from respective parties. The Commissioner of Sales Tax, Maharashtra State realising the situation rightly issued circular bearing No. 16T of 2007, dated 20-22007. By this Circular the Commissioner of Sales Tax explained the nature of relationship as agent. In the circular it was further clarified that when the dealer sends the goods to job worker, the relationship is as principal to principal and F form is not required to be obtained from such job worker outside the State. The implication was also that the job worker in Maharashtra was not required to issue F form to his other State customer. Thus the situation became very clear and beyond doubt.
However, thereafter there came a judgment from the Allahabad High Court reported in the case of Mis. Ambica Steel Ltd. v. State of Uttar Pradesh, (12 VST 216). In this case the issue was out of a writ petition. The petitioner in that case had sent iron and steel ingots to various companies situated outside the State of Uttar Pradesh for the purpose of converting them into iron and steel rounds, bars and flats. The converted material was to be sent back to the petitioner in Uttar Pradesh. The petitioner company also received iron and scrap from various firms outside the State of Uttar Pradesh for the purpose of converting the same into iron and steel billets and ingots with a direction to return the converted goods to those firms. The issue before the Court was whether the petitioner is required to submit the declaration in Form F in respect of the transaction of job work performed by it or got done by others. The Department authorities were relying upon Cir-cular issued by Commissioner of Trade Tax, U.P. to insist on such forms.
In the Circular dated November 28, 2005 issued by the Commissioner of Trade Tax, Uttar Pradesh, it was mentioned that ul s.6A of the Central Sales Tax Act, 1956 form F is required to be filed in respect of all transfers of goods which are otherwise than by way of sale including goods sent or received for job work or goods returned.
Allahabad High Court observed that S. 6 of the Central Sales Tax Act, 1956 is the charging Section creating liability to tax on inter-State sales and by reason of S. 6A(2) a legal fiction has been created for the purpose of the Act that transaction has occasioned otherwise than as a result of sale. S. 6A puts the burden of proof on the person claiming transfer of goods otherwise than by way of sale and not liable to tax under the Central Act. The burden would be on dealer to show that movement of the goods had been occasioned not by reason of any transaction involving any sale of goods, but by reason of transfer of such goods to any other place of business or to the agent or principal, as the case may be, for which the dealer is required to furnish prescribed declaration form. If the dealer fails to furnish such declaration, by reason of legal fiction, such movement of goods would be deemed for all purposes of the Act to have been occasioned as a result of sale. The High Court held that if the petitioner claims that it is not liable to tax on transfer of goods from U.P. to a place outside State, then it would have to discharge the burden placed upon it ul s.6A by filing declaration in 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 requirement to file declaration in form F is applicable in cases of goods returned also, held High Court. Thus Hon. High Court dismissed the Writ Petition.
Thus the Allahabad High Court held that F form is required even in case of job work transactions and goods return transaction. It can be respectfully said that the said judgment requires reconsideration in light of above-discussed facts and legal position about agent and principal. However it is also a law that till the binding judgment is not unsettled by proper higher forum, etc., it has to be followed. It is also required to be noted that the judgment of any High Court under the Central Act is binding on all the lower authorities in all the States of India unless the Jurisdictional High Court of the particular state has laid down anything different. This principle of law is clear from judgment in case of Maniklal Chunilal & Sons Ltd. v. CIT, (24 ITR 375).
Therefore the situation that now arises is that for transfer of goods to job worker, the sender will be required to obtain F form from him even if he is in other than D. P. State. Similarly when the job worker sends goods back to his customer, he will be required to obtain F form from his principal (customer).
The other implication created by this judgment is that the authorities may insist on furnishing of F form even for sales return. For example, a dealer in Maharashtra has sold the goods to a dealer in V.P., the dealer in V.P. may be returning back the goods to the vendor in Maharashtra as sales returns. In such circumstances also it cannot be said that the goods are sent back by the V.P. dealer to Maharashtra dealer as agent, etc. The transaction is as principal to principal and requirement of F form cannot arise. However in the light of the above judgment the F forms may be insisted upon.
Thus it can be said that some unwarranted burden about exchange of F forms has now arisen. Fortunately, in Maharashtra the Commissioner of Sales Tax has again understood the problems faced by the dealers. Therefore he has come out with a fresh Circular bearing No. ST of 2009, dated 29-1-2009. In this Circular the Commissioner of Sales Tax has reconfirmed the position spelt out by him in his earlier Circular 16T of 2007. Therefore it can be said that the dealers in Maharashtra will not be required to obtain the F forms in case of job work transfers or in case of sales return in spite of the above judgment of Allahabad High Court. However this Circular will not have any effect in other States and the dealers in other States will be governed by the above judgment and may insist on F forms for their transactions with Maharashtra dealers. As clarified in Circular No. ST of 2009, dated 29-1-2009 the Maharashtra dealers will be entitled to issue the same to facilitate their parties in other states. Thus an appreciable practical way has been found out by the Commissioner of Sales Tax, Maharashtra.
Let’s hope that the correct legal position will be clarified by competent authority like Larger Bench of Allahabad High Court or Supreme Court or High Court/s of other State/s by which the dealers will be saved from such unproductive work of issuing forms.
