By TIOL News Service

RANCHI, JAN 09, 2019: THE ISSUE IS - Whether the residence or the registered office of the dealer and the assessee is a valid test to decide the nature of transaction whether it is intra-state or inter-state sale. NO IS THE VERDICT.

Facts of the case

The assessee company was engaged in manufacturing of iron and steel. In the certificate of registration was issued u/s 7, several goods were mentioned which the assessee could purchase at a concessional rate of tax, provided the conditions mentioned in the Central Sales Tax Act, were fulfilled. These conditions were that the goods purchased ought to be used in manufacturing of another item or for resale of the goods. Thus, the goods which were mentioned in this certificate of registration, was purchased for manufacturing process.

It was stated that those goods from the other States were initially purchased from the seller situated in other States. Subsequently, the dealer who was engaged by this assessee put an endorsement for assignment of the consignment. This was considered as, "sale in transit" u/s 3(b). Further, it was stated that the second sale it is covered under the scheme of sec. 6(2). Further, especially, under Rule 12 (1) a declaration and the certificate u/s 8(4) has to be submitted for availing the benefit of exemption of tax. Thus, the Court held that this form prescribed u/s 12(1) known as Form-C. However, the seller and purchaser of the goods if were in the same State, then it was always intra-State sale. This concept had also created a problem for the assessee in getting Form-C.

In writ, the HC held that,

++ in the present case, varieties of goods have been mentioned in the certificate of registration. These goods can be purchased by this assessee from other States also either directly or through a dealer. If these goods are to be purchased through a dealer, necessary specifications have to be given by this assessee of the goods to be purchased by the dealer from any other States of India. Narration of goods given to the dealer or the description of the goods given to the dealer for the purchase from rest of the States of India is not a "contract of sale" at all between this assessee and the dealer nor it can be labeled as "an agreement to sale" between the present assessee and the dealer. This type of narration has to be given of the goods to be purchased by the dealer so that accurately the dealer can purchase those goods from rest of the States of the country. The Revenue authorities have treated this information given by the assessee to the dealer as a sale itself which is an error apparent on the face of the record. For this purpose grant of Form-C has been denied. This cannot be a reason for the State for denial of Form-C to this assessee. There is a conceptual error committed by the Revenue which needs to be clarified;

++ one more reason has been given for denial of Form-C which is mentioned in paragraph no.8 of the counter affidavit. Further, the reason given by the State is that if dealer of the goods is situated within the State of Jharkhand, then the transaction between the dealer and the assessee is an intra-state sale. This reason can be given by absolutely a confused minded person. Even if the dealer is situated within the State of Jharkhand and the assessee is also situated within the State of Jharkhand, there may be an inter-State sale, especially u/s 3(b). What is required to be appreciated by the Revenue is the sale of goods during the movement of the goods. Such type of sale during transit of the goods is being done through endorsement;

++ it ought to be kept in mind by the Revenue that the residence or the registered office of the dealer and the assessee is not a test to be applied to judge the nature of the transaction whether it is an intra-State sale or inter-State sale. Even if the dealer of the goods is situated within the State of Jharkhand, he can purchase the goods from outside the State of Jharkhand and during the transit of those goods from another State to the State of Jharkhand, an endorsement can be made by the dealer of the goods and this endorsement is known as transfer of the property in the goods to this assessee during transit of the goods which is known as sale of the goods during transit of the goods which u/s 3(b) and u/s 6(2) such type of purchaser, during transit of the goods, is also entitled to get the benefit of the purchase of the goods with exemption of tax;

++ thus, what is to be done at the time of annual assessment cannot be done at the time of issuance of Form-C e.g. the State authority cannot prejudge the nature of transaction nor the state authorities can enter into the question whether the assessee will misuse Form-C. If there is misuse of Form-C, provisions under Section 10 and/ or-10-A as the case may be should be made operative by the State of Jharkhand whereby they can impose a penalty where there is a provision of imprisonment and/or penalty at the rate of one and half times of the tax payable. It ought to be kept in mind by the State authorities that grant of Form-C is rule and the denial of grant of Form-C is a rarest of rare exception;

++ hereby, the Court direct the Revenue that the application of the assessee for supply of declaration in Form-C be considered and disposed of in accordance with law and in accordance with the observations and in accordance with the judgments referred to, within a period of two months from the date of receipt of a copy of the order of this Court, for the periods mentioned in this writ petition.

(See 2019-TIOL-72-HC-JHARKHAND-CT)