Madras High Court
A. Dhandapani vs State Of Tamil Nadu And Another on 7 September, 1994
JUDGMENT K.A. Swami, C.J.
1. All these writ appeals are preferred against the common order dated 13, 1994 [Reported as Sri Ganesan Traders v. Union of India [1994] 95 STC 273 (Mad.)], passed by the learned single Judge in a batch of writ petitions. Learned single Judge has disposed of all the writ petitions in the following terms :
"48. In view of the discussions as above, the following positions emerge :
(1) Rule 4(3A) of the Tamil Nadu Rules, being a machinery provision, is only directory in nature; but not mandatory.
(2) There is no conflict, repugnancy or inconsistency between the earlier pre-existing rule 4(3A) of the Tamil Nadu Rules and the subsequent enactment of the provisions, in the shape of section 6A of the Central Act and rule 12(5) framed thereunder prescribing a declaration in form 'F' and to put it otherwise, rule 4(3A) must have to be construed as aiding, supplementing and supplanting the methodology of burden of proof contemplated under section 6A and in that view of the matter, it could not be stated to have been 'impliedly repealed'.
(3) The burden of proof that movement of goods is only by way branch transfer and not by way of inter-State sale is always upon the assessee-dealer and it never shifts.
(4) The burden of proof so cast on the assessee-dealer is capable of being discharged either by the production of declaration in form 'F' and evidence for the despatch of goods or by adduction of evidence aliunde without the production of declaration in form 'F' and evidence for the despatch of goods.
(5) Once the declaration in form 'F' and despatch of goods are produced by the assessee-dealer, it is however open to the assessing authority to make an enquiry as respects the particulars contained in the declaration in form 'F' to verify whether those particulars are true or not and to sift the evidence aliunde to come to a just and proper conclusion as to whether the transaction is a branch transfer or otherwise.
(6) Once the enquiry contemplated under section 6A(2) of the Central Act is completed and a finding is recorded that the particulars contained in form 'F' declaration are not true or the assessee-dealer failed to discharge the burden cast on him as to the proof of the movement of goods as being relatable to branch transfer and not otherwise, the inevitable inference, that there was a 'sale' as defined under the Central Act, cannot at all be avoided; and (7) The cumulative effect of the provisions adumbrated under section 3, 6, 6A, 9 and 13 of the Central Act and rule 12(5) of the Rules framed thereunder prescribing declaration in form 'F' and rule 4(3A) of the Tamil Nadu Rules is to tax goods, movement of which had been made from one State to another, pursuant to the contract of sale and such sale getting concluded at a later point of time either in the State, where it had been effected or in the State, from which the goods had been moved and not to tax goods relatable to the transaction of branch transfer, which is admittedly a constitutional exclusion, in accordance with entry 92-A of List I of the Seventh Schedule to the Constitution. Although such exclusion is excluded by the insertion of entry 92-B of List I of the Seventh Schedule to the Constitution by section 5 of the Constitution (Forty-sixth Amendment) Act, 1982, enabling the Union to levy or impose tax on such transaction by enacting a suitable legislation therefor, such a legislation is yet to see the light of the day and as such, branch transfer simpliciter is not liable to tax."
Hence, petitioners in some of the writ petitions have come up in writ appeals. As far as the State Government is concerned, it has accepted the judgment of the learned single Judge.
2. In all the writ petitions, the petitioners sought for issue of a writ of declaration or any other writ, order or direction in the nature of writ, declaring that rule 4(3A) of the Central Sales Tax (Tamil Nadu) Rules, hereinafter referred to as "the CST (TN) Rules", inserted by the first respondent by way of Notification in G.O.(P) No. 1117, Revenue dated April 17, 1971 ultra vires, unenforceable and null and void and to pass such further or other orders as may be deemed fit and proper in the facts and circumstances of the case.
3. Learned single Judge has construed rule 4(3A) of the CST (TN) Rules as directory and has held that non-compliance with the same will not render the assessees liable for penal actions.
3. 1 Learned counsel for the appellants has put forth the following contentions by way of written arguments :
"1. The Central Sales Tax Act, 1956, is a legislation under entry 92-A, List I, Seventh Schedule to the Constitution of India. The power of the Union is only to levy tax on a sale or purchase taking place in the course of inter-State trade and commerce. The mere transfer of stocks to an agent or branch outside the State is not a sale. There is no legislation so far to tax the consignment of goods, to an agent or branch, though entry 92-B introduced by the Constitution (Forty-sixth Amendment) Act, 1982, enables a future legislation for the said levy on consignment transfer.
2. A sale effected by an assessee-principal through his agent outside the State is purely a local sale in the State where goods are sold and within the power of the State Legislature under entry 54, List II (State List). The place of business of the agent is that of the principal. The provisions of the Central Act or the Rules framed thereunder cannot appropriately deal with matters relating to a State subject (i.e.), sales of a local character outside the State by the branch or agent.
3. The burden placed on the assessee to show that the movement of goods to the branch or agent outside the State is not occasioned by sale, but occasioned by transfer of the goods to branch or agent is prima facie discharged when declaration in form F is filed. This is evident from the expression - 'and for this purpose he may furnish to the assessing authority a declaration'. Unless the assessing authority by an enquiry passes an order that the particulars contained in the declaration are untrue, the burden stands discharged. It is open to the assessing authority to conduct an enquiry to show that the particulars contained in the declarations are not true, whereupon the burden again shifts to the assessee. If the assessing authority passes an order that the particulars contained in the declaration are true, thereupon a statutory fiction attaches to the movement, which movement shall be deemed for the purposes of the Act to have been occasioned otherwise than as a result of sale.
4. The mode of discharge of the burden under section 6A of the Central Sales Tax Act, 1956 is left to the assessee. The filing of the form F declaration is optional, and the assessee may discharge the burden by any other mode. But if the assessee elects to discharge the burden by filing form F declaration, the assessing authority is bound to consider the declaration, which he may reject after holding an enquiry as to the truth of the particulars. The assessing authority cannot treat a mere transfer as a sale without considering the particulars contained in the declaration and proceed to make an assessment. The failure to render a finding that the particulars contained in the declaration are untrue before foisting liability would vitiate the assessment. The enquiry with regard to the declaration is mandatory.
5. Even the Union was unable to make a mandatory provision with regard to mode of proof under section 6A since the transfer of stock to an agent was not within the Union legislative power under entry 92-A of the Union List. Therefore, the Union was unable to make mandatory the furnishing of form F declaration or provide a penalty for not filing form F declaration. If that is the limitation on the Union exercising plenary legislative power, it is clear that the State Government exercising delegated rule-making power under section 13(3) and section 13(4) cannot make a mandatory provision with regard to the furnishing of declaration or furnishing of particulars to say that the movement of goods to the agent outside the State is otherwise a sale.
6. Section 6A along with rules 12(5), 12(6), and 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957, read with the prescribed form F declaration, is a complete code relating to the transfer of stocks by the assessee to a branch or agent outside the State. The provisions provide for burden of proof, mode of discharge of the burden, enquiry by the assessing authority, and consequences of the declaration in form F being accepted. Section 10(a) provides for penalty for furnishing false declaration. Therefore, on the subject of transfer of stock by the principal to an agent, there is a special legislation by the Union. Rule 4(3A) of the Tamil Nadu Rules will have to give way as of no consequence in view of the special Union legislation on the subject.
7. The enquiry contemplated under section 6A, read with the statutory form F declaration, terminates with delivery of the goods to the agent outside the State. The assessing authority may verify whether form F declaration is genuine and issued by the appropriate State, whether the agent is registered dealer, description of the goods, quantity, value, documents covering despatch and movement and date on which delivery is taken by the transferee. There is no enquiry permissible beyond the delivery to the transferee. Parliament appropriately considered it impossible to direct enquiry as to how the goods are dealt and sold by the agent outside the State, which is a transaction under the local sales tax law under the legislative competence of the State under entry 54, List II. The form F declaration ensures that the transaction is duly accounted for by the agent for which account is to be rendered to the delivery State. Therefore, no State rule, like rule 4(3A), can demand documents of the agent for the sales outside the State. This is particularly so with regard to demand for the copies of the sale bills of the agent.
8. The Central Sales Tax Act, 1956, defines 'sale' in section 2(g). The law of agency is dealt in chapter X of the Indian Contract Act, 1972. When the Central Sales Tax Act speaks about transfer to an agent, it deals with nomen juris. Agency is well-accepted legal term. Agency is expressed by written terms or implied by conduct. The State rule cannot say that unless the details as referred to in rule 4(3A) are produced, the result is a sale.
9. Rule 4(3A) of the State rules proceeds on the assumption that there is a movement to the agent. The rule operates where there is sale on consignment account through agents outside the State. The rule does not say that 'every principal who claims that the transferee outside the State is an agent shall maintain'. In fact agency was accepted in all past assessments by production of agency agreement, details of movement and delivery to the agent, transport documents, statement of account rendered by agent, and entries in the books of account. There cannot be a formulated set of data which alone may be accepted as proof of agency. As already stated, the State Government cannot legislate either for agency or make mandatory provision when Parliament itself has desisted from doing so. The Central Act does not contain any statutory presumption rebuttable or irrebuttable to the effect that there will be deemed to be a sale to an agent unless proved otherwise.
10. The State rule 4(3A) is when contrasted with section 6A and the declaration prescribed in form F more onerous, much more inconvenient and in any view ultra vires in so far as relating to the particulars prescribed therein. The delegated authority cannot whittle down or dilute the rights under the Act by rules of procedure which are difficult to obey. The particulars demanded in rule 4(3A) cannot be attributed to section 13(3) or section 13(4) of the Central Sales Tax Act. Any State rule has to be subject to the provisions of section 6A, rule 12(5), rule 12(6) and rule 12(7) since the State rules under section 13 are required to be subject to the provisions of the Act as well as the rules made by the Central Government."
4. Though the learned Additional Government Pleader for Taxes, appearing for the respondents, did not dispute the correctness of contention Nos. 1 and 2, she however disputed the correctness of the other contentions, and contended that as the dealers are required to maintain the records as per section 40 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the Act"), and rule 26(5A) of the Tamil Nadu General Sales Tax Rules, 1959 (hereinafter referred to as "the Rules"), framed under the Act, as such, they will not be required to maintain any additional records under rule 4(3A) of the CST (TN) Rules, because the records required to be maintained under rule 4(3A) of the CST (TN) Rules are not in any way different from those required to be maintained as per section 40 of the Act read with rule 26(5A) of the Rules except the requirement as to rule 4(3A)(d) of the CST (TN) Rules requiring the dealers to maintain copies of the bills issued by the agents to the purchasers. In this regard, it was submitted by the learned Additional Government Pleader for Taxes that the department, on considering the fact that similar requirement contained in rule 26(5A)(iv) of the Rules had been done away with inasmuch as it has been omitted, therefore the authorities will not insist for complying with the requirement of rule 4(3A)(d) of the CST (TN) Rules. In this connection, a letter dated August 30, 1994, bearing No. BC2/124944/91 sent by the Special Commissioner and Commissioner of Commercial Taxes. Madras 5, was produced and the relevant portion of the same is as follows :
"In view of the deletion of rule 26(5A)(iv) under the Tamil Nadu General Sales Tax Rules, the compliance of rule 4(3A)(d), i.e., copies of bills issued by agents to the purchasers in other States need not be insisted upon."
On the basis of the aforesaid letter, it was submitted by the learned Additional Government Pleader for Taxes that it may be placed on record that the State Government will not enforce rule 4(3A)(d) of the CST (TN) Rules. It was also submitted by her that on accepting the decision under appeal of the learned single Judge the Special Commissioner and Commissioner for Commercial Taxes, Madras, has also issued on July 28, 1994, the minutes of the meeting held on July 20, 1994 and placed for consideration the following portion relating to the assessments finalised up to the end of March 31, 1992 and also as to pending proceedings.
"It will be recalled that closed cases prior to March 31, 1992, are not to be reopened on this basis. Pending cases including remanded cases will have to be dealt with on the basis of the judgment."
5. Of course, before dealing with the main contentions, it is also necessary to mention that the petitioners have produced several notices issued to them by the department to reopen the assessment pertaining to the years prior to March 31, 1990 and also of the year ending March 31, 1992. In this regard, it is submitted by learned Additional Government Pleader for Taxes that those notices were issued prior to the minutes in question issued by the Special Commissioner and Commissioner for Commercial Taxes, pursuant to the decision in appeal, and as such those notices will not be pursued. Similarly, it has also been brought to out notice that, after the decision under appeal, the assessment orders also are passed on re-opening the cases closed. Such cases will be considered at the relevant stage.
6. We shall now take up the contentions raised by the appellants for consideration. As far as contention Nos. 1 and 2 are concerned, the correctness of the same are not disputed by the learned Additional Government Pleader for Taxes and we are also of the view that those submissions state the law as such correctly. The other contentions will be considered in the background of this legal position as set out in the aforesaid contentions 1 and 2.
6.1. Before taking up for determination the other contentions, it is necessary to advert to the provisions contained in section 6A of the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act"), which came to be inserted by Act 61 of 1972 with effect from April 1, 1973, and the said provision reads thus :
"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 despatch of such goods."
Thus section 6A(1) of the Act in unequivocal terms provides that if a dealer claims that the movement of goods was occasioned not by sale but otherwise than by way of sale, the burden is upon that dealer to prove the same. The section further provides for prescribing of form of declaration, particulars of the information to be furnished and the authority from whom such declaration forms are to be obtained and the time within which such a declaration has to be filed by such dealer before the assessing authority in relation to movement of goods otherwise than by way of sale. In addition to this such dealer has to produce evidence of despatch of such goods along with the form of declaration. Along with section 6A, section 13 and other related provisions came to be amended. For our purpose, it is sufficient to refer to section 13(4)(e) relating to the power of the State on make Rules which was substituted by the same Amending Act and it reads thus :
"(e) the authority from whom, the conditions subject to which and the fees subject to payment of which any form of certificate prescribed under clause (a) of the first proviso to sub-section (2) of section 6 or of declaration prescribed under sub-section (1) of section 6A or sub-section (4) of section 8 may be obtained, the manner in which such forms shall be kept in custody and records relating thereto maintained and the manner in which any such form may be used and any such certificate or declaration may be furnished."
Form F prescribed under the Central Sales Tax (Registration and Turnover) Rules, 1957 (for short "the Central Rules"), which is connected with section 6A of the Act, is also relevant to be noticed at this stage :
"FORM F Form of declaration to be issued by the transferee [See rule 12(5)] Serial No ................
Name of the issuing State ...............
Office of issue ........................
Date of issue .................
Name and address of the person to whom issued ...................
along with his Registration Certificate No .................
Date from which registration is valid ............
Seal of the issuing authority To ......... (Transferor) Registration Certificate No. of the transferor ......
Certified that the goods transferred to me/us as per details below have been received and duly accounted for.
Description of the goods sent ...............
Quantity or weight .................
Value of the goods ..........
Number and date of invoice or challan or any other document under which goods were sent ............
Name of railway, steamer or ferry station or air port or post office or road transport company's office from where the goods were despatched ..............
Number and date of railway receipt or postal receipt or goods receipt with trip sheet of lorry or any other document indicating the means of transport ...........
Date on which delivery was taken by the transferee .........
The above statements are true to the best of my knowledge and belief.
(Signature) (Name of the person signing the declaration) Date ............"
As already pointed out, as per section 6A of the Act, burden is upon the dealer to establish that the transfer of goods was otherwise than by way of sale. For this purpose, form F is prescribed. The dealer, apart from producing form F, if he chooses to adopt the course prescribed under section 6A of the CST Act, along with form F he is required to produce evidence of despatch of such goods. No doubt sub-section (2) of section 6A of the CST Act empowers the assessing authority to hold such inquiry as he may deem necessary, but such inquiry shall have to be confined to determine as to whether the particulars contained in the declaration furnished in form F by the dealer are true. Such an inquiry can be held at any time by the assessing authority either before or at the time of the assessment of the tax payable by the dealer under the CST Act. On the basis of such inquiry the assessing authority has to pass an order of assessment under the Act if the particulars furnished in the declaration filed in form F are found to be true. On the passing of such an order of assessment the movement of goods to which the declaration relates shall be deemed for the purposes of the CST Act, to have been occasioned otherwise than as a result of sale. Therefore, it is necessary to point out that the enquiry and the declaration in form F and the acceptance of such declaration are only intended for the purposes of the Act and not for any other purpose. The contention is that as the provisions contained in section 6A and form F prescribed under the Central Rules do not require any other records to be maintained, whereas, sub-rule (3A) of rule 4 of the CST (TN) Rules prescribes many other records to be maintained other than those contained in form F, therefore, to that extent, the said rule contravenes the provisions contained in section 6A read with section 13(4)(e) of the CST Act, as such, it is beyond the rule-making power of the State Government. We have in the earlier portion of this judgment referred to the contention of the learned counsel for State that the records required to be maintained as per rule 4(3A) of the Rules are not in any way different from those required to be maintained by any dealer under section 40 of the Act and rule 26(5A) of the Rules, except to the extent what is contained in rule 4(3A)(d) of the CST (TN) Rules.
7. A comparison of both the provisions would make this aspect clear. Section 40 of the Act relates to maintenance of up to date, true and correct accounts and records by dealers. Sub-section (1) thereof specifically requires every dealer to get himself registered under the Act and to keep and maintain up to date, true and correct accounts showing full and complete particulars of his business and such other records as may be prescribed in any of the languages specified in the Eighth Schedule to the Constitution or in English, showing such particulars as may be prescribed for different classes of dealers. Clause (a) of sub-section (2) thereof further enjoins upon every registered dealer that he shall keep at the place of business specified in the certificate of registration, books of accounts for the current year and, if more than one place of business in the State is specified in the certificate of registration, the books of account relating to each place of business for the current year shall be kept in the place of business concerned. Clause (b) of section 40(2) provides that every registered dealer shall also ordinarily keep the books of account for the previous five years at such place or places as he may notify to the registering authority, and if the registered dealer decides to change the place or places so notified, he shall, before effecting such change, notify the same to the registering authority. Sub-section (3) thereof provides that every registered dealer or person who moves goods in pursuance of a sale or purchase or otherwise from one place to another shall send along with the goods moved a bill of sale or delivery note or such other documents as may be prescribed. It may be pointed out here that the dealers in question claim that the transactions in question are nothing but transfer of goods otherwise than by way of sale, as the same are despatched to their agents in another State. Therefore, it is claimed that despatch or movement of goods is not by way of sale and it is only a despatch of goods to their agents in another State who is in law considered to represent the dealer. In other words, he is an "alter ego" of the dealer and the sale he conducts in the other State would be the sale by the dealer. Such transfer or movement of goods is from principal to principal and not to a third party. That being so, even according to the case of the appellants, a dealer is required to maintain the records as per rule 26(5A) of the Rules. Rule 26(5A) of the Rules reads thus :
"(A) Every dealer who claims exemption on the transactions conducted on consignment basis through agents (either resident in this State or non-resident) shall maintain -
(i) A register in form XXVI showing the particulars of goods consigned on each occasion, agent-wise;
(ii) The originals of the written contract, if any, entered into between the dealer and the agent;
(iii) Office copies of the authorisation letters, consignment notes or despatch advices, as the case may be, sent to the agent in respect of the goods despatched on each occasion;
(iv) Omitted by S.R.O. A-155/83 dated June 18, 1983.
(v) Pattials, i.e., accounts rendered by the agents to the dealer from time to time, showing the gross amount of the purchases or sales, the deductions on account of commission and incidental charges and the net amount payable by the agent;
(vi) The particulars of tax paid by the agent showing the date of payment, the amount of tax paid and the assessing officer to whom the payment was made; and
(vii) A record showing the particulars of all remittances received from each agent or made to each agent including the date, the amount and the mode of remittance.
(b) Copies of the authorisation letters, consignment notes or despatch advices, as the case may be, sent to the agent on each occasion and a statement showing the description, quantity and value of the goods despatched to each agent on each occasion should be furnished to the assessing officer concerned simultaneously with the despatch of the authorisation letters or of the goods to the agent, as the case may be.
(c) Every such dealer who claims exemption on the transactions effected through agents shall also furnish to the assessing authority concerned, on or before the 25th of each month, a statement, in duplicate, showing the turnover of sales or purchases effected through the agents in the previous month, containing the following particulars :
(i) Name and full address of the agent.
(ii) Names of goods bought/sold through the agent, liable to different rates of tax.
(iii) Turnover of goods liable to different rates of tax.
(iv) Rate of tax.
(v) Amount of tax due by the agent.
(vi) Designation of the assessing authority to whom the tax is paid by the agent.
Separate statement shall be furnished in respect of each againt."
A comparison of this rule with the rule 4(3A) of the CST (TN) Rules would go to show that the records required to be maintained under sub-rule (5A) of rule 26 of the Rules, and those required to be maintained under sub-rule (3A) of rule 4 of the CST (TN) Rules, are the same except the one relating to rule 4(3A)(d), viz., copies of bills issued by the agents to the purchasers. section 40(3) of the Act referred to earlier makes it incumbent for every registered dealer or person who moves goods in pursuance of a sale or purchase or otherwise from one place to another to send along with the goods moved a bill of sale or delivery note or such other documents as may be prescribed. Rule 26(5A) of the Rules prescribed these documents which as pointed out above are not different from those required to be maintained under rule 4(3A) of the CST (TN) Rules. That being so, eventhough rule 4(3A) of the CST (TN) Rules is framed by the State Government in exercise of the power under section 13(4) of the CST Act it cannot be held that such a rule is beyond the rule-making power of the State. Clause (b) of sub-section (4) of section 13 of the CST Act specifically empowers the State Government to make rules as to the form and the manner in which accounts relating to sales in the course of inter-State trade or commerce shall be kept by registered dealers. This clause, read with clauses (c), (d) and (e), enables the State Government to frame rules of the type found in rule 4(3A) of the CST (TN) Rules. A reading of clauses (c), (d) and (e) of sub-section (4) of section 13 of the CST Act makes it clear that rule 4(3A) of the CST (TN) Rules is well within the rule-making power of the State. Clause (c) of section 13(4) empowers the State Government to frame the Rules requiring the dealers to furnish any other information relating to his business as may be necessary for the purposes of the CST Act. Clause (d) thereof empowers the State Government to frame rules regarding the inspection of the books, accounts or documents required to be kept under the Act. As such, clause (d) of sub-section (4) of section 13 is wide enough to enable the State Government to frame the rules, regarding maintaining of books, accounts or documents required for the purposes of the Act, as without prescribing to maintain such books, accounts or documents as may be required for the purposes of the Act, inspection of the same as contemplated is not possible. Added to this, clause (e) thereof empowers the State Government to frame the rules regarding maintaining of the records relating to the declaration prescribed under section 6A(1) of the CST Act. Therefore, it is not possible to hold that rule 4(3A) of the CST (TN) Rules falls outside the rule-making power of the State Government.
7.1. When a dealer is required to maintain all such records which are required to be maintained under sub-rule (3A) of rule 4 of the CST (TN) Rules, under sub-rule (5A) of rule 26 of the Rules, it is not possible to accept the contention that under rule 4(3A) of the CST (TN) Rules, the dealer is compelled to maintain additional records. Whether it be the requirement of the Rules or the CST (TN) Rules, the maintenance of the records and other requirements thereto being the same the dealers are not required to maintain any separate books, accounts or documents for the purpose of sub-rule (3A) of rule 4 of the CST (TN) Rules and for rule 26(5A) of the Rules.
7.2 The question as to whether rule 4(3A) of the CST (TN) Rules is mandatory or directory and whether failure to comply with the same renders the dealer liable for penal consequences and also whether it deprives him from claiming and proving that the transaction is not an inter-State sale but it is only a transfer or despatch of goods from the principal to his/her agent in another State, has to be determined keeping in view the provisions contained in sections 3, 4 and 6 of the CST Act. Chapter II of the CST Act contains only three sections, i.e., 3, 4 and 5 which formulate the 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. We are not concerned in the present batch of cases with sale or purchase of goods in the course of import or export. Therefore, we need not refer to section 5. Section 6 is a charging section. It falls under chapter III relating to inter-State sales tax. The principles embodied in sections 3 and 4 of the CST Act are the principles which alone will determine and will have to be applied to determine, as to whether a sale or purchase of goods has taken place in the course of inter-State trade or commerce or whether it is a mere transfer or despatch of goods from any place in the State to a place outside the State, in other words, to a place in the other State. If that be so, the role of rule 4(3A) of the CST (TN) Rules is only of evidentiary nature, as such, it cannot be held to be mandatory and it can only be directory as it is open to the dealer to prove whether a sale or purchase of goods has taken place in the course of inter-State trade or commerce from any other evidence and not necessary of the type of evidence contemplated by rule 4(3A) of the CST (TN) Rules. Ofcourse, maintenance of the records as per rule 4(3A) of the CST (TN) Rules obviates the difficulties or at any rate greatly relieves him from the burden to prove that the sale or purchase of goods has not taken place in the course of inter-State trade or commerce. Therefore, we hold that rule 4(3A) of the CST (TN) Rules is directory.
8. It has been held by a Division Bench of the Kerala High Court in C. P. K. Trading Company v. Additional Sales Tax Officer, III Circle, Mattancherry [1990] 76 STC 211, with which we are in full agreement, as follows :
"Under section 6A(1) of the Central Sales Tax Act, 1956, the burden is on the dealer to prove that the movement of the goods was occasioned not by reason of sale, but was occasioned by reason to transfer, of such goods by him to any other place of his business or to his agent or principal outside the State. The burden so cast on the dealer may be discharged by furnishing the declaration as prescribed (F forms) along with the evidence of despatch of such goods. Furnishing of the declaration (F forms) is not compulsive or mandatory. It is open to the dealer to discharge the burden of proof case on him, in any other manner, by adducing other evidence. In cases where the dealer exercises the option of furnishing the declaration (F forms), the only further requirement is that the assessing authority should be satisfied, after making such enquiry, as he may deem necessary, that the particulars contained in the declaration furnished by the dealer are 'true'."
Therefore, the assessing authority is obliged to peruse the declaration in form F and make such enquiry as he deems necessary to find out whether the particulars found in the declaration are true. In this regard we may point out that he is not guided mainly or solely in deciding the issue on the fact as to whether the requirements of sub-rule (3A) of rule 4 of the CST (TN) Rules has been complied with. As we have already pointed out, these provisions are directory and not mandatory. Further, the question as to whether there has been an actual sale of the goods or there has been a transfer of goods to the agent otherwise than by way of sale is also a matter which can be established by other evidence. But once the dealer chooses to file a declaration in form F, the burden would be upon him to show that the particulars mentioned in form F are true. If he fails to establish that the particulars mentioned in form F are true, it would be open to the assessing authority to record a finding that there is no material to show that the transfer of goods is otherwise than by way of sale. The conclusion of the authority to the effect that the dealer has failed to establish that the transfer of goods is otherwise than by way of sale and such a finding would be a finding for the purposes of the Act and such transfer shall have to be deemed to be a sale of goods in the course of inter-State trade or commerce for the purposes of the CST Act. On the contrary, if the authority accepts that the particulars contained in the declaration filed in form F are true, the dealer is discharged of his burden and the authority has to make an order accepting the declaration and the effect of such an order would be that the movement of goods to which the declaration relates shall be deemed for the purposes of the CST Act to have been occasioned otherwise than as a result of sale. This disposes of contentions 3 and 4.
9. As far as contention No. 5 is concerned, it is only an argument advance in aid of the contention Nos. 3 and 4; therefore, no special consideration of the same is necessary.
10. It has been held by the learned single Judge that sub-rule (3A) of rule 4 of the CST (TN) Rules is directory and not mandatory; therefore, in the event of non-compliance with the said rule, the question of imposition of penalty does not arise. We have also held that rule 4(3A) of the CST (TN) Rules is directory as it only directs maintaining of certain records to show that the transfer of goods to a place in another State is not as a result of sale but it is otherwise than by way of sale. However, if a dealer files a declaration in from F and it is found to contain the particulars which are not true, the dealer has to face the consequence that would flow from section 10(a) of the CST Act and that is not a matter for consideration before us, because we are concerned with the validity of rule 4(3A) of the CST (TN) Rules. In the light of the findings recorded on contentions 3 and 4, nothing survives for consideration under contention No. 6. It is disposed of accordingly.
11. As regards contention No. 7, we have already pointed out that as per sub-section (2) of section 6A of the CST Act, the enquiry has to be confined to find out the truth or otherwise of the particulars contained in form F; therefore, the other question raised in contention No. 7 does not arise. In addition to this, it has already been pointed out that clause (d) of rule 4(3A) of the CST (TN) Rules is not going to be enforced as similar provision contained in rule 26(5A)(iv) of the Rules has been omitted. The statement made by the learned Additional Government Pleader for Taxes and the letter of the Special Commissioner and Commissioner for Commercial Taxes have been placed on record. Contention No. 7 is disposed of accordingly.
11.1 Contention Nos. 8 and 9 are raised in aid of contention Nos. 3 and 4 which have already been dealt with. Regarding contention No. 10, in view of the finding recorded that rule 4(3A) of the CST (TN) Rules is directory, the other question raised under contention No. 10 does not arise. Further it is held that rule 4(3A) falls within the rule-making power of State Government under section 13(4)(b), (c), (d) and (e) of the CST Act. Further, the rule being directory, it is not possible to hold that it is contrary to or inconsistent with or repugnant to the provisions contained in section 6A of the CST Act. Contention No. 10 is disposed of accordingly.
12. Learned counsel for the appellants placed reliance on the decision in Balabhagas Hulaschand v. State of Orissa wherein it has been held that the word "sale" appearing in section 2(g) as also in section 3(a) of the CST Act includes an agreement to sell also, provided the agreement contains a stipulation regarding passing of the property. It has been held that in order to determine whether a sale has taken place in the course of inter-State trade or commerce, the matter has to be approached only after a concluded sale has taken place, because unless the sale takes place or, in other words, the agreement to sell merges into a concluded sale, the question regarding the application of the provisions of the CST Act does not arise at all, because the tax is on sale and not on an agreement to sell or a forward contract. Such a question does not arise in the instant case, because we are not dealing with a case wherein the assessment has taken place. We are only dealing with a case as to the validity or otherwise of sub-rule (3A) of rule 4 of the CST (TN) Rules. Hence, the application of the said decision to the case on hand does not arise at this stage.
13. The decision in Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra [1962] 13 STC 292 (SC) considered the issue whether the transactions concerned therein amounted to sales in view of the agreements produced by the applicants therein. On construing the terms of those agreements, it was held that the agreements created a relationship of principals and agent and not of vendors and purchasers between the assessees and the merchants to whom the bidis were despatched. Such a question does not arise for consideration in the present case.
14. In Sri Tirumala Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry [1968] 21 STC 312 (SC), the effect of Explanation III of section 2(1)(n) of the Andhra Pradesh General Sales Tax Act, 1957, is considered. It has been held that the said provision imposes tax only when there is a transfer of title to the goods and not where there is a mere contract of agency. It has also been further held that the question as to whether the transactions in any given case are sales or contracts of agency is a mixed question of fact and law and must be investigated with reference to the material which the dealer might be able to place before the appropriate authority, and that the question is not one which can properly be determined in an application for a writ under article 226 of the Constitution. All that we can point out is that such a question also does not arise for consideration in the case on hand.
15. The other decisions, viz., Ratan Lal Adukia v. Union of India , Municipal Board, Bareilly v. Bharat Oil Company [1990] 78 STC 453 (SC) and South India Estate Labour Relations Organisation v. Madras State have been relied upon in support of the contention that sub-rule (3A) of rule 4 of the CST (TN) Rules, to the extent it insists on production of documents more than what is necessary under section 6A of the CST Act and form F of the Central Rules, is repugnant to the said provisions. We have already held that sub-rule (3A) of rule 4 of the CST (TN) Rules is not repugnant and at the same time, it is not mandatory and does not require a dealer to maintain more records than what he is required to maintain under section 40 of the Act read with rule 26(5) of the Rules. Therefore, the question of rule 4(3A) of the CST (TN) Rules being repugnant to Central Act and as such it is deemed to have been impliedly repealed does not arise.
16. Before we summarise our conclusions, we must make it clear that in the course of the order as well as in the operative portion learned single Judge, has held that sub-rule (3A) of rule 4 of the CST (TN) Rules supplant the methodology of burden of proof contemplated under section 6A of the CST Act, and in that view of the matter, it could not be stated to have been "impliedly repealed". This view cannot be accepted to be correct, nor can it be held to be consistent with the view expressed by the learned single Judge that sub-rule (3A) of rule 4 of the CST (TN) Rules is directory and not mandatory and it only aids and supplements the methodology of burden of proof under section 6A of the CST Act. To that extent, the decision has to be modified.
17. As a result of the aforesaid discussions, the following conclusions emerge :
(i) Rule 4(3A) of the CST (TN) Rules is directory and not mandatory Contravention of the said rule does not warrant punishment. When form F is filed by a dealer, he chooses or elects the mode of proving that the transfer of the goods is otherwise than by way of sale. Therefore, he has to prove that the particulars contained in form F are true. In the event he fails to prove that the particulars mentioned in form F are true and no other material evidence is placed before the authority to support the stand of the dealer that the transfer of goods is otherwise than by way of sale, the decision or inevitable result would be that the transfer of goods is by way of sale in the course of inter-State trade or commerce, as such, it is exigible to sales tax under tax CST Act.
(ii) The enquiry required to be made under section 6A(2) of the CST Act is confined to find out the truth or otherwise of the particulars contained in form F and for this purpose other evidence if any produced by the dealer other than the particulars contained in form F is also to be considered. In the course of such enquiry, it is open to the authority to call for any other information in order to verify the truth or otherwise of the particulars contained in the declaration filed in form F. The "any other information" may be that which rule 4(3A) of the CST (TN) Rules require a dealer to maintain, except the one required under rule 4(3A)(d) or any other evidence relating to the issue, in order to adjudicate whether the particulars mentioned in form F are true. The copies of the bills issued by the agents to the purchasers as required by rule 4(3A)(d) need not be produced, not it is open to the assessing authority to call for such bills.
(iii) In W.A. No. 911 of 1994 which arises out of W.P. No. 10649 of 1994, assessment has been made for the assessment year 1992-93 on March 31, 1994, on the basis that sub-rule (3A) of rule 4 of the CST (TN) Rules has not been complied with. As we have held that the said rule is directory and not mandatory, and the enquiry for the purpose of section 6 of the CST Act, as per section 6A of the CST Act, has to be confined to the matters stated in sub-section (2) thereof as explained by us in the earlier portion of this judgment and as the enquiry has not been held in such manner the assessment order is liable to be set aside and the Deputy Commercial Tax Officer, Pollachi West/East/Rural, has to be directed to redo the assessment in the light of this judgment. Accordingly, we allow W.A. No. 911 of 1994, modify the judgment of the learned single Judge, set aside the assessment order dated March 31, 1994 and remit the matter to the Deputy Commercial Tax Officer, Pollachi, to redo the assessment in the light of this judgment and in accordance with law.
(iv) As pointed out earlier, notices have been issued by the department in respect of assessment years up to 1991 and also in respect of the earlier years which are contrary to the judgment in question and in respect of which, as pointed out earlier, the Special Commissioner and Commissioner for Commercial Taxes in his minutes dated July 20, 1994 issued on July 28, 1994, has made it clear that closed cases prior to March 31, 1992 are not to be reopened and pending cases including remanded cases will have to be dealt with on the basis of the judgment of the learned single Judge, out of which the present appeals arise. We direct that if on the basis of the notices so far issued, the department decides to pursue action, they shall give a minimum time of eight weeks to the dealers to file their objections, if any, and then proceed with such cases in accordance with law and in the light of this judgment.
(v) All the other writ appeals are disposed of in terms of what has been stated above.
(vi) The order of the learned single Judge under appeal stands modified accordingly.
(vii) There will be no order as to costs.
18. Ordered accordingly.