Form F Declarations & Agency Agreement Support Consignment Transfers, Not Inter-State Sales: CESTAT Sets Aside CST Demand [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that Form F declarations and an agency agreement supported the paper manufacturer’s claim that the disputed transactions were consignment transfers and not inter-State sales.

Shree Karthik Papers Limited, the appellant, is a manufacturer of paper and paper products in Tamil Nadu. During the assessment year 1995-96, it sold goods within Tamil Nadu, through inter-State sales, and through agents in Karnataka, Kerala, Orissa and West Bengal.

The Enforcement Wing inspected the appellant’s premises on 26 July 1995. TheCommercial Tax Officer later treated turnover of Rs. 1,51,28,219 for the period after 1 August 1995 as inter-State sales and imposed penalty. The Additional Appellate Assistant Commissioner held that these transactions were consignment sales and reduced the penalty to Rs. 2,21,858. The State appealed before the Sales Tax Appellate Tribunal, which restored the assessment and penalty.

The appellant’s counsel argued that the department relied on documents recovered before 1 August 1995 to tax later transactions. The counsel argued that a fresh agency agreement governed the post-1 August 1995 transactions and that Form F declarations supported the consignment sale claim.

The State of Tamil Nadu argued that the alleged agents were only a camouflage and that the goods moved pursuant to prior contracts of sale. It relied on advance payments, bill discounting, blank cheques and debit notes to argue that the transactions were inter-State sales.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the agency agreement showed that the goods remained the property of the principal till sold and that the agents were required to account for the sale proceeds.

The tribunal pointed out that materials recovered before 1 August 1995 could not be used to decide the nature of later transactions. It explained that the finding that the appellant would have declared all transactions as inter-State sales if inspection had taken place later was based on assumption.

The tribunal set aside the Sales Tax Appellate Tribunal’s order in the State’s appeal and restored the finding that the disputed turnover represented consignment sales. It maintained the penalty of Rs. 2,21,858 imposed by the Additional Appellate Assistant Commissioner.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates