Sales during the Movement of Goods From one State to other By Transfer of Documents to the Title of the Goods (An analysis and discussion)

Setting up of the check posts-functions thereof

The Government of Assam set-up a number of check posts, inter-alia, at the inter-State border points of Assam and erected barriers with a view to preventing or checking evasion of taxes. The Government as well appointed the taxing authorities for carrying out the purposes of the Acts, namely, the Assam Value Added Tax Act, 2003 (VAT Act) and the Central Sales Tax Act, 1956 (Central Act). The ‘Officer-in-charge of the check post’ is the persons, appointed by the State Government and posted at the check post . Such officers are not to be below the rank of the Superintendent of Taxes. Each check post is to be manned by a set of officers in the cadre of the Inspectors of Taxes for the purpose of smooth operation of the check post round the clock by way of stopping the goods vehicles, keeping the vehicles stationary, as long it is necessary, opening the package or packages to ascertain the correctness and accuracy of the goods carried, if necessary and also to inspect and examine the records and documents so as to ensure that there is no evasion of taxes. A part from the power of operation of the check post, the officer-in-charge of the check post has been equipped with the power requiring production, inspection of books of accounts, search and seizure in the territorial jurisdiction of Assam. In such an exercise, when there is any doubt in relation to the movement of such goods, the Officer-in-charge of the check post has the power to detain the vehicles and when any evasion of taxes is established due to adopting of some malpractices, unfair or fraudulent means under the Acts, such Officer-in-charge has the power to seize the goods, which can be released only after the evaded tax and the penalty are paid or realized. When such tax levied and penalty imposed are not paid, the Officer-in-charge of the Check post has the power to dispose of such seized goods by way of public auction and to credit such auction money pertaining to the sale value of the goods into the State coffer.

Delivery Notes, Road permits and Transit Passes

(i) An owner or a transporter, importing any goods for the purpose of sales inside the State of Assam, is to furnish a Delivery Note, obtained by the importer dealer from the Superintendent of Taxes of the area before the Officers-in-charge of the check post with the declaration that the goods will be accounted for properly and the taxes, as due will be paid. (ii) When any goods are imported by a person for consumption or use, a Road permit, obtained in the same manner from the Superintendent of Taxes of the area is to be furnished before the Officer-in-charge of the check post. (iii) When any goods enters into the State of Assam from the places out side the State of Assam and moves to the other State or States through the corridor of Assam, the owner of the goods or the transporter is to obtain a Transit Pass on application from the Officer-in-charge of the entry check post of Assam, for each consignment of the goods and  to produce the same before the Officer-in-charge of the exit check post and to obtain endorsement thereon before such goods are moved to the places out side the State of Assam. The said endorsed Transit Pass has to be surrendered before the Officer-in-charge of the entry check post.

Liability to pay tax

When any consignment of goods, taxable under the Act, is imported, the owner of the goods (dealer) is to pay tax on the sale value of such goods. When any person imported any goods for own use or consumption on presentation of any Road Permit, he is liable to pay tax under the Assam Entry Tax Act, 2008 (Entry Act), if the goods are taxable under the said Act. When any person obtaining the Transit Pass, fail to surrender the same before the Officer-in-charge of the entry check post with the endorsement of the Officer-in-charge of the exit check post within the specified period of thirty days, the Officer –in-charge of the entry check post is to presume that the goods did not move to the places out side the State of Assam, as designed and the same was consumed in the State of Assam, he is to levy tax and impose penalty after providing an opportunity of being heard.

Sales of goods in the course of inter-State trade or commerce

The Central Act is to govern the procedure of levy of tax on the sales of the goods made in the course of inter-State trade or Commerce. The said Act has provided relaxation (or exemption) in the matter of levy of tax in respect of the sales of goods, effected by transfer of documents to the title of the goods during the movement of such goods from one State to another, export of goods out of the territory of India, sales of goods made to the exporter in the course of export, movement of goods made to places out side the State of Assam not by virtue of sale in the course of inter-State trade or commerce, but by way of stock transfer. Such relaxation (or exemption) is, however, not admissible as a matter of right, but it is subject to scrutiny and examination on the merit thereof.

The sales or purchase of goods in the course of inter-State trade or commerce are of two folds, namely; (a)  by occasioning the movement of goods from one State to other; (b) effecting sales by way of transfer of documents of the title of the goods during the movement of the goods from one State to another. The provisions of the Central Act further made it clear that where any goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purpose of (b) above,  is deemed to have commenced at the time of  such delivery and terminate at the time, when the delivery is taken from the carrier or bailee.  Apparently, therefore, the sales made by way of transfer of documents to the title of the goods can as well be affected, when the goods are placed with the carrier for onward movements after the first sale is affected. The Central Act further provided that when any sale of goods is affected by transfer of documents of title to such goods during their movement from one State to another, any subsequent sale made during such movement by transfer of documents of the title to the goods to the registered dealer, shall be exempted from tax under the Central Act, subject to production of the requisite documents/declaration in this behalf.

Sales by transfer of documents to the title of the goods-procedure thereof

(i) A sale of goods, when affected between two dealers and moves to the first purchaser of such goods, the first purchaser may enter into a contract of sale or supply with a second purchaser in respect of such goods. The said first purchaser in that case may make the sale of the said goods to the second purchaser by transfer of the document to the title of the goods during the movements of such goods by way of making endorsement of the documents relating to such goods to the second purchaser of the goods. Any delivery taken by the first purchaser and thereafter re-booked and despatched to the second purchaser, will foil the purpose of such subsequent sales by way of transfer of documents to the title of the goods and it amounts to be a fresh sale.

(ii) A section of the first purchaser use to make contract of sale with the second purchaser before the first sale is affected and advises the first seller to send the goods to the destination of the second purchaser. The first seller, while making the despatches of such goods direct to the address of the second purchaser, in some cases even use to despatch such goods in the name and address of the second purchaser and consign such goods to the destination of the second purchaser on self consignment basis or in the name of the second purchaser of the goods.

Such deal amounts to be a pre-determined sale and not a sale by way of transfer of documents of the title of the goods during the movement of such goods. The so-called sale or purchase of such goods; can not thus be termed as sale during the course of movement of the goods. The entire concept of sale in the course of movement of goods in such case is beyond the spirit of the Central Act and the purpose is thus obviously defeated.

Procedure of sales by way of transfer of documents of the title to the goods

The actual procedure pertaining to the sales of goods by way of transfer of documents of the title to the goods during such movement of goods are, as below:

(i) In the normal course, the sale made by the first selling dealer to the first purchasing dealer, who is to be a registered dealer, is to be supported by a declaration in Form ‘C’ to be furnished by such first  purchaser to the first seller, making it convenient to get the benefit of tax at the concessional rate.

(ii) In the case of the sales by transfer of documents to the title of the goods, the first purchaser without taking the delivery of the goods, is to make endorsement in the Consignment Notes (viz Road Receipts, Railway Receipts, as the case may be) in favour the second purchaser, making it convenient on his part to take delivery of such goods;

(iii) The first purchaser (second seller) is to collect Form ‘C’ from the third purchaser and is to obtain a declaration in Form E-I from the first seller so as to establish his claim of sales by way of transfer of documents so as to derive the benefit of exemption of tax. If such declarations are not furnished and the transactions are not made in accordance with the procedure, laid down, the benefit of any exemption of tax under the Central Act by the first purchaser, that is, the second seller of the goods; will not be admissible.

(iv) In relation to such deal (sale by way of transfer of documents of the title of the goods), there should not be any variation of the quality and the quantity of the goods.

Mysterious ways of sales

Of late, it could be learnt that a section of traders, industrial organization and the public sector undertakings are importing the goods including the tools, equipments, machineries etc by trucks from the places out side the State of Assam for consumption or use within the State of Assam. The invoices in relation to the purchases of such goods and the consignment notes covering the movement of the goods by trucks contain three names and addresses. One is the first out side the State of Assam, the other is the second person in Assam and the third one is the person/organization within the State of Assam. This was learnt to be a unique way of movement of the goods. When the existence of such three persons in the same deal, came into question, they are said to have explained mysteriously that these are the E-I sales deal and the middle person is exempted from any tax and last person is liable to pay tax under the Entry Act. Assuming that it was alleged to be an E-I sale (though such term is misnomer), how the name of the third party   (second purchaser) could take berth in the original invoice and the despatch documents (viz in the Consignment Note)? The existence of the third party in the original invoice and the despatch documents obviously construes that the sale made to the third party was pre-determined and, that too, before the original movement of the goods was affected. As already discussed, this deal can not achieve the quality and character of sale in the course of movement of goods by way of transfer of documents to the title of the goods (in the language of the party/parties E-I sale of goods). The second party is, therefore, not entitled to any benefit of exemption of taxes under the Central Act. A number of such parties could not face such legal stand and the second party had to pay tax on the value of the goods and penalty for adopting such fraudulent means. Though the actual magnitude of the tax and penalty could not be ascertained, it extended to some lakhs of rupees.  This seems to be a big achievement on the part of the Officer-in-charge of the check post in Assam. The self-seeking tax-dodgers, therefore, designed their new way of action.

Circular, issued by the Commissioner of Taxes

The Commissioner of Taxes, Assam at the instance of the Tax Bar Association, Public Sector Undertakings, dealers issued a circular No.4/2014 on the 30th day of June, 2014, the contents of which are, as below :

“Of late several representations from the Tax Bar Association, Public Sector Undertakings and dealers have been received regarding detention of vehicles carrying goods meant for E-1 transaction at the check post o the ground that the delivery note attached with other supporting documents was not issued by the first buyer in Assam but the subsequent buyer. The matter has been examined and the department is of the view that in case of vehicles carrying goods meant for E-I transaction, the check post authority shall also accept the delivery note/road permit issued by the subsequent buyer. Non acceptance of the statutory Form by the check post authority issued by the subsequent buyer may also result in loss of revenue in the form of entry tax payable by an importer to the department.

Henceforth, a check gate authority shall not detain any vehicle carrying goods meant for E-I transaction and levy tax, penalty on the technical ground that the statutory form was not issued by the first buyer in Assam but by the subsequent buyer. In case any doubt or dispute, he shall refer the matter to the Apex office without detaining the vehicles for necessary action.”

The contents of the circular seem to be most amusing. It seems to be a product of representations made from different angles, as reflected above. There is, in fact, no term E-I sale in the Central Act, but the real term is ‘sale in the course of movement of goods by transfer of documents to the title of the goods.’ Primarily, the term E-1 sale used in the circular was a misnomer and it lacks legal support. E-I Form is one of the instruments to provide exemption of tax on such sales in course of transfer of documents and it can-not be termed itself as sale. As the tax-dodging preventive machinery at the inter-State border, the Officer-in-charge of the check post is bound to examine the mode of the deal and genuineness thereof and when any iota of doubt takes place in his mind, he has the full authority to detain the vehicle for the purpose of further enquiry or investigation. If after such enquiry or investigation, the circumstances are so warranted, the Officer-in-charge of the check post shall have no other alternative but to resort to measure of levy of tax and imposition of penalty.

From the tone of the circular, it transpires that the pertinent question involved in the matter was on the genuineness of the deal of sales during the course of movement of goods was ignored. It was already discussed that such sales affected during the course of movement of the goods can not be pre-determined. If the original booking documents and other connected papers like challans, invoices were pre-destined, this can not be other than a pre-determined sale and the interim dealer (the first purchaser of the goods) can not escape from the liabilities to pay tax. Mere payment of tax under the Entry Act is not enough and non-submission of Delivery Note can not be a technical ground and it is not proper to draw up such conclusion. The Officer-in-charge of the check post is the best authority to exercise his prudence and apply  his best judgment and there should not be any interference at any level. The taxation laws provided wide scope to file appeal or revision petition by a dealer, when aggrieved by any order of the taxing authorities. Hence, the representations from various angles, as stated and the circular issued thereon amounts the curbing the power of the Officer-in-charge of the check post in matter of prevention and checking of evasion of taxes. This may be construed to be premature, prejudicial besides being detrimental to the interest of the revenue of the State.

We hope, a review may be made on the entire episode after examination of the facts and materials for the best interest of the revenue of the State.