Inter-State Stock Transfer & Form F under central Sales Tax Act 1956

One of my friends while reading article on “Form C” raised a query:-

è Whether a dealer should declare the transfer of capital goods like Furniture , computers etc that are transferred to another state for own use in his branch .

è Whether the transfer of these goods is to be declared as Stock transfer in the returns. If yes or no , any court cases In support of the same.

è Whether F forms is to be issued for such transfers. If yes or no , any court cases in support of the same.

Section 6 A of CST Act deals with above subject Stock Transfers. In my view , this provision applies only to “ Business goods “ and Not to Capital goods. But I need supporting case laws.
This sec uses the word ‘may’ .Dealer may furnish the prescribed form In token of such transfer to claim exemption. This section has been amended wef 13.05.2002 to the effect that If if the dealer fails to furnish such declaration , it shall be deemed To consider such transfer as a Sale..
(Italic words as given by the reader)

Before going to discuss the issue, I would like reproduce the exact wording of section 6A of the CST Act which deals with transfer (not by reason of sale) of goods from one State to another State :-

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 shall be deemed for all purposes of this Act to have been occasioned as a result of sale

From Para quoted above it is very much clear that Section deals with transfer of Goods from one State to another State.

What is important here to note that the section deals with :-

(i)          Movement of any Goods from one State To another State

(ii)         Such movement should be by reason of Transfer of goods and not by reason of sale

(iii)        Such movement should be from one place of his business to any other place of his business or to his agent or principal.

For section 6A, definition of Goods is important which has been defined in the Act as all materials, articles, commodities and all other kinds of movable property. The CST act does not define and does not make any difference between goods & capital goods for the purpose of section-6A.

Any kind of moveable property falls within goods as per the definition and the act does not define “capital goods”. Goods may be capital goods for one dealer at one point but it may be goods ( say stock or business goods) for another dealer at same point of time depending upon the facts & use thereof dealer to dealer. Transfer of such goods must be shown when it is transferred from one State to another as it is covered under scope of the term “Goods” and it is getting transferred not by reason of sale.

Under VAT regime, it is well known facts that Input Tax Credit is allowed by many States (no doubt in restricted way & subject to certain conditions) and it is logically hold good that transfer of such goods must be shown properly in the return so that availement of ITC and proportionate Input Tax Credit on Inter State transfer must be reversed when such goods get transferred to another State if not sold.

Thus I understand that such goods (capital goods) should be shown in sales tax return as transfer and accounting concept should be mingled with legal position.

As per section 6A it is clear that where any dealer claims that he is not liable to pay tax under the CST 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 and not by reason of sale, the onus to prove lying with dealer that movement of goods is on account of transfer, not by way of sale.

The dealer may furnish to the assessing authority, within the prescribed time a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, containing the prescribed particulars in the prescribed form (i.e. Form F) obtained from the prescribed authority.

 If the dealer fails to furnish such declaration, then, the movement of such goods shall be deemed to have been occasioned as a result of sale.

If the tax authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer are true, he may make an order to that effect. Thereupon, the movement of goods to which the declaration relates shall be deemed to have been occasioned otherwise than as a result of sale. Thus F form is required to be produced as proof.

Whether submission of “F Form” is mandatory?

As per section 6A(1) submission of F form is mandatory to prove stock transfer. Otherwise, the transaction will be treated as sale for all purposes of CST Act. (With effect from 11^th May 2002,)

Is it essential to be registered under CST Act to get Form- ‘F’ ?

There are no restrictions in getting the Form- F if dealer is not registered but in most of the States, there is no provision for obtaining Form-F from the department without obtaining registration under CST Act therefore practically form-F can only be issued to registered Dealers.

Whether form ‘F’ is required for job work in case of inter state transaction.

Yes, With effect from 10th November 2005 it is mandatory to file form-f for all the movement of goods of a state which have taken place otherwise than in pursuance of sales, because in section 6A of CST Act, it is mandatory to submit form F in all movements of goods from a state which have taken place otherwise than in pursuance of sale.

The Hon’ble Supreme Court of India has upheld the judgment delivered by the Hon’ble Allahabad High Court on 17 August 2007 in the case of M/s. Ambica Steels Ltd. V/s The State of A Ltd in Uttar Pradesh.

 In this case it was decided that it would be necessary to furnish declarations in Form ‘F’ for inter-state movement in respect of goods sent for processing or goods received after processing though the movement is on Principal to Principal basis.

Therefore F Forms are mandatory for all transactions of inter state transfers (not by way of sale) including job work and goods return.

Whether Form F is required in case sale return?

Yes. In the case of M/s. Ambica Steels Ltd. V/s The State of A Ltd in Uttar Pradesh it is held that F Forms are mandatory for all transactions of inter state transfers (not by way of sale) including job work and goods return.

Whether ‘F form’ is a conclusive evidence to prove that transfer of goods is stock transfer and not a sale?

As per section 6A(2) , if assessing authority is satisfied after making enquiry that the declaration furnished by the dealer are true , he shall make an order to that effect and thereupon, the movement of to which the declaration relates shall be deemed to have been occasioned other than as a result of sale. Therefore  submitting F form is not a conclusive evidence per se to prove beyond doubt any stock or branch transfer. The assessing officer may make enquiry as to whether declaration furnished by dealer are true or not. But once sales tax authority investigated and if he is of the opinion that the movement of goods is an interstate sale and not stock transfer it would be deemed conclusive evidence.

What would be periodicity of F Form?

It is monthly because first Proviso to Rule 5 of CST Rules 1957 provides that one F form covering receipts during the month can be issued. If space in F form is not adequate, a separate list may be attached as annexure to form F giving details, provided that the annexure is firmly attached to the form.

Whether Form F is required when goods transferred within state?

 Branch transfer within state is matter of State VAT law and No form F is required and there would be no VAT implication also.

It may be noted that nothing contained in this post should be regarded as our opinion and facts of each case will need to be analyzed to ascertain applicability or otherwise and professional advice should be sought for applicability of legal provisions based on specific facts. We are not responsible for any liability arising from any statements or error contained in the post or action taken based on this post.