IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 21.07.2011 Coram The Honourable Mrs.Justice CHITRA VENKATARAMAN and The Honourable Mr.Justice M.JAICHANDREN TC.(R) No.962 of 2006 The State of Tamilnadu rep. By the Deputy Commissioner (CT) Coimbatore Division, Coimbatore ... Petitioner -vs- Mahaveer Chemicals Industries 16 / 56, Mill Road Coimbatore ... Respondent Revision Petition filed under Section 38 of the Tamil Nadu General Sales Tax Act to revise the orders of the Sales Tax Appellate Tribunal (Additional Bench), Coimbatore passed in Coimbatore Tribunal Appeal No. 336/98 dated 29.11.2000 against the order in Appeal No.1085/98 dated 23.6.98 for the assessment year 95-96 on the file fo the Additional Appellate Assistant Commissioner (CT) Coimbatore against the order of the Commercial Tax Officer, Oppanakara Street Circle, Coimbatore made in TNGST No.1860797/95-96 dated 18.2.98. For Petitioner : Mr.R.Sivaraman, Special Government Pleader (Taxes) For respondent : Mr.S.Ramanathan ORDER (Order of the Court was made by CHITRA VENKATARAMAN,J) The Revenue is on revision as against the order of the Tribunal relating to assessment year 1995-96. The Tribunal accepted the assessee's contention in the appeal preferred by it as regards the claim of EII sales. The Tribunal however confirmed the addition made on stock variation and deleted the equal addition. Aggrieved by the same, the Revenue is before this Court by way of revision. https://hcservices.ecourts.gov.in/hcservices/ 2. The assessee herein is a dealer in chemicals, acids and solvents. On 9.9.1995, the Enforcement Wing of the Commercial Tax Department conducted an inspection in the business premises of the assessee and detected stock difference. Apart from this, it was also found that the dealer was effecting in-transit sales after taking constructive or notional delivery of the goods to the value of Rs.9,68,264.70. Thus, apart from assessing the actual suppression detected in stock variation, the assessment for assessment year 1995-96 was taken up proposing to disallow the claim for exemption under Section 6(2) of the Central Sales Tax Act. The assessee contended that after the purchase, even before taking delivery, they effected further interstate sales to their end users within and outside the State of Tamilnadu. Thus, by filing EI and EII and Form C declaration, the assessee made claim under Section 6(2) of the Central Sales Tax Act. The said claim was rejected by the Assessing Authority by taking a view that the assessee had effected sale after arrival of the goods at Coimbatore after taking the constructive delivery of goods at Coimbatore. Thus, the Assessing Authority viewed that the assessee was not entitled to exemption under Section 6(2) of the Central Sales Tax Act. The Assessing Officer pointed out that verification of the records showed that M/s.Mahaveer Chemicals were appointed as registered dealers to deal with the chemicals viz., liquid/ gaseous chemicals manufactured by M/s.Cochin Refineries Limited, Ernakulam, Kerala. Admittedly, the said Mahaveer Chemicals and the assessee viz., Mahaveer Chemicals Industries are located in the same premises,at No. 16/ 56, Mill Road, Coimbatore. On the purchase effected by M/s. Mahaveer Chemicals from M/s. Cochin Refineries Limited, the liquid / gaseous chemicals were transported in tanker lorries. The transport, delivery and use of such chemicals were covered by Central Excise Provisions. As per this, there was no necessity to maintain a godown for storing before distributing to the ultimate buyers. The Revenue pointed out that verification of the purchase invoices, transport documents and other statements, revealed that after purchase, M/s. Mahaveer Chemicals transported them to Coimbatore. The transport documents revealed that the movement of goods started from Cochin in tanker lorries to Coimbatore and had the end destination at Coimbatore, it being the delivery place. After the receipt of the goods in Coimbatore, Mahaveer Chemicals effected EI sale to the assessee herein which was situated in the same premises. Since the sale was effected by transfer of documents of title to goods, while in transit, the sale was treated as one falling under Section 3(b) of the Central Sales Tax Act. However, as regards EII sales, said to have been effected by the respondent/ assessee, it was pointed out that the inspection of the business premises of the assessee on 9.9.1995 revealed that after taking delivery, the assessee had used Form XX delivery notes to transport chemicals in tankers to the end users within and https://hcservices.ecourts.gov.in/hcservices/ outside the State of Tamilnadu. Thus, the authorities came to the conclusion that on the basis of the available materials, after the endorsement in favour of the assessee herein, the movement of the goods had terminated at Coimbatore itself. Thereafterwards, on the assessee had taken constructive delivery at Coimbatore itself, the assessee effected fresh sale. The authorities held that the claim of the assessee for second interstate sales could not be sustained. 3. A reading of the order of the first Appellate Authority before whom the assessee filed an appeal shows that the contention of the assessee that they had effected second interstate sales to their customers while said goods were in transit or in movement was not supported by any materials. Considering the fact that the transport documents clearly pointed out the destination as Coimbatore, the assessee had to necessarily prepare further documents after taking delivery of the goods for further movement to the customers. Accordingly the assessee instructed the transporter to prepare separate lorry receipts in the name of the ultimate customer or end user. Thereupon, the transporter had to start the journey with the help of another set of trip sheet, lorry way bill etc. Thus, in the absence of any material to show that the journey continued without any break, the first Appellate Authority came to the conclusion that the assessee was not entitled to claim exemption under Section 6(2) of the Central Sales Tax Act. In so holding, the Appellate Assistant Commissioner referred to the decision of this Court reported in 89 STC 481 – STATE OF TAMIL NADU v. N. RAMU BROTHERS, and held that when once the condition as regards delivery spoken to in the explanation I to section 3(b) of the Central Sales Tax Act is satisfied and the link in the movement is snapped, the assessee could not claim the benefit of exemption under Section 6(2) of the Central Sales Tax Act. In the light of the above facts, the Appellate Assistant Commissioner held that the claim of EII sales was not in order and contrary to the statutory conditions of Section 3(b) and 6(2) of the Central Sales Tax Act, thus the assessment was confirmed. 4. As regards levy of penalty, the same was modified, since the Appellate Authority cancelled the assessment on the turnover of Rs.34,000/- relating to local commission sale. The first Appellate Authority also upheld the assessment on actual stock variation and the estimation made on equal addition. The assessee went on appeal before the Sales Tax Appellate Tribunal. 5. A perusal of the order of the Tribunal shows that it accepted the plea of the assessee that the assessee never took delivery of the goods and there were no materials to show that there was interception of interstate movement. Thus holding the Tribunal allowed assessee's appeal. https://hcservices.ecourts.gov.in/hcservices/ 6. As regards addition made on account of stock variation, while upholding the actual stock variation, it deleted the estimated addition thereon. Aggrieved by the same, the Revenue is before this Court. 7. Learned Special Government Pleader appearing for the Revenue drew our attention to the finding by the Appellate Assistant Commissioner as well as the Assessing Officer that when the assessee had taken constructive delivery of the goods transported and the original transport documents showed the termination point at Coimbatore, nothing was substantiated from the side of the assessee to show that it never took even constructive delivery of the goods before effecting the sale. Emphasising on the transport documents disclosing the termination of the movement in Coimbatore, learned Special Government Pleader (Taxes) pointed out that the burden in this regard is on the assessee to prove that no delivery was taken by the assessee to result in the break in the interstate movement of the goods. Except for a mere contention that the assessee had not taken constructive delivery, no evidence was placed before the authorities below to accept the plea on the second interstate sales. Thus going by the provisions of Section 3 (b) of the Central Sales Tax Act read with Section 6(2) of the Act, learned Special Government Pleader pointed out that when there is break in the movement of goods and the assessee had taken delivery, by reason of the interstate movement coming to a halt at Coimbatore, the claim based on the provisions of Section 6(2) was rightly rejected by the Assessing Officer. Consequently, no exception could be taken to the assessment made on the assessee. 8. Commenting on the order of the Tribunal that without any material, the Tribunal had merely accepted the contention of the assessee that the goods were never unloaded to take delivery thereon, learned Special Government Pleader further pointed out to the nature of goods transported and submitted that for the purpose of considering the claim, leaving aside the fact that being gaseous substances, there could not be a physical delivery, it is not necessary that there should be in fact unloading of goods to take physical delivery. Even on the aspect of constructive delivery, when the documents clearly showed that the movement of goods from Cochin ended in Coimbatore itself and thereafter, the assessee prepared fresh documents for further movement, there was clear indication that after taking constructive delivery, the assessee effected further sales. 9. Going by Section 3(b) of the Central Sales Tax Act, which contemplates transfer of documents of title to the goods during their movement from one State to another State, even on facts, the claim of the assessee could not be sustained. Rightly, the Revenue rejected the plea of claiming exemption under Section 6(2) of the Central Sales Tax Act. https://hcservices.ecourts.gov.in/hcservices/ 10. Supporting the order of the Tribunal, learned counsel for the assessee however contended that the Revenue had no material to reject the plea of the assessee on the claim for exemption on second interstate sales. The Tribunal rightly came to the conclusion that there was no break in the movement of goods to presume that delivery was taken by the assessee. In the circumstances, he prayed for confirming the order of the Tribunal. 11. Heard learned Special Government Pleader (Taxes) for the Revenue as well as learned counsel for the assessee and perused the materials. 12. Section 3 of the Central Sales Tax Act lays down the principle for determining when a sale or purchase of goods takes place in the course of interstate trade or commerce. Section 3(a) defines an interstate sale that a sale or purchase of goods shall be deemed to take place in the course of interstate sales if the sales and purchase of goods occasioned the movement of goods from one state to another. Section 3(b) provides for interstate sale by transfer of documents of title to goods during the movement of goods from one State to another. Thus, as per Section 3(b) all subsequent interstate sale by transfer of documents of title during the movement of goods also qualified to be called as interstate sale. Explanation I qualifies the claim on interstate sale that the movement shall be deemed to commence at the time when the goods are delivered to a carrier or other bailee for transmission and terminates at the time when delivery is taken from such carrier and bailee. Section 6 of the Central Sales Tax Act is the charging section on the interstate sales. Section 6(1) speaks about chargeability of an interstate sale. Section 6(2) however states that in the course of an interstate sales, any subsequent interstate sale that may take place therein are exempt from tax provided declaration in Form D, EI or EII in the case of buyer being a Government or in Form C, EI or EII by a registered dealer are submitted by selling dealer to the tax authorities in support of the claim for exemption. However, when there is a break in the movement and it comes to an end, exemption under Section 6(2) of the Act is no longer available for the assessee to claim the benefit of second interstate sale. While there is no dispute as to the position of law interstate sales could be made between two dealers residing in the same street, yet, for the purpose of section 3(b) of the Central Sales Tax Act, the requisite condition has to be satisfied that there is a sales while the goods are in transit, sale taken place by transfer of documents of title to the goods during the movement from one State to another. Thus a reading of Section 3(b) and 6(2) of the Act show that the burden of proving that there is a second and subsequent interstate sale effected by a transfer of documents of title to the goods during the movement from one State to another rests on the assessee. https://hcservices.ecourts.gov.in/hcservices/ 13. As far as the present case is concerned, as already pointed out the documents accompanying the movement of the goods shows that the journey started from Cochin to Coimbatore. The Appellate Assistant Commissioner rightly pointed out that there was no obligation on the part of the carrier to transport the goods further to any place beyond Coimbatore. Thus the subsequent arrangement that the assessee had with the same transporter to carry the goods to another place for a different person however did not make the movement a continuation of the original interstate sale. When once the movement of goods terminated at Coimbatore, on the doctrine of constructive delivery, as per the decision reported in 89 STC 481 – STATE OF TAMIL NADU v. N. RAMU BROTHERS, the authorities rightly rejected the assessee's claim for exemption under Section 6(2) of the Act. 14. As rightly pointed out by the Appellate Assistant Commissioner, even though there was separate sales at the point of time in the eye of law, there were two deliveries which synchronized at the same point of time. As far as the first sale is concerned, the authorities accepted the plea of the assessee that there was E1 sale. With the original movement terminating at Coimbatore, in the absence of any material to substantiate the contention that the second interstate sale was effected when the goods were in transit, the claim of the second sale was rejected by the Assessing Officer as well as by the Appellate Assistant Commissioner. Given the fact that the tanker lorries did not move further from Coimbatore to the ultimate customers with the initial transport documents which showed the destination as Coimbatore, further movement done as per the fresh invoices prepared and trip sheets and way bill clearly pointed out to fresh movement from Coimbatore to other State and to the local purchaser from the assessee. The condition as stipulated in Explanation I to Section 3 (b) of the Act, thus not satisfied, rightly the Appellate Assistant Commissioner confirmed the view of the Assessing Officer. A reading of the order of the Tribunal shows that without adverting to any of these facts, the Tribunal merely accepted the statement from the assessee to grant the relief. 15. Having regard to the above said fact, going by the materials indicating the break in the journey of the interstate movement of goods, we hold that the findings of the Tribunal is without any material and there are no materials to disturb the findings given by the Appellate Assistant Commissioner. As already pointed out, after extracting the findings of the Appellate Assistant Commissioner, the Tribunal merely recorded the arguments of the assessee to allow the assessee's appeal. In the absence of contra materials produced by the assessee before the Tribunal, the final fact finding authority ought not to have interfered with the https://hcservices.ecourts.gov.in/hcservices/ findings of the Appellate Assistant Commissioner, to allow the assessee's appeal. Thus, having regard to the perversity in the order of the Tribunal, that the findings are not backed up by any materials, we have no hesitation in allowing this tax case revision, thereby, setting aside the order of the Tribunal. 16. As regards the cancellation of the estimation made on actual variation, we agree with the Tribunal's orders. On the aspect of penalty too, having regard to the facts referred to by the first appellate authority, we do not find any ground to sustain the same. Consequently, the order of the Tribunal stands confirmed in respect of these two aspect viz., the cancellation of the estimation made on actual variation and on penalty. 17. In the result the tax case revision is allowed. No costs. Sd/- Asst.Registrar. /true copy/ Sub Asst.Registrar. bg To 1. The Deputy Commissioner (CT), Coimbatore Division, Coimbatore. 2. Tamil Nadu Sales Tax Appellate Tribunal, Additional Bench, Coimbatore 3. The Additional Appellate Assistant Commissioner (CT) Coimbatore-18 4. The Commercial Tax Officer Oppanakara Street circle, Coimbatore 1 cc to M/s.S. Ramanathan, Advocate, Sr. 44326 1 cc to Government Pleader, Sr. 43830 TC.(R). No. 962 of 2006 RS (CO) kk 16/9 https://hcservices.ecourts.gov.in/hcservices/