Bogus Consignment Sales, Failure To Prove Genuine Interstate Transfers: CESTAT Upholds CST Demand

The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has dismissed two appeals challenging a Central Sales Tax (CST) demand of over ₹2.33 crore and penalty of ₹6.43 crore after finding that the assessee failed to prove that interstate movement of goods was by way of consignment transfers and not interstate sales. The Bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) held that the assessee failed to discharge the statutory burden under Section 6A of the Central Sales Tax Act, 1956, read with Rule 14(3) of the Central Sales Tax (Andhra Pradesh) Rules, 1957. The Tribunal concluded that the transactions shown as consignment sales were in fact interstate sales liable to CST. The dispute related to Assessment Year 2000-01. The company, engaged in manufacturing and selling refined oils and vanaspathi, had disclosed a gross turnover of ₹85.63 crore and claimed exemption on turnover of ₹84.62 crore by treating the transactions as consignment sales to agents outside Andhra Pradesh. However, during an inspection conducted on 05.07.2000, the Andhra Pradesh authorities allegedly found that interstate sales had been camouflaged as consignment transfers. Subsequent investigations carried out in multiple States reportedly revealed that many of the dealers were non-existent, while in certain cases the dealers themselves denied having business transactions with the assessee company. Following detailed enquiries, the Deputy Commissioner imposed a CST liability of ₹2,33,58,647 on a net turnover of ₹23.48 crore. Thereafter, a separate penalty of ₹6,43,72,314 was imposed under Section 9(2) of the CST Act read with Section 7A(2)(i) of the Andhra Pradesh General Sales Tax Act, 1957. The Sales Tax Appellate Tribunal had earlier affirmed both the assessment order and penalty order in 2010. The assessee thereafter approached the CESTAT in appeal. A major issue before the Tribunal was whether the assessee had produced sufficient documentary evidence to establish a genuine principal-agent relationship with dealers located outside Andhra Pradesh. The Tribunal noted that mandatory documents prescribed under Rule 14(3) were not produced, including copies of bills issued by agents, ledger extracts maintained by agents, authorization letters for consignment sales, and written agreements showing principal-agent relationship. The Bench observed that the statutory burden squarely rested on the assessee to prove that movement of goods was otherwise than by way of sale. It held that the assessee had failed to establish payment of sales tax in destination States and had also failed to furnish the documentary evidence specifically mandated under the Rules. In a significant observation, the Tribunal stated that even if the investigation reports gathered by tax authorities in other States were completely ignored, the assessee still failed to satisfy the legal requirements necessary to claim exemption from CST. The assessee had also argued that principles of natural justice were violated because no opportunity for cross-examination of investigating officers and witnesses was provided. The Tribunal rejected this contention, holding that the failure of the assessee to produce mandatory documents itself was sufficient to deny the exemption claim. Another important issue before the Tribunal concerned jurisdiction. The assessee argued that the Deputy Commissioner was not the competent assessing authority under the Andhra Pradesh General Sales Tax Act. However, the Tribunal rejected this plea by relying upon Section 4A of the APGST Act, which empowers superior officers to exercise powers of subordinate authorities. The Tribunal further held that the assessment was not barred by limitation. Although assessments for AY 2000-01 were ordinarily required to be completed within one year, the Bench noted that Section 14(3) of the APGST Act extended the limitation period to six years where accounts and records were produced after inspection. Since the assessee had produced records after inspection, the extended limitation period applied. Relying upon the Supreme Court judgment in Hyderabad Engineering Industries v. State of Andhra Pradesh, the Tribunal reiterated that where an assessee claims exemption on the ground that interstate movement occurred through branch or agent transfer and not sale, the burden of proof lies entirely upon the dealer. The Bench ultimately concluded that the assessee had failed to rebut the statutory presumption under Section 6A of the CST Act and therefore the transactions were liable to be treated as interstate sales. The Tribunal held that Section 9(2A) of the CST Act specifically permits application of State sales tax penalty provisions in CST matters. Consequently, the levy of penalty under the APGST Act was held to be legally valid. Case Details Case Title: M/s. Kedia Vanaspathi Ltd. Versus State of Andhra Pradesh Citation: JURISHOUR-1231-CES-2026(DEL) Case No.: Central Sales Tax Appeal No. 01 Of 2011 Date: 12.05.2026 Counsel For Appellant: Tej Prakash Toshniwal, Advocate Counsel For Respondent: Manu Sanan Click Here To Read Order Read More: Woman Can’t Be Forced To Sacrifice Career For Husband’s Posting; Expunges ‘Cruelty’ And ‘Desertion’ Findings Against Dentist Wife: Supreme Court

Bogus Consignment Sales, Failure To Prove Genuine Interstate Transfers: CESTAT Upholds CST Demand

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