CESTAT Upholds CST Demand, ₹6.43 Crore Penalty On Kedia Vanaspathi, Rejects Consignment Sale Claim

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 12 May 2026 upheld the tax demand and penalty against Kedia Vanaspathi Ltd., holding that a dealer seeking exemption under Section 6A of the Central Sales Tax Act, 1956 must prove, with prescribed evidence, that inter-State movement of goods arises from consignment transfers and not sales.

President Justice Dilip Gupta and Technical Member P.V. Subba Rao dismissed the appeals and confirmed the demand after holding that the company failed to prove that the transactions were consignment transfers. The Bench noted:

“The Sales Tax Appellate Tribunal has placed reliance upon section 6A of the CST Act and has held that the appellant failed to discharge the burden cast upon it to show that the movement of goods from one State to another was occasioned by reason of transfer of such goods to its agents and not by reason of sale….”

Kedia Vanaspathi Ltd. manufactured and sold refined oils and vanaspati through units in Hyderabad and Mahaboobnagar. For Assessment Year 2000–01, it disclosed a gross turnover exceeding Rs. 85.63 crore and claimed exemption on about Rs. 84.62 crore by treating the transactions as consignment sales to agents outside Andhra Pradesh.

After inspections by Andhra Pradesh sales tax authorities, the department alleged that the company camouflaged inter-State sales as consignment transfers. Investigations across several States indicated that some dealers did not exist, while others denied any business relationship with the company.

The Deputy Commissioner determined a tax liability of Rs. 2.33 crore on a net turnover of Rs. 23.48 crore and imposed a penalty of Rs. 6.43 crore 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 later upheld the assessment, which led Kedia Vanaspathi to approach CESTAT.

Before the Tribunal, Kedia Vanaspathi argued that the stock transfers fell under Section 3(b) of the CST Act and constituted consignment sales to agents rather than inter-State sales. It also challenged the jurisdiction of the Deputy Commissioner, raised limitation objections, and claimed denial of cross-examination.

The State authorities opposed the appeals and argued that the company failed to discharge the burden under Section 6A of the CST Act. They further submitted that the company did not produce documents required under Rule 14(3) of the Central Sales Tax (Andhra Pradesh) Rules, 1957 and that the transactions constituted inter-State sales.

The Tribunal examined Sections 3, 6 and 6A of the CST Act and held that a dealer must prove, through prescribed evidence, that movement of goods occurred otherwise than by way of sale when claiming exemption. It noted that Kedia Vanaspathi failed to produce key documents, including agent-issued sale bills, ledger extracts, authorisation letters for consignment arrangements, and agreements establishing a principal-agent relationship.

Despite repeated opportunities, the company did not furnish the documents mandated under Rule 14(3) of the 1957 Rules. The Tribunal held that in the absence of such evidence, authorities must treat the movement of goods as inter-State sales liable to CST.

On jurisdiction, the Tribunal held that Section 4A of the Andhra Pradesh General Sales Tax Act empowered the Deputy Commissioner to exercise assessment powers. It also rejected the limitation challenge and held that the extended six-year period applied due to post-inspection disclosures.

The Bench also upheld the penalty by holding that Section 9(2A) of the CST Act permits application of State penalty provisions in CST proceedings. It observed:

"The Sub section (2A) of section 9 of the CST Act provides that in matters of penalties, the general sales tax law of each State shall apply in relation to the assessment as if the tax under the CST Act were a tax under such sales tax law. Section 7A(2)(i) of the 1957 AP Sales Tax Act provides for levy of penalty. Penalty was, therefore, correctly imposed upon the appellant. It needs to be noted that the appeal filed by the appellant before the Sales Tax Appellate Tribunal against the assessment order was dismissed."

Accordingly, CESTAT dismissed both appeals and upheld the tax demand and penalty after finding that Kedia Vanaspathi failed to discharge the statutory burden under Section 6A of the CST Act.

For Appellant: Shri Tej Prakash Toshniwal, Advocate

For Respondent: Shri Manu Sanan, Shri Dhananjay Yadav, Shri Akshat Jha and Ms. Devina Sehgal, Advocates for the State of Telangana

Ms. Rama Ahluwalia, Advocate for the State of Maharashtra

Shri Ankit Swami and Ms. Pritha Srikumar Iyer, Advocates for the State of Karnataka

Shri C. Kranthi Kumar and Shri Misha Rohatgi, Advocates for the State of Tamil Nadu.