Vat, cst and contract act

Querist : Anonymous (Querist) 25 November 2011 This query is : Resolved
Sir,

My question is regarding Online Business. My friend is a manufacturer of a new brand of tablet PC's. Most of his sales are online through online shopping websites. He is based in Chennai and sends his goods to all over India from Chennai charging the local Tamil Nadu VAT on the same on his auditor's advice. I am based in Bangalore. What we intend to do is to identify few computer shops in Bangalore and ask them to store (not buy) our products (perhaps as bailee?). We will list their addresses on our website. Thus, customers in Bangalore can approach these shops and buy our products and the bill will be generated online in the name of the company based in Chennai charging TN VAT (as though the sale is made online). The bill is not made in the shopkeeper's name and hence Karnataka VAT wont be applied. We will have a contract signed to that effect with the shopkeeper in the relationship of pincipal-agent. My question is, is such an agreement valid? Will the auditors be satisfied if we show them the agreement when he asks for the invoice for our products kept in the shop saying that these products are not bought by him but only stored for commission? Will the local tax officer raise an issue saying we are avoiding local tax although we are not billing locally?

Thanks much!

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Raj Kumar Makkad (Expert) 26 November 2011
No replies for business premises are provided here.

R K JAIN (Expert) 26 November 2011
VAT is based on the cosumption of goods in the state and CST is on the interstate movement of the goods and there may not be the consumption of goods. So, in your case the goods are consumed in Karnatka and the tax is to be paid to Karnatka state. It is better you open your branch in bangalore and make the invoice from there and stock trasfer the goods from Tamilnadu to Karnatka.

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