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Raj Kumar Makkad (Adv P & H High Court Chandigarh)     12 December 2009

Sales in transit meaning, procedure, case Laws and Legal pro



Q.1 Please explain the scheme of “in transit sale” covered by section 6(2) of CST Act, 1956?

Ans.: Section 3(a) of CST Act,1956 defines the interstate sale/purchase transaction. Section 3(b) defines the interstate sale effected by transfer of documents of title to goods. When the goods are in movement from one State to other. The whole section 3 reads as under:

“3. When is a sale or purchase of goods said to take place in the course of inter-state trade or commerce — A sale or, purchase of goods shall be deemed to take place in the course of interstate trade or commerce if the sale or purchase —

   1.

      occasion the movement of goods from one State to another; or
   2.

      is effected by a transfer of documents of title to the goods during their movement from one State to another…”

Section 6(2) of CST Act gives exemption to subsequent interstate sale effected by transfer of documents of title to goods when the goods are in movement from one state to another. However such exemption to subsequent inter-state sale is subject to production of Form E-I, as obtained from prior vendor and ‘C’ form from buyer.

A simple example can be that, suppose A of Mumbai has sold goods to B of Ahmedabad. The goods are dispatched by lorry and L.R. is taken out by A (Mumbai) where in A is consignor and B (Ahmedabad) is consignee. If before taking delivery from transporter, B decides to sell hisgoods to ‘C’ of M.P., he can simply endorse the L.R. in name of ‘C’ and the sale will be complete. This is the second or subsequentinterstate sale in the course of same movement. In this case A must have charged 4% CST in his bill. Being a second interstate sale effected by B to C, B is equally liable to pay CST on above transaction. However the intention of Government is not to levy multiple taxes on sale taking place in onecourse of movement. Therefore the subsequent sale is given exemption. However it is subject to production of given forms. In above example, the sale by B to C will be exempt if B produces before his assessing authority Form EI issued by A of Mumbai and Form ‘C’ issued by C of M. P.

In light of above it is clear that the sale effected by transfer of documents of title to goods is eligible for exemption u/s. 6(2). These exempted sales are also referred to as “Sale in transit”.

Q.2 What is the procedure for transfer of documents of title to goods and the relevant judgments therefore. Whether pre- determined sales are covered by above category of “in transit sale”?

Ans.: The ‘sale by transfer of documents of title to goods’ has been interpreted by judiciary in many cases, some of them are cited subsequently for reference.

Normally the sale is effected by endorsement of transport documents. On the backside of the document like, L.R. the vendor can put his signature and transfer the documents to buyer. As held by Bombay High Court in case of Chhaganlal Savchand (62 ITR 133) the transfer of documents can be effected even by delivery.

It is also held by judiciary that transfer of documents can take place even by instruction. Therefore it is not necessary that the sale by transfer of documents takes place when the document is first taken out between first seller and his buyer and then transferred by the buyer to his buyer. The buyer of first seller can give instruction to dispatch thegoods directly to his customer. If such instructions are given and accordingly the goods are dispatched to third party (i.e., buyer’s buyer) it is because of transfer effected by the buyer of first seller. The transfer takes place while booking the goods in transport and this is also a transfer during course of movement. This is known as notional or constructive transfer. Since this transfer is taking place during course of movement from one State to other it is eligible for exemption u/s. 6(2). In such case the first seller is consignor and the buyer’s buyer is consignee. However the commercial bills will be by first seller to his buyer and then by the first buyer to his buyer. In such a case to enable the first buyer to claimexemption, E-I form is to be issued by first seller to such first buyer.

It will be appreciated that even if the sale is predetermined by your buyer to his buyer it does not make any difference. On the contrary it makes the case strong in the sense that there is realtransfer of documents at the loading station itself and any possibility of make believe transfer gets avoided. Therefore predetermined sale cannot be an issue. The same will be clear from the judgment given below.

The above legal position is clear, amongst others, from following judgments.

M/s. State of Gujarat vs. Haridas Mulji Thakker (84 STC 317)(Guj):- In this case the facts are that the Gujarat dealer received order from another dealer in Gujarat. For supplying the said goods, the vendor dealer in Gujarat placed order on Maharashtra dealer and instructed to send the goods directly to the Gujarat purchasing party. Gujarat High Court held that the sale by Maharashtra dealer to Gujarat vendor dealer is first interstate sale and the one by Gujarat vendor dealer to Gujarat purchasing dealer is second interstate sale. Gujarat High Court also held that the second interstate sale is exempt u/s. 6(2) being effected by transfer of documents of title to goods. In this case though there was no physical transfer of L.R. etc. Gujarat High Court held that there is constructive transfer by instruction and hence duly covered by section 6(2). This judgment duly covers both issues, that there is no need for physical transfer and also that having predetermined parties does not affect the claim.

M/s. Fatechand Chaturbhujdas vs. State of Maharashtra (S.A.894 of 1990 dated.12-8-1991) decided by Maharashtra Sales Tax Tribunal :- In this case the local party purchased goods from other local party and directed the same to be despatched to outside State party. Even though local party was shown as consignor, taking the view that while placing order there is term for outside place dispatches, Maharashtra Sales Tax Tribunal heldthat the sale between two local parties is first interstate sale and the sale by local party to outside party is subsequent interstate sale, duly exempt u/s. 6(2).

In short even if there is predetermined sale, there is no adverse effect on the sale to be claimed u/s. 6(2). On the other hand, in light of above judgments, the claim gets more authentic. Thetransfer of property to ultimate purchaser (consignee) gets synchronized at the time of booking the goods with the carrier and hence the subsequent sales take place by transfer of documents of title to goods as held by High Court in above case of 84 STC 317. The claim of exemption is to be allowed under above circumstances subject to production of required forms.

M/s. Duvent Fans P. Ltd. vs. State of Tamil Nadu (113 STC 431)(Mad.) :- Local dealer purchased goods from other local dealer and directed to send them to his purchaser’s place in other State. Madras High Court held that the first transaction is first interstate sale and the second sale is also subsequent interstate sale exempt u/s.6(2) of CST Act. The above judgment is directly on issue and hence will govern the field.

In fact there are many judgments on this issue. However since the legal position about transfer of documents as well as predetermined sale is clear from above judgments, no further citations are given here for sake of brevity.

Thus the “sale in transit” can be effected by any of above modes.

Read more: https://www.taxguru.in/mvat/sales-in-transit-meaning-procedure-case-laws-and-legal-provisions.html#ixzz0ZTqckweb



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 12 Replies

PKUMAR GARG (SR. MANAGER-ERP FI)     14 December 2009

Would you please enlighten us about what is E2 Form and when it is used.

Amit Malpani (Auditor )     30 December 2009

Dealer register in state of Maharashtra, it purchase goods from dealer in Gujarat & issue form H under MVAT Reg. No. But the goods are exported from state of Gujarat without actually Physically moving to state of Mah. Can it be shown as Purchase in MVAT Return since the dealer is not registered in state of Gujarat.

Pankaj (x)     28 January 2010

Hi sir

     I have a query.. A dealer of coimbatore purchases from the dealer in mumbai and asks mumbai dealer to send the goods by lorry to a party of coimbatore dealer who is at erode in order to save lorry freight. Mumbai dealer raised a bill in the name of a coimbatore dealer and coimbatore dealer raised a bill in the name of a erode dealer.is it valid sale and what are the procedures in regard to this

PKUMAR GARG (SR. MANAGER-ERP FI)     29 January 2010

Yes, this is a valid sale. The procedure is very simple the mumbai dealer will raise bill on coimbatore delaer with cst charged and get the self LR destined to erode and made endoresement on the lr in favour of erode dealer and he will send the document to coimbatore delaer, the coimbatore delaer will make bill in favour of erode delaer without any tax and forward the docs to erode dealer, erode dealer will take delivery of materials. the coimbatore dealer will issue c form to mumbai dealer and mumbai delaer will issue E1 form to coimbatore dealer.

Pankaj

 

Pankaj (x)     29 January 2010

Thank u sir .......... u made me clear in this subject . can u tell me what are the documents to be maintained or to be produced?

Vara Prasaad (Sr Manager - F&A)     18 October 2010

 

What the tax impact on the margin.

 

viz, Sale from A to B is Rs.1000/-; B to C Rs.2,000/- and C to D is Rs.3,000/-.

As per CST Sec 6 (2) only the inital Rs.1000/- is taxable & what about the rest.

 

Pls clarify, with any supporting literatue.

 

 

 

 
  Yes, this is a valid sale. The procedure is very simple the mumbai dealer will raise bill on coimbatore delaer with cst charged and get the self LR destined to erode and made endoresement on the lr in favour of erode dealer and he will send the document to coimbatore delaer, the coimbatore delaer will make bill in favour of erode delaer without any tax and forward the docs to erode dealer, erode dealer will take delivery of materials. the coimbatore dealer will issue c form to mumbai dealer and mumbai delaer will issue E1 form to coimbatore dealer.
Pankaj
 
"

Siddharth V Jeloka (CEO.)     19 December 2010

Originally posted by :PANKAJ KUMAR GARG
" Dear Sir, Can E1 procedure can be apply in case the same is in the same state. For Example: A of Bengal buys goods from B of Maharastra and in transit A of Bengal sells to C of Bengal. Is this can be done, what is the procesure..   "

Amit Malpani (Auditor )     19 December 2010

i case of sale within state the dealer can take credit of VAT and pass on the buyer

so no need for E1, i such instance form E1 won't apply and sale will be taxable at every point of sale

Ravi (hypro@vsnl.net)     23 February 2011

Hello,

We are a company  from Pune. We got a order from orissa. We are buying goods from Pune based suppliers. Ours is a pre determined contract for tailor made goods.  Can we in this case do a sale in transit and claim exemption under 6 (2) ? We mean we will ask our supplier to send goods directly to orissa. We shall endorse the LR and transfer the goods in name of our buyer. In this case can our supplier charge us 2 % CST against form C ? He gives us form E -1, we give him form C and to our customer we will not charge CST. Is this acceptable ? Thank you for your reply

Anuj Kandoi (Director)     08 March 2013

Hello,

I wanted to know when a goods sold by A (mumbai) to B (Ahemdabad) but the actual delivery is to C (Mumbai)

Is it an sale in transit..??

VAT/ CST wat is applicable..?

Can u provide me any previous similar case..??

It will be really helpful as i have heraing with the judge on the same issue at the month end..!!

please help..!

manmeet kaur (ACCOUNTANT)     06 October 2013

my company entered into a works contract with a contractor in 2010.The contractor is registered in the same state and is making interstate purchase but now he is saying that he has made E1 sale to my company, for which he is asking for c forms. The bills of seller states contractor as buyer and my co.as consignee but the contractor is receiving the goods in his store itself and says that he is receiving goods on behalf of my company for which it has also signed an indemnity bond.

 can the first buyer receive the goods on behalf of second buyer in case of E1 transaction by signing an indemnity bond?

Mahhesh Kummar Aggrawal (Proprietor)     28 February 2015

Dear All,

Can any one guide me ? If, transit sale is made to an end user, then, how we will show it ? We have purchased material from "A" from Chhattisgarh by charging CST @ 5% and sold it to "B" from Odisha. As we have already paid CST to "A", so, we should not charge the same to "B". I am confused, because, "B" is an end user and can not issue "C" form. How to make it E1 transaction? Please help.
 


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