Sale in Transit u/s 6(2) of CST Act Note by CA Deepak Thakkar dt 17 May 2011

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1 Sale in Transit u/s 6(2) of CST Act Note by CA Deepak Thakkar dt 17 May 2011 CST Act Chapter II : Formulations of principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce or outside a State or in the course of import or export : Sec. 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 inter-state trade or commerce if the sale or purchase - (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1 - Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2 - Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. Sec. 6- Liability to tax on inter-state sales (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter- State trade or commerce during any year on and from the date so notified : Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of Section 5, is a sale in the course of export of those goods out of the territory of India. (1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-state trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State. (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of any goods in the course of inter-state trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act: Provided that no such subsequent sale shall be exempt from tax under this subsection unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit,- (a) a certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and Note by CA Deepak Thakkar dt 17 May 2011 Page 1 of 13

2 (b) if the subsequent sale is made to a registered dealer, a declaration referred to in sub-section (4) of section 8: Provided further that it shall not be necessary to furnish the declaration referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if,- (a) the sale or purchase of such goods is ; under the sales tax law of the appropriate State exempt from tax generally or is subject to tax generally at a rate which is lower than three per cent, or such reduced rate as may be notified by the Central Government, by notification in the Official Gazette, under sub-section (1) of section 8 (whether called a tax or fee or by any other name); and (b) the dealer effecting such subsequent sale proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in this sub-section Summary for Sale in Transit: 1] First there must be interstate sales and then such subsequent sales as sale-in-transit. 2] Documents: Purchase invoice, sale invoice, dispatch proof/document of title to goods, orders, correspondence, etc. 3] Consignee copy of LR/RR/etc to prove transfer of DOT by endorsement / hand delivery to customer, during the movement of goods from one State to another. 3] For sale-in-transit, CST shall not be charged. 4] Get Form C from Customer & Form EI/EII from Supplier. Form C is not necessary if sale of goods is taxfree generally or attracting 1%. 5] a) If both forms are not available then CST payable on full rate applicable on goods. b) If form EI/EII available but form C not available then CST payable on full rate applicable on goods. c) If form C available but form EI/EII not available then CST payable on 2%. ***************** 1] Despatch of goods directly to party but documents of title to goods were endorsed & sent to party, is a second/subsequent interstate sales which is exempt u/s 6(2) of CST Act: (i) G.A. Galiakotwala & Co. (P.) Ltd. Vs. The State of Madras (1976) 37 STC 536 (SC- 3 Judges): Inter-State sales Cotton Purchase of cotton from Bombay and sale to local mill Despatch of goods direct to mill Railway receipts sent to purchaser endorsed in favour of mill on payment of price Assessibility of transaction between purchaser and mill Scope of exemption under Government Order No Right to exemption under section 6(2) Central Sales Tax Act (74 of 1956) Secs. 3(a), (b), 6(2) Madras General Sales Tax Act (1 of 1959), Sec. 4. The appellant having its place of business at Coimbatore entered into an agreement with a mill situated within the State of Madras for the sale of cotton. The appellant in turn placed orders with its sellers at Bombay for purchase of cotton and as directed by the appellant the Bombay sellers despatched the goods to the mill as consignee and sent the railway receipts to the appellant, who endorsed the same in favour of the mill after collection of a substantial portion of the sale price. On the assessability of the transaction between the appellant and mill; Note by CA Deepak Thakkar dt 17 May 2011 Page 2 of 13

3 _Held,_ (i) that the sale by the Bombay seller to the appellant was an inter-state sale but the sale by the appellant to the mill was not an inter-state sale. The sales tax authorities had jurisdiction to assess the transaction of sale by the appellant to the mill under section 3(b) of the Central Sales Tax Act, 1956; (ii) that the exemption under Government Order No applied only to cases where the claimant had paid tax himself under section 4 of the Madras General Sales Tax Act, 1959, in respect of local sales preceding the inter-state transactions As the appellant did not pay tax under section 4 of the Madras Act, the appellant was not entitled to claim exemption under the Government order; (iii) that the appellant was not entitled to the exemption under section 6(2) of the Central Act, inasmuch as although the appellant produced the appropriate form from the Bombay seller, it did not prove that the buyer was a registered dealer in cotton. Decision of the Madras High Court affirmed. (ii) State of West Bengal and Others Vs. Joshi Jute Corporation and Another (1996) 100 STC 17 (Cal 2 Judges): Inter State sale Second or subsequent inter-state sale Exemption Order placed with jute mill in Calcutta by jute dealer in Calcutta On instruction by dealer, goods sent by mill directly to party in Kerala Sale by mill to dealer inter-state sale Sale by dealer to Kerala party by endorsement of consignment note Subsequent sale Exempt Central Sales Tax Act (74 of 1956), Secs. 3(b), 6(2). The respondent, a dealer in jute goods in Calcutta, placed an order upon a jute mill in Calcutta for certain jute goods. Under instructions from the respondent-dealer, the goods were delivered directly to a party in Kerala. The respondent-dealer's claim that its sales to the Kerala party were subsequent sales within the meaning of section 6(2) of the Central Sales Tax Act, 1956, and exempt, was rejected by the Commercial Tax Officer. A single Judge of the High Court on a writ petition held that the sales in question were subsequent sales and exempt. On appeal by the department: _Held,_ dismissing the appeal, that from the documents placed on record by the respondent before the Commercial Tax Officer, such as contracts, shipping instructions, invoices and bills prepared by the mill as well as by the respondent, it was clear that the transactions in question were subsequent sales. The respondent had paid sales tax at the rate of 4 per cent on its purchases from the mill, and had not charged the Kerala party any. The Commercial Tax Officer ought to have been satisfied with the documents and statements filed, which unequivocally proved that the first sale by the mill to the respondent was an inter-state sale by transfer of documents of title (consignment notes) and the second transfer by the respondent to the Kerala party by endorsement of the consignment note was a subsequent sale which did not attract sales tax over again. (see p. 35A-D). (iii) Duvent Fans Pvt. Ltd. Vs. State of Tamil Nadu (1999) 113 STC 431 (Mad- 2 Judges): Inter-State sale Central sales tax Exemption Second or subsequent sale Dealer entering into contract with supplier in same State Dealer furnishing C form to supplier and directing it to deliver directly to customers in Kerala Lorry receipts endorsed by dealer to customers Form E-1 furnished by supplier Sale by supplier to dealer constitutes first inter-state sale Sale by dealer to customers second sale and exempt Central Sales Tax Act (74 of 1956), Secs. 3(a), 6(2). Held, allowing the petition, that the facts on record showed that the goods purchased by the petitioner from its supplier were not any time stored, or used by the petitioner in the State. The goods had been consigned to the petitioner s customer at Kerala on lorries, and the lorry receipts evidencing such despatch had been produced. The specific case of the petitioner that the supplier was required to send the goods to Kerala as an essential condition of the sale was not in dispute although there was no Note by CA Deepak Thakkar dt 17 May 2011 Page 3 of 13

4 written agreement. The petitioner had directed the supplier to send the goods to the petitioner s customer at Kerala and to furnish to the petitioner form E-1. The slip showing cartage charges by itself did not establish that the petitioner had taken delivery and had placed the goods on the lorries. Nor did the fact that the invoices prepared by the supplier did not specify the number of the lorry receipt, while that number was to be found in the delivery order sent by the petitioner to its customer in Kerala, establish that the petitioner had taken delivery of the goods within the State and notwithstanding the fact that the petitioner s supplier was the consignor and the movement of the goods resulted in the same being transported out of the State, there was a local sale from the supplier to the dealer. When the broad features of the transaction were clear, viz., that the order placed by the petitioner on the supplier was for the delivery by the supplier to the petitioner s customer outside the State and the goods had in fact moved out of the State and the lorry receipt showed the name of the supplier as the consignor, the transaction had to be regarded as falling within the ambit of section 3(a) of the Central Sales Tax Act. Under section 6(2) of the Act the second sale so effected by the petitioner was to be exempted and the petitioner was entitled to the exemption as claimed, as admittedly, in respect of these transactions, form E-1 from the supplier as also form C from the customer in Kerala had been produced. (see paras 7 to 9). 2] Phool Chand Gupta Vs. State of Andhra Pradesh (1997) 104 STC 601 (SC- 2 Judges) : Inter-State sale Registered dealer Goods in movement from one State to another Sale by transfer of documents of title by one registered dealer to another Exemption Central Rule requiring production of form E-I or E-II State Rule requiring production also of declaration in form C from purchasing dealer Rule mandatory and not directory State Rule valid Central Sales Tax Act (74 of 1956), Secs. 6(2), 8(2), 13(3), (4)(c) Central Sales Tax (Registration and Turnover) Rules, 1957, rule 12(4) Central Sales Tax (Andhra Pradesh) Rules, 1957, rule 12(3)(ii). A provision requiring the production of the declaration in form C for receiving the benefit of exemption under section 6(2) of the Central Sales Tax Act, 1956 (inter alia, in relation to sale in the course of inter-state trade effected by a transfer of document of title to such goods during their movement from one State to another) does not run counter to any provision of the Act or the Central Sales Tax (Registration and Turnover) Rules, 1957, framed by the Central Government under section 13 of that Act: it would be within the scope and ambit of the rule-making power of the State Government under section 13(3) as well as within the specific provision in clause (c) of section 13(4) which empowers the making of any rule which requires the furnishing of information relating to purchases, sales and delivery of goods by any dealer. The requirement in rule 12(3)(ii) of the Central Sales Tax (Andhra Pradesh) Rules, 1957, of the production of form C in addition to the requirement of production of form E-I cannot be said to be inconsistent with the Act or the Central Rules. That is because section 6(2) applies to goods of the description in section 8(3). The Act prescribes the mode of proof for the purpose of section 8(1)(b) but does not prescribe the mode of proof for the purpose of section 6(2), since the latter provision is silent on the point. Rule 12(3)(ii) of the State Rules is not ultra vires the Act or the Central Rules. (see pp. 608H-609C) If exemption from tax is sought on the subsequent sale contemplated by section 6(2), the purchasing dealer, who effects the sale to another registered dealer by transfer of documents of title to the goods during their movement from one State to another, must produce the documents mentioned in clauses (i) and (ii) of rule 12(3)(ii) of the State Rules. The rule deliberately restricts itself to the production of the specified documents as that would be the best possible evidence in regard to the subsequent sale by transfer of document of title to the goods. To permit substantial compliance would introduce uncertainty and may lead to avoidable litigation. In order to avail of the concession granted under section 8(1)(b) of the Act, a dealer has to prove the fact that the goods are of the description mentioned in section 8(3) by furnishing the declaration in form C and in no other manner. In order to claim the benefit under Note by CA Deepak Thakkar dt 17 May 2011 Page 4 of 13

5 section 6(2), the very same fact has to be proved. It was, therefore, open to the State Government to accept the recognised mode as the exclusive mode of proof to avoid disputes on the sufficiency of or otherwise of the proof and also to make the process of granting exemption easy and uniform. (see p. 609D-F, H) Since the law provides for a total exemption from the payment of tax levied under section 6(1), a strict proof of the basic fact can be insisted upon. If the mode of proof is left to the dealer to choose, each dealer may choose his own mode and the concerned authority would be required in each case to apply his mind to each situation and come to an independent conclusion which may, on the same facts, vary from authority to authority and thus introduce uncertainty and consequently lead to avoidable delay and litigation. To avoid such a situation, if the State Government decided to restrict the mode of proof to one, namely, the production of form C, the provision has to be mandatory and cannot be construed to be directory, as to construe it as directory would destroy the very purpose of the rule. The provisions of rule 12(3)(ii) requiring the production of form C in addition to form E-I, for the purpose of claiming the exemption under section 6(2) are mandatory. (see pp. 611G-612B). 3] A & G Projects And Technologies Ltd. Vs. State of Karnataka (2009) 19 VST 239 (SC- 2 Judges): Inter-State sale Inter-State sale or intra-state sale Two tests applied Sale occasioning movement of goods or sale by transfer of documents of title to goods while goods are in transit Dividing line Second or subsequent inter-state sale not exempt under section 6(2) Appropriate State entitled to levy tax Provision not applicable to "subsequent sale" covered by section 3(a) Karnataka Sales Tax Act (25 of 1957), s. 12B(4) Central Sales Tax Act (74 of 1956), ss. 3(a), (b), 6(2), 9(1), proviso Sale of Goods Act (3 of 1930), ss. 2(4), 23. Inter-State sale or local sale Though essentially question of fact Yet is a mixed question of law Central Sales Tax Act (74 of 1956), s. 3. To ascertain whether a sale is an inter-state sale or not, two tests are applied, one of which is that a sale or purchase takes place in the course of inter-state trade if it occasions movement of the goods from one State to another, and the other is that a sale or purchase takes place by transfer of documents of title during the movement of goods from one State to another. (see para 11) The question whether a particular sale is an inter-state sale or an intra-state sale, though essentially one of fact, is not a pure question of fact inasmuch as the facts of a given case have to be examined in the light of section 3 of the Central Sales Tax Act, 1956, and, therefore, it is a mixed question of fact and law. (see para 11) The dividing line between sales or purchases under section 3(a) and those falling under section 3(b) is that in the former case the movement is under the contract, whereas in the latter case the contract comes into existence only after the commencement and before the termination of the inter-state movement of the goods. Therefore, it follows that an inter-state sale can either be governed by section 3(a), if it occasions movement of goods from one State to another, or under section 3(b) if it is effected by transfer of documents of title after such movement has started and before the goods are actually delivered. In other words, a sale which takes place under section 3(a) is excluded from the purview of section 3(b) and vice versa. (see para 11) The scheme of section 6 is this. Sub-section (2) was introduced in section 6 in order to avoid the cascading effect of multiple taxation. A subsequent sale falling under subsection (2), which satisfies the conditions mentioned in the proviso thereto, is exempt from tax as the first sale has been subjected to tax under sub-section (1). Thus, in order to attract section 6(2), it is essential that the concerned sale must be a subsequent inter-state sale effected by the transfer of documents of title to the goods Note by CA Deepak Thakkar dt 17 May 2011 Page 5 of 13

6 during the movement of the goods from one State to another and it must be preceded by a prior inter-state sale. It is only then that section 6(2) may be attracted in order to make the subsequent sale exempt from levy of sales tax. However, the proviso to section 6(2) prescribes further conditions and it is only on fulfilment of those conditions that the subsequent sale stands exempted. If those conditions are not satisfied then, notwithstanding the fact that the sale is a subsequent sale, the exemption would not be admissible to such subsequent sales. (see para 11) The entire proviso to section 9(1) prescribing the State that would be competent to collect the inter-state sales tax applies only to "subsequent sales" covered by section 3(b) and not to sales covered by section 3(a). (see para 13) The appellant, a registered dealer under the Karnataka Sales Tax Act, 1957, as well as the Central Sales Tax Act, 1956, was engaged in execution of electrical contracts. It was awarded three independent contracts towards: (i) supply of capacitor banks, (ii) execution of civil works and (iii) creation and commission of capacitor banks at various sub-stations of the Karnataka Power Transmission Corporation. Pursuant to those contracts the appellant appointed Bay West as contractor located outside Karnataka for procuring capacitor banks because the latter had a prior arrangement with the manufacturers. The appellant filed its turnover of inter-state sales under the Central Sales Tax Act, 1956, contending the goods originated from the manufacturers and ultimately reached the Corporation though title to the goods vested in Bay West. According to the appellant there were three sales and it claimed exemption from tax under section 6(2) of the Central Sales Tax Act, 1956, on the ground that the second and third sales were subsequent sales. The Assessing Officer held that the appellant was not entitled to the exemption. The Tribunal held that the movement of the goods was not from the State of Karnataka but into the State and therefore there was no inter-state sale in the State of Karnataka. On revision the High Court held that the sale of goods in favour of the Corporation was complete when the goods were appropriated to the Corporation before the commencement of goods from the place of manufacture in Tamil Nadu to the Corporation in Karnataka and, therefore, the inter-state sales fell under section 3(a), and, therefore, were not entitled to exemption under section 6(2). On appeal to the Supreme Court: _Held,_ reversing the decision of the High Court, that the sales were exempt. (see para 16) Bharat Heavy Electricals Limited v. Union of India [1996] 102 STC 373 (SC); [1996] 4 SCC 230 applied. Decision of the Karnataka High Court in State of Karnataka v. A & G Projects and Technologies Ltd. [2008] 13 VST 177 reversed. 3A] Cinzac Technical Services Vs. State of Kerala (2009) 25 VST 165 (Ker- 2 Judges): Inter-State sale or local sale Exemption Second or subsequent sale Sale of boiler manufactured outside State to an industry in Kerala Dealer producing E1 form obtained from consignor Lorry receipt obtained by consignor containing address of ultimate purchaser Dealer not an agent Case of purchase and sale by dealer Sale assessable under local Act in absence of proof of subsequent inter-state sale Central Sales Tax Act (74 of 1956), s. 6(2) Kerala General Sales Tax Act (15 of 1963). The petitioner claimed exemption under section 6(2) of the Central Sales Tax Act, 1956 in respect of sale of a boiler manufactured outside the State to an industry in Kerala. This was rejected by the assessing authority, and the finding of the officer was confirmed in appeals. The petitioner filed a revision petition contending that the transaction should be treated as an inter-state sale from outside Kerala by the original consignor and that therefore even after denial of exemption claimed under section 6(2) of the Act the petitioner could not be assessed: Note by CA Deepak Thakkar dt 17 May 2011 Page 6 of 13

7 _Held,_ dismissing the petition, that the petitioner admitted that E1 form obtained from the consignor was produced by it. When E1 form was issued from the consignor from outside, it was not treated as a sale to the consumer but as an inter-state sale by the consignor to the person to whom the E1 form was issued. Therefore the first transaction was accounted as an inter-state sale between the consignor and the petitioner. The lorry receipt obtained by the consignor contained the address of the ultimate purchaser and therefore it was clear that the subsequent sale was a pre-arranged one between the petitioner and the ultimate purchaser and thereafter the petitioner placed the order with the outsider-manufacturer for manufacture and supply of the boiler. A boiler is an equipment manufactured against orders and the manufacturer should necessarily be informed about the requirements of the customer. Further it was covered by guarantee and warranty for limited periods. Supply of equipment of this type made to order for the customer could not be treated as a sale of goods in transit. The petitioner obviously acted as an agent or as a dealer in between manufacturer and ultimate consumer. Since the petitioner had no agency it was a case of purchase and sale which in the absence of proof of a second inter-state sale under section 6(2) had to be necessarily assessed as a local sale under the Kerala General Sales Tax Act, (see para 2) 3B] Mitsubishi Corporation India P. Ltd. Vs. Value Added Tax Officer and another (2010) 34 VST 417 (Del- 2 Judges): Central sales tax Exemption Second or subsequent inter State sale Sale effected by transfer of documents of title to goods during their movement from one State to another Entitled to exemption if conditions stipulated therefor complied with That first sale exempt not relevant Central Sales Tax Act (74 of 1956), s. 6(2). In order to attract section 6(2) of the Central Sales Tax Act, 1956, it is essential that the sale concerned must be a subsequent inter-state sale effected by transfer of documents of title to the goods during the movement of the goods from one State to another and it must be preceded by a prior inter-state sale. When the conditions specified in section 6(2) of the Central Sales Tax Act, 1956, whether in the main provision or in the provisos, are all satisfied the dealer would be entitled to exemption on the second or subsequent inter-state sale, irrespective of the fact whether the first sale was exempted or not. A & G Projects and Technologies Ltd. v. State of Karnataka [2009] 19 VST 239 (SC); [2009] 2 SCC 326 explained. A & G Projects and Technologies Ltd. v. State of Karnataka [2009] 19 VST 239 (SC); [2009] 2 SCC 326 (paras 4, 10) and Jadhavjee Laljee v. State of Andhra Pradesh [1989] 74 STC 201 (AP) (paras 5, 10) referred to. 4] Which State is eligible to levy & collect tax? State of Andhra Pradesh Vs. G. Muralidhar & Co. (1968) 22 STC 285 (AP- 2 Judges): Inter-State sales Registered dealer Purchase and sale during movement of goods from one State to another State First seller in Mysore State, second seller in Andhra Pradesh State and third seller in Rajasthan State Failure to obtain E-I Form and C Form by second seller Appropriate State authorised to collect tax "In connection with the purchase of goods" Meaning of Central Sales Tax Act (74 of 1956), Secs. 6(2), 9(1). The first sellers of certain consignments of bajra and jawari were in Mysore State. They booked the consignments to places outside the Mysore State and when the goods were in movement, they sold the railway receipts to the assessees in Andhra Pradesh, who in turn sold them to buyers in Rajasthan and West Bengal. The assessees, who were registered dealers under the Central Sales Tax Act, 1956, in the State of Andhra Pradesh, failed to obtain declarations in C Form for these Note by CA Deepak Thakkar dt 17 May 2011 Page 7 of 13

8 transactions and they were assessed by the State of Andhra Pradesh to a tax of 7 per cent under the Central Act. The Sales Tax Appellate Tribunal held that if any form prescribed had been obtained by the assessees, it would be from the dealers in the States of West Bengal and Rajasthan and, therefore, in the light of the proviso to section 9(1), those States alone were authorised to levy and collect the tax. The assessees admitted that the sales were not covered by section 6(2) of the Act, and that the State of Andhra Pradesh was the appropriate State from which the forms prescribed for purposes of section 8(4)(a) were to be obtained for these transactions: _Held,_ that the assessees could obtain the C Forms from the West Bengal and Rajasthan buyers only in connection with their sales and that, in connection with their purchases, they could obtain the C Forms only from the State of Andhra Pradesh and not from the State of West Bengal or Rajasthan. Therefore under the proviso to section 9(1) it was the State of Andhra Pradesh that was the appropriate State that could levy and collect the tax from the assessees in respect of these transactions. 5] Subramaniam Brothers Vs. The State of Madras (1973) 32 STC 139 (Mad): Inter-State sales Exemption Second and subsequent inter-state sales to Government departments not registered as dealers under the act Whether exempted Central Sales Tax Act (74 of 1956), Secs. 6(2), 7(2). Section 6(2) of the Central Sales Tax Act, 1956, does not allow any exemption in respect of subsequent and second inter-state sales made to Government departments which are not registered as dealers under the Central Sales Tax Act. The fact that section 7(2) gives some option to certain dealers to register or not to register themselves as dealers under the Central Sales Tax Act is quite irrelevant for the purpose of finding out whether the buying dealer is a registered dealer or not. 6] Associated Electrial Industries (India) Ltd. Vs. Government of Tamil Nadu (1976) 37 STC 310 (Mad): Central Sales Tax Second inter-state sales Exemption E-I form State Rules prescribing that certificate should not cover more than one transaction Legality Central Sales Tax Act (74 of 1956), Secs. 6(2), 8(3), 13(1)(d) Central Sales Tax (Registration and Turnover) Rules, 1957, Rule 12(4) Central Sales Tax (Madras) Rules, 1957, Rule 9-D. The petitioners were registered dealers under the Central Sales Tax Act, 1956, and they claimed exemption of a certain turnover on the ground that it represented second inter-state sales falling under section 6(2) of the Act. They also produced a certificate in from E-I from the outside-state dealer, but this certificate covered a period of over five months and more than one transaction. The assessing officer and the appellate authorities disallowed the claim on the ground that the certificate produced was not in accordance with rule 9-D of the Central Sales Tax (Madras) Rules, 1957, as it covered more than one transaction of sale. On a revision: _Held,_ that the Central Rules framed under the Act only prescribed the E-I form and did not impose any condition that the certificate should not cover more than one transaction. Rule 9-D of the Central Sales Tax (Madras) Rules could not impose any obligation on the outside-state seller to issue a single certificate for each one of the transactions. Such an obligation could be imposed only by a rule framed by the Central Government under section 13(1)(d). Further the scheme of the Act and the Rules relating to the applying for an obtaining of the forms, declarations and the certificates and the authority from whom they had to be obtained also indicated that the proviso to rule 9-D could not have been Note by CA Deepak Thakkar dt 17 May 2011 Page 8 of 13

9 intended to apply to dealers outside the State of Tamil Nadu. Therefore, the petitioners, were entitled to the exemption. 7] State of Andhra Pradesh Vs. Sharma Traders (1989) 73 STC 193 (AP): Central sales tax Exemption Subsequent sales Condition precedent Sales to be supported by declaration in form E-I E-I forms may be produced even subsequent to finalisation of assessment Assessing authority may consider forms if sufficient cause for failure to furnish forms within prescribed time established Central Sales Tax (Registration and Turnover) Rules, 1957, Rule 12(7) Central Sales Tax Act (74 of 1956), Sec. 6(2). Declaration in forms E-I, to support a claim for exemption under section 6(2) of the Central Sales Tax Act, 1956, produced even subsequent to the finalisation of the assessment before the assessing authority can be looked into, if sufficient cause for failure to furnish them within the prescribed time, as contemplated by rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957, is established. 8] State of Andhra Pradesh Vs. Suvarna Enterprises (1992) 85 STC 120 (AP): Central sales tax Exemptions Goods purchased outside State and despatched directly to dealer in another State No element of sale in State No Central sales tax leviable Central Sales Tax Act (74 of 1956), Sec. 6(2). Where the Tribunal, on the facts, took the view that the goods in question were purchased by the respondent at Bellary, i.e., outside the State of Andhra Pradesh and that they were despatched direct from the place of purchase to the dealer in Coimbatore, that the goods were neither brought into nor did move out of the State of Andhra Pradesh, that no element of sale had taken place in the State of Andhra Pradesh and that, therefore, the turnover in dispute could not be subjected to Central sales tax in the hands of the respondent: _Held,_ that the view of the Tribunal was justified. 9] Cheranadu Small Scale Industrial Service Co-operative Society Limited Vs. State of Tamil Nadu (1993) 90 STC 521 (Mad): Inter-State sales Second or subsequent Inter-State sales Exemption Sales not supported by E-I or E-II forms Exemption not available Declared goods No prohibition on goods being taxed more than once Central Sales Tax Act (74 of 1956), Secs. 3(b), 6(2), 15 Central Sales Tax (Registration and Turnover) Rules, 1957, Forms E-I, E-II. Collieries in Andhra Pradesh and other States despatched coal by rail to Salem in Tamil Nadu, the collieries shown as the consignors and the petitioner as the consignees, although the orders were actually placed by a party at Madras and the petitioner had placed orders with the Madras party. However, the petitioner did not take delivery of the coal, but in turn endorsed the railway receipts in favour of local buyers in Salem who took delivery of the coal at Salem railway station. The assessing authority held that the sales of coal by the petitioner by transfer of documents of title to goods, took place during the movement of coal from Andhra Pradesh State to Tamil Nadu State and were second inter-state sales. Since the sales were not supported by E-I or E-II forms, the petitioner was held not entitled to exemption under section 6(2) of the Central Sales Tax Act, This was confirmed in appeal by the Appellate Assistant Commissioner, and on further appeal, by the Tribunal. On a revision petition, the petitioner contended that since the Madras party had been taxed at 3 per cent on the sales, Central sales tax could not be levied a second time by the same State: _Held,_ dismissing the petition, that although section 15 of the Central Sales Tax Act, 1956, prohibits the imposition or authorising the imposition of a tax on the sale or purchase of declared goods under a State law at more than one Note by CA Deepak Thakkar dt 17 May 2011 Page 9 of 13

10 stage and at a rate exceeding three per cent, it does not prohibit the imposition of Central sales tax more than once. The authorities below were right in holding that the exemption claimed as second inter-state sales could not be allowed. (see p. 523B, C). 10] State of Tamil Nadu Vs. Van Vanaspathy Udyog (1995) 98 STC 376 (Mad): Inter-State sale or local sale Claim that there was subsequent sale by transfer of documents while goods in transit Goods cleared by agent of dealer and delivered to purchaser No documents to show transfer of title to purchaser No proof to show agent acted on behalf of purchaser Sale was local sale Central Sales Tax Act (74 of 1956), Sec. 6(2). Additions were made to the taxable turnover of the respondent-dealer rejecting claims to exemption in respect of two transactions under section 6(2) of the Central Sales Tax Act, In both cases the respondent had cleared the goods locally through its clearing agent and had them delivered locally to the purchaser. In the first case the assessing authority held that the sale was a local sale, and in the second, he held that the goods sold were not the same as mentioned in the purchase bill. The Tribunal deleted both additions. On a revision petition filed by the department: _Held,_ (i) that in the first case the goods were cleared after they reached the destination by the respondent's agent. There was no evidence on record to show that the agent of the respondent acted on behalf of the purchaser. The respondent paid the clearing charges. There was no document to show that the goods were sold while in transit. The addition in respect of the first item was justified and the Tribunal was not right in having cancelled it; and (see p. 379B, D) (ii) that in the second case, even though the description of the goods was different, the dealer had established that the goods were sold during transit and hence, entitled to the benefit under section 6(2) of the Central Sales Tax Act. The description of the goods was stated differently since the respondent followed description of goods classified by the Indian Standard Classification. Since the railway administration itself had issued a certificate in favour of the second purchaser, there was no difficulty in coming to the conclusion that the second sale took place during transit. The Tribunal was justified in deleting this addition. (see p. 379E-G). 11] P.A. George and Company Vs. Assistant Commissioner of Sales Tax (Assessment) I, Special Circle, Alappuzha and Others (1998) 110 STC 253 (Ker Single Judge): Central sales tax Exemption Second or subsequent sale while goods in transit Condition precedent Production of E-1 and C forms Assessing authority not entitled to call for further documentary evidence such as lorry receipts evidencing endorsement of title Central Sales Tax Act (74 of 1956), Sec. 6(2) Central Sales Tax (Registration and Turnover) Rules, 1957, rule 12; Forms C, E-I Central Sales Tax (Kerala) Rules, 1957, rule 11-B. On a fair reading of the provisions of section 6(2) of the Central Sales Tax Act, 1956, rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 and Central Sales Tax (Kerala) Rules, 1957 it is clear that the only requirement for getting exemption provided under section 6(2) of the Act is to produce E-I and C form declarations and that once the said declarations are produced, the subsequent sale in the course of inter-state movement of the goods pursuant to an inter-state purchase has to be granted exemption. The assessing authority is not justified in requiring the dealer to produce any secondary evidence to substantiate the above. There is no requirement anywhere in the Act or the Rules for production of the endorsed copy of the lorry receipt/railway receipt or bill of lading besides the C form and E-I/E-II forms. (see paras 14 and 18) Note by CA Deepak Thakkar dt 17 May 2011 Page 10 of 13

11 Where directions were issued by the Board of Revenue to assessing authorities to insist on production of the documents of title to the goods like lorry or railway receipts or bills of lading evidencing endorsement of such documents besides E-I/E-II forms and C form: _Held,_ that no power is conferred on the Board of Revenue under the Act or under the Rules to issue any directions of the nature contained in the circulars. That apart, no authority can prescribe any condition inconsistent with the provisions of the Act. The proviso to section 6(2) only provides for production of E-I and C forms. Any further requirements either in the rules or by any executive orders which have mandatory effect cannot be issued. The circulars issued by the Board of Revenue were non est in law, and that the assessing authority cannot reject the claim for exemption under section 6(2) of the Act, merely on the ground that the petitioners had not produced documents of title to the goods such as endorsed copies of the lorry receipts/railway receipts. (see para 18). 12] State of Tamil Nadu Vs. Trade International (1999) 113 STC 70 (Mad): Inter-State sale Subsequent sale Conditions to be fulfilled Goods must be specified in certificate of registration of dealer for resale Central Sales Tax Act (74 of 1956), Secs. 6(2), 8(3). Sub-section (2) of section 6 of the Central Sales Tax Act, 1956 contains specific requirements for a subsequent sale effected during movement of goods by transfer of documents for exemption from tax. The specific requirements are that the sale of such goods must be effected to the Government or to a registered dealer other than the Government and that apart, the sale of the goods effected must be of the description referred to in sub-section (3) of section 8. Unless these requirements are fulfilled, the exemption under the said sub-section is impermissible. (see para 7) The respondent-dealer approached a registered dealer in Arunachala Pradesh for the despatch of goods, viz., plywoods from Arunachal Pradesh to Madras, pursuant to a contract of sale. The said Arunachal Pradesh dealer effected the despatch of the said goods as requested for by the dealer. The dealer effected a subsequent sale of the said goods, while they were in transit to another registered dealer at Madras. On the question whether such subsequent sale was exempt from tax under the provisions of section 6(2)(a) of the Central Sales Tax Act, 1956: Held: accordingly, that admittedly the respondent-dealer was stated to have effected subsequent sale to a registered dealer in Madras. Unless and until the certificate of registration of the respondent-dealer covered the item of goods he purchased on inter-state sale, viz., plywoods, for the purpose of resale, it could not have the benefit of exemption under section 6(2) of the Central Sales Tax Act, (see para 9). [Matter remanded.]. 13] Shri Hariharan Paper Trader and others Vs. Deputy Commercial Tax Officer- II and others (1999) 114 STC 598 (Mad): Inter-State sale Exemption Subsequent sale Sale by transfer of documents while goods in transit Notification granting 40 days time after arrival of goods for completing formalities and claiming exemption Effect Even where sale effected after 40 days, dealer to be granted opportunity to prove sales were subsequent sales and exempt Central Sales Tax Act (74 of 1956), Secs. 3(b), 6(2) Notification G.O. Ms. No. 423 dated December 31, The Government of Tamil Nadu, was of the view that Explanation 1 to section 3(b) of the Central Sales Tax Act, 1956 does not permit unlimited time for dealers to bring the goods and keep then indefinitely and then effect sales and claim the same as falling under section 6(2) of the Act, read with Explanation 1 to section 3(b) of the Act, and not liable to tax. At the same time it wished to give dealers some time after the arrival of the goods to cover the time taken for the receipt of documents and allied Note by CA Deepak Thakkar dt 17 May 2011 Page 11 of 13

12 matters. Therefore, by G.O.Ms. No. 423 dated December 31, 1993 the State Government directed, inter alia, that from April 1, 1993, a time limit of 40 days shall be given to the dealers from the date of arrival of the goods to effect subsequent inter-state sale thereof under sub-section (2) of section 6 of the Central Sales Tax Act, 1956 read with section 3(b) of the said Act and any sale taking place after 40 days and falling under section 6(2) read with 3(b) shall be treated as local sales in view of the fact that such sales can be local sales after constructive delivery of the goods by the carriers. A fair reading of para 4(c) of the G.O. does not either exclude the possibility of or prevent the dealers from proving that in fact even such subsequent sale of goods taking place after the period of 40 days was a sale effected by a transfer of documents of title to the goods during their movement from one State to another in the course of inter- State trade or commerce, and as such, it attracted section 6(2) read with section 3(b) of the Central Sales Tax Act. Of course, if the dealer fails to prove the aforesaid fact, it would be open to the assessing authority to treat such sales as local sales. The assessing authority is required to afford an opportunity to a dealer even in respect of such subsequent sales which have taken place after 40 days from the date of arrival of goods to prove that even such subsequent sales had taken place in the course of inter-state trade and commerce and as such attracted section 6(2) read with section 3(b) of the Central Sales Tax Act. [The court did not decide the writ petitions on the merits but directed that until the above exercise was made, the provisional demand made from the petitioners was not to be enforced, and further proceedings pursuant to the provisional notices were not to be continued.] 14] Siemens India Limited Vs. State of Kerala (2003) 132 STC 418 (Ker- 2 Judges): Exemption Inter-State sale Second or subsequent sale Works contract Deemed sale Situs of sale Divisible contract Supply order requiring goods manufactured from outside State to be inspected by buyer and then despatched Dealer transferring goods to purchaser while goods in transit Whether dealer entitled to exemption from Central sales tax on second or subsequent sale Matter remanded Central Sales Tax Act (74 of 1956), Secs. 3(b), 6(2) Kerala General Sales Tax Act (15 of 1963), Secs. 2(xxi), Expln. 4(c), 5(1)(iv), 5C. The petitioner was receiving work orders from CBZL for the supply and erection of electrical equipment. The work orders were split into two: one for design, engineering, manufacturing, testing and supply of equipment and materials and the other for erection and commissioning of the equipment. The first order was the supply order and the second one the "service order". Pursuant to the supply order, the petitioner in turn placed orders with various manufacturers outside the State for manufacture of the item according to the design and specification of the purchaser. It was specifically provided in the supply order that notwithstanding the inspection test conducted at the suppliers works from time to time, the goods under the order shall not be despatched unless they had been finally inspected by CBZL or inspection waived and despatch specifically authorised in writing. Accordingly, the goods covered by the supply order were manufactured according to the design and specification of the purchaser in places outside Kerala and inspected by the purchaser before despatch. The petitioner effected sale of these goods to the purchasers while the goods were in movement and claimed exemption on that ground that the related turnovers represented subsequent sale of goods during their movement inter-state but the assessing authority disallowed the claims to exemption made under section 6(2) of the Central Sales Tax Act, 1956 on the ground that the disputed turnovers related to execution of works contract, which were deemed sales taxable under section 5(1)(iv) read with section 5C of the Kerala General Sales Tax Act, This was confirmed by the Tribunal. On revision petitions: _Held,_ that in an earlier writ petition filed by the petitioner challenging Explanation 4(c) to section 2(xxi) of the Kerala Act, the court had held that by a deeming provision, the State Government could not change the character of the sale. After declaring that Note by CA Deepak Thakkar dt 17 May 2011 Page 12 of 13

13 Explanation 4(c) to section 2(xxi) of the Kerala Act had to be read down and does not apply to inter-state sales, the court directed the assessing authority to reconsider the matter. Similarly in this case, the contract was not indivisible. It contained two parts: the supply order and the service order. The Tribunal was not correct in holding that there was only one contract. The price was also shown separately. The right of the buyer to inspect the goods before they were transported was also preserved. So also, the goods were insured. When the goods were in transit, the petitioner transferred the title to the property to CBZL. The Tribunal had not considered this matter in detail. The assessing authority should consider the matter again after hearing the parties. (see paras 7 to 10) Sundaram Industries v. State of Tamil Nadu [1992] 86 STC 554 (Mad.) distinguished. Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 (SC) and Bharat Heavy Electricals Ltd. v. State of Orissa [1996] 102 STC 324 (Orissa) relied on. Siemens Ltd. v. State of Kerala [2001] 122 STC 1 (Ker) and State of Andhra Pradesh v. Usha Breco Ltd. [2001] 121 STC 621 (AP) referred to. 15] Commissioner, Trade Tax U.P. Vs. Bhagwati Paper Mart (2010) 33 VST 278 (All- Single Judge): Inter-State sale Exemption Subsequent inter State sale Burden of proof No evidence to show dealer collected documents of title from bank and transferred goods by making endorsements thereon Order of Tribunal allowing claim of dealer of subsequent inter-state sale set aside Central Sales Tax Act (74 of 1956), s. 6(2). Words and phrases Document of title. The assessing and the appellate authorities, on the basis of the fact that the petitioner had declared sale by transfer of documents within three to four days from the date of bilty sent by the seller through bank, took the view that the goods were sold without endorsement of document of title as claimed by the petitioner. However, the Tribunal accepted the explanation of the petitioner that it got the bilty endorsed within three to four days and allowed the appeal filed by it on the ground that the transaction was covered by form C and form EI/II. On a revision petition: _Held,_ allowing the petition, that section 6(2) of the Central Sales Tax Act, 1956 under which the petitioner claimed exemption required that the subsequent sale was effected by endorsement of documents of title to the goods. It had to be proved as a fact that the subsequent sale was effected by endorsement of document of title to the goods. The test as to whether a particular document was a document showing title or a document of title was whether the document was used in the ordinary course of business as authorising a transfer or receipt of the goods. Mere filing of forms C, EI and EII was not sufficient to claim exemption under that section. The Tribunal failed to address the real issue involved as to whether the petitioner had proved that the subsequent sale took place by endorsement of document of title. It proceeded on the presumption and assumption that the State of Madhya Pradesh was a neighbouring State and a person might reach there within 3-4 days. Unless and until evidence was produced by the petitioner that it collected the document of title from the bank, and transferred the goods, by making endorsement thereon, no inference of subsequent inter-state sale by endorsement of document of title can be drawn in view of the plain language of section 6(2) of the Central Sales Tax Act. Therefore the order of the Tribunal was liable to be set aside. Ramdas v. Amer Chand & Co. [1916] AIR 1916 PC 7 relied on. Note by CA Deepak Thakkar dt 17 May 2011 Page 13 of 13