IN TRANSIT SALES, BRANCH TRANSFERS – Part 1
1. Central Sales Tax [CST] is levied on the sales made in the course of inter state trade and commerce under the Central Sales Tax Act 1956 which is passed by the parliament. But it is collected by the States authorities under Section 9 of the CST Act. When the goods are moving from one State to another and is passing through various States, before reaching the final consumer, the question arises as to which how many States should levy the CST.
2.1 Take an illustration, a dealer from Pune [Maharashtra] places order with the wholesaler from Mumbai [Maharashtra] for some goods. The dealer from Mumbai is receiving the goods from the dealer in Delhi. When the goods have moved from Delhi in a Truck and the truck is in transit from Delhi to Maharashtra, the Mumbai dealer endorses the Lorry Receipt in favour of Pune dealer and the delivery is taken by Pune dealer at Pune.
2.2 The sale by Mumbai dealer to Pune dealer is effected by transfer of documents of title during the movement of goods from one State to another. Hence according to the principles laid down in section 3[b] of CST Act, this sale is a sale in the course of inter state trade and commerce. Such sale will be exempt from CST provided the selling dealers issues form E-I and receives form C. This position was accepted by the sales tax department since long and was also upheld by the Tribunal.
3.1 But according to sales tax department the scenario has changed in the light of Supreme Court decision in case of A & G Projects vs State of Kerala [19 VST 239 SC].
3.2 In the case which was before the Supreme Court, M/s A&G Projects of Karnataka had under taken a contract for supply and installation of Capacitor Banks to Karnataka Power Transmission Corporation Ltd [KPTCL] in Karnataka. The appellant had placed order with M/s. Bay West which was out of Karnataka for supply of Capacitor banks. M/s Bay West was purchasing the Capacitor Banks from the manufacturers of the equipment from Tamil Nadu. The KPTCL was the ultimate consumer. The first contract was between the appellant and KPTCL for supply of the equipment. The second was between the appellant and M/s. Bay West. It was a procurement contract. The third contract was between M/s. Bay West and the manufacturers from Tamil Nadu.
3.3 According to the appellant, the second and the third sales were subsequent sales. Hence, the appellant claimed exemption from tax for such sales under section 6(2) of the CST Act. This argument of the appellant stood rejected by the Assessing Officer holding that the appellant’s turnover fell under section 3(a) of the CST Act, 1956. According to the Assessing Officer, the first sale by the manufacturers to M/s. Bay West was a section 3(a) sale; that the second sale by M/s. Bay West to the appellant was also a section 3(a) sale and not a sale under section 3(b) and that even the subsequent sale by the appellant to KPTCL (ultimate purchaser) was also a sale under section 3(a) and not under section 3(b) and consequently it was held that the appellant was not entitled to exemption under section 6(2) of the CST Act, 1956. Consequently, the claim for exemption made by the appellant stood dismissed. However, relying on the proviso to section 9(1) of the CST Act, 1956, the Assessing Officer held that the State of Karnataka was competent to levy the tax. Aggrieved by the decision of the Assessing Officer, the appellant herein preferred appeals before the Joint Commissioner of Commercial Taxes (Appeals), Bangalore (hereinafter referred to as, “the FAA”). That authority took the view that the Assessing Officer had erred in holding that the goods stood appropriated by KPTCL at the premises of the manufacturers. However, the FAA proceeded to hold that the subsequent sale stood concluded before the movement of the goods and, therefore, there was no first inter-State sale and thus section 6(2) of the CST Act, 1956 was not applicable. Accordingly for different reasons, the FAA upheld the levy of tax under the CST Act. The Tribunal held that the movement of goods under the contract was not from the State of Karnataka but into the State of Karnataka and, therefore, there was no inter-State sale in the State of Karnataka and, therefore, the levy of tax on the value of the goods supplied was totally unjustified.
3.4 Aggrieved by the said decision of the Tribunal, the Department preferred Sales Tax Revision to high court. The High Court held that the sale of goods in favour of KPTCL was completed when the goods were appropriated by KPTCL before commencement of movement of goods from the place of manufacturers in Chennai (Tamil Nadu) to KPTCL in the State of Karnataka and, therefore, the inter-State sale of goods fell under section 3(a) of the CST Act, 1956 and, therefore, was not entitled to exemption under section 6(2) of the 1956 Act. According to the High Court since the sale in question did not comply with the conditions under section 6(2), the matter came under the first proviso to section 9(1) of the CST Act, 1956. Since the appellant had not obtained C form from the State Department in respect of sale of goods sold on the basis of contract entered into by the appellant with KPTCL and, therefore, the proviso to section 9(1) of the CST Act, stood attracted and consequently the State of Karnataka was the “appropriate State” entitled to collect tax in respect of the goods sold by the appellant to KPTCL under the CST Act, 1956. This decision of the high court was challenged before the Supreme Court.
3.5 Supreme Court, after analyses to the facts of the case, was of the view that the proviso to section 9(1) of the CST Act, 1956 is not applicable to the facts of the present case as the Assessing Officer has categorically held that all the three sales fell under section 3(a) of the CST Act, 1956. Once the said sales fall under section 3(a) then under section 9(1) the tax has got to be collected by the State of Tamil Nadu from which the movement of the goods commenced. The case of the appellant regarding subsequent sales effected during the movement of the goods stood specifically rejected both by the Assessing Officer and the FAA and, therefore, the question of taxing such sales under the proviso to section 9(1) of the CST Act, 1956 did not arise.
3.6 While analysing the legal position, the Supreme Court has observed that ,
“Sub-section (2) of section 6 exempts from levy a subsequent inter-State sale to a registered dealer of goods [described in section 8(3)] and also to Government, provided conditions of the proviso to sub-section (2) are fulfilled. However, a subsequent sale not falling within section 6(2) will, however, attract tax because of section 9(1), notwithstanding the fact that the first sale has been subjected to tax under section 6(1) of the CST Act, 1956. Thus section 6 makes every dealer liable to pay tax under the 1956 Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade. Analysing section 6(2), it is clear that sub-section (2) has been introduced in section 6 in order to avoid the cascading effect of multiple taxation. A subsequent sale falling under sub- section (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) of section 6 of the CST Act, 1956. Thus, in order to attract section 6(2), it is essential that the concerned sale 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. It is only then that section 6(2) may be attracted in order to make such subsequent sale exempt from levy of sales tax. However, the proviso to sub-section (2) of section 6 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. This is the scheme of section 6 of the CST Act, 1956.”
Written by admin on December 17th, 2010 with
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