IN TRANSIT SALES, BRANCH TRANSFERS – Part 3
6.1 In Maharashtra [particularly in Pune Zone] the Branch transfers are being disallowed taking support of A & G Projects [19 VST 239 SC]. It is the contention of the department that once the goods are moving in compliance of the particular order, it is not a branch transfer and such transfers will be liable to tax. Where the goods are in transit and the documents of title [Lorry / Railway Receipts] are endorsed in favour of the purchasers, the claim of section 6[2] is disallowed in spite of production of C and E-I forms. CST is levied on the grounds that such sale is covered by section 3[a] and is taxable in the Maharashtra State.
6.2 When the judgment of the Supreme Court in case of A & G Projects does not speak any thing about the branch transfers, the question arises why the interpretation which was accepted and followed for a long time since the inception of the CST Act, now calls for the change. There is also a principle ‘stare decisis’’ in jurisprudence, which the department should follow.
7.1 Andhra Pradesh was the first state to examine this issue. After examining the observations of the Supreme Court judgment in case of A & G Projects, and the legal provisions, Commissioner of Commercial Taxes of Andhra Pradesh has issued the circular No. CCT-AIII[2]91/2010 dated 7-5-2010. It is clarified by the Commissioner that “the second and subsequent inter-state sales [transit sales] are not eligible for exemption on the ground that such sales are made to predetermined buyer is not legally valid and hence not correct.”
8.1 The West Bengal had also became aware of this issue and the Directorate of Commercial Taxes issued clarification by Trade Circular NO. 11/2010 dated 4-10-2010.
8.2 The Commissioner of Commercial Taxes [WB] has observed that, “The fact cannot be denied that in the commercial world substantial number of transactions of subsequent sales take place particularly for specially made goods where a dealer first collects order from his outside state customer and thereafter places his corresponding purchase order either to inside state supplier or to outside state supplier. Therefore there exists one pre-existing order or predetermined party at the hands of a subsequent seller when he is making agreement of purchase / sale with the inside state or outside state supplier.”
8.3 After observing that nothing new is observed by the Hon’ble Apex Court in case of A& G Projects, the Commissioner of CCT [WB] has clarified that -
i] in case of sale falling u/s 3[a], any kind of endorsement of LR cannot be invited;
ii] as contract of sale and sale itself are altogether different in case of inter state sale, pre-exiting order of predetermined parties will not negate any 3[b] sale if other requirements are found fulfilled;
iii] purchase of goods from local dealer and sale of it to outside state purchaser by transfer of documents of title to the goods will also qualify as sale failing u/s 3[b];
iv] once a sale is established as 3[b] sale , the same will automatically qualify itself to come under the ambit of section 6[2] of the Act;
v] section 6[2] is simply concerned with a valid 3[b] sale, a certificate inform E-I and E-II issued by supplier and a declaration inform C collected from customer and nothing more than that.
9.1 Thus not only Andhra Pradesh but West Bengal has also interpreted and clarified the position arising out of Supreme Court judgment in case of A & g Project. Since the question involved relates to sale covered by CST Act which is a Central Act, the interpretation given by any high court is binding on all the states. On same analogy the department of sales tax of Maharashtra state has to consider the interpretation given by the other States. It can not give any other interpretation to the observations of the Supreme Court.
9.2 Moreover, as observed by the Supreme Court, as mentioned in para 3.6 above, section 6[2] was introduced in order to avoid the cascading effect of multiple taxation. But the present interpretation give to the observations of the Supreme Court is deadly against the sprite of the said amendment. Since the position of branch transfers and in-transit sales has now become opaque, to expect early action to issue clarification by the department, will not be out of place.
10. Whether the action of review, revision, reassessment or rectification on this point will be justified is another story which will be narrated later on.
Written by admin on December 17th, 2010 with comments disabled.
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