Sales in transit meaning, procedure, case Laws & Provisions
- Saturday, December 12, 2009, 2:53
- GST
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 —
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occasion the movement of goods from one State to another; or
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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 his goods 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 subsequent interstate 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 one course 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 the goods 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 claim exemption, 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 real transfer 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 held that 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. The transfer 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.
Authored by: C. B. Thakar, Advocate
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The contribution is very much enlightening.
Thank you,
Regards,
Arul K
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.
Dear Sir,
There is a procedure in practice with most of the dealers handling big projects when they resort to sale in transit for baught out items.
Dealer “A” places order on dealer “X” for a trunkey project worth Rs.1.00 croes.
Dealer “X” places order for one of the components on delar “Y” for Rs.10000.00 and asks him endorse LR in favour of dealer “A” under E-1 Form.
Dealer “X” railes commerical bill on Dealer on “A” as under:
Basic Price 12500.00
CST reimbursement; 200.00
Total: 12700.00
In this case Dealer “X” has collected a margin of Rs.2500.00 over the basic of his supplier Dealer “Y”. Dealer “X” is also collecting CST paid to Dealer “Y” by was of reimbursement.
Is this course available to Dealer “X”. Becasue the turnover is exempt in the hands of X. Then he can charge tax by any mode. Would this not amount to undue enrichment.
Please elaborate.
Regards,
Kadival.
Will you please clarify transit sales ( pre determined sales by procuring purchase orders prior to transfer of documents of title) in the light of A& G Projects and Technologies Ltd vs.State of Karnataka by Supreme Court. ( civil appeal no. 7233 of 2008 – arising out of SLP (c) No.1 065/08 Decided on 11.12.2008
01) if material (Exciable) buy from gujarat, want to sale in gujarat, please do let us know how do we bill to patry?, what tax charged manufacturer in his invoice? and how do we prepare our commercial invoice and how much tax we make in invoice
02) if material (Exciable) buy from gujarat, want to sale in put of gujarat, please do let us know how do we bill to patry?, what tax charged manufacturer in his invoice? and how do we prepare our commercial invoice and how much tax we make in invoice
regards,
Bhavin
Invoice raised from One state to another state, but goods delivery with in same state which tax is applicable CST or VAT? Any forms applicable?
Invoice raised with in state but material delivery to another state which tax is applicable VAT or CST ?
CST is applicable On inter state sale & what is interstate sale is defined as under
Inter State Trade or Commerce In Sales Tax
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–
Occasions the movement of goods from one state to another.
Is effected by a transfer of documents of title to the goods during their movement from one state to another.(sales In transit)
Movement from one state to another: In above case when goods are given to carrier or transporter for transportation .the movement of goods starts at the time of delivery to carrier and terminated at the time when delivery is taken back from such transporter /carrier
As per point two above CST is applicable if sale is done while goods movement from one state to another state.Its called E-1 transaction or sale in transit.
suppose: X situated in Delhi purchased goods from Y in Punjab .Y booked the material on transport and send GR/RR(goods receipt note issued by transporter) to X. X instead of receiving material from transport himself sold the material to Z in Delhi (same state) by endorsing RR/GR
in the name of Z.Z takes the delivery from the transporter .
In this case sale from Y to X is covered under CST and X to Z is also covered Under CST as sale in transit.
To complete the transaction X will issue C form to Y ,
Y will issue E-1 form to X
Z will issue C form to X
In the above case even X & Z both are situated in Delhi but the sale transaction is covered under “sale in transit” clause of CST act so CST will be applicable and vat is not be charged.
CST is applicable only if goods movement is from one state to other state .If goods movement is started from one state and ends in same state then CST will not be applicable.
There is any time limit to making transit sales ?
NO. GOODS ARE IN TRANSIT SO LONG AS THEY ARE LYING AT THE GODOWN OF TRANSPORTER.
IS THERE ANY CONFUSION?
If the buyer executes a sale in transit, how does the buyer prepare the invoice.
Do we mention Sale in Transit against Form E1 u/s 6(2) –
Can someone guide me on the invoicing
Sir,
Our firm situated at Karanataka and some times we have been procurring material from neighbour states like Maharashtra, AP, UP, Gujarat etc. So pl confirm whenever material dispatched by supplier from other states, is it necessary to provide VAT from (VAT Form 515)from our end. Can any one guide in this regard.
Kindly let me know in case of E-1 sale which state will be issued the Form-C and which state is will be take the benefit of that C-Form.
As if A(U.P.)send the Matls. to C(Gujarat)on refrence of B(Mumbai)then this is clear that A will be issue the E-1 to B and C will be issue the Form-C to B.
Now the question is these that this C-Form issued by ‘C’ will be named to whom ‘A’ or ‘B’?
Kindly let me know in case of E-1 sale which state will be issued the Form-C and which state will be submit that Form-C.
As an Example:
If A(U.P.)send the Matls. to C(Gujarat)on refrence of B(Mumbai)then this is clear that A will be issue the E-1 to B and C will be issue the Form-C to B.
Now the question is these that this C-Form issued by ‘C’ will be named to whom ‘A’ or ‘B’?
if a party at rajkot (gujarat) sales goods to party at ahmedabad (gujarat) @ 10000/- and delivery of goods are to be made at mumbai @ 15000/- . is this a E1 transaction under the cst act?
which forms must be collected from each party?
whether vat is chargeable by rajkot party in his bill?
if answer to above is yes:
input credit of tax invoice raised by rajkot dealer is available to ahmedabad party?
at which amount rajkot party will raise the invoice?
will you please suggest,
my co. white gold is situated in delhi, my supplier is in punjab and my buyer is in jammu,
How can i send the goods directly from my supplier to my buyer
what type of billing procedure is require and which type of form require.
Hello
We are dealer of Chemicals (Say- VC) having Mahahrashtra ST regn and Non localise dealer registered with Guj ST with Mumbai address.
We purchase goods from Mumbai and from Kandla.
also having excise regn and pass modvate
Q.1 purchase from Mumbai deler (say-A) and A raise bill to VC (Guj NLD) charging 2% CST and VC sale to gujarat customer (say-C) , modvate directly A to C , So can VC sale goods on sale in transit and how LR to be prapared? and which form to exchanged?
Q.2 VC (Mumbai) purchase goods from Kandla Gujarat A and
A charge 2% CST to VC and VC sales goods to Pune customer, can he sale it on slae in transit transaction and how R to b preapared?
Q.3 VC (Guj NLD) purchase good from Mumbai dealer (A) and goods move from Mumbai to Hyderabad customer (C) A praper bill to VC (Guj NLD ) charging 2% CST and pass modvate to C , can VC sale on sale in transit basis and how LT ro be prepared?
What would be the liability of the second seller incase the First Seller does not issue Form E-1 after receiving C form from the second seller?
Plesae let me know the date of Invoice of B.
If “A” is the manufacturer “B” is the agent/buyer for “A” & “C” is the ultimate buyer. Assuming that “A” is in New Delhi & B&C are in Himachal Pradesh.
Incase “A” raise bill on 23.05.10 to “B” mentioning “C” as ultimate buyer. Goods reach in HP on 20.06.10, What is the correct date of invoice to be raised by “B”? “B” will raise the bill after materials received by “C” or before that?
Thanx,
Naba Kumar Mishra
Please let me know,
1. “A” has purchased the goods, against form C, from another state.
2. “A” has asked the supplier to get 15 L.R. of various quantities.
3. The material is kept at transporters godown.
4. “A” can sell the goods, against sale in transit, by endorsing the l.r.
5. Material is sold within two months from the date of receipt at transporters godown, to same customers on various days. They may have paid the demurrage charges to the transporter.
6. “A” obtains the form C from all the customers.
7. Sale tax authority says, the same is not allowed, because the customers are same, who have bought the material on various days, and two months is longer period. So they have disallowed the transaction?
Is this correct?
We are Private Limited Co. having its registered in Mumbai (registered under CST & VAT do not have any manufacturing activity) got an order from Delhi party for supply of Incinerator material and Furnace Vessel to be supplied in Punjab to the end user. (The Co. which has issued P.O. to us is not end user)
Purchase Order terms are PO Value + all taxes and duties within India shall be to the buyer’s account (i.e. reimbursable).
We got the Vessel manufactured from Gujarat and sold (Sale in Transit). The seller has billed us Assessable value + ED + CST + Transportation.
The Incinerator material was procured from the party in Delhi (who had purchased the same from the manufacturer In south) and directly supplied to Punjab. This was also sale in transit to us and to end-user.
Our Purchase orders on both the above supplies were PO Value + all taxes and duties reimbursable. For incinerator material since the transaction was sale in Transit the party raised Debit Note for ED & CST on us; based on the actual invoices of manufacturer.
For both the supplies the end user got the ED & CST Invoices (for availing Cenvat).
Now as per P.O. we have raised our commercial invoices and Debit Note for the reimbursement of ED & CST (for sale in transit invoices as well as for manufacturer’s invoice i.e. Vessel)
We shall be grateful if you could educate us on whether we are right in raising the Debit Note for reimbursement of ED & CST against our supplier’s invoices (as we have already received Debit Notes from the supplier of Incinerator material).
Sir,
I am in Pune (Maharashtra State). I want to purchase goods from Mumbai(Maharashtra State).My customer is in Gujrat. My querry is that can my supplier in Mumbai directly move the goods to my customer in Gujrat? Can I get any sales tax benefit as I will purchase @ 12.5%VAT and sell to my customer in Gujrat at 2% CST.Are there any forms involved apart from ‘C-Form’.
Thankyou.
We are regd dealer in delhi purchased goods from a supplier in Alwaye (Kerala)and billed to delhi at same time we want to goods to be transfer goods to chennai/cochin port for export.We dont have any branch in chennai/cochin.My question for you is
01.Can we transfer theses goods and what are the document required so that we dont face any difficulties from tax authorities in way trasit to chennai/cochin
02.Any form what so ever involve in this transaction.
dear Lalit,
From your query, it seems that there are 2 types of Transactions. 1) Delhi /Alwaye(kerala) /Delhi.
2) Goods to be exported from Chennai/cochin port.
In first case whether it is a same material which is recd in delhi and further it is to be exported.
In that case you can directly give instruction to your Kerala supplier to dispatch at chennai/cochin port for further to be exported. In this case since this is export order Sales Tax is nil against Form H to be issued by you.
2)If the supplier from kerala has dispatched the material to Delhi and if it is for your stock than you have to issue form C to Kerala supplier. 3) If in delhi you are selling it directly to your customer in delhi than there will be sale in transit6(2) sale i.e E1 transaction. In this case you have to endorse the LR in favour of your customer without accepting the material but will directly delivered to your customer in delhi from Kerala. The LR should be prepared as Consignor Kerala Supplier , Consignee Your end customer name and address A/c your Co name.You will be issuing form C to your kerala supplier against E1 form from him..
Hope the query raised by you has been replied.
dear sir,
if want purchase iron in andhrapradesh and sell it in andhra pradesh, does my turnover will be added in VAT rules. if this turnover should be added what is the other way of sale legally.
dear sir
my firm situated in mahrashtra i purchased from gujarat and on road i sale in sez situated in gujarat at mundra so this sale are legally from mahrashtra against c form
dear sir
under sale in transit my firm in maharashtra and i purchased from gujarat and on lr i sold in sez in gujarat against c form so this sale are legally also there are no tax in sez
can we issue C form if assesses complete transaction before taking registration under CST and when transaction took place production of the assesses has not been started.
Can you clarify on Inter state Sale which is as follows:
Order placed by (A) situated in Andhra Pradesh on (B) located at Tamil Nadu.
Now, (A) wants the delivery to be made to (C) who is located at other state and do not have the CST Registration wherein (A) is having registration. (A) and (C) are same Organization.
This Inter state transaction is with FULL RATE of TAX and not on concessional say form “C” or so.
Whether this transaction is legally permissible?.
(B) indicates that it is not possible.
Thanks and regards,
Dear Sir,
We are having Office in Baroda Gujarat and our principle company located at Sahibabad UP.
We want to sell the product to the our Gujarat Customer based on Sales in Transist. The naterial directly despatch from sahibaadbad to customer who based at gujarat. Can we do this transaction uder C form, Please advice with Law.
Dear Shashi Bhushan,
Location of is irrelevant.Since your factory located at UP and same is registered under CST Act 1956 with UP Govt. , you can transfer the goods to customer in Gujarat Sate. Such Sale is permitted against form “C” for concessional rate of 2%.
With Regards,
Nishad
Can you please let us know how to bill, if a company from Tamil Nadu orders on a company in Andhra Pradesh and wants to deliver the mateiral in Andhra Pradesh. CST or VAT.
Dear Sudha,
We are also based @ HYD , and has got the same issue,, if you have found the solution , please share.
Thanks
Sandeep
Dear Sandeep /Ms.Sudha,
Even though the Order is placed on TN, The materials is supplied from A.P to your place in AP.
As this is an intra-state transactions, local VAT will be applicable as per A.P. VAT schedule.
regards
trader can do e1 sale in sez?
Dear Sir / Madam,
We need a relevant case for the below mentioned transaction :
Company A sells (commodity X) to company B
Company B sells (commodity X) to Company C
Company C sells (commodity X) to Company A again
In the given transaction following are critical observations of sales tax department :
a) no physical movements of goods
b) No transport challan are prepared
c) No delivery instructions issued
However the transactions are being done through registered dealers only through cheque.
Under the given circumstances can the sales tax department imply that the above transactions is “ILLEGAL”?
If you have any relevant case laws kindly do let us know and I am ready to make requisite service charges, as applicable!
Regards,
Milan Parkeria
We are pune based company. Please help us in following issue.
Buyer has ordered turnkey project to us. We inturn ordered equipments to various supppliers. Now buyer is in Andhra Pradesh. ( Online way bills required for movement of goods ) if transaction is done on sale in transit i.e. supply of equipments directly to end user by endorsing LR by us & dealer in what name we should request end user to issue way bills. Please help whether it will be OEM, Dealer or us )
We are the manufacturer of Pastic battery casings situated in Uttarakhand, we have an input material that was being used for manufacturing, but some of the quantity has been perished and can not be used for production, can we sold it to any party with 2% CST agains form “C”.
Sir,
we are based at Mumbai having our manufacturing contracters at Chennai,Pondicherry.
if we buy raw materials at Banglore under sale in transit and directly send it
our above Chennai or Pondicerry factory under sale in transit please let me know whether we will cover under section 6(2) for availaing exemption. Please let me have your reply urgently. Please let me have your explanation for the following judgement urgently.
thanks
Judgement Last Updated on: 11 Dec 2008 LexDoc Id: 352238
Category – SC Cases, Sales Tax, Indirect Tax
Issuing Authority/Forum: SC
A and G Projects and Technologies Ltd. vs State of Karnataka
Citation (2009) 19 VST 239
LexReported
Sir, we are trader/ dealer ‘D’ in delhi having our excise registration in delhi only.
We have supplier ‘X’ ( manufacturer) in maharashtra and end buyer ‘Y’ ( Y is also a manufacturer ) in maharashtra too.
Supplier’s invoice – Bill to party is D, consignee is Y ( sales within the state, VAT applicable).
The material reaches directly to Y and we make the payment to X as per the invoice raised on us.
Please how can we create a commercial invoice from delhi on Y ( adding our margin also ). what will be the contents of our commercial invoice ( we paid VAT, how to go ahead in this case).
Thanks
Anurag
It is very useful and understandable……Thanks Sir
Sir,
We are trader located at Hosur.Our suppler at chennai.we want to purchase goods from chennai and to sell at Salem,then please tell me the procedure for selling the goods from chennai without delivery of hosur and directly to the concern party within the state.
Sir,
We are trader located at Hosur.Our suppler at chennai.we want to purchase goods from chennai and to sell at Salem,then please tell me the procedure for selling the goods from chennai without delivery of hosur and directly to the concern party within the state.
somebody please URGENTLY provide precise answer to following querry by : -
PRABHAKAR KULKARNI wrote on 23 December, 2010, 13:05
We are Private Limited Co. having its registered in Mumbai (registered under CST & VAT do not have any manufacturing activity) got an order from Delhi party for supply of Incinerator material and Furnace Vessel to be supplied in Punjab to the end user. (The Co. which has issued P.O. to us is not end user)
Purchase Order terms are PO Value + all taxes and duties within India shall be to the buyer’s account (i.e. reimbursable).
We got the Vessel manufactured from Gujarat and sold (Sale in Transit). The seller has billed us Assessable value + ED + CST + Transportation.
The Incinerator material was procured from the party in Delhi (who had purchased the same from the manufacturer In south) and directly supplied to Punjab. This was also sale in transit to us and to end-user.
Our Purchase orders on both the above supplies were PO Value + all taxes and duties reimbursable. For incinerator material since the transaction was sale in Transit the party raised Debit Note for ED & CST on us; based on the actual invoices of manufacturer.
For both the supplies the end user got the ED & CST Invoices (for availing Cenvat).
Now as per P.O. we have raised our commercial invoices and Debit Note for the reimbursement of ED & CST (for sale in transit invoices as well as for manufacturer’s invoice i.e. Vessel)
We shall be grateful if you could educate us on whether we are right in raising the Debit Note for reimbursement of ED & CST against our supplier’s invoices (as we have already received Debit Notes from the supplier of Incinerator material).
what will be the status under VAT for party getting reimbursement and treatment of the same in accounting books