R. Kumar, B.Com. MBA (Finance)

There are two types of inter-State sales. An inter-State sale contemplated by clause (b) is one, which is effected by transfer of documents of title to the goods during their movement from one state to another. Where the property in the goods has passed before the movement has commenced, sale will evidently not fall with in clause (b). The dividing line between sale or purchases under section 3(a) and those under section 3(b) is that in the former the movement of the goods is under the contract of sale or purchases but in the latter the contract comes into existence after commencement and before termination of the inter-State movement of the goods. Sale taxable as falling in clause (a) of section 3 will be excluded from purview of  clause (b) of that section. In other words clause (a) contemplates a sale where under the contract of sale the goods sold are moved from one state to another. Clause (b) on the other hand contemplates a sale where the property in the goods sold passes by transfer of document of title during the movement of the goods from one state to another.

The whole section 3 read 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—

a. occasion 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….” 

 Sec. 6 (2) of CST Act says when goods are in movement from one state to other in pursuance a contract of sale, then any subsequent sale effected by transfer of documents during such movement shall be exempt from CST.

The first requirement of a subsequent sale under section 6(2) is that it must have a relative prior sale “in the course of inter-state trade or commerce” which had (a) either occasioned the movement of such goods from one state to another, or (b) was effected by transfer of document of title of such goods during their movement from one state to another. In other words, a movement of the goods in pursuance to a prior sale is the first pre-requisite of a ‘subsequent sale’ contemplated by section 6(2) for enjoyment of exemption.

e.g.  1.) A of Delhi Orders B of Haryana to sell and dispatch to Delhi 50 bags of black paper. B dispatches the goods and send the railway receipt to A. In the mean time, A had sold identical quantity of same goods to C of Delhi. Instead of himself taking delivery of goods from railway and then delivering those goods to C at Delhi, A transfer to C the railway receipt which was sent to him by B. The sale by A to C is an inter-state sale because it was effected by a transfer of document of title, viz. railway receipt. If C is registered dealer, the sale from A to C may enjoy exemption from tax on fulfillment of other conditions of section 6(2), e.g. The production by A of prescribed certificate and/ or declaration etc.

The dealer had entered into a contract with a supplier in the same state and had furnished ‘C’ form to the supplier and directed him to deliver the goods to the petitioner’s customer in another State. It had obtained forms E1 forms its supplier and C form from customer state.

Under section 6(2), the second sale so effected by the petitioner was to be exempted and the petitioner was entitled to that exemption as in respect of those transactions, form E1 from the supplier and C forms from customer had been produced.

2.) A of Delhi has sold goods to B of Calcutta. The goods are dispatched by lorry and L.R. is taken out by A (Delhi) where in A is consignor and B (Calcutta) 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 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 3% CST in his bill. Being a second interstate sale affected by B to C, B is equally liable to pay CST. However the intention of government is not to levy multiple taxes on sale taking place in one course of movement. Therefore subsequent sale is given exemption. However it is subject to production of given forms.      


According to provision of CST,1956 second and subsequent sale are exempt from levy of Central Sales Tax if following conditions are fulfilled:

a)    The first sale has been an Inter State Sale.

b)    Subsequent sale has been effected by transfer of document of title of goods.

c)    Subsequent sale has been effected during the movement of goods from one state to another.

d)    Subsequent sale is made to a registered dealer.

e)    In case of subsequent sale made to registered dealer same must be supported by Form C issued by purchaser.

f)     The selling dealer gets form from dealer from whom he had purchased the goods a certificate in Form E1 or EII.

g)    The selling dealer has issued Form C to the supplier.


1. Challan:-

Use Supplier challan With regard to E1 sales/ sales by way of endorsement of document while the goods were in   transit.

2. Company LPO or Sub-supplier:-

a)    Consignee name need to be mentioned as Consignee, Address A/c Company Name(i.e. First Buyer).

b)    Sales Tax clause in LPO should clearly mentioned 3% against form C & E1.

c)    Clear dispatch instruction to the sub-supplier for consignor and consignee and all LR’s, GR’s etc. shall be made as under.

Consignor    “Sub-supplier”

Consignee   “First Buyer


Ultimate client A/c Company Name (First Buyer)

d)    Dispatch document shall be endorsed by Company Name (i.e. First Buyer) in favour of and customer in the following manner:

Please deliver to the order of ……………….Company Name(i.e. First Buyer).

Authorised Signatory

3. Billing Instruction:-

i. Sub-supplier’s invoice should be raised on Company Name(i.e. First Buyer) office address of the state where goods will be delivered.

ii. Company Name (i.e. First Buyer) will inform CST Registration Certificate Number of destination state to the Sub-supplier which should be mentioned by Sub-supplier on all documents issued by them.

iii. Should be accounted in the state whose ‘C’ form is utilised.


Now it is clear that sale effected by transfer of documents of title of goods is eligible for exemption u/s 6(2). Final buyer can save up to three percent tax in same.

Case Reference:

  • Bombay High Court vs. Chhaganial Savchand (62 ITR 133)
  • State of Gujarat vs. Haridas Muiki Thakker (84 STC 317)
  • Fatechand Chatubhudas vs. State of Maharashtra ( S.A. 894 of 1990 dated 12-8-1991) decided by Maharashtra Sales Tax Tribunal
  • Duvent Fans P. Ltd. Vs. State of Tamil Nadu (113 STC 431)

(Author can be reached at sunraj.18@rediffmail.com)

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