E-1 Sale – Benefits and Provisions for claiming exemption

What is E-1 Sale? How does it benefit registered dealers? What are the provisions to be followed for claiming exemption?

When sale is during the course of movement of goods from one state to another is called E-I transaction or sale in transit. The sale is done by endorsement or delivery of documents of title. Further such transfer of goods is exempt under the provision of Sec 6(2) of CST act 1956.

Before we understand in detail about E-I/E-II transaction let me explain what interstate transaction is as per Central Sales Tax Act 1956.

As per Sec 3 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–

1. Occasions the movement of goods from one state to another

2. Is effected by a transfer of documents of title to the goods during their movement from one state to another.(sales In transit)

Explanation 1 to Sec 3 – 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.

For example if goods are booked from Bangalore to Mumbai by Railway, movement of goods will commence as soon as goods are handed over to the Railway booking office at Bangalore for transport. The movement will be deemed to continue even if goods reach Mumbai and are lying in possession of railways. The movement will be deemed to have completed only when the delivery of goods is taken at Mumbai on submission of railway receipt. Thus goods will be ‘deemed to be in movement for sales tax purposes till delivery is taken atfinal destination’.

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.

Hence, 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.

Now how does E-I/E-II transaction Work

Central Sales Tax Act 1956 envisages single point of taxation i.e. tax at the first point of sales. Subsequent sales during the movement of the goods from one state to another have been exempted under section 6(2) of CST Act.

When sale is done while goods movement from one state to another is called E-I transaction or sale in transit. The sale is done by endorsement or delivery of documents of title. Further such transfer of goods is exempt under the provision of Sec 6(2) of CST act 1956.

Section 2(4) of the Sales of Goods Act permits transfer of goods by ‘endorsement or delivery of documents of title. Thus documents of title of goods can be transferred by mere delivery or by endorsement on document.

Sec 6 of CST Act 1956

Below is the summary of conditions for claiming exemption u/s 6(2) of CST Act:

1. First sale should be an interstate sales: The first sales must be an interstate sales. It can be either a section 3(a) or section 3(b) sale. A sales is considered as an interstate sales as per section 3 of CST Act if

(a) It occasions the movement of goods from one state to another or

(b) It is effected by transfer of documents of title to the goods during the movement of goods from one state to another.

2. Transfer of documents of title: Subsequent sales must be a section 3(b) sale i.e it should be a sales by transfer of documents of title to goods during the movement of such goods from one state to another.

3. Subsequent sales must be to a registered dealer: The subsequent sales is exempt only if it is made to registered dealer.

4. The goods should be of description referred to in section 8(3) of CST Act: Another requirement for claiming exemption for subsequent sales u/s 6(2) of CST Act is that the sale should be of goods which are specified in the certificate of registration of purchasing dealer. (If the goods are not mentioned in certificate of registration some states will not allow issue of C form, E-I/ E-II forms)

5. Certificates required: Dealer selling the goods has to issue a certificate in prescribed form to the purchasing dealer (Prescribed forms are E1 form if its first sale and E2 form if subsequent sales). Subsequent purchaser has to issue certificate in prescribed form (This is C form) to his seller. Such certificates are to be produced before assessing authorities within prescribed time. The certificates in C, E1 and E2 forms are to be issued on quarterly basis. (Refer Infographics for better understanding)

Provisions of C form applicable to E1/E2 forms: Some provisions which are applicable to C forms are also applicable to E-I/E-II forms. For example one declaration for one quarter, indemnity bond if form is lost, issue of duplicate form, sales tax concession is not available if the forms are not submitted.