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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 —

  1. occasion the movement of goods from one State to another; or

  2. 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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130 Comments

  1. vishwas purandare says:

    i bought lime from Rajasthan and sold to Maharashtra sugar factory. i have received e1 form from seller and i have given c form to seller. but my customer to whom sugar mill i sold material in sales in transit but not received c forms. as party is defaulter to sales tax in Maharashtra, what will happen about tax matter. shall i have to pay vat or cst and with interest ? as i have not collected tax from sugar mill what will i have to pay ?

  2. Karim #9323802611 says:

    A sold. goods to B. A is from Mumbai and B is from Bangalore. B is having their job worker in Vasai near Mumbai. B instructed A to dispatch the materials to B job worker at Vasai near Mumbai. A is from Mumbai and billed to B Bangalore party and charged 2% cst because a selling the material to B who is in karnataka but delevery in Mumbai. B issued payment and c form because sales done outside the state party. Bow B issued 57f4challan to their job worker at Vasai near Mumbai. Movement of goods is within the state but buyer B is from Bangalore karnataka. To satisfy this buyer issued 57f4to their job worker. Transation from A and B is completed. By sales tax department levy VAT 5.% against this sales and and charging 3%extra due to movement of goods is within Maharashtra state only. Please advise me what to do in this case. 57f4form is made for job worker only. After completing the job work Vasai party again send back the goods to B Bangalore party hence the transaction is completed. Please reply me properly to solve this issue.

  3. Karim says:

    Sir. I sold goods to Bangalore based company and Bangalore based company instructed me to supply he goods to job worker in maharastra and I am also from Maharashtra. Hey Bangalore party issued 57f4challan to their job worker. I charged 2%cst on iit. But my sales tax department is considering this sale as local sale and put penalty upon me of 5%vat.because movement of goods on within Maharashtra state. Please explain me in detail. Any court ruling is there what to do please advice me

  4. rahul says:

    Sir I have my factory in Delhi and godown in up how should I transit my goods to godown ishould I have to release a invoice and yes then what type of

  5. Menon R Parakkat says:

    Dear Sir,
    My question is that I have a manufacturing unit in Mumbai, Maharashtra. I want to sell the same to a end-use customer (individual customer – not a company) in Gujarat. What is the procedure. Which Tax I should charge and what form I have to fill up to pass Gujarat Check Post border.?

  6. Manoj semwal says:

    Dear Sir,
    If we sold material under tax invoice UP to up and send by transport , pls confirm which copy except transporter copy should be sent along with consignment

    rgds
    Manoj Semwal

  7. Ankit Trivedi says:

    Dear sir, i want to know that our dealer sell goods to rajasthan in vat from our factory in Rajasthan and consignee is registered in Rajasthan vat but our dealer is in Madhya pradesh so can consignee claim vat redemption against consignee invoice of factory or not

  8. Durgesh Kumar says:

    Dear Sirs,
    My CST registration in U.P. and I have a customer from Hyderabad.
    Can i send a material from U.P. to UP. and raised a invoice to Hyderabad on 2%CST.
    Please tell me its possible or not.
    If possible please tell whats the procedure.

  9. dipesh negi says:

    I have an question. I have factory in Faridabad (Haryana) where machine manufactures. A buyer of Ballabgarh (Haryana) purchase machine from factory but Billing is made from Rudrapur (Uttarakhand), Now whether E1 apply or not? If yes, then what will be the tax rate required to be mention?

  10. Tomendra Singh Jaitwar says:

    We are distributor of Chhattisgarh state, We have purchased goods from maharastra State and sale (ship to) to directly in our customer located at maharastra state. What is the best billing movement of that transaction

  11. Anand Tiwari says:

    Sir,

    My Question is that if assume i m a dealer & got the order from other state (say :- AP)
    i purchased the goods from manufacturer of the same state i belong & instructed him to dispatch the goods on behalf of me Say( The Consignor is M/s. Jindal (india) Ltd. Buyer Is me & the Consignee is other state Party ) The manufacturer charged CST @ 2% in the Invoice against “C” Form. So, my question is that what will be the treatment of Purchase in my books.

  12. Abhinav says:

    Sir,

    What is the difficulties in U.P. Commercial Tax Dept. if we get purchase challan in current month but invoice received next month. is there any rules in dept. for purchase agt. challan should be same month in which invoice generate. Pls help me.

    Thank You,
    Regards
    Abhinav (Agra)

  13. Amol says:

    We are a service provider and we have received a project from a client who is registered in a Special Economy Zone, just want to know the documentation procedure ( required documents ) if we are buying the goods from our vendor and sending the goods directly to him on our behalf

  14. Gopal Dwivedi says:

    Sir,
    I m a dealer of backhoe loader (JCB Machine) from kanpur U.P. and we have purchase it from Rajasthan and want sold a party of Lalitpur JHansi U.P. so E1 sale applied or not if applied so what is the procedure

    Plz. help

  15. Tamilarasan says:

    Our customer A in Gurgaon Haryana is asking us to ship the parts to B in Tamilnadu. Hear the issue was customer A request us to bill to Gurgaon and ship to Chennai .B will do the assembly and ship to A.All our payment will be settled by A .In that case whether we will make the invoice with Vat or CST .

  16. Hari says:

    Sir

    Please guide on my query. If a customer who is reg.with Gujarat VAT imports material to Cochin port and sells it directly to a party in Coimbatore, how does physical movement of goods takes place ?

    Can the Gujarat party move the goods on local CST Invoice from Cochin to Coimbatore directly or will there be any other documentation requirements, please guide ?

    Regards

    Hari

  17. imran khan says:

    Dear Sir,

    could you please suggest anyone what will be the tax charge on billing address is local and shipping address is central? most of company doing transaction as follow : registration in Delhi and billing address is in Delhi and shipping address in Haryana (other state ) without form.
    kindly share the your valuable suggestion and notification if anyone have?

  18. K.RAJU says:

    please clarify the following points

    STEEL MATERIALS DISPATCHED THROUGH RAILWAY WAGON FROM MANUFACTURER (SATISGAR), BUYER- MUMBAI ,CONSIGNEE – IN CHENNAI. NOW THE CONSIGNEE WANTS THE MATERIALS TO BE STORED AT CHENNAI FOR SOME TIME SINCE THEY HAVE SOME INTERNAL PROBLEMS IN THEIR FACTORY. IS IT ALLOWED TO STORE THIS IN THIRD PARTY GODOWN ? ANY PROCEDURE TO BE ADOPTED FOR THAT PLS CONFIRM BACK.

  19. MANOJ SHAH says:

    We are manufacturer in Gandhinagar. Our buyer party is in Varanasi.

    1. Our Party of Varanasi wants to buy material from us and directly send to its party at Hyderabad.. i.e. we have to send material directly from Gandhinagar to Hydrabad by Transport.

    2. Our Buyer Party will make payment directly to us and shall collect its payment from party of Hydrabad.

    3. What is the procedure of transit of material.

    4. Can we issue an invoice in the buyer name of party of Varanasi and send material directly to party of Hydrabad ?

    5. Is there need of issue of any kind of Sales Tax Form ?

  20. tax baniya says:

    Please confirm if we have vat number in Maharashtra and purchase the goods from Gujarat.

    Actual movement of goods is from Hyderabad to Tamil Nadu, Is we need to take C form from Tamil Nadu party and give the c form to Gujarat party.

    we can save the C form by giving the E forms.

  21. KHALID says:

    I have a query.I am from Allahabad(A) .I have to deliver coal to my customer @ ghaziabad(G) (being in the same state).I will be purchasing it from gujarat port (G) and directly delivering it to ghaziabad customer by asking my Gujarat seller to get the LR endorsed by me to deliver it to ghaziabad customer..my questions are
    1-whose form 38 and form C will be utilized while purchasing the coal from Gujarat customer.?and whose name will be filled in the column of consignee and consignor??

    2-ghaziabad customer is ready to give his form 38 and form C. Can his forms be utilized ??and if yes then how?

    3-what will be the billing process while generating the bill for ghaziabad customer, I mean how much tax will be charged 4% or 2 % ??

    4- exemption is there on second sale but does that mean that I shouldn’t charge any tax to customer of ghaziabad or I will be charging him in the bill and he can later apply for exemption.?

    5- when and where is form E1 utilized??
    6- when and where is form E2 utilized??

    7- is there any process in transit sale where form 38 and form c of the final buyer be utilized??

    8-how much tax will I be charged by the Gujarat seller when he will bill me for this transit sale?

  22. ASHOK says:

    We have a registered office in kochi, and we import goods from china. Goods imported by air to save time,need to be brought to delhi depending on the location of the customer. How will i be able to bill the customers in delhi or close to delhi , with my sales tax registration being in kochi. By rule the material needs to be transported to kochi first and be then billed to delhi customer. But in this case, the transportation cost and the time lag can be saved if i can bill the material directly to the customer from delhi airport itself. please give me you advice.

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