Subsequent sale in-transit cannot be denied exemption under Central Sales Tax Act, 1956 on the ground that first sale was exempted

Facts in brief

• The petitioner purchased goods from sellers in West Bengal and subsequently sold the goods to its buyers in Andhra Pradesh, Haryana and Maharashtra.

• The first sale made by the sellers in West Bengal to the petitioner were exempt from payment of central sales tax (CST).

• The petitioner claimed exemption from payment of CST on the subsequent sales made by it to purchasers in Andhra Pradesh, Haryana and Maharashtra under Section 6(2) of the Central Sales Tax Act, 1956 (“CST Act”)

• The Value Added Tax Officer and the Additional Commissioner denied exemption under section 6(2) of the CST Act (See note 1) to the petitioner, on the ground that as the first sale was exempt from CST, thus the subsequent sale would be liable to be taxed

1. The petitioner filed a writ petition in the High Court of Delhi praying for issuance of the writ of certiorari quashing the above-mentioned notices and orders

Question before the Court:- The question before the Court was whether the subsequent sale satisfied the conditions prescribed under Section 6(2) of the CST Act and was entitled to be exempted from CST

Decision of the High Court of Delhi

• The Honorable High Court set aside the assessment order and the penalty order made against the Petitioner and remanded the matter to the Value Added Tax Officer for determining whether the conditions under section 6(2) of the CST Act are satisfied.
• Further, the Honorable High Court while interpreting section 6(2) of the CST Act made the following observations with regard to availing the exemption prescribed under the said section:

–  The first sale could be either a Section 3(a) sale [sale occasioning movement of goods] or a Section 3(b) sale [sale by transfer of documents to title];

–  The second or subsequent sale has to be a Section 3(b) sale;

–  The subsequent sale has to be to a registered dealer;

–  The goods should be of a description referred to in Section 8(3) of the CST Act;

–  The E-1 Form is to be furnished by the petitioner; and

–  The C-Form obtained from the purchasing registered dealer has also to be furnished by the petitioner

• Further, the Honorable High Court distinguished the judgements of the Supreme Court in the case of A & G Projects and Technologies Limited Vs. State of Karnataka (2009 (2) SCC 326] and the High Court of Andhra Pradesh in the case of Jadhavjee Laljee Vs. State of Andhra Pradesh (1989 (74) STC 201 (DB)].

NF