Parmod K. Bansal, Advocate
M/S. Hyderabad Engineering Vs State Of A.P. on 4 March, 2011 (Supreme Court of India)
Background
- While inter-state sales are subject to CST; intra-state sales are governed by respective State VAT legislation’s.
- Stock transfers to a branch outside the State is not subject to either VAT or CST. However, VAT credit on inputs is required to be reversed (as per the State VAT laws).
- However, dispute lies where some stock transfers are considered by VAT authorities as inter-state sales and proceed to recover tax thereon from the seller.
- High courts have been giving divergent views on the issues which has now been settled by Supreme court in ‘Hyderabad Engineering Industries’. Now armed with latest decision from Supreme court, VAT department would be up in arms against the dealers. Brief facts alongwith analysis of decision is discussed in subsequent slides
Supreme Court in case of ‘A’ – Facts of the case
A has manufacturing facility in Andhra Pradesh and a branch in Delhi.- A entered into a ‘Sales Agreement’ with B in Delhi wherein A proposed to sell the goods on wholesale to B while B to further sell in retail. While B was granted the exclusive rights to sell A’s products, distribution to other bulk buyers and government was retained by A. B places its monthly intents for supply of goods.
- Based on these, the supplies are made by A to its branch from where sales are made to B in Delhi. No Tax paid on transfer from AP to Delhi considering it as stock transfer
- However, Sales tax department had a different view and considered the same as Inter-state sales, subjecting the same to CST
- A, after not getting relief from lower authorities, filed an appeal before Supreme court
Legal position – Section 3 of Central Sales Tax
Section 3. A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase–
(a) occasions 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.
Sales Tax officer’s contentions
“from a factual description of the mode of transactions, it is evident that the inter-state sales effected by the assessee have been camouflaged as branch transfers with a view to evade tax legitimation due to the state on these transactions”
Basic issue for consideration
With a view to find out whether a particular transaction is inter-state sale or not, it is essential to see whether there was movement of goods from one state to another as a result of prior contract of sale or purchase.
Supreme court – Analysis & Observations
Matter reached Supreme court who observed as follows.
Comments are closed.