VAT implications on Intra State Stock Transfer – Life after Delhi High court decision in Havell’s and ITC

Background

• Stock transfers to a branch or consignee have been the norms of trade in both pre and post VAT regime. Further, Stock Transfer can be both inter-state and intra-state.
• Various businesses contemplate options of selling the goods to another dealer or opening up a branch in another state, sending the goods on stock transfer and then selling from that branch
• We have evaluated various options being undertaken by corporates and the impact / implications of same under VAT regime in view of judicial pronouncements and legislative enactments have been provided below.

Scenario 1 – Stock transfer to another state

Mechanism/ Implications

• Inter-state sales are covered by Central Sales Tax Act 1956
• Present rate of CST is 2% of the consideration on sale of goods
• In stock/branch transfer, goods move from one State to another, but there is no ‘sale’. Goods are sent to branch or depot or consignment agent in other State. Stock transfer/branch transfer is not subject to tax since there is no ‘sale’.
• Form F is required to be submitted to establish stock transfer.

Risk Areas

• However, if buyer is identifiable before goods are dispatched, it is ‘Inter State’ sale and not a ‘stock transfer’. Thus, a branch supplying to only one dealer could be subject to detailed scrutiny by VAT authorities
• Another problem is that State VAT laws require reversal of input tax credit on purchases if such goods are stock transferred – thus there is no impact only when goods have been imported or purchased from another state (in which case there is no Input tax credit)

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Presentation by

Parmod K. Bansal,Advocate

Akhil Bansal,C.A

Mobile –9810288440

E-mail – balwantraibansal@yahoo.co.in