LOCAL SALE INTERSTATE SALE Local sale is covered under LOCAL SALE TAX ACT Inter state Sale is...

LOCAL SALEINTERSTATE

SALE

Local sale is covered under LOCAL SALE

TAX ACT

Inter state Sale is covered under

CENTRAL SALES TAX ACT

SALE

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CA VIJAY KUMAR GUPTA, SHASTRI NAGAR STUDY CIRCLE 17.12.2010

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DEFINITION OF SALE As per Section 2(g) of The CST Act, 1956-“Sale” with the grammatical variations and cognate and

expressions, means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable good consideration , and includes -

(i) a transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payments or other valuable considerations;

(ii) a transfer of property in goods (whether as goods or in some other from) involved in the execution of a works contract;

(iii) a delivery of goods on hire-purchase or any system of payment by installments;

CA VIJAY KUMAR GUPTA, SHASTRI NAGAR STUDY CIRCLE

17.12.2010

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(iv) a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

(v) a supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;

(vi) A supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration,

but does not include a mortgage or hypothecation of or a charge or pledge on goods.


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INTER- STATE SALEINTER- STATE SALE DEFINITION-DEFINITION- As per Section 3 of The CST Act, 1956 -

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 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.


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Explanation 1-

Where goods are delivered to a carrier or other bailee for transmissions, 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.

Explanation 2-

Where the movement of goods commences and terminates in the same state it shall not be deemed to be 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.

CA VIJAY KUMAR GUPTA, SHASTRI NAGAR STUDY CIRCLE

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Under Central Sales Act,1956

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What is meant by High Sea Sales ?

It means sale of goods after crossing the Custom barriers of the Foreign Nation but before crossing (entering) the Custom frontiers of India by way of transfer of documents of title of goods.

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Customs Frontiers of IndiaIn terms of section 2(ab) of the Central Sales Tax Act,

“crossing the customs frontiers of India” means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities. For the purpose of this clause, “customs station” and “customs authorities” shall have the same meanings as in the Customs Act, 1962 (52 of 1962).

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Custom StationCustom Station is defined u/s 2(13) of the Customs

Act,1962. It includes customs port, customs airport, inland container depot, and land customs station.

Custom Station is different from Custom Area, its just a part of the latter.

Custom Act enables the Central Government, by notification in the Official Gazette, to appoint the ports and airports which alone shall be customs ports or customs airports for the unloading of imported goods and loading of export goods or any class of such goods.


Relevant Law for High Sea SalesSec 5(2) of CST Act,1956

A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.


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Benefit arising out of High Sea Sales

No Central Sales Tax is chargeable on High Sea Sales.


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High Sea Transaction is always a Central Transaction even though it is made between two Local Dealers. But on rejection of the status due to any reasons, the nature will be depend upon other factors.

Type of Transaction

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Documents required to prove High Sea Sales High Sea Sales Agreement Copy on Non-Judicial Stamp Paper of

requisite value as per State Stamp Duty Act.

Copy of Import Bill, Bill of Lading & Airways Bill, Insurance Papers.

Dr. Note issued by importer/seller for his profit margin.

Bill of entry specifying the name of Importer and proof of payment of Custom Duty.


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High Sea Sale AgreementThis is a agreement where seller do the import by

means of sea and sell the same to buyer before the consignment reaches port of destination.

Seller will raise a invoice of at least 3% higher amount in comparison to foreign invoice.

Need to endorse the bill of lading and all necessary documents.

CA VIJAY KUMAR GUPTA, SHASTRI NAGAR STUDY CIRCLE 17.12.2010 14

CONTENTS OF AGREEMENT OF HIGH SEAS SALE IE CODE NUMBERCHA LICENSE NUMBERPORT OF SHIPMENTCOUNTRY OF ORIGINCOUNTRY OF CONSIGNMENTIGM NUMBERMASTER B/L NO. & DATEHOUSE B/L & DATEMARKS AND NUMBERS ON THE PACKAGESCONTAINER NUMBER

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CONTAINER SEALCONTAINER SIZENUMBER OF PACKAGESGROSS WEIGHTTYPE OF BILL OF ENTRYADVANCE/PRIOR ENTRY/POST ARRIVALHIGH SEAS SALE/DEFENCE/BOOKSCATEGORY OF IMPORTERWHETHER FIRST REQUIRED – Y/N

IF YES, REASONS THEREFOREWHETHER GREEN CHANNEL CLEARENCE REQUIRED

(AS PER EXPORT-IMPORT PROCEDURE CODE ANNEXURE-III)

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Can goods stored in Custom Bonded Ware House be sold on High Sea Basis ?

YES

As held in the case of “Kiran Spinning Mills vs. CC(1999) 113 ELT 753 (SC)”

Goods remain to be in Customs barrier when they are in Custom bonded warehouse.


1. Verdict given by Honorable A.P. High Court The goods cross the limits of the customs port after the bill of

entry is filed and the import duty is assessed, even though the assessed duty is not yet being paid i.e. High Sea Sales cannot be made after filling Bill of entry.

As per decision given under the case of

“Minerals & Metals Trading Corp. of India Ltd. vs. State of A.P. (1998) 110 STC 394 (AP)”


2. Verdict given by Honorable Madras High Court

Case: State Trading Corporation of India Ltd. Vs State of T.N.

(2003) 129 STC 294 (Madras) It was held in the above case that the crucial event for the

purpose of section 2(ab) and 5(2) of the CST Act is the crossing custom frontier, in other words crossing the limits of the area of the customs station in which goods are stored and not when the goods land in India or enter the territorial waters i.e. the goods cannot be said to cross the custom barrier even after the goods are unloaded from the ship and are assessed to duty after filling of the Bill of entry until the duty is paid and the goods are brought out of the limits of the Custom Station.


3. Authors view

Based on the decision of Honorable Supreme Court in the case of State of Bihar vs Tata Engineering and Locomotive Co. [1971] 27 STC 127 (SC).

It was held in the above case that the 1st test will apply in the cases of sales on High Seas i.e. when the goods in course of movement between India and Foreign Country are sold by transfer of documents of title.

In the remaining two tests1. An intention of the parties to the transaction to import2. Actual Import should exist. Thus, the goods cannot be sold on high seas after filing of bill of entry

because after filing of bill of entry , goods cannot be sold merely by transfer of documents of title.


Is there any Import Duty payable on High Sea Sales made to a unit located in S.E.Z.

In the opinion of author no Import duty is payable on such transactions as such no Import is payable by a unit located in SEZ on his normal Imports.


Can any Registered Dealer under CST Act can make High Sea Transactions.

YESProvided the item to be traded is mentioned on his

registration certificateHe is having a valid Import Export Code No.


S. A. 1506 & 1507 OF 99 DT. 31.03.2001 (MAHARASHTRA S. T. TRIBUNALIn the case of Anurag Agencies Pvt. Ltd., the

Maharashtra ST Tribunal stated that if the bill of entry is presented by the high seas buyer, it is clear case that the seller has effected sale of goods to him prior to the clearing, as unless it is so sold buyer will not be in position to present the bill of entry in his name. The claim of seller as sale in course of import is fully justified even if certain documents are not available.

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The Tribunal observed as under:-

“Generally the bill of entries are made in the name of original importer by the custom authorities but in this case specifically bill of entries were made in the name of the subsequent purchaser. If it was not the case then the bill of entry would not been made in the name of buyer by the custom authority. Thus it is immaterial to draw otherwise inference that there is no transfer of document of title to the goods by the importer to the buyer.”


S. A. No. 1894 of 2004 dt. 08.08.2008 (Maharashtra S. T. Tribunal)

In the case of Sanvik Asia Ltd., the Maharashtra ST Tribunal found that the bill of entry was in the name of purchaser of the Appellant, and hence tribunal observed that there was indication that the goods were sold before crossing the custom frontier. Therefore the tribunal allowed the claim.

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In the case of Indo Tex Export (P) Ltd. (S.A. No. 284 & 285 of 90 dt. 17.6.1995 (Maharashtra S.T. Tribunal)The larger bench of Tribunal held that sale affected from

bounded warehouse cannot be allowable as sale in course of import by transfer of documents of title of goods. The tribunal held that once the goods are cleared from customs for home consumption or bonded warehouse, the crossing of Customs Frontiers gets completed. There cannot be crossing the Custom Frontiers twice. The storing of goods in bonded warehouse is for deferment of duty and nothing to do with Customs Frontiers as per section 2(ab) of CST Act, 1956. The Tribunal, thus, disallowed the claim.


Bonded Warehouse

Bond transfer Sale is a part of High Seas Sale.Bond transfer sale means the sale after landing of

goods at Custom Station but before custom clearance.


Can Goods stored in Bonded warehouse sold in parts in High Seas Transaction?

Yes,

As decided in case of NDML Ltd. Vs. State of Andhra Pradesh (2007) 8 VST 252 (AP)


Ownership must be transferred before the goods cross the custom frontiers of India

It is evident from the facts of the case Milkhiram (I) (P) Ltd. Vs. State of Bombay (1963) 14 552 18 (Maharashtra)


The Cenvat Credit in respect of CVD paid on import is entitled to High Seas Sale Purchaser


There is practice followed in customs that in case the HSS transfer takes place at import invoice value only, the custom would add 4% of CIF value as HSS loading factor. There have been cases where HSS sellers have sold at two percent more than import CIF but custom have added 4% of CIF as HSS value addition. Such practice of customs can be challenged at the customs duty is chargeable on genuine transaction value.


SALE IN TRANSITIn simple words, Sale in Transit means, Sales

made by the Buyer (subsequent seller), without taking the physical delivery of the Goods bought during the movement of goods from one state to another i.e. goods resold by transferring the documents of title of the goods, normally called G.R./R.R. to the another party (Subsequent Buyer).


As per Central Sales Tax Act,1956 Section 6(2)

Notwithstanding anything contained in sub-section (1) or sub-section (1A),where a sale of any goods in the course of inter state trade or commerce has either occasioned the movement of such goods from one state to another or has been effected by a transfer of documents of title to such goods during their movement from one state to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods to a registered dealer, if the goods are of the description referred to in sub-section(3) of section 8, shall be exempt from tax under this Act.


Documents to TitleDocuments to Title The term “documents of title to goods” is defined under

section 2(4) of the Sale of Goods Act, 1930, as: “The phrase ‘Documents of title to goods’ includes a bill

of lading, dock-warrant, warehouse- keeper’s certificate, wharfinger’s certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorizing or purporting to authorize, either by endorsement or by delivery, the possessor of the document to transfer or receive goods there by represented.”


SOMETHING ABOUT FORM E-1

FORM E-l is a Statutory form under CST Act.

The Subsequent Seller has to receive it from his immediate seller.


Manner of Claiming Manner of Claiming ExemptionsExemptions For Claiming Exemption u/s 6(2) of CST Act for

Subsequent Inter-State Sales, Form E-l/II and C Form should be obtained from the purchaser and in the absence of E-l/II and C Form, exemption will not be available.

For Delhi Dealers As per rule 7(5) of CST (Delhi) Rules, 2005,the

subsequent seller shall furnish E-I/II form in original duly filed & signed to the VATO of his Ward along with DVAT-51 within prescribed time.


Submission of Forms

These Forms should be submitted to the prescribed authority within prescribed period of time and in manner under the relevant State Act.


CONDITIONS PROVIDED that no such subsequent sale shall be exempt

from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit,-

a) A certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and

b) If the subsequent sale is made to a registered dealer, a declaration referred to in sub-section (4) of section 8:


PROVIDED FURTHER that it shall not be necessary to furnish the declaration referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if,-


a) The sale or purchase of such goods is under the sales tax law of the appropriate state exempt from tax generally or is subject to tax generally at a rate which is lower than three per cent, or such reduced rate as may be notified by the Central Government, by notification in the Official Gazette, under sub-section (1) of section 8 (whether called a tax or fee or by any other name); and


b) The dealer effecting such subsequent sale proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in this sub-section.


Example:1Example:1

A A

State “Haryana”State “Haryana”

Sale to “B”Sale to “B”

B

State “Delhi”

Purchase from “A”

and sell to “C”

C

State “Gujarat”

Purchase

From “B”FORM E-l

FORM CFORM C


Example :2Example :2A

State “Haryana”

First sale to “B”

D

State “MADRAS”

Last Purchase

From “C”

B

State “DELHI”

Purchase from “A”

and sell to “C”

C

State “GUJARAT”

Purchase from “B”

& Sale to “D”

FORM C

FORM E-l

FORM C

FORM C

FORM E-II


In this case the subsequent seller also In this case the subsequent seller also transfer the goods in transit, then every transfer the goods in transit, then every subsequent buyer will issue form C to his subsequent buyer will issue form C to his preceding seller.preceding seller.


Can Form E-l be issued for Tax Free Goods ?

YES As per form E-l, the seller gives the certificate that:

He will pay/has paid tax under the CST Act.

No tax was payable under the CST Act in view of the general exemption referred to in sub-section (2A)[or in pursuance to any exemption or concession granted under sub-section (5)] of section 8, on the sale of the goods covered by documents whose particulars are given above to the appropriate sales tax authority of state.


Important point

Ques.- Whether subsequent sale attract the provisions of Section 6(2), when the first sale is exempted from tax?

Ans.-(i) The first sale could be either a Section 3(a) or a

Section 3(b) sale;

(ii) The second or subsequent sale has to be a Section

3(b) sale;

(iii) The subsequent sale has to be to a registered

dealer;


(iv) The goods should be of a description referred to in

Section 8(3) of the CST Act; (v) The E-1 Form is to be furnished by the petitioner; and (vi) The C-Form obtained from the purchasing registered dealer has also to be furnished by the petitioner.[CASE:- M/s Mitsubishi Corporation India P. Ltd.

vs. The VATO & Anr. (2010) SLP FILED


CERTAIN CASE LAW REFERENCES DEFINING VALID TRANSFER OF DOCUMENT OF TITLE

Normally, the sale is effected by endorsement of transport documents. On the backside of the documents 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.


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MANNER OF TRANSFER OF DOCUMENTS OF TITLE

The endorsement is required for transferring the title of goods. Document of title does not includes Authorisation letters issued by the seller, instructing to the carrier to deliver the goods at particular place or to a particular person. Since these are only instructions given to the carrier to deliver the goods, although these letters may look like delivery orders, but they cannot be considered as documents of title to goods.


For ExampleTo be called as a valid transfer of documents for the purpose of section 3(b) of the CST Act lorry receipts should be either endorsed or handed over or otherwise transferred to the purchasers.

It is evident from the facts of the case, State of T. N. vs. N. Ramu Bros. (Electricals) (1993) 89 STC 481 (Mad).


TIME OF TRANSFER OF DOCUMENTS

The transactions of transfer of documents of titles, after the commencement of journey of goods and before they reach to their destination, is covered under Section 3(b). According to Explanation (1), movement terminates when delivery is taken from carrier.


NOW THE QUESTION ARISESIs it necessary to take delivery immediately after

receipt of goods in the godown of the carrier or it may be taken after a long time?

Can the State Government issue notification for stipulation of time period for transfer of documents to consider it as an Inter-State sale?


OPINION OF DELHI HIGH COURTIn the context of explanation (1) to section 3(b) Delhi

High Court opines that the section does not permit a purchaser to “expand the movement” of goods beyond the time of the physical landing of the goods in the State.

Explanation (1) to Section 3(b) of the CST Act will lead to anomalous results if, we take delivery as the test of termination of movement instead of landing of goods in an importing State.


OPINION OF MADRAS HIGH COURT To the contrary to the judgment of Delhi High

Court, the Madras High Court held that movement continues even after physical landing of the goods in the State.

Moreover, notification issued by the Govt. to stipulate time period for transfer of documents after physical landing for considering a subsequent sale as an inter-state sale u/s 6(2) of the CST Act, was not held as ultra vires.


Further held that opportunity of being heard should be given to the dealers to prove the sale by transfer of documents, even after such stipulated time, as an Inter-State sale under section 3(b).

[Case Ref : Shri Hariharan Paper Trader vs. Dy. CTO (1999) 114 STC 598 (Mad) & P. T. Power Gear P. Ltd.

Vs. CTO (1999) 114 STC 603 (TNTST)]


Author’s ViewThe judgment given by Honorable Delhi High Court

that explanation (1) to section 3(b) does not permit a purchaser to “expand the movement” of goods beyond the time of the physical landing of the goods in the State seems to be more realistic since if we take the delivery as the test of termination of movement and not the physical landing of the goods in an importing State, explanation (1) to section 3(b) of the CST Act will lead to anomalous results, and thus affect the basic intent of law.


In the eye of law the actual meaning of “Physical Landing of Goods” is the taking possession of the Goods by the purchaser in his godown, while the meaning of delivery of Goods may be constructive delivery i.e. the delivery by mere endorsement of Documents of Title.


Sale u/s 3(b) Can Take Place Even Without EndorsementTransactions effected by transfer of Documents of title

of the goods during their movement from one state to another are covered under clause (b) of Section 3. Transaction can find its place under this section only if there is a valid transfer i.e., only through endorsement on the documents.

However, in the opinion of Gujarat High Court transfer could take place even without endorsement.


CERTAIN CASE REFERENCESState 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 inter-state sale and the one by Gujarat vendor dealer to Gujarat purchasing dealer is second inter-state sale.


GUJARAT HIGH COURT ALSO HELDthat the second inter-state 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.

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 dispatched 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 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 purchase 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 judgment on this issue. However since the legal position about transfer of document as well as predetermined sale is clear from above judgment , no further citations are given here for sake of brevity .


THANK YOU

Vijay Gupta

203 Mahavir Tower, Plot no.34

Community Centre, Wazirpur

Industrial Area,Delhi-52

9868826026

[email protected]

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