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Sales in Transit Section 6(2) of the CST Act

Understand Section 6(2) for inter-state sales, conditions, documentation required, movement of goods, and sales outside the state. Learn about transhipment, in-transit sales, and case studies.

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Sales in Transit Section 6(2) of the CST Act

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  1. Sales in Transit Section 6(2) of the CST Act Presentation by CA Prem T. Chhatpar For VATinfoline Multimedia premchhatpar@gmail.com

  2. Inter state sales a must premchhatpar@gmail.com Sales in transit u/s 6(2) possible only when first sale is an Inter state sale Subject to fulfillment of conditions and prescribed procedure

  3. When sales are inter state sales premchhatpar@gmail.com Principles laid down in Section 3, 4 and 5 to be applied. Section 3 has two limbs – Section 3a and Section 3b. Movement of goods across state borders pursuant to a contract of sale a must Inter state sales between two neighbours in same State possible

  4. When sales are inter state sales premchhatpar@gmail.com FORMULATION OF PRINCIPLES FOR DETERMINING WHEN A SALE OR PURCHASE OF GOODS TAKES PLACE IN THE COURSE OF INTER-STATE TRADE OR COMMERCE OR OUTSIDE A STATE OR IN THE COURSE OF IMPORT OR EXPORT S.3. When is a sale or purchase of goods said to take place in thecourse of inter-State trade of 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. Explanation1.- Where goods are delivered to a carrier or other bailee for transmission, 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 a movement of the 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.

  5. Inter State Sales ? premchhatpar@gmail.com Movement should commence in one State and terminate in another State – mere passing through another State not sufficient Movement of goods commences when goods handed over to common carrier for transportation. Movement can be by Road, Rail, Inland waterway, Sea, or Air

  6. Intra State sales premchhatpar@gmail.com Where movement of goods takes place within the State, then there is no possibility of Section 6(2) sales despite the exchange of Forms (if lucky to get the Forms). In fact, the Second seller would liable to registration in that other State.

  7. Sales outside the State – Section 4 premchhatpar@gmail.com KirloskarElectrodyne Ltd. – SA 876 of 2000 dt. 16/6/2001 After receiving an order, the company placed order on OMS supplier and instructed direct delivery to a customer in another State. Claim was modified from Section 6(2) to “Out and out sale” u/s 4 and Maharashtra had no locus standii to tax such sales

  8. Inter state sales? premchhatpar@gmail.com Documentary evidence needed – Lorry Receipts, Railway Receipts, Bill of Lading Courier receipt, Angadia Receipts, Airway Bill – Sufficient to prove inter state movement but do not constitute documents of title to goods since they are not negotiable/transferable

  9. Sec 6(2) – In-transit Sale Movement ends when delivery is accepted by the last endorsee/Purchaser Till delivery is accepted, the goods remain in the custody of the Transporter and the movement is supposed to be ongoing. No time limit but inordinate delay may be a cause for suspicion – Reasonable time ShriHariharan Paper Trader 1994-VIL-04-MAD • 9 premchhatpar@gmail.com

  10. Inter state sales u/s 6(2) • Notwithstanding anything – 6(1) & 6(1A) • Where sale – in the course of interstate trade or commerce • Has either occasioned the movement OR • Has been effected by transfer of document of title to such goods • To a RD • Requires to read sec 3(b) along with sec 6(2) premchhatpar@gmail.com

  11. Transhipment permissible? premchhatpar@gmail.com If the Transporter is entrusted with goods at say Palghar, he may take the goods in smaller tempo to Bhiwandi and changeover to a bigger Lorry – his own or another Transporter holding the requisite route permit for the ultimate destination.

  12. 6(2) – Intransit sale premchhatpar@gmail.com Normal procedure – Endorsement and delivery of the L/R to the buyer who may or may not have been known at the commencement of movement of goods. It is possible to have second sale in transit u/s 6(2) even to a predetermined buyer. A & G Projects – 2008-VIL-40-SC - cause for confusion. However, matter clarified by MST Tribunal in Ajay Trading Co. 2012-VIL-01-MSTT – Sales to predetermined buyer possible provided accompanied by endorsement /delivery of L/R No reference filed – Judgment apparently accepted -

  13. Endorsement a must? premchhatpar@gmail.com • Endorse the L/R in favour of the end-buyer so as to comply with Ajay Trading Co. literally although it has been held in HaridasMuljeeThakker1991-VIL-03-GUJand VishalIspat – SA 193 of 2001 dt. 19/6/2002 endorsement not a must.

  14. Cenvat passing procedure premchhatpar@gmail.com • For Passing of CENVAT credit, Excise invoice must mention the name of the ultimate buyer. • CBEC Circulars – 96/7/95-CX dt. 13/2/95 and 1003/10/2015-CX dt. 5/5/2015 prescribe the procedure for passing of cenvat credit. • Prepare Commercial invoice over and above Excise invoice, which is a substitute for erstwhile Excise Gate pass.

  15. CBEC Circulars – 96/7/95-CX dt. 13/2/95 premchhatpar@gmail.com TRANSIT SALE 1.    A registered person places an order on a manufacturer for supply and delivery of goods directly to a consumer and the goods are accordingly transported from the manufacturer's premises to the user's premises without being brought to the registered person's premises. In such a situation manufacturer will issue an invoice under Rule 52A. This invoice under Rule 52A will contain, in addition to the prescribed details including the consignee's name and address, mentioned therein, the registered person's name and address, on account of whose instructions the goods have been dispatched. The consignee in this case will be the end user. In such a situation the registered person's invoice is not required for availment of Modvat credit. The duplicate copy of the manufacturer's invoice under Rule 52A will serve as cover for transport and for availment of MODVAT by the end user.

  16. CBEC Circulars – 96/7/95-CX dt. 13/2/95 premchhatpar@gmail.com 2.    In case the goods have been consigned directly by the manufacturer to the consignee/ end user under the instructions of the registered person and the end user refuses to receive the goods, then the registered person could approach the Range Superintendent of the original consignee. The Range Superintendent on receipt of request from the registered person can divert the consignment to a new destination as requested by the registered person. The duplication and triplicate copy of the manufacturer's invoice will be endorsed by the Range Superintendent showing new destination.

  17. CBEC Circulars – 96/7/95-CX dt. 13/2/95 premchhatpar@gmail.com 3.    A registered person, say in Bombay, places an order on a manufacturer, say in Madras for supply of goods at Ahmedabad without being definite in advance as to who his buyer in or around Ahmedabad would be. The order has been placed in anticipation of the demand. The goods are delivered and stored in a godown. The registered person would be required to register himself at Ahmedabad and issued invoices under Rule 57G.

  18. Circular 1003/10/2015-CX dt. 5/5/2015 premchhatpar@gmail.com (i)   Where a registered dealer negotiates sale of an entire consignment from a manufacturer or a registered importer and orders direct transport of goods to the consignee, credit can be availed by the consignee on the basis of invoice issued by the manufacturer or the registered importer. In such cases no Cenvatable invoice shall be issued by the registered dealer in favour of the consignee though commercial invoice can be issued. Where a registered dealer negotiates sale of goods from the total stock ordered on a manufacturer or an importer to multiple buyers and orders direct transportation of goods to the consignees and the manufacturer or the importer is willing to issue individual invoices for each sale in favour of the consignees for such individual sale, the same procedure shall apply.

  19. Circular 1003/10/2015-CX dt. 5/5/2015 premchhatpar@gmail.com (ii)  Where a registered dealer negotiates sale by splitting a consignment procured from a manufacturer or a registered importer and issues Cenvatable invoices for each of the sale, it would now be possible for the dealer to order direct transport of the consignments as per the individual sales to the consignee without bringing the goods to his godown. This would save time and transportation cost for the dealer adding to ease of doing business. This is a new facility which flows from the amended provisions. Procedure as prescribed in the third proviso of rule 11(2) shall be applicable in such case.

  20. Circular 1003/10/2015-CX dt. 5/5/2015 premchhatpar@gmail.com (iii) Where a un-registered dealer negotiates sale of an entire consignment from a manufacturer or a registered importer and orders direct transport of goods to the consignee, credit can be availed by the consignee on the basis of invoice issued by the manufacturer or the registered importer. As the dealer is not registered, there is no question of issuing any Cenvatable invoice by him . Such dealers as in the past can continue to be un-registered.

  21. 6(2) – Documentation premchhatpar@gmail.com • Exchange of declarations • W of Orissa sells to X of Maharashtra, X to Y of Maharashtra – X to give Form C to W and obtain Form E-1 from W. X to also obtain Form C from Y. • Even Y can sell to Z of Mumbai against Form C from Z and Form E-II from Y. • W taxable sales u/s 3(a) & others exempt U/s 3(b)

  22. Endorsement a must? premchhatpar@gmail.com Two limbs of Section 6(2) in just the same way as two limbs of Section 5 of the CST Act – High Seas sales as well as Sales having nexus with imports – 1985-VIL-05-SC Indian Explosives Ltd. Inextricable link required to be proved – no possibility of diversion of goods to another buyer.

  23. Non receipt of Forms premchhatpar@gmail.com

  24. Form E-1 a must Form E-1 is a must even if the goods are not taxable, being Tax-free goods, in the sending State and Form C is not required to be issued to the First seller. Swastik Surfactants Ltd. – SA 1716/1717 of 2000 dt. 31/12/2003 However, mention of Form C in requisition is a must for applying for Form E-1. Form E-1 is a certificate while Form C is a declaration • 24 premchhatpar@gmail.com

  25. Splitting of Consignment ? Solution – For same consignment, separate LRs to be taken out Will this apply to say liquid cargo stored in oil tank – delivery in small quantities? Sale takes place upon ascertainment and not by transfer of documents of title to goods. • 25 premchhatpar@gmail.com

  26. A & G Projects (SC) 2008-VIL-40-SC • 26 premchhatpar@gmail.com • Facts • A &G Projects (Karnataka) – PO on manufacturing at TN & supplies directly to KPTCL – Karnataka • Admittedly, 3 inter-sales covered by sec 3(a) [page 244 para 9] • Held • All transactions are inter- state sales from TN • Is it setting principles wrt 6(2) sales? • No. • Ratio is in respect to Sec 9(1) –appropriate state • M/s. Ajay Trading Company Vs The State of Maharashtra VAT SECOND APPEAL No. 111 OF 2010 Dated 12/12/2012

  27. Related Delivery issues Short delivery D/N issued Is it G/R? No – it is a case of partial sale and partial sale not fructifying at all Delivery not accepted on arrival in other State - Unfructified sale Delivery accepted by second seller and then forwarded to customer – Local sale despite receipt of Form C • 27 premchhatpar@gmail.com

  28. Transfer/Sale after inspection? Goods to be accepted only upon inspection Endorsement and Transfer of R/R during movement but acceptance after inspection Delivery of goods not associated with transfer of title – which takes place on fulfilment at later date. Agreement of sale not covered in term ‘sale’ - Coffee board 1980-VIL-01-SC Sale held to be local sale and not u/s 6(2) – Forfeiture cancelled Chem Dyes Corp 1991-VIL-04-GUJ What if goods accepted and part returned later? • 28 premchhatpar@gmail.com

  29. Sales in transit under Works contract? Can a works contractor purchases goods and sell u/s 6(2)? Larsen & Toubro – 2015-VIL-411-AP Although there were two contracts- one for the supply of goods and the other for erection, due to the presence of “Cross fall breach clause” stipulating rejection of goods if not duly erected and non payment of sales consideration, Claim u/s 6(2) was disallowed as property was to pass / Sales only upon successful erection of the goods in question. • 29 premchhatpar@gmail.com

  30. Act applicable for contravention In the absence of C /E1 forms- transaction to be taxed under the CST Act and not under the Local Sales Tax Act. In the event of sales outside “transit” – under the Local Act • 30 premchhatpar@gmail.com

  31. Mismatch in description of goods Description in purchase invoice & sale invoice differs Seller matches description as per terminology used in tender. If it can be proved these are same goods – 6(2) allowable- Van VanaspathyUdyog1995-VIL-05-MAD • 31 premchhatpar@gmail.com

  32. Secondary supporting documents premchhatpar@gmail.com • Other than forms – are other evidence like endorsed L/R etc. required? • Preferably retain xerox copy of endorsed LR copy – Xerox of the reverse side if endorsement done there. • VishalIspat Ltd. – SA 193 of 2001 dt.19/6/2002 endorsement not necessary in the Indian context, and in the absence of the xerox copy, other evidence like Transport Money Receipt, octroi receipt would support the claim

  33. ‘in-transit sale’ – HP/ Leasing transactions? Taxable event is “Transfer of right to use goods” and not the user of goods But mode of delivery would decide its nature – whether local sale or Inter state sale or 6(2) Section 6(2) sale in a hire purchase / Leasing transaction Whatever concessions available to ordinary sales are also available to HP Sundaram Finance Ltd vs STO 2001-VIL-04-ORI - under CST Act • 33 premchhatpar@gmail.com

  34. Value of Forms/Loss of forms Value of ‘C’ form short received although all transaction covered MSTT followed – Kosan Industries Ltd SA 1188 to 1190 of 2000 dt. 19.7.2003 Loss of E1 & EII Indemnity bond to be furnished Rule 12(2) & 12(3) of CST(R&T) Rules • 34 premchhatpar@gmail.com

  35. Other Issues Trade circular no.17 /2007 dt/ 6.12.2007 – C/F/H could be issued / received in quarter of sale or accounted if delivered in different quarter. Inter-state sales to A – who refuses & another buyer takes the delivery – is 6(2) possible? 1963-VIL-02-MAD – A ThiruvengadaswamiIyengar • 35 premchhatpar@gmail.com

  36. THANK YOU premchhatpar@gmail.com

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