issues relating to in-transit sales 6(2) of the cst act...

Issues Issues relating to relating to

InIn--transit transit sales sales

6(26(2) of the CST Act ) of the CST Act

Presentation by Presentation by Presentation by Presentation by CA Rajat Talati, Mumbai CA Rajat Talati, Mumbai

on 19.7.2014 on 19.7.2014

OOrganisedrganised by by Pune Branch of WIRC of ICAIPune Branch of WIRC of ICAI

[email protected]@talatico.com

Sec 6(2) Sec 6(2) –– InIn--transit Saletransit Sale

�� Notwithstanding anything Notwithstanding anything –– 6(1) & 6(1A)6(1) & 6(1A)

�� Where sale Where sale –– in the course of interstate trade or in the course of interstate trade or commercecommerce

CA Rajat B. Talati, Mumbai.

�� Has either occasioned the movement ORHas either occasioned the movement OR

�� Has been effected by transfer of document of tittle Has been effected by transfer of document of tittle

to such goods to such goods

�� To a RDTo a RD

�� Requires to read sec 3(b) along with sec 6(2)Requires to read sec 3(b) along with sec 6(2)

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6(2) 6(2) –– IntransitIntransit salesale

�� Sec 3(b) of CST r/w sec 6(2) of CST Act Sec 3(b) of CST r/w sec 6(2) of CST Act

�� Section 3(b)Section 3(b)

�� Section 6(2)Section 6(2)

�� TrfTrf of documents of title to the goods of documents of title to the goods

�� Documents of title to the goodsDocuments of title to the goods�� Documents of title to the goodsDocuments of title to the goods

�� L/R, R/R, B/L, Airway bill, any other documents e.g. L/R, R/R, B/L, Airway bill, any other documents e.g. courier receiptscourier receipts

�� Such documents should be negotiable / transferable.Such documents should be negotiable / transferable.

��Airway bill is not negotiableAirway bill is not negotiable

CA RAJAT B TALATI 3


�� During their movement During their movement

�� Endorsement during their movementEndorsement during their movement

�� Practical Practical difficulties difficulties –– passing of CENVAT credit, passing of CENVAT credit, goods directly getting delivered goods directly getting delivered etcetc

M/s. A & G Projects And Technologies Ltd. M/s. A & G Projects And Technologies Ltd. VsVs�� M/s. A & G Projects And Technologies Ltd. M/s. A & G Projects And Technologies Ltd. VsVsState of Karnataka [2009] 19 VST 239 (SC) Dated State of Karnataka [2009] 19 VST 239 (SC) Dated 11.12.200811.12.2008

CA RAJAT B TALATI 4


�� Exchange Exchange of declarations of declarations �� W sales to X , X to Y & Y to ZW sales to X , X to Y & Y to Z

�� W taxable sales W taxable sales u/s 3(a) & others exempt U/s 3(b)u/s 3(a) & others exempt U/s 3(b)

W

in

Karnataka

C form

E-I form

X

in

MP

C form

E-II form

Y

in

West Bengal

C form

E-II form

Z

in Orissa

CA RAJAT B TALATI 5


�� Taxability of 6(2) transactionTaxability of 6(2) transaction�� NonNon--receipt receipt of forms of forms –– levy levy of tax of tax

STATUS OF THE TRANSACTION PRODUCT TAX RATE

4% 12.50%

TAX RATE APPLICABLE

C & E1 BOTH NOT RECD As per the original trans

C RECEIVED E1 NOT RECD 2% 2%

E1 RECEIVED C NOT RECD 4% 12.50%

C & E1 BOTH NOT RECD 4% 12.5%

CA RAJAT B TALATI6

Conditions for claiming exemptionConditions for claiming exemption

�� First sale should be interFirst sale should be inter--state sale either u/s state sale either u/s

3(a)/3(b), the subsequent sale u/s 3(b) and nexus 3(a)/3(b), the subsequent sale u/s 3(b) and nexus

between two transactionsbetween two transactions

�� Movement of goods from one state to anotherMovement of goods from one state to another


�� Movement of goods from one state to anotherMovement of goods from one state to another

�� Documents of title of goods and transfer thereofDocuments of title of goods and transfer thereof

�� Sale to registered dealerSale to registered dealer

�� Submission of declaration formsSubmission of declaration forms

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During the movement During the movement -- Sec 3(b) Sec 3(b) –– ExplExpl

�� CommencementCommencement –– deemed deemed –– at the time of delivery at the time of delivery

of such goods to the common of such goods to the common carrier carrier or or baileebailee

�� TerminateTerminate –– when delivery taken from common when delivery taken from common

carrier carrier or or baileebailee


carrier carrier or or baileebailee

�� If commencement & termination in same state If commencement & termination in same state –– not a not a

interstate interstate –– sale sale –– even if goods pass through any even if goods pass through any

other stateother state

�� Between commencement & termination is ‘during Between commencement & termination is ‘during

their movement’.their movement’.

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Documents to title to the goodsDocuments to title to the goods

�� CST Act does not define itCST Act does not define it

�� Sec 2(4) of ‘sale of goods Act’Sec 2(4) of ‘sale of goods Act’

�� IncludesIncludes


�� A bill of ladingA bill of lading

�� Dock Dock –– warrantwarrant

�� WaveWave--house keeper’s certificatehouse keeper’s certificate

�� Warfinger’sWarfinger’s CertificatesCertificates

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Documents to title to the goods Documents to title to the goods (cont..)(cont..)

�� MultiMulti--model transport documentmodel transport document

�� Railway receiptRailway receipt

�� WarrantWarrant

�� Order for delivery of any goods ANDOrder for delivery of any goods AND


�� Order for delivery of any goods ANDOrder for delivery of any goods AND

�� Any other documents used in the ordinary course of Any other documents used in the ordinary course of

business as proof of the possession or control of goods business as proof of the possession or control of goods

or authorising or purporting to authorise, either by or authorising or purporting to authorise, either by

endorsement or by delivery, the possessor of the endorsement or by delivery, the possessor of the

document to transfer or receive goods thereby document to transfer or receive goods thereby

representedrepresented..

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�� Where ‘not negotiable’ mentioned Where ‘not negotiable’ mentioned -- not a document of title not a document of title

to the goods. to the goods.

�� Commonly taken as ‘document title to goods’.Commonly taken as ‘document title to goods’.

�� Delivery order asking commission agent / bankers to Delivery order asking commission agent / bankers to

Documents to title to the goods Documents to title to the goods (cont..)(cont..)


Delivery order asking commission agent / bankers to Delivery order asking commission agent / bankers to

deliver.deliver.

�� AngadiaAngadia receiptreceipt

�� Is it a document of tittle or ‘a delivery order’?Is it a document of tittle or ‘a delivery order’?

�� Does customer to ask for further action to be done before goods Does customer to ask for further action to be done before goods are delivered? If yes, than it is not document of title to the goodsare delivered? If yes, than it is not document of title to the goods

�� Courier receipt ………?Courier receipt ………?

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Delivery from transport companyDelivery from transport company

�� What is ‘inWhat is ‘in--transit’transit’

�� Till the time goods are Till the time goods are delivered or taken delivery delivered or taken delivery

from the carrierfrom the carrier

Time frameTime frame


�� Time frameTime frame

�� Reasonable time [114:STC:598]Reasonable time [114:STC:598]

�� Will this apply to say liquid cargo stored in oil Will this apply to say liquid cargo stored in oil tank tank –– delivery in small quantities?delivery in small quantities?

�� Comingled goodsComingled goods

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Endorsement of L/REndorsement of L/R

�� Is it a must? Is it a must?

�� P&G Project [19:VST:239]P&G Project [19:VST:239]

�� Gujarat HC Gujarat HC –– Haridas Haridas MuljiMulji ThakkerThakker [84:STC:317][84:STC:317]�� PrePre--conceived second saleconceived second sale


�� Constructive delivery Constructive delivery –– two delivery synchronised in point of time. two delivery synchronised in point of time.

�� Ajay trading MSTT VAT SA 111 of 2010 Ajay trading MSTT VAT SA 111 of 2010 dt.dt.

12.12.201212.12.2012

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A & G Projects (SC) A & G Projects (SC) –– (19:VST:239)(19:VST:239)

�� FactsFacts�� A A &G Projects (Karnataka) &G Projects (Karnataka) –– PO on manufacturing at TN & supplies directly to PO on manufacturing at TN & supplies directly to

KPTCL KPTCL –– KarnatakaKarnataka

�� AdmittedlyAdmittedly, 3 inter, 3 inter--sales covered by sec 3(a) [page 244 sales covered by sec 3(a) [page 244 parapara 9]9]

�� HeldHeld�� HeldHeld�� All All transactions are intertransactions are inter-- state sales from TNstate sales from TN

�� Is it setting principals Is it setting principals wrtwrt 6(2) 6(2) sales?sales?�� NoNo..

�� Ratio is in respect to Sec 9(1) Ratio is in respect to Sec 9(1) ––appropriate appropriate statestate�� M/sM/s. Ajay Trading Company . Ajay Trading Company VsVs The State of Maharashtra VAT SECOND The State of Maharashtra VAT SECOND

APPEAL No. 111 APPEAL No. 111 OF 2010 Dated 12/12/2012OF 2010 Dated 12/12/2012

CA RAJAT B TALATI 14

Endorsement of L/REndorsement of L/R

�� ‘self L/R’ ‘self L/R’ –– can it be endorsedcan it be endorsed

�� Movement not ‘occasioned’ because of saleMovement not ‘occasioned’ because of sale

�� ‘Re‘Re--booking’ booking’ –– rere--routing possible?routing possible?

�� Notional delivery & fresh contractNotional delivery & fresh contract


Notional delivery & fresh contractNotional delivery & fresh contract

�� 89:STC:48189:STC:481

�� Splitting of L/RSplitting of L/R

�� Is it possible?Is it possible?

�� Trade practiseTrade practise

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Some issues in ‘inSome issues in ‘in--transit sale’transit sale’

�� Short delivery Short delivery

�� D/N issued D/N issued

�� Is it G/R?Is it G/R?

�� This may also lead to purchase returnThis may also lead to purchase return


�� This may also lead to purchase returnThis may also lead to purchase return

�� Delivery not accepted on arrival in other StateDelivery not accepted on arrival in other State

�� Unfructified saleUnfructified sale

�� If not rejected by 2If not rejected by 2ndnd seller seller –– amounts to taking delivery in amounts to taking delivery in

other stateother state�� If sold there If sold there –– it is local sale.it is local sale.

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�� Goods returnGoods return

�� 6(2) sales made, part quantity returned 6(2) sales made, part quantity returned –– is it possible is it possible –– yesyes

�� Debit note / credit note Debit note / credit note

�� Splitting L/R : is it possible to claim 6(2)? Splitting L/R : is it possible to claim 6(2)?


�� Splitting L/R : is it possible to claim 6(2)? Splitting L/R : is it possible to claim 6(2)?

�� Freight charges separately collected Freight charges separately collected –– would it throw would it throw

challenges in claim?challenges in claim?

�� Would ‘agreement to sale’ allow 6(2) claim?Would ‘agreement to sale’ allow 6(2) claim?

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�� Goods to be approved on inspectionGoods to be approved on inspection

�� Is claim allowable?Is claim allowable?

�� Delivery of goods not associated with transfer of title Delivery of goods not associated with transfer of title –– which takes which takes place on fulfilment at later dateplace on fulfilment at later date

�� ChemChem dyes corp 83:STC:488 & 129:STC:3dyes corp 83:STC:488 & 129:STC:3


�� ChemChem dyes corp 83:STC:488 & 129:STC:3dyes corp 83:STC:488 & 129:STC:3

�� Coffee board [46:STC:164](SC)Coffee board [46:STC:164](SC)

�� Agreement of sale not covered in term ‘sale’ Agreement of sale not covered in term ‘sale’ ––

�� ‘In‘In--transit’ buyer transit’ buyer –– being a SEZ unitbeing a SEZ unit

�� Can he issue Form I?Can he issue Form I?

�� Is it useless? No.Is it useless? No.

�� See sec 8(6) See sec 8(6) –– if overrides other provision sale exempt against form Iif overrides other provision sale exempt against form I

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�� Can form H be issued by the ‘inCan form H be issued by the ‘in--transit’ buyer?transit’ buyer?

�� Sale against form ‘J’ to diplomatSale against form ‘J’ to diplomat

�� Is it possible to claim 6(2)?Is it possible to claim 6(2)?

�� Sec 6(4) Sec 6(4) –– non obstinate clausenon obstinate clause


�� Needs to be testedNeeds to be tested

�� Can a works contractor purchases goods u/s 6(2)?Can a works contractor purchases goods u/s 6(2)?

�� Conditions specified for forms ‘C’ & ‘E’ Conditions specified for forms ‘C’ & ‘E’

�� Must be specified in RC of purchasing dealerMust be specified in RC of purchasing dealer

�� Both forms should be receivedBoth forms should be received

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�� In the absence of In the absence of C /E1 formsC /E1 forms-- transaction to be taxed transaction to be taxed under under

the CST Act and not under the Local Sales Tax Act.the CST Act and not under the Local Sales Tax Act.

�� SundaramSundaram Finance Ltd Finance Ltd vsvs STO (2002) 125:STC:565(STO (2002) 125:STC:565(OriOri) ) -- under CST under CST ActAct

�� ChordiaChordia Electricals Electricals –– 120:STC:34 appropriate state120:STC:34 appropriate state


�� ChordiaChordia Electricals Electricals –– 120:STC:34 appropriate state120:STC:34 appropriate state

�� Out & out Out & out –– 6(2) 6(2) –– disalloweddisallowed

�� Does Does MMaharashtra has any jurisdiction to tax such transaction where aharashtra has any jurisdiction to tax such transaction where movement commenced from outside Maharashtra?movement commenced from outside Maharashtra?

�� Out & delivery in MaharashtraOut & delivery in Maharashtra

�� SuvarnaSuvarna Enterprises Enterprises –– 85:STC120 (AP) & 85:STC120 (AP) & MewarMewar Oil Oil –– 114:STC:547114:STC:547

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Some issues in ‘inSome issues in ‘in--transit sale’ transit sale’ ––

Infrastructure projectsInfrastructure projects

�� Infrastructure projectInfrastructure project

�� Splitting of the contractSplitting of the contract

�� DesignDesign

�� SupplySupply

�� Installation & commissioningInstallation & commissioning


Installation & commissioningInstallation & commissioning

�� Billing cycle Billing cycle –– on sale side is as per ‘mileon sale side is as per ‘mile--stone’ achievedstone’ achieved

�� MisMis--match with purchase invoicematch with purchase invoice

�� How to claim 6(2) How to claim 6(2) –– successfullysuccessfully

�� Keep L/RKeep L/R

�� GRN copiesGRN copies

�� RecoReco of quantity of quantity vsvs billingbilling

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�� Description in purchase invoice & sale invoice differsDescription in purchase invoice & sale invoice differs

�� Seller matches description as per terminology used in tender.Seller matches description as per terminology used in tender.

�� If it can be proved there are some goods If it can be proved there are some goods –– 6(2) allowable [Van 6(2) allowable [Van VanaspathyVanaspathy UdyogUdyog [98:STC:376](Mad)[98:STC:376](Mad)

�� Other than forms Other than forms –– are other evidence like L/R are other evidence like L/R etc. required?etc. required?


�� Other than forms Other than forms –– are other evidence like L/R are other evidence like L/R etc. required?etc. required?

�� No No –– P A George & Co 110:STC:253 (Ker)P A George & Co 110:STC:253 (Ker)

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Deemed sale Deemed sale –– ‘in‘in--transit sale’transit sale’

�� Can leasing transaction be claimed as exempt u/s 6(2)?Can leasing transaction be claimed as exempt u/s 6(2)?

�� Is it possible to claim 6(2) sale in a hire purchase transactionIs it possible to claim 6(2) sale in a hire purchase transaction

�� Whatever concessions available to ordinary sales are also available to Whatever concessions available to ordinary sales are also available to HPHP

CholamandalamCholamandalam Investment & Finance Co Ltd Investment & Finance Co Ltd vsvs State of Tamil Nadu State of Tamil Nadu


�� CholamandalamCholamandalam Investment & Finance Co Ltd Investment & Finance Co Ltd vsvs State of Tamil Nadu State of Tamil Nadu dt.dt. 1.4.99 (Appeal no. 887/98 to 891/98)1.4.99 (Appeal no. 887/98 to 891/98)

�� Can the ratio be used in leasing transaction?Can the ratio be used in leasing transaction?

�� Is 6(2) sales possible in works contract?Is 6(2) sales possible in works contract?

�� Transfer of property by accretion & accessionTransfer of property by accretion & accession

�� Can there be any transfer by endorsement of L/RCan there be any transfer by endorsement of L/R

�� Divisible contract Divisible contract -- Supply Supply portionportion

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Deemed sale Deemed sale –– ‘in‘in--transit sale’transit sale’

�� Value of ‘C’ form short received although all transaction Value of ‘C’ form short received although all transaction

covered 35:STC: …. Orient Paper. covered 35:STC: …. Orient Paper.

�� MSTT followed MSTT followed –– Kosan Kosan InduIndu. Ltd SA 1188 to 1190 of 2000 . Ltd SA 1188 to 1190 of 2000 dt.dt.19.7.200319.7.2003

�� Loss of E1 & EIILoss of E1 & EII


�� Loss of E1 & EIILoss of E1 & EII

�� Indemnity bond to be furnishedIndemnity bond to be furnished

�� Rule 12(2) & 12(3) of CST(R&T) RulesRule 12(2) & 12(3) of CST(R&T) Rules

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Other Issues for referenceOther Issues for reference

�� Trade circular no.17 /2007 dt/ 6.12.2007 Trade circular no.17 /2007 dt/ 6.12.2007 –– C/F/H could be C/F/H could be

issued / received in quarter of sale or accounted.issued / received in quarter of sale or accounted.

�� InterInter--state sales to A state sales to A –– who refuses & another buyer takes the who refuses & another buyer takes the

delivery delivery –– is 6(2) possible?is 6(2) possible?


�� 14:STC:856 (MAD) 14:STC:856 (MAD) –– A A ThiruvengadasThiruvengadas Swami Swami IyengerIyenger

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