Introduction
As per the scheme of Central Sales Tax Act (CST) when subsequent sale is effected in the course of the same movement, then it is exempted from tax as per section 6(2) of the CST Act, subject to production of C form and E1/E-II form as the case may be. There are a number of judgments throwing light on the various aspects of exempted sale u/s. 6(2). Reference can be made from important judgments like, State of Gujarat vs. Haridas Mulji Thakker (84 STC 317)(Guj), M/s.Fatechand Chaturbhujdas vs. State of Maharashtra (S.A.894 of 1990 dated.12-8-1991) (M.S.T. Tribunal), M/s.Duvent Fans P. Ltd. vs. State of Tamil Nadu (113 STC 431)(Mad.) and M/s. G. A. Galiakotwala & Co. (37 STC 536) (SC).
However, a controversy developed after the judgment of Hon. Supreme Court in case of A & G Projects & Technologies (19 VST 239)(SC).
Issue in A & G Projects & Technologies (19 VST 239) (SC)
The issue before the Supreme Court was from the judgment of Karnataka High Court. The accepted position in the Karnataka High Court judgment was that the Karnataka Sales Tax Assessing Authority considered the sale of A & G Projects as effected under section 3(a) of the CST Act in Tamil Nadu. Inspite of holding so, the tax was levied in Karnataka under CST Act. Before the Supreme Court the issue was whether tax can be levied in Karnataka inspite of holding the transaction as covered by section 3(a) in Tamil Nadu? In effect, the Supreme Court considered the application of section 9(1) of the CST Act. There was no issue about interpretation of section 6(2) of CST Act which is about “sale by transfer of documents of title to goods”, also popularly known as “in transit sale”. However, Hon. Supreme Court has made certain observations in the above judgment regarding “In transit sale”, because of which there was confusion. The relevant observations can be reproduced as under for ready reference:
“Within section 3(b) fall sales in which property in the goods passes during the movement of the goods from one State to another by transfer of documents of title thereto whereas section 3(a) covers sales, other than those included in clause (b), in which the movement of goods from one State to another is under the contract of sale and property in the goods passes in either States [SEE: Tata Iron & Steel Co. Ltd. vs. S.R. Sarkar – (1960) 11 STC 655 (SC) at page 667]. The dividing line between sales or purchases u/s. 3(a) and those falling u/s. 3(b) is that in the former case the movement is under the contract whereas in the latter case the contract comes into existence only after the commencement and before termination of the inter-State movement of the goods.” (Underlining ours)
Due to the above observations the sales tax authorities were taking a view that if the customer to whom sale by transfer of documents is to be effected was known prior to movement then it will be a pre determined sale and will not fall in the exempted category of section 6(2) of CST Act. This created a number of difficulties for the trading community.
Recent judgment of Hon. M. S. T. Tribunal in case of Ajay Trading Company (S A No.111 of 2010 dated12- 12-2012).
Facts of this case
The appellant is a trader and reseller of machinery in Maharashtra. The outside state buyers, herein after referred to as ‘ultimate buyers’ placed an order for purchase of machinery from the appellant. The ultimate buyers were from the state of Gujarat and Rajasthan. The appellant, in turn placed order on local manufacturers in Maharashtra for manufacture of those machineries. The appellant has instructed the manufacturers to dispatch the goods to the ultimate buyers. As per the instructions of the appellant, the manufacturers manufactured the machineries and dispatched them to the ultimate buyers in respective states. The invoices, delivery Challan and the lorry receipts i.e. dispatch proof was sent to the appellant. The appellant signed the lorry receipts and delivered the same to the ultimate buyers. In invoice, the local manufacturer levied CST @ 4%. The appellant raised invoice on the ultimate buyers without levying CST. Turnover of such sales to the tune of Rs. 58,26,750/- was claimed by the appellant in his returns for the period 2005-06 as a subsequent sale u/s. 6(2) of CST Act, as such exempted from central sales tax.
The appellant issued C form to the local manufacturers, who in turn issued an E1 form to the appellant. The ultimate buyers, on receiving the machinery, issued ‘C’ form to the appellant
The assessing officer assessed the appellant for the year 2005-06 and disallowed the claim of subsequent sale u/s. 6(2) holding that both the sales were interstate sales u/s. 3(a) of the CST Act. According to him, property in the machineries was transferred to the outside buyers before the movement of machineries outside the state. As such there is no subsequent sale u/s 6(2) by transfer of documents of the title. Hence, the turnover of the subsequent sale claimed by the appellant was held as not exempt. He levied sales tax on the same, considering it as sales u/s 3(a), on the basis of the decision of the Karnataka High Court in case of State of Karnataka vs. M/s A & G Projects and Technologies Ltd (13 VST 177) and Supreme Court in case of A & G Projects & Technologies vs. State of Karnataka (19 VST 239)(SC).
Arguments
The appellant contended that the local manufacturers have moved the machinery outside the state of Maharashtra as per the instructions of the appellant and sent the dispatch proof i.e. lorry receipt along with the invoice to the appellant. He submitted that the appellant signed the lorry receipts and delivered it to the ultimate buyers. He submitted that the first sale is an interstate sale u/s. 3(a) of the CST Act, and the sale by the appellant to the ultimate buyer is effected by the transfer of documents of title to goods during interstate movement and it is a subsequent sale u/s 3(b) r.w.s 6(2) of CST Act and as such it is exempted from central sales tax. It was submitted that both the authorities below committed an error in relying on the decision of Karnataka High Court and Supreme Court in case of M/s A & G Projects and Technologies Ltd. (cited supra).
Judgment
The Tribunal held that the facts of the present case are similar to the cases of Bayyana Bhimayya & Sukhdevi Rathi vs. Govt. of A.P. (12 STC 147), Onkaral Nandlal vs. State of Rajasthan (60 STC 314) and Haridas Mulji Thakker vs. State of Gujarat (84 STC 319).
The Tribunal observed that the appellant agreed to supply future goods to ultimate buyers outside the state. Delivery to them was on a future date. The appellant in turn placed an order on local manufacturers to manufacture those goods as required by the ultimate buyers and incorporated the term of delivery in the contract to deliver the goods to its ultimate purchasers on its behalf. The local manufacturer manufactured the goods and delivered the goods to the transporter for delivery to ultimate buyers. The local manufacturers moved the goods outside the state of Maharashtra. The contract of sale among them and appellant occasioned the movement of goods outside the state of Maharashtra. It fulfills the requirement of section 3(a) of CST Act and section 3(a) is attracted.
The Tribunal further observed that the law permits two sales simultaneously. Referring to Omkarlal Nandlal’s case Tribunal observed that the same sale may be both a sale in course of inter-state trade or commerce u/s. 3 of CST Act as also a sale inside state. Applying these observations to the facts of the present case, the sale among the local manufacturer and appellant was held as first inter state sale u/s. 3(a) of CST Act, and not a local sale. The subsequent sale by appellant to the ultimate buyer was held as exempt u/s.6(2) r.w.s. 3(b) of CST Act, 1956.
Conclusion
From above judgment the theory of subsequent exempted sale gets reiterated and also shows that A & G Projects judgment has not made any difference in interpretation of section 6(2) of CST Act. It is also expected that the assumed theory of predetermined sale will also get settled now and the trade community will have sigh of relief.
