Introduction Under sales tax laws, one
of the contentious issues is about determination of ‘Appropriate State’
for levy of tax on sale /purchase transactions. In earlier days there
was much more confusion due to the nexus theory. Due to the said theory
more than one State tried to levy tax on the same transaction, however
the issue was resolved by introducing section 4(2) in the Central Sales
Tax Act, 1956 (CST ACT). It provides necessary guidelines for
determining a particular State which will be authorized to levy tax on
sale/purchase transactions.
Section 4(2) of the CST Act
Section 4(2) of the CST Act reads as under;
“Section 4. When is a sale or purchase of goods said to take place outside a State.
(1)….
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State,
(a)
in the case of specific or ascertained goods, at the time of the
contract of sale is made; and (b) in the case of unascertained or future
goods, at the time of their appropriation to contract of sale by the
seller or by the buyer, whether assent of the other party is prior or
subsequent to such appropriation.
Explanation- Where there is a
single contract of sale or purchase of goods situated at more places
than one, the provisions of this sub-section shall apply as if there
were separate contracts in respect of the goods at each place.”
It
can be seen, from the above, that the sale is deemed to have taken
place in that state, where the ascertainment of the goods is done to a
particular sale contract. This is called ‘situs of sale’. Once it is
determined to be in a particular State, the sale remains outside the
taxation scope of all other States. Thus, only one State is entitled to
levy tax on a particular sale/purchase transaction based on
ascertainment of goods to the contract of sale. And in that State, the
transaction may be liable to local tax or CST as per the movement of the
goods. This had brought a very good relief to the dealer community as
it avoided multiple claims by different states.
Still determination of ‘situs of sale’ is not free from debate
In
spite of enactment of section 4(2) of the CST Act, still the issue
cannot be said to be free from litigation. There are situations where
one State tries to hold that ‘situs’ is in their state, though the
dealer might have paid tax in other State, considering the same as
proper State as per ‘situs of sale’.
Recently, Hon’ble Supreme Court had an occasion to deal with such an issue in case of Commissioner
of Commercial Taxes, Thiruvananthapuram, Kerala v/s M/s K.T.C.
Automobiles (Civil Appeal No. 2446 of 2007 dated 29th January, 2016.) The relevant facts noted by Hon’ble Supreme Court are reproduced below for ready reference:
“2.
The undisputed facts disclose that the respondent is in the business of
purchase and sale of Hyundai cars manufactured by Hyundai Motors
Limited, Chennai. As a dealer of said cars, both at Kozhikode (Calicut),
Kerala where their head office is located and also at Mahe within the
Union Territory of Pondicherry where they have a branch office, they are
registered dealer and an assessee under the KGST Act, the Pondicherry
Sales Tax Act as well as the Central Sales Tax Act. The dispute relates
to assessment year 1999-2000. Its genesis is ingrained in the inspection
of head office of the respondent on 1-6-2000 by the Intelligence
Officer, IB, Kozhikode. After obtaining office copies of the sale
invoices of M/s K.T.C. Automobiles, Mahe (branch office) for the
relevant period as well as some additional period and also cash receipt
books, cash book etc. maintained in the head office, he issued a show
cause notice dated 10-8-2000 proposing to levy Rs.1 crore by way of
penalty u/s. 45A by the KGST Act on the alleged premise that the
respondent had wrongly shown 263 number of cars as sold from its Mahe
Branch, wrongly arranged for registration under the Motor Vehicles Act
at Mahe and wrongly collected and remitted tax for those transactions
under the provisions of Pondicherry Sales Tax Act. According to the
Intelligence Officer, the sales were concluded at Kozhikode and hence
the vehicles should have been registered within the State of Kerala.
Therefore, by showing the sales at Mahe the respondent had failed to
maintain true and complete accounts as an assessee under the KGST Act
and had evaded payment of tax to the tune of Rs.86 lakh and odd during
the relevant period. The respondent submitted a detailed reply and
denied the allegations and raised various objections to the proposed
levy of penalty. The Intelligence Officer by his order dated 30-3-2001
stuck to his views in the show cause notice but instead of Rs.1 crore,
he imposed a penalty of Rs.86 lakh only.”
Thus, the issue before
Hon’ble Supreme Court was about determination of ‘situs’ for sale of
cars. The fact considered by the Hon’ble Supreme Court is about
ascertainment of car to a particular sale, so as to determine ‘situs of
sale’.
In this respect, the Hon’ble Supreme Court has observed and decided as under;
“15.
Article 286(2) of the Constitution of India empowers the Parliament to
formulate by making law, the principles for determining when a sale or
purchase of goods takes place in the context of clause (1). As per
section 4(2) of the Central Sales Tax Act, in the case of specific or
ascertained goods the sale or purchase is deemed to have taken place
inside the State where the goods happened to be at the time of making a
contract of sale. However, in the case of unascertained or future goods,
the sale or purchase shall be deemed to have taken place in a State
where the goods happened to be at the time of their appropriation by the
seller or buyer, as the case may be. Although on behalf of the
respondent, it has been vehemently urged that motor vehicles remain
unascertained goods till their engine number or chassis number is
entered in the certificate of registration, this proposition does not
merit acceptance because the sale invoice itself must disclose such
particulars as engine number and chassis number so that as an owner, the
purchaser may apply for registration of a specific vehicle in his name.
But as discussed earlier, on account of statutory provisions governing
motor vehicles, the intending owner or buyer of a motor vehicle cannot
ascertain the particulars of the vehicle for appropriating it to the
contract of sale till its possession is handed over to him after
observing the requirement of Motor Vehicles Act and Rules. Such
possession can be given only at the registering office immediately
preceding the registration. Thereafter only the goods can stand
ascertained when the owner can actually verify the engine number and
chassis number of the vehicle of which he gets possession. Then he can
fill up those particulars claiming them to be true to his knowledge and
seek registration of the vehicle in his name in accordance with law.
Because
of such legal position, prior to getting possession of a motor vehicle,
the intending purchaser/owner does not have claim over any ascertained
motor vehicle. Apropos the above, there can be no difficulty in holding
that a motor vehicle remains in the category of unascertained or future
goods till its appropriation to the contact of sale by the seller is
occasioned by handing over its possession at or near the office of
registration authority in a deliverable and registrable state. Only
after getting certificate of registration the owner becomes entitled to
enjoy the benefits of possession and can obtain required certificate of
insurance in his name and meet other requirements of law to use the
motor vehicle at any public place.
16. In the light of
legal formulations discussed and noticed above, we find that in law, the
motor vehicles in question could come into the category of ascertained
goods and could get appropriated to the contract of sale at the
registration office at Mahe where admittedly all were registered in
accordance with Motor Vehicles Act and Rules. The aforesaid view, in the
context of motor vehicles gets support from sub-section (4) of section 4
of the Sale of Goods Act. It contemplates that an agreement to sell
fructifies and becomes a sale when the conditions are fulfilled subject
to which the properties of the goods is to be transferred. In case of
motor vehicles the possession can be handed over, as noticed earlier,
only at or near the office of registering authority, normally at the
time of registration. In case there is a major accident when the dealer
is taking the motor vehicle to the registration office and vehicle can
no longer be ascertained or declared fit for registration, clearly the
conditions for transfer of property in the goods do not get satisfied or
fulfilled. Section 18 of the Sale of Goods Act postulates that when a
contract for sale is in respect of unascertained goods no property in
the goods is transferred to the buyer unless and until the goods are
ascertained. Even when the contract for sale is in respect of specific
or ascertained goods, the property in such goods is transferred to the
buyer only at such time as the parties intend. The intention of the
parties in this regard is to be gathered from the terms of the contract,
the conduct of the parties and the circumstances of the case. Even if
the motor vehicles were to be treated as specific and ascertained goods
at the time when the sale invoice with all the specific particulars may
be issued, according to section 21 of the Sale of Goods Act, in case of
such a contract for sale also, when the seller is bound to do something
to the goods for the purpose of putting them into a deliverable state,
the property does not pass until such thing is done and the buyer has
notice thereof. In the light of circumstances governing motor vehicles
which may safely be gathered even from the Motor Vehicles Act and the
Rules, it is obvious that the seller or the manufacturer/ dealer is
bound to transport the motor vehicle to the office of registering
authority and only when it reaches there safe and sound, in accordance
with the statutory provisions governing motor vehicles it can be said to
be in a deliverable state and only then the property in such a motor
vehicle can pass to the buyer once he has been given notice that the
motor vehicle is fit and ready for his lawful possession and
registration.”
Thus, there are number of intricate issues before
coming to decision about ‘situs of sale’. The judgment though relates
to sale of cars can also be a good guidance for other goods also.
Conclusion
In
above judgment, Hon. Supreme Court has discussed about the principles
of ascertainment of vehicle to a particular sale to a buyer. Hon.
Supreme Court has arrived at the conclusion that in case of motor
vehicle, the vehicle gets ascertained to the contract of sale only when
it is approved by the Registration Authority under Motor Vehicles Act
and that happens at the office of the registration authority. Therefore,
Hon. Supreme Court has held that the place of sale of motor vehicle is
such State of registration of vehicle.
This may have effect upon
inter-state nature of motor vehicle. Due to above interpretation that
the ascertainment towards sale of motor vehicle takes place at the place
of registration authority, it is possible to say that when the vehicle
is sold to an individual customer, which is liable for registration in
his name, there will not be inter-state sale even if such vehicle is
dispatched from another State. The sale will be local sale in the State
of registration of vehicle in the name of the buyer.
