SALE IN TRANSIT UNDER SECTION 6(2) OF CST ACT 1956.

Section 3 of CST Act 1956 deals with the Inter State Sales. A sale or purchase of goods takes 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.

[Explanation 1: 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 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.”].

Thus, an Inter State sales means:-

The Inter State nature of sales depends on the fact that the State where goods movement is originated and the States, where the transporter delivers the goods MUST be different.

If the movement of the is starting from state ‘A’, entering into the other state ‘B’, but comes back to State ‘A’ and the goods are unloaded there, the sales will be Within State Sales, and Not Inter State Sales. This is explained bellow:-

What is NOT a Inter State Sales:-

The Nature of Sales, whether Inter state, or Within State, has nothing to do with:-

·  Address on the Customer’s Purchase Order;

·  Customer’s Head Office, or Branch Office Address;

·  XYZ’s Limited Branch office address;

·  Intermediatary States crossed by the Vehicle, etc.

What decides the nature of the sales is, whether the State where the goods are loaded on the vehile, and where it was unloaded from the vehicle are different. If YES, the nature in Inter state, and if NO it is a within State sales.

Section 6 (2) of the CST Act, provides that where there is a sale of any goods in the course of inter-State trade or commerce as explained above, any subsequent sale during such movement effected by a transfer of documents of title to such goods, (a) To the government, or (b) To a registered dealer shall be exempt from tax under this Act.

PROVIDED that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer affecting the sale furnishes to the sales tax authorities, ‘C’ Form received from the Customer & ‘EI’ form received from the supplier.

Form the above, the following emerges: -

·  There should be movement of goods from one state to another state.

·  There should be a subsequent sale of those goods. i.e. the goods should have been purchased and then sold. It should not be a sale of own manufactured goods.

·  The quantity and description of the goods purchased as appearing the purchase invoice, and the as appearing in the sales invoice raised on the customer should match.

·  The goods should have been purchased from a dealer registered under the CST Act, and should have been sold to a dealer registered under CST Act.

·  The sale must be affected by a transfer of documents of title to such goods during their movement from one State to another. Thus, the documents of title, which should be first in the favour of the purchaser, should be endorsed in the name of the ultimate customer, by putting a stamp on the back side of document of title, stating :-

“Please deliver to or to the order of ………….. (Customer name)

For XYZ Limited.

Authorized Signatory.

Note: The endorsement should be before conclusion of the inter state movement of the goods.

Sales in transit can be done only in the cases where the document of title is a negotiable instrument.

Document of title of Goods is defined under Section 2(4) of the Indian Sale of Goods Act, 1930. It includes a bill of lading, dock-warrant, warehouse keeper’s certificate, wharfingers’ certificate, rail receipt, warrant or order for the delivery of goods, Lorry receipt and another 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 possession of the document to transfer or receive goods there by presented.

An Air Bill, a courier consignment note, a parcel receipt is not a negotiable document and hence the title in these goods can not be transferred to the customer by way of endorsement during currency of the inter state movement.

The customer should issues Form ‘C’ to the trader effecting sales under sec. 6(2). The trader to issue ‘C’ form to the 1st seller, and should collect E-1 form from him. Unless these forms are produced, the sales tax exemption is not allowed and the transaction becomes taxable. This is explained below:-

Sale In Transit u/s 6(2)

·  Vendor (State A) bill to XYZ Limited (State B) on 2% CST

·  XYZ (State B) bill to Customer (State B) on 0% CST

·  Vendor (State A) deliver the Goods to Customer – in the same XYZ endorse the documents in favour of Customer.

·  XYZ (State B) get the C form from customer and issue the C form to vendor.

·  Vendor (State A) issue E1 form to XYZ (State B)

Non Submission of forms would attract tax as follows:

·  If Both E1 & form C are not produced- CST equal to VAT Rate

·  If only Form E1 is produced- CST equal to VAT rate.

·  If only Form C is produced – 2% CST on Sales Value

Flow of documents:

1. / LR from the original supplier, mentioning consignee as self, and Consignor as XYZ, C/o Site address
2. / Consignee copy of the LR from the original supplier to be endorsed by XYZ in favour of the customer.
3. / Covering letter addressed to the customer, forwarding the endorsed LR.
4. / Commercial Invoice of Trader to state CST @ 0% against ‘C’ form from the Customer. The Invoice should bear the Note that “ This being Sale-in-transit under section 6(2) of Central Sales Tax Act 1956 not eligible to Local Sales Tax / VAT in the State of ……..”