Transit Sales under the CST Act
Transit sales
These are generally known in the market as 'LR sales', , 'subsequent inter-State sales' and 'E-I sales'. However these words including the words 'transit sales' do not find place in the statute. These transactions fall under clause (b) of section 3 of the Central Act, which reads as follows:
“3. When is a sale or purchase of goods said to take place in the course of inter-State trade or 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.
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.”
In these transactions the dividing line between sales or purchases under Section 3(a) and those falling under Section 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. A transaction can be either falling under clause (a) or under clause (b) but not under both the clauses at the same time. The assessing authority has to keep in mind the Explanation-I under section 3 while deciding the nature of these transactions. A sale is said to be falling under clause (b), if there is transfer of document of title to the goods during the course of movement from one State to another State. Documents of title include sale invoice, way bill, delivery challan, lorry receipt, railway receipt; etc. At the time of such transfer, the goods may be in the originating state or in the destination state. If the goods are taken delivery from the common carrier for example, lorry office or railways by the purchaser, then there is said to be break in inter-State movement of goods and there can be no transit sale thereafter. The person making a transit sale is also called subsequent inter State seller.
Exemption of transit sales from payment of tax
Section 6(2) of the Act provides for exemption from payment of tax on the subsequent inter-State sales of goods, if such dealer claiming exemption files before his assessing authority a Certificate in Form E-I or E-II as the case may be obtained from his seller and a declaration in Form C obtained from his purchasing dealer.
Sale under Sec 6(2) E-I Transaction
Under E-I transaction the movement of goods from one state to another is effected by a transfer of documents of title to the goods during their movement from one state to another (sales in transit)
CASE
Manufacturer --- ABC Pune
ABC Customer-M/s I Trade , Aasam
Ultimate Buyer M/s. XYZ Kolkata
ABC Pune will raise Invoice on M/s I Trade charging CST @2%
The LR will reflect destination of Kolkata (Actual place of Delivery)
M/s I Trade will endorse the LR enroute to Ultimate Buyer –as being actual Place of Delivery, without taking the delivery of goods and will raise commercial Invoice on his Customer at Kolkata giving reference of LR endorsed.
M/s I Trade will need to Issue C form to ABC, Pune
ABC - Pune will issue Form E-I to M/s I Trade giving reference of Form C received.
M/s I Trade buyer being XYZ will issue C form to M/s I Trade.
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Dayal R Kundani
Dy. General Manager-Indirect Taxation
CAclubindia
