Transit Sale

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RITESH B. PANCHAL

RITESH B. PANCHAL (Querist)

12 October 2010 What is Transit Sale?

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

12 October 2010 Section 3(a) of CST Act,1956 defines the interstate sale/purchase transaction. Section 3(b) defines the interstate sale effected by transfer of documents of title to goods. When the goods are in movement from one State to other. The whole section 3 reads as under:
“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 interstate trade or commerce if the sale or purchase —

1. occasion the movement of goods from one State to another; or
2. is effected by a transfer of documents of title to the goods during their movement from one State to another...”

Section 6(2) of CST Act gives exemption to subsequent interstate sale effected by transfer of documents of title to goods when the goods are in movement from one state to another. However such exemption to subsequent inter-state sale is subject to production of Form E-I, as obtained from prior vendor and ‘C’ form from buyer.

A simple example can be that, suppose A of Mumbai has sold goods to B of Ahmedabad. The goods are dispatched by lorry and L.R. is taken out by A (Mumbai) where in A is consignor and B (Ahmedabad) is consignee. If before taking delivery from transporter, B decides to sell his goods to ‘C’ of M.P., he can simply endorse the L.R. in name of ‘C’ and the sale will be complete. This is the second or subsequent interstate sale in the course of same movement. In this case A must have charged 4% CST in his bill. Being a second interstate sale effected by B to C, B is equally liable to pay CST on above transaction. However the intention of Government is not to levy multiple taxes on sale taking place in one course of movement.

Therefore the subsequent sale is given exemption. However it is subject to production of given forms. In above example, the sale by B to C will be exempt if B produces before his assessing authority Form EI issued by A of Mumbai and Form ‘C’ issued by C of M. P.
In light of above it is clear that the sale effected by transfer of documents of title to goods is eligible for exemption u/s. 6(2). These exempted sales are also referred to as “Sale in transit”.

Ajay Mishra

Ajay Mishra (Expert)

12 October 2010 Hi

Please go to the following links

https://www.lawyersclubindia.com/forum/Sales-in-transit-meaning-procedure-case-Laws-and-Legal-pro-11864.asp

https://taxguru.in/mvat/sales-in-transit-meaning-procedure-case-laws-and-legal-provisions.html

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