1. Principles of Central Sales [Section 3,4 & 5]

2. Introduction The Central Sales Tax Act, 1956 was enacted to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce or outside a state or in the course of import into or export from India. To determine when a sale or purchase of goods takes place in the course of inter-state trade or commerce is important because the central sales tax is levied only if the goods are traded between two states.

3. Introduction 1.When a sale or purchase of goods is said to take place in the course of inter-state trade or commerce- Section 3 2.When a sale or purchase of goods is said to take place outside a state- Section 4 3.When a sale or purchase is said to take place in the course of import or export- Section 5

4. INTER STATE SALE (Sec-3) Occasions the movement of goods Sec- 3(a) Completed sale of goods Agreement to sell b/w the parties Transfer of documents of title Sec-3(b)

5. Meaning of Inter-state sale Occasions(must result into) the movement of goods u/s 3(a)  There is completed sale of goods- The basic requirements are:- a)There must be physical movement of goods from one state to another b)Sale and movement of goods must be inseparably connected. c)The contract need not provide for movement of goods. It is enough that the sale has been the cause of movement. EXAMPLE: BUYER - B SELLER - A STATE XSTATE Y  B placed an order with A to supply certain quantity of goods.  In consequence to this, A dispatched the goods to B.

6.  Agreement to sell between the parties in pursuance of which the goods move and on their acceptance, the price is paid. Buyer and seller can be in same State u/s 3(a) Sale can be inter state even if both buyer and seller are in same State if goods are moving out of State on account of sale. EXAMPLE:  A enters into agreement with B and sends goods to his agent  Privity of contract exists between A and B and goods move as a result of agreement of sales therefore it is an inter state sales. A’s DEPOT A BUYER B HARYANA PUNJAB A’s Agent

7. Sale by transfer of documents u/s 3(b) Inter Stale sale can be by transfer of documents of title during movement of goods from one State to another u/s 3(b) of CST Act. Sale can be inter-state even if buyer and seller are in same State. The three conditions are: 1)There must be movement of goods from one state to another before any contract of sale or agreement to sell have been made. 2)There must be a sale by the transfer of documents of title. 3)Such transfer of title documents must take place while the goods are still in movement or transit. DOCUMENTS OF TITLE INCLUDES: Railway receipt, lorry receipt, Air way Bill, Bill of Lading.

8. EXAMPLE Sec3(b) :-  In ordinary course, A dispatched a consignment to depot.  While the goods were in movement from State X to State Y, buyer B approached depot for the stock.  Depot sold the goods to B by transferring the title documents in favour of B, while the goods were still in movement. A’S DEPOT A’s FACTORY A’S DEPOT BUYER B STATE XSTATE Y

9. IMPORTANT POINTS REGARDING INTER STATE TRADE Goods sent by Value Payable Post Sale to consumer in other state Mode of Transport-Not Material Sale by auction and subsequent movement of goods to other state Transit Period

10. Stock transfer/Branch transfer of goods In stock/branch transfer, goods move from one State to another, but there is no ‘sale’. Goods are sent to branch or depot or consignment agent in other State. Stock transfer/branch transfer is not subject to tax since there is no ‘sale’. If buyer is identifiable before goods are dispatched, it is ‘Inter State’ sale and not a ‘stock transfer’. Form F for stock transfer/branch transfer of goods Form F is required to be submitted to establish stock transfer. Sales Tax Officer can make enquiry regarding truth of contents in form F.

11. SALE INSIDE THE STATE Sec.-4 Section 4 defines ‘Sale outside a State’ If a sale or purchase is inside a State as per Sec4, it is outside all other States. Definition of ‘sale inside State ’is subject to section 3 i.e. it is subject to condition that the sale should not be ‘Inter State Sale’ Sec 4 states that a sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State. a)Sale in case of specific or ascertained goods, at the time the contract of sale is made. b) In case of unascertained or future goods, at the time of their appropriation to the contract of sale GOODS LYING IN DIFFERENT STATES SOLD UNDER A SINGLE CONTRACT

12. EXAMPLE:  A transferred goods to his depot  Goods were sold from the depot to the buyers in Delhi. COMMENTS: Transfer from Punjab to depot in Delhi is purely a stock transfer, therefore no sales tax on the same Sale from depot to customers is a local sale of ascertained goods and termed as sale inside State of Delhi As the sale is inside the State of Delhi, it automatically becomes outside all other States A’s DEPOT A DEALER IN PUNJAB BUYERS PUNJAB DELHI A’s DEPOT

13. SALE IN COURSE OF EXPORT Section 5(1) A sale or purchase of goods is deemed to be in course of export of goods out of the territory of India, only if. The sale or purchase either occasions such export or. Is effected by a transfer of documents of title to goods after the goods have crossed the customs frontiers of India. Occasions means to be immediate cause of sale and export should constitute part of an integrated activity. Goods should be destined to foreign country. Its actual reaching at the destination is not necessary.

14. EXAMPLES…… a)A of Jalandhar enters into contract with Y of Russia to export sports goods and sends the goods out of the territory of India. Such sale by A to Y will be deemed to have occasioned the export of such goods out of the territory of India. b)A of Jalandhar sends goods by ship to his branch in Russia. After the goods have crossed the customs frontiers of India, A sells these goods to Y of Russia by transfer of documents. Such sale shall be a sale in course of export.

15. SALE IN COURSE OF IMPORT Section 5(2) A sale or purchase of goods is deemed to be in the course of imports into the territory of India, only if: The sale/purchase either occasions such import or Is effected by a transfer of documents of title to goods before the goods have crossed the customs frontiers of India

16. Example:  B purchased goods from foreign supplier A  Goods reached India & lying with customs authorities(Pending clearance)  B of Bombay without clearing the goods from customs, sold the same by way of transfer of title documents in favour of C of Chandigarh.  Thereafter, C applied for customs clearance, fulfilled the customs formalities and got the goods cleared.  COMMENTS Sale/Purchase b/w A & B is Import sale u/s 5(2). Sale b/w B & C will also qualify to be in the course of import u/s 5(2)(b) as goods are sold by way of transfer of documents of title before the goods crossed the customs station No Sales tax chargeable on sale/purchase in the course of import. A FOREIGN B (in Bombay) C (Chandigarh) CUSTOMS STATION INDIA

17. Penultimate sale/ Sale to comply the order of export Penultimate sales means the sales done prior to the export sales. According to Section 5(3) of the Act, the last sale or purchase of goods preceding the sale/purchase occasioning the export of those goods out of territory in India shall also be deemed to be in the course of such export. If to export goods abroad, the exporter enters into another contract to buy those goods (inter state), then CST would have been levied, but u/s 5(3) such two dependent contracts to avail exemption from CST.

18. Conditions to be fulfilled: Penultimate sale must be for the purpose of ultimate exports Pre-existing agreement Same goods Purchase of packing material Proof-Form-H There must be actual exports There must be in extricable link between the export sale and the penultimate sale

19. C FOREIGN PENULTIMATE EXPORT SALE B in Bombay A in Chandigarh INDIA CUSTOMS STATION Pre-requisites  Confirmed export order with B  Accordingly B places the order with A  Received the consignment from A  Export the same goods to C  COMMENTS Sale/purchase b/w A & B will also qualify to be deemed in the course of export Sale/purchase b/w B & C is export sale u/s 5(1) No Sales tax on export sale, provided the requisite proofs are submitted i.e. a)In case of sale/purchase b/w A & B, B should issue a declaration in Form H and forward it to A. b)In case of sale/purchase b/w B&C, customs document i.e. shipping bill is sufficient proof of export

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