Sale in Transit (E- l Transaction)

05-04-2011

Sale in Transit

In simple words, Sale in Transit means, Sales made by the Buyer

(subsequent seller), without taking the physical delivery of the Goods

bought during the movement of goods from one state to another i.e.

goods resold by transferring the documents of title of the goods,

normally called G.R. / R.R. / L.R. to the another party (Subsequent

Buyer).

Something about Form E-1

Form E-l is a Statutory form under CST Act.

The Subsequent Seller has to receive it from his immediate seller

For Claiming Exemption u/s 6(2) of CST Act for Subsequent Inter-State Sales, Form E-l/II should be obtained from the seller and C Form should be obtained from the purchaser and in the absence of these Forms, exemption will not be available.

For Delhi Dealers as per rule 7(5) of CST (Delhi) Rules, 2005, the subsequent seller shall furnish E-l/ll form in original duly filed & signed to the VATO of his Ward along with DVAT-51 within prescribed time.

As defined in Act

As per Central Sales Tax Act,1956 Section 6(2)

Notwithstanding anything contained in sub-section (1) or sub-section (1A),

where a sale of any goods in the course of inter state trade or commerce

has either occasioned the movement of such goods from one state to

another or has been effected by a transfer of documents of title to such

goods during their movement from one state to another, any subsequent

sale during such movement effected by a transfer of documents of title to

such goods to a registered dealer, if the goods are of the description

referred to in sub-section(3) of section 8, shall be exempt from tax under

this Act

As defined in Act Cont.…. PROVIDED that no such subsequent sale shall be exempt from tax under

this sub-section unless the dealer effecting the sale furnishes to the

prescribed authority in the prescribed manner and within the prescribed

time -

a)A certificate duly filled and signed by the registered dealer from whom the

goods were purchased containing the prescribed particulars in a prescribed

form obtained from the prescribed authority; and

b) If the subsequent sale is made to a registered dealer, a declaration

referred to in sub sub-section (4) of section 8

As defined in Act Cont.…. PROVIDED FURTHER that it shall not be necessary to furnish the declaration

referred to in clause (b) of the preceding proviso in respect of a subsequent

sale of goods if,-

a) The sale or purchase of such goods is, under the sales tax law of the appropriate

state, exempt from tax generally or is subject to tax generally at a rate which is

lower than two per cent, or such reduced rate as may be notified by the Central

Government, by notification in the Official Gazette, under sub sub-section (1) of

section 8; and

b) The dealer effecting such subsequent sale proves to the satisfaction of the

authority referred to in the preceding proviso that such sale is of the nature referred

to in this sub sub-section.

Example 1

“A” “C” State “Haryana ” State “Gujarat” Sale to “B” Purchase from “B” “B” State “Delhi” Purchase from “A” and sell to “C”

FORM E-l FORM C FORM C

It is worthy to understand that the transactions between B and C will remain inter-state sale, even both of them are registered in the same state due to the fact that goods are transferred during the movement from one State to another

Example 2

“A” “D” State “Haryana ” State “Chennai” Sale to “B” Purchase from “C” “B” “C” State “Delhi” State “Gujarat” Purchase from “A” Purchase from “B” and sell to “C” and sell to “D”

FORM E-l

FORM C FORM C

FORM C

FORM E-lI

In this case the subsequent seller also transfer the goods in transit, every subsequent buyer will issue form C to his preceding seller

Related important points

If the start and end of movement of goods is interstate then CST will be

applicable but if start and end both in same state then VAT will be applicable

Suppose goods start movement from “UP” and moved through “Delhi” but

movement of goods ends in “UP”, Vat will be applicable.

Goods moved from one state to another state for export / Import transaction

and branch transfer are not covered under CST.

Location of the parties and billing is not important but movement of goods is

important to decide whether CST is applicable or VAT is applicable

Related Case Laws

M/s. State of Gujarat vs. Haridas Mulji Thakker (84 STC 317)(Gujarat) In this case the

facts are that the Gujarat dealer received order from another dealer in Gujarat. For

supplying the said goods, the vendor dealer in Gujarat placed order on Maharashtra

dealer and instructed to send the goods directly to the Gujarat purchasing party.

Gujarat High Court held that the sale by Maharashtra dealer to Gujarat vendor dealer is

first interstate sale and the one by Gujarat vendor dealer to Gujarat purchasing dealer is

second interstate sale. It also held that the second interstate sale is exempt u/s 6(2)

being effected by transfer of documents of title to goods. In this case though there was

no physical transfer of L.R. etc. Gujarat High Court held that there is constructive

transfer by instruction and hence duly covered by section 6(2).

Related Case Laws

M/s. Fatechand Chaturbhuj Das vs. State of Maharashtra (S.A.894 of 1990 dated.12-8-

1991) decided by Maharashtra Sales Tax Tribunal In this case the local party purchased

goods from other local party and directed the same to be despatched to outside State

party. Even though local party was shown as consignor, taking the view that while

placing order there is term for outside place dispatches, Maharashtra Sales Tax Tribunal

held that the sale between two local parties is first interstate sale and the sale by local

party to outside party is subsequent interstate sale, duly exempt u/s. 6(2).

Related Case Laws

M/s. Duvent Fans P. Ltd. vs. State of Tamil Nadu (113 STC 431)(Mad.)

Local dealer purchased goods from other local dealer and directed to send them to his

purchaser’s place in other State. Madras High Court held that the first transaction is first

interstate sale and the second sale is also subsequent interstate sale exempt u/s.6(2) of

CST Act.

in light of above judgments it can be concluded, that:

There is no need for physical transfer

Having predetermined parties does not affect the claim

In short even if there is predetermined sale, there is no adverse effect on the sale to be

claimed u/s 6(2), rather, the claim gets more authentic.

Process to be adopted by Avana

This process would not be applicable to any purchase from within the Customer

location. So if the project is being executed in UP then any transaction from within UP

can’t be done through this mode

While the material is ready with the vendor, vendor will intimate Avana and would also

send Lorry Receipt (LR) or Goods Receipt (GR) or Railway Receipt (RR) or any such

document (depending on the mode of transport and the accepted practices in the

trade) to Avana

These LR / GR / RR should be negotiable to allow transfer of property through

endorsement of these documents of title, however, in case the LR / GR / IR is non

negotiable, a delivery challan may be used for the said purpose.

E-I transaction is not allowed in cases of dispatch thru courier or by air.

Process to be adopted by Avana Cont.…..

The endorsements for E-I transactions should be done on back of LR / GR / RR by

AVANA’s duly Authorised signatory for this purpose

Endorsement to be done by AVANA in favour of Customer and to be done as soon as

the goods leave the factory / warehouse of the Vendor and before the AVANA takes

delivery of such goods. (Preferably, before the goods enter the state of destination). The respective endorsements shall be done by stamping, “Goods sold on in-transit sale basis to Customer <Address>…….. For Avana Integrated Systems Limited …. <Signatures>…. Authorised Signatory” Date

Process to be adopted by Avana Cont.…..

Delivery of goods

Goods are to be delivered at Customer (of Avana) owned or rented warehouse

The above warehouse must be registered with Local VAT/ Sales tax authorities as ‘additional place of business’ in Customer’s name

The goods will be entered into the inward register kept at the warehouse.

The Proof of delivery (PoD) must be signed by Customer’s authorized employee.

After delivery of goods, Customer shall issue fresh Delivery Challan for taking out the goods from warehouse and for handover of goods to AVANA for installation.

The goods will be dispatched on a new LR and on new transport/ truck.

The warehouse register of Customer will show entry for goods taken out. delivery of such goods. (Preferably, before the goods enter the state of destination).

Process to be adopted by Avana Cont.…..

Statutory Forms

Avana to issue C Form to Vendor

Vendor to issue E-I to Avana

Customer to issue C Form to Avana

Each Form C / Form E-I may cover all transactions during a quarter

Documentation

AVANA Purchase orders (PO) on Vendor to mention:

Billing address: AVANA , Delhi.

Delivery address: “AVANA c/o Customer … <address as mentioned on Customer PO “

Rate at which sales tax shall be charged by the Vendor against issuance of Form C Instructions that the Vendor shall furnish Form E-I to AVANA

Process to be adopted by Avana Cont.…..

Vendor / Supplier’s invoice Bill to AVANA India and ship to “Avana c/o Customer … <Customer address where

goods are to be delivered>” Applicable CST (2% at present) is charged against Form C AVANA India’s Invoice on Customer Clearly mentions sales as ‘transit sales exempt u/s 6(2) of CST Act’ No CST/ VAT charged Delivery address Quantity & item description must exactly match with details on Vendor invoice & LR LR / GR / RR Dated before the date of AVANA Invoice Duly endorsed by AVANA in favour of Customer Consignee address shall be mentioned as “AVANA c/o Customer<address>”.

Process to be adopted by Avana Cont.…..

Requirement at Customer end Customer to issue applicable inward waybill, clearly mentions Customer’s name,

address and VAT registration no., Consignor: AVANA , Delhi Value to be equal to the AVANA invoice value

Documents to accompany the goods entering State Vendor’s delivery challan (optional); Vendor’s invoice; LR (Negotiable Consignee Copy) duly endorsed by AVANA; AVANA invoice ; AVANA Purchase Order Inward waybill, if applicable. Outward waybill, if applicable.

Receipt of the Equipment by Customer The Equipment dispatched by the Vendor to be delivered at the address mentioned in Customer PO / LR. Customer to receive the goods by acknowledging/ stamping on the reverse side of the LR.