Apex Court's judgment in A&G Metals case had emerged a debate on the issue that whether a sale in course of Inter state trade and commerce against a sales contract made prior to the movement of goods can get the exemption of section 6(2) of the C.S.T. Act?
Para no. 11 of the said judgment speaks that "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".
I invite your valuable comments on this issue. O.P. Agarwalla
21 August 2009
Where the order is specific to a cusotmer, the routing of the same through the depot in the state may not be wise as that would still be a predetermined sale.
The first question which emerges is whether there is any direct or indirect provision in the CST Act, making such restrictions.
Further, whether the lines (as quoted in my question) are of bindingg nature or whether these comments can be traeted as obeiter dicta?
Further, if we go by the words, there is no direct connection of section 3(b) with section 6(2). Section 6(2) never quotes the section 3(b). Rather it says that
"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 moveent 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:
The only condition (except reg. Forms & section 8) is that the sales should be a subsequent inter state sales, which is effected by tranfer of document of title during such movement. Now the argument is that "what the phrase "effected by transfer of documents of title" means. In line of the judgment of Apex Court in TISCO's case- it will mean where the transfer of property in goods passes through transfer of document.
Further, it is also a settled law, that unless and otherwise the documents of title is transfred to the purchaser transfer of property can not be said to be made. Further, only endorsement of document of title is not sufficient, delivery of such document is must. In other words, interpratation can be made that unless and otherwise the document is transfered to the buyer or his agent, property in goods does not get transferred. If it is so, even in predetermined sale, property in goods can be made through transfer of document of title. The section 6(2) never indicates any further restriction or condition for exemption.
Furthermore, the Apex Court larger bench) in Tisco's case observed that- A sale being by the definition, transfer of property,becomes taxable under section 3(a) if the movement of goods from one State to another is under a covenant or incident of the contract of sale, and the property in the goods passes to the purchaser otherwise than by transfer of documents of title when the goods are in movement from one State to another.
Thus the judgment of Karnataka High Court in A & G's case, where in the court has declared subsequent sales as sales u/s. 3(a), seems to be in contrary to the above judgment of apex court.
In nut and shell and subject to rectification by authorities, I think that, it can be said that, section 6(2) does not intend to put any condition that predetermined sales can not be exempted under this section.
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