Predetermined E1 Sale Transaction bet. two related parties

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Monu Bhardwaj (Querist)
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28 December 2010 We are registered dealer under Punjab Vat Act.We are purchasing Formic acid from Gujarat party.After collecting order from our customers,for passing cenvat credit to ultimate buyer,in the bill raised by the party name of the ultimate buyer is also placed by the Gujarat Party in the column consignee and in the column sold to our name is mentioned.LR is being prepared in the name of ultimate buyer,means that it is case of predetermined sale by transfer of documents of title of document.Please refer to case law of A& G Projects also which creates another comlication.
Another query is that we have a private limited company and a partnership company both the directors in the company as well as partners in the firm are same(Both Husban and Wife only;).Vat and CST Registration of both the entities are different.
but address of both the concerns are same and one only.
Now due to some practical problems we are purchasing material from Gujarat in partnership firm and effecting sale in transit without any magin to our another company at the same address.
Querty is that is it possible to effect sale in transit between two related parties having one and single address where partners and directors are same.
So.can any authority whether income tax department or sale tax department prove that as the directors and partners in both entities are same and address is also same and even no margin is added in the subsequent sale.Transcation of subsequent sale is fictitious in nature and used as a tool only to avoid or evade tax.
Futher is to possible to endorse a LR/GR to own address as both the entities are having same address.

Amit Bajaj

Amit Bajaj (Expert)
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29 December 2010 Regarding the first case it will be a case of predetermined sales before the movement of goods starts. It is advisable to have the first purchaser's name(not the subsequent purchaser's name) in the bill issued by first seller as consignee and LR should also be prepared in the name of first purchaser and then it should be further endorced in writing in the name of subsequent purchaser to claim exemption u/s 6(2).

Recently West Bengal Govt has issued an explanatory circular on E1 and E2 sales. Which explains that A & G technology case it was held that pre determination of contract of subsequent sales before the movement of goods starts may result in denial of exemption u/s 6(2) but it cannot be understood to mean there cannot be pre determination of the buyer especially in case of tailor made goods and pre determination of buyer or receiving of an order from the subsequent buyer will not result in denial of exemption u/s 6(2)

Plz go through the following link for the circular:

http://www.simpletaxindia.org/2010/12/pre-existing-sale-covered-in-e-1-sale.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+SimpleTaxIndia+%28SIMPLE+TAX+INDIA%29

In the second case it may lead to an arrangement for tax evasion only.

For income tax purposes in the second case refer to a recent case of Madras High court namely Indo Tech Electric Co vs. DCIT at the following link:

http://itatonline.org/archives/index.php/indo-tech-electric-co-vs-dcit-madras-high-court-form-of-transaction-can-be-ignored-corporate-veil-lifted-if-attempt-is-to-evade-taxes

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Monu Bhardwaj

Monu Bhardwaj (Querist)
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30 December 2010 Thanks AMit ji for your kind advice

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