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Purchase of goods on form h

atul (DGM) (62 Points)

28 December 2011

WE ARE MANUFATURING THE GOODS FOR SALE IN INDIA AND OUTSIDE.

WE ARE BUYING THE RAW MATERIAL ON THE BASIS OF FORM 'C' AND PAYING CST @ 2%. MY QUESTIONS ARE THAT: 1. CAN WE BUY THE RAW MATERIAL ON THE BASIS OF FORM 'H' TO SAVE CST?

2. iF YES, WHAT MODALITIES TO BE TAKEN AS WE ARE BUYING THE RAW MATERIAL FOR SALE IN INDIA AND FOR THE PUPOSE OF EXPORT?

THIS IS VERY URGENT QUERRY.

THANKS

ATUL JAIN

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1 Replies

chandra shaker (TAX PRACTITIONER) (59 Points)
Replied 28 December 2011

It is hereby clarified under Sub-section (3) of section 5 of the CST Act, relates to a sale or purchase which shall also be deemed in the course of export where such sale to an exporter or purchase by an exporter is made for fulfilling its existing contract of export with foreign buyer. An export sale or purchase defined in sub-section (3) of section 5 of the Act, has to satisfy following conditions:
(i)	It should be the last sale or purchase immediately preceding the sale occasioning the export.
(ii)	The local purchase by the exporter, who has entered into contract with foreign buyer, should have been made in reference to and in order to fulfill existing contract of export in between the exporter and the foreign buyer;
(iii)	Goods purchased by the exporter should be of the descripttion mentioned in the export order;
(iv)	Goods, purchased by the exporter who has entered into the export contract with foreign buyer, are exported to the foreign destination given by the foreign buyer;
(v)	A declaration in the prescribed form (Form H) is issued by the exporter to the dealer making sale to the exporter.
A local supplier, unless the exporter who supplies goods to foreign buyer tells about the satisfaction of the aforesaid conditions, cannot ascertain that export conditions are fulfilled. It is only the exporter, making direct export, who knows or can prove that conditions have been fulfilled. But at the end of local selling dealer, for proving sale in the course of export in terms of sub-section (3) of section 5 of the Act, such local selling dealer has to prove that sale, of goods sold by him to exporter, fulfills conditions of sub-section (3) of section 5 of the Act. For this he will have to depend upon the exporter. Prior to introduction of sub-section (4) in section 5 of the Act, it had been sufficient if conditions of sub-section (3) were satisfied by producing copy of export order, purchase order placed by the exporter, sale invoice issued by the local selling dealer and copy of bill of lading or airway bill. But after introduction of sub-section (4) in section 5 of the Act, all such evidences are meaningless unless declaration prescribed under sub-section (4) is furnished. Sub-section (4) speaks in clear words that provisions of sub-section (3) shall not apply in respect of any purchase or sale of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filed and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority.
After introduction of sub-section (4) in section 5 of the Central Sales Tax Act, 1956, sub-section (3) is applicable only if compliance of sub-section (4) of section 5 has been made. Sub-section (3) of section 5 is no longer independent provision. Its applicability is subjected to sub-section (4) of the CST Act, 1956. Sub-section (4) not only applies in respect of sales referred to in sub-section (3) of section 5 but it also equally applies in respect of purchases referred to in sub-section (3) of section 5. Therefore, it is mandatory for the exporter to issue Form H to the selling dealer.
Where several contracts of export of a particular goods are pending with an exporter and the exporter makes purchase of such goods even if with an intention of fulfilling such export orders, he is not under any obligation to export such goods. The exporter, without breach of any contract, can sell such goods in the local market. But where the exporter makes purchase of goods on condition of issuing Form H to the seller and later issues such Form, he creates a binding on him. In that case, he has to discharge undertakings given in Form H. If goods in respect of which Form H has been issued, are diverted in the local market or are disposed of otherwise than fulfilling the export order mentioned in Form H, then such exporter enters into breach of the contract with the selling.
If we examine Form H, we find that it requires Registration Certificate Numbers of the selling dealer under the State Law and the Central Sales Tax Law. Also where goods exported are re-imported in India by the exporter, then such exporter is under an obligation to inform the assessing authority of the seller. Assessing authority of unregistered seller is not known. Before introduction of sub-section (4) in section 5 of the CST Act, 1956, circumstances have been different. Also before amendment in relevant sub-rule (10) of Rule 12 of the Central Sales Tax (Registration & Turnover) Rules, 1957, Form was meant for claiming exemption from levy of tax on inter-state sale, which in absence of application of sub-section (3) of section 5 of the CST Act, 1957 would have been an inter-state sale. After amendment, applicability of sub-section (3) of section 5 depends on furnishing of Form H by the exporter to the seller. Where sub-section (3) of section 5 is found applicable, the exemption on such sale or purchase under the State Law comes from sub-clause (b) of clause (1) of Article 286 of the Constitution. So far as it relates to levy of tax by the Central Government, tax on such sale is not leviable because no law have been enacted by the Union Parliament for imposing tax on sale or purchase taking place in the course of export of the goods out of the territory of India.
Before introduction of sub-section (4) in section 5 of the CST Act, 1956, circumstances have been different. Also before amendment in relevant sub-rule (10) of Rule 12 of the Central Sales Tax (Registration & Turnover) Rules, 1957, Form was meant for claiming exemption from levy of tax on inter-state sale, which in absence of application of sub-section (3) of section 5 of the CST Act, 1957 would have been an inter-state sale. After amendment, applicability of sub-section (3) of section 5 depends on furnishing of Form H by the exporter to the selling dealer. Where sub-section (3) of section 5 is found applicable, the exemption on such sale or purchase under the State Law comes from sub-clause (b) of clause (1) of Article 286 of the Constitution. Such purchase or sale is exempt from levy of the central sales tax because the Central Sales Tax Act, 1956 does not provide for levy of tax on sale or purchase taking place in the course of export of the goods out of the territory of India.
On examination of Form H, we find that it requires Registration Certificate Numbers of the selling dealer under the State Law and the Central Sales Tax Law. Also where goods exported are re-imported in India by the exporter, then such exporter is under an obligation to inform the assessing authority of the selling dealer. Assessing authority of unregistered selling dealer is not known. This implies that transaction of purchase and sale of goods should be in between a registered selling dealer and Registered exporter.
In view of the foregoing discusscusion, it is clear that following cases of local sale or purchase are not covered under sub-section (3) of section 5 of the Act:-
(i)	Where goods are purchased without reference to an export contract;
(ii)	Where contract of export does not exist at the time of making local purchase;
(iii)	Where a trader randomly makes purchases of goods for the purpose of export and he exports goods whenever he gets export order from foreign buyer;
(iv)	Where purchased goods are different from those mentioned in order of export. If finished goods are the subject matter of export order and exporter, for the purpose of manufacture of such finished goods, makes purchase of raw material, etc. for use in manufacture of such finished goods;
(v)	Where goods are not exported or exported goods are re-imported into the territory of India; or
(vi)	Where conditions of sub-section (3) of section 5 of the Act are not satisfied; or
(vii)	Where conditions of sub-section (3) of section 5 of the Act are satisfied but Form H has not been produced by the selling dealer before its assessing authority;
As it relates to provisions of VAT Act, if export conditions are fulfilled then sale is in the course of export and State law is not applicable to local sales. These sales and purchases are protected by the provisions of the Constitution read with provisions of section 5 of the Central sales Tax Act, 1956. Hence there is no impact of commencement of VAT law in any State.