Q.1 M/s. A in M.P. sells goods to B in Maharashtra. B in turns sell goods to C also in Maharashtra. Goods directly dispatched from A to C. C is situated in Special Economic Zone area (SEZ Unit) and it is entitled to issue ‘I’ Form under CST Act. Due to issue of ‘I’ form it is entitled to effect purchases under CST Act without payment of any tax to vendor. In other words the sale of vendor to such unit will be exempt. In this case C intends to issue ‘I’ form and based on that A intends to claim his sale as exempt sale. Whether the claim is tenable and if not, any other consequences?

Reply

Before we opine on the issue it will be useful to refer to legal background. A’s transaction is falling in the category of interstate sale. B is selling to C but as per his instructions the goods are directly going from A to C. A’s sale to B is first interstate sale and the sale by B to C is subsequent interstate sale. This legal position is clear from the reading of section 3(b) of CST Act, 1956. Reference also be made to decided cases as under.

1. M/s. State of Gujarat vs. Haridas Mulji Thakker (84 STC 317) (Guj)

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 inter-state sale and the one by Gujarat vendor dealer to Gujarat purchasing dealer is second interstate sale. Gujarat High Court 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). This judgment also duly covers further issues, that there is no need for physical transfer and also that having predetermined parties does not affect the claim.

2. M/s. Fatechand Chaturbhujdas vs. State of Maharashtra (S.A. 894 of 1990 dated 12-8-1991).

In this case the local party purchased goods from other local party and directed the same to be dispatched 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 party is first inter-state sale and the sale by local party to outside party is subsequent interstate sale, duly exempt u/s.6(2).

3. 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.

From above, it is also clear that so far as A is concerned A’s sale is to B.

As per sections 8(6) & (7) of CST Act the sale to any unit in SEZ is exempt from levy of tax. Sections 8(6) & (7) read as under.

8. Rates of tax on sales in the course of interstate trade or commerce.

(1) to (5)

(6) Notwithstanding anything contained in this section, no tax under this Act shall be payable by any dealer in respect of sale of any goods made by such dealer, in the course of interstate trade or commerce to a registered dealer for the purpose of setting up, operation, maintenance, manufacture, trading, production, processing, assembling, repairing, reconditioning, re-engineering, packaging of for use as packing material or for use as packing accessories in an unit located in any special economics zone or for development, operation and maintenance of special economic zone by the developer of the special economic zone, if such registered dealer has been authorized to establish such unit or to develop, operate and maintain such Special Economic Zone by the authority specified by the Central Government in this behalf.

(7) The goods referred to in sub-section (6) shall be the goods of such class or classes of goods as specified in the certificate of registration of the registered dealer referred to in that sub-section…”

(underlining ours)

From above it is clear that only sale to a registered dealer who intends to use the said purchases in SEZ unit is exempt from tax under above section. A further reference can also be made to Rule 12 (11) of CST Act (R & T) Rules,1957 which prescribes for issue of ‘I’ form. The said Rule is as under.

“11. The dealer, selling goods in the course of interstate trade or commerce to a registered dealer under sub-section (6) or under sub-section (8) of section 8 or under sub-section (1) of section 5 of the Central Sales Tax Act, 1956 read with section 76A of the Customs Act, 1962 (52 of 1962), shall furnish a declaration for the purposes of sub-section (8) of the said section 8 in ‘Form I’ duly countersigned and certified by the Authority specified by the Central Government authorizing the establishment of the unit in the Special Economic Zone (notified under section 76A of the Customs Act, 1962 (52 of 1962) that the sale of goods is for the purpose of establishing a unit in such Zone.”

Read with above Rule 12(11) it is also clear that only an unit in SEZ can issue ‘I’ form. The said form is to be countersigned by the SEZ authority, appointed by Central Govt.. From details to be furnished in ‘I’ form also it can be clear that only SEZ unit can issue ‘I’ form. Amongst others ‘I’ form requires following details.

“(c) Number and date of Registration No. issued by the Development Commissioner, SEZ concerned, along with details of goods specified in the Certificate of Registration..”

Under above legal position B cannot issue ‘I’ form. Only C can issue ‘I’ form to B. Therefore the sale between B and C can be exempt against ‘I’ form.

In our opinion A’s sale to B is normal first interstate sale and B cannot be able to issue ‘I’ form. Therefore A’s sale cannot be exempt. A can effect normal sale against form ‘C’ to B and B can effect further sale u/s. 6(2) of CST Act, 1956. B can very well accept ‘I’ form from C whereby its sale to C will be exempt.

Q.2 A dealer intends to purchase generator for use of same for generation of electricity to be used in his office. Whether ‘C’ form is permissible for purchase of generator?

Reply

The issue required to be opined is whether A is entitled to issue ‘C’ form against purchase of generator from interstate sources.

Before we reply the query it will be useful to refer to the scheme of CST Act, 1956 about issue of ‘C’ form by purchaser. The said scheme is contained in section 8(3) of the CST Act, 1956. The said section reads as under.

“8. Rates of tax on sales in the course of interstate trade or commerce.

(3) The goods referred to in clause (b) of sub-section (1)-

(a) ** ** **

(b)  are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture of processing of’ goods for sale or in mining or in the generation or distribution of’ electricity or any other Form of power;

(c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale;

(d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c).”

In this respect it is also useful to refer to the undertakings given in the ‘C’ form itself. In respect of the purchases the issuer is required to certify as under.

“** resale ...............use in manufacture/processing of goods for sale........................ use in mining ........................use generation/distribution of power……………………** packing of goods for sale/resale and are covered by my/our registration certificate No. ………..dated issued ……..under the Central Sales Tax Act, 1956.”

It can be seen that the ‘C’ form can be issued for purchases which are intended for following uses.

a) Resale by him

b) Use in manufacturing/ processing of goods for sale

c) Use in mining

d) In generation /distribution of power

e) For packing of goods for sale/resale

f) In telecommunication network.

In respect of certain items like purchases for resale or purchases for use in manufacturing there is condition that such purchases are for sale either in the same form or after manufacturing. In other words the purchases to be covered by above categories, the intention to sale the resultant product is there.

In contrast, in relation to generation and distribution of electricity there is no condition about sale of the same. In other words even for own use of electricity, the ‘C’ form can be issued if the purchases are for generation or for distribution of such electricity.

As explained in query the purchases will be used for generating electricity for own office use. As discussed above since there is no requirement that the generation should be for sale etc; A’s generation of electricity for own use will also be covered by above eligible uses.

In view of the above position, A is entitled to issue ‘C’ form.