Principles of
Central Sales
[Section 3,4 & 5]
Introduction
• The Central Sales Tax Act, 1956 was enacted to
formulate principles for determining when a
sale or purchase of goods takes place in the
course of inter-state trade or commerce or
outside a state or in the course of import into or
export from India.
• To determine when a sale or purchase of
goods takes place in the course of inter-state
trade or commerce is important because the
central sales tax is levied only if the goods are
traded between two states.
Introduction
1. When a sale of purchase of goods is said to take
place in the course of inter-state trade or
commerce- Section 3
2. When a sale or purchase of goods is said to take
place outside a state- Section 4
3. When a sale or purchase is said to take place in
the course of import or export- Section 5
INTER STATE SALE (Sec-3)
Occasions the
movement of goods Sec3(a)
Completed sale of goods
Transfer of documents
of title Sec-3(b)
Agreement to sell b/w
the parties
Meaning of Inter-state sale
• Occasions the movement of goods u/s 3(a)
 There is completed sale of goods- The basic requirements are:a) The transaction must be a complete sale
b) There must be physical movement of goods from one state to another
c) Sale and movement of goods must be inseparably connected.
d) The contract need not provide for movement of goods. It is enough
that the sale has been the cause of movement.
EXAMPLE:
SELLER - A
STATE X
BUYER - B
STATE Y
 B placed an order with A to supply certain quantity of goods.
 In consequence to this, A dispatched the goods to B.
 Agreement to sell between the parties in pursuance of
which the goods move and on their acceptance, the price is
paid.
Buyer and seller can be in same State u/s 3(a)
• Sale can be inter state even if both buyer and seller are in
same State if goods are moving out of State on account of sale.
EXAMPLE:
A’s FACTORY
STATE X
A’sA’s
DEPOT
DEPOT
BUYER B
STATE Y
 B placed an order with the depot of A.
 Depot was not having ready availability of the stock.
 Therefore and thereafter, the goods were transferred from the
factory to the depot and the depot accordingly delivered the
same to B.
• Sale by transfer of documents u/s 3(b)
Inter Stale sale can be by transfer of documents of title
during movement of goods from one State to another u/s
3(b) of CST Act. Sale can be inter-state even if buyer and
seller are in same State. The three conditions are:
1) There must be movement of goods from one state to
another before any contract of sale or agreement to sell
have been made.
2) There must be a sale by the transfer of documents of
title.
3) Such transfer of title documents must take place while
the goods are still in movement or transit.
DOCUMENTS OF TITLE INCLUDES:
Railway receipt, lorry receipt, Air way Bill, Bill of Lading.
• EXAMPLE Sec3(b) :A’s FACTORY
STATE X
A’S
DEPOT
STATE Y
BUYER
A’S
B
DEPOT
 In ordinary course, A dispatched a consignment
to depot.
 While the goods were in movement from State X
to State Y, buyer B approached depot for the
stock.
 Depot sold the goods to B by transferring the
title documents in favour of B, while the goods
were still in movement.
Stock transfer/Branch transfer of goods
• In stock/branch transfer, goods move from one
State to another, but there is no ‘sale’. Goods are
sent to branch or depot or consignment agent in
other State. Stock transfer/branch transfer is not
subject to tax since there is no ‘sale’.
• If buyer is identifiable before goods are
dispatched, it is ‘Inter State’ sale and not a ‘stock
transfer’.
Form F for stock transfer/branch transfer of
goods
• Form F is required to be submitted to establish
stock transfer. Sales Tax Officer can make enquiry
regarding truth of contents in form F.
SALE INSIDE THE STATE Sec.-4
• Section 4(1) defines ‘Sale outside a State’
• If a sale or purchase is inside a State as per Sec4(2), it is
outside all other States.
• Definition of ‘sale inside State ’is subject to section 3 i.e. it is
subject to condition that the sale should not be ‘Inter State
Sale’
• Sec 4(2) states that a sale or purchase of goods shall be
deemed to take place inside a State, if the goods are within
the State.
a)Sale in case of specific or ascertained goods, at the time the
contract of sale is made.
b) In case of unascertained or future goods, at the time of
their appropriation to the contract of sale
Sale inside the State is a ‘residuary sale’
• If sale is inter-state as defined in section 3 of CST Act, it can
never be ‘intra state’ sale. Thus, inter-state sale is a
residuary sale.
EXAMPLE:
A DEALER IN
PUNJAB
PUNJAB
A’s
A’s DEPOT
DEPOT
BUYERS
DELHI
A transferred goods to his depot
Goods were sold from the depot to the buyers in Delhi.
COMMENTS:
• Transfer from Punjab to depot in Delhi is purely a stock
transfer, therefore no sales tax on the same
• Sale from depot to customers is a local sale of
ascertained goods and termed as sale inside State of
Delhi
• As the sale is inside the State of Delhi, it automatically
becomes outside all other States
SALE IN COURSE OF EXPORT Section 5(1)
A sale or purchase of goods is deemed to be in course of
export of goods out of the territory of India, only if.
• The sale or purchase either occasions such export
or.
• Is effected by a transfer of documents of title to
goods after the goods have crossed the customs
frontiers of India.
Occasions means to be immediate cause of sale and
export should constitute part of an integrated
activity. Goods should be destined to foreign country.
Its actual reaching at the destination is not necessary.
EXAMPLES from Book.
SALE IN COURSE OF IMPORT
Section 5(2)
A sale or purchase of goods is deemed to be in course
of import of the goods into the territory of India,
only if
• The sale/purchase either occasions such import or
• Is effected by a transfer of documents of title to
goods before the goods have crossed the customs
frontiers of India
• Example:
A
B (in Bombay)
C (Chandigarh)
CUSTOMS STATION
FOREIGN
INDIA
 B purchased goods from foreign supplier A
 Goods reached India & lying with customs authorities(Pending
clearance)
 B of Bombay without clearing the goods from customs, sold the
same by way of transfer of title documents in favour of C of
Chandigarh.
 Thereafter, C applied for customs clearance, fulfilled the customs
formalities and got the goods cleared.
 COMMENTS
• Sale/Purchase b/w A & B is Import sale u/s 5(2).
• Sale b/w B & C will also qualify to be in the course of import u/s
5(2)(b) as goods are sold by way of transfer of documents of title
before the goods crossed the customs station
• No Sales tax chargeable on sale/purchase in the course of import.
Penultimate sale for Export
According to Section 5(3) of the Act, the last sale or
purchase of goods preceding the sale/purchase
occasioning the export of those goods out of
territory in India shall also be deemed to be in the
course of such export, subject to the condition
that the penultimate sale is:
• For purpose of complying with agreement or
order in relation to export.
• Such sale is made after the agreement of order in
relation to export and
• Same goods which are sold in penultimate sale
should be exported.
C
PENULTIMATE EXPORT SALE
B in Bombay
FOREIGN
CUSTOMS STATION
A in Chandigarh
INDIA
Pre-requisites
Confirmed export order with B
Accordingly B places the order with A
Received the consignment from A
Export the same goods to C
COMMENTS
•Sale/purchase b/w A & B will also qualify to be deemed in the course of
export
•Sale/purchase b/w B & C is export sale u/s 5(1)
•No Sales tax on export sale, provided the requisite proofs are submitted
i.e.
a) In case of sale/purchase b/w A & B, B should issue a declaration in
Form H and forward it to A.
b) In case of sale/purchase b/w B&C, customs document i.e. shipping bill
is sufficient proof of export
Thank You