Sale, Goods and Dealer
Sale within the State
Article 286(1) of Constitution of India specifies that a State shall not impose tax on sale or purchase of goods where such sale or purchase takes place (a) outside the State or (b) in the course of imports of goods into, or export of the goods out of territory of India. Article 286(2) of Constitution states that Parliament may by law formulate the principles for determining when a sale or purchase of goods takes place in any of the ways mentioned above i.e. outside the State or in the course of import/export. In absence of such powers, each State might have had its own definition of ‘sale outside the State’ or ‘sale during import/export’, which could have caused confusion or double taxation. In exercise of these powers conferred by Constitution, Parliament introduced section 4 of CST Act to define what is ‘sale outside a State’ and section 5 of CST Act to define what is ‘sale during course of import/export’.
What is ‘Sale outside a State’ – CST Act defines ‘sale outside a State’. [This definition is under powers conferred vide Article 286(2) of Constitution, as explained above]. – – This definition is important as ‘sale outside a State’ cannot be taxed by State Government.
Section 4(1) defines ‘Sale Outside a State’ in a round about way. The section states that ‘subject to provisions of section 3, when a sale or purchase is inside a State as per section 4(2), such sale or purchase will be outside all other States’. Thus, it is necessary to understand ‘what is sale inside a State’.
Sale inside a State – Section 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) in the case of specific or ascertained goods, at the time the contract of sale is made and (b) in the case of un-ascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation to this section states that where there is a single contract of sale or purchase of goods situated at more than one place, provisions of section 4(2) shall apply as if there were separate contracts at each of such places.
Inter State sale is not covered – Definition of ‘sale inside State’ is subject to section 3 of CST Act, i.e. it is subject to condition that the sale should not be ‘Inter State Sale’. This is obvious because tax on Inter State sale cannot be imposed by State Government as per Constitution. Thus, if the sale is ‘Inter State’ it cannot be inside the State, even if by aforesaid definition, it could be called as Intra State (inside the State) sale.
In Gannon Dunkerley v. State of Rajasthan (1993) 66 Taxman 229 = (1993) 10 CLA 56 (SC) = 1992 (3) SCALE 173 = 1993 AIR SCW 2621 = (1993) 1 SCC 364 = (1993) 88 STC 204 (SC – 5 member bench), it was observed, ‘Location of situs of the sale in sales tax legislation of the State would have no bearing on the chargeability of tax on sales in the course of inter-State sale or commerce since they fall outside the legislative competence of the State Legislatures and will have to be excluded while assessing the tax liability under the State legislation. The same is true of sales which are outside the State and sales in the course of import and export. The question whether a sale is an outside sale or sale inside the State or whether it is a sale in the course of import or export will have to be determined in accordance with the principles contained in sections 4 and 5 of CST Act and the State Legislature while enacting the sales tax legislation for the State cannot make a departure from these principles.
‘Inter State sale’ or ‘sale during export’ is not ‘intra state sale’ – If sale is ‘inter state sale’ or ‘sale during export’, it cannot be termed as ‘intra state sale’. – State of Karnataka v. B M Ashraf 1997(6) SCALE 425 (SC) = 1997 AIR SCW 4011 = (1997) 107 STC 571 (SC) – reversing the decision in B M Ashraf v. State of Karnataka – (1991) 84 STC 394 (Kar HC DB). Thus, such sale has no ‘situs’. [For further discussions on this topic, see discussions on ‘Situs of inter state sale’].
Sale to ship which is within territorial waters is ‘local sale’ – One interesting question, which has not yet been finally resolved, is whether the territorial waters belong to respective State Government or to Central Government. If the territorial waters belong to State Government, sale from coastal town to a ship in territorial waters will be ‘sale within the State’. If territorial waters belong to Union, the sale will have to be held as ‘inter State sale’.
High Courts have taken a consistent view that sale within territorial waters is ‘Sale within the State’. In other words, the territorial waters belong to respective coastal State Government. This view seems to be a practical view also, as considering these areas under Union Government will cause tremendous administrative problems like police, maintenance of law and order, control over fishing, taxation etc. In fact, the territorial waters is not declared as ‘Union Territory’ and hence really cannot be under Union Government as per Article 1(3) of Constitution of India.
Situs of sale in Inter State Sale or during export
In 20th Century Finance Corporation Ltd. v. State of Maharashtra 2000(5) SCALE 13 = 2000 AIR SCW 2514 = (2000) 6 SCC 12 = 119 STC 182 = AIR 2000 SC 2436 (SC 5 member bench – 3 v. 2 order), it was held that if situs of sale has not been fixed or covered by any legal fiction, the location of sale would be place where property in goods passes. – . – Mere location or delivery of goods would not be situs of sale. – . – Location or delivery of goods within the State would not be the situs of sale. – . – Situs of sale would be where the property in goods passes, namely where the contract is entered into. [Judgment in case of ‘lease of property’ but may be held applicable to other sales also].
This decision of 5 member Supreme Court bench is that ‘situs’ of sale is where contract is executed and not where goods are located for use, is likely to create some difficulties in case of transactions like leasing, hire purchase etc., as leasing companies can shift their offices to neighbouring states to avoid sales tax. In fact, Supreme Court has noted this possibility, but has held that Parliament has ample powers to plug the loophole. [Now, this loophole has been plugged by amending CST Act w.e.f. 11-5-2002 by including ‘lease’ in definition of ‘sale’].
In State of Andhra Pradesh v. National Thermal Power Corporation (NTPC) 2002 AIR SCW 1956 = 127 STC 280 (SC 5 member bench), it was held that situs may be fixed by appropriate State legislation or by judge made law, but none of the two can artificially appoint a situs of sale so as to create territorial nexus attracting Stale sales tax or inter state sales tax, in breach of section 3 of CST Act. No State legislature can fix the situs of sale within the State or artificially define the completion of sale in such a way as to convert an inter-state sale into an intra-state sale or to create a territorial nexus to tax an inter-state sale, unless permitted by appropriate central legislation.
Goods under CST Act
Sales tax liability is on ‘goods’. Section 2(d) of CST Act defines that ‘goods’ includes all materials, articles, commodities and all kinds of movable property, but does not include newspapers, actionable claims, stocks, shares and securities. Following should be noted.
Goods must be ‘movable’ – Goods includes all movable property. It includes * steam – Nizam Sugar Factory Ltd. v. CST – (1957) 8 STC 61 (AP HC) * Electrical energy – CST v. MP Electricity Board – (1970) 25 STC 188 (SC) * animals and bird in captivity – K J Abraham v. Asst. STO – (1960) 11 STC 291 (Ker HC) * Goods include uprooted trees, second hand goods, rejected goods, worn out goods etc.
No tax on Immovable Property – Section 3(14) of General Clauses Act define that ‘Immovable property’ includes land, benefits arising out of land and things attached to the earth or permanently fastened to anything that is attached to the earth. However, as per section 2(7) of Sale of Goods Act, goods include standing crop, grass and things attached to and forming part of the land, which is agreed to be severed before sale or under contract of sale.
No tax on Newspapers though they are ‘goods’ – Newspapers are in fact ‘goods’, but are specifically excluded in view of entry No. 92A of List I to Seventh Schedule to Constitution of India (Union List) where newspapers are specifically excluded from purview of tax on inter-State sales of goods. It may also be noted that entry 54 of List II (State List) authorises States to levy tax on sale of goods other than newspapers only. Weeklies and magazines like ‘Illustrated Weekly of India’ and ‘Eastern Economist’ have been held as ‘newspaper’. – A H Wheeler and Co. (P.) Ltd. v. State of Bihar – (1960) 11 STC 18 (Bihar Board).
Supreme Court in Printers (Mysore) Ltd. v. Asst. CTO – JT 1994 (1) SC 692 = (1994) 93 STC 95 (SC) = (1994) 9 MTJ 444 (SC), has held that though newspapers are not liable to CST, they can purchase their raw materials at concessional rate on submission of C form.
Goods of intangible character are ‘goods’ – Goods of incorporal or intangible character like patents, lottery ticket, advance licenses, copyright can be liable to sales tax.
Can there be inter-state sale of intangible goods ? – Goods must move physically from one State to another to constitute an inter-state sale. In case of sale of advance license/DEPB, the license/pass book can physically move from one State to another. However, in case of certain intangible goods like patent, copyright and trade mark, there is no physical movement of goods from one State to another. These goods cannot be said to be located at a particular place. In view of this, it seems that sale is concluded at a place where agreement of sale is executed, as property in ‘goods’ can be said to have passed in that State.
Plant & machinery assembled at site is not ‘goods’ – Plant and Machinery or structure assembled and erected at site cannot be treated as ‘goods’ for the purpose of levy of sales tax, if it is not marketable and movable. Following case law would be relevant, even if it is under Central Excise.
‘Sale’ under CST Act
Section 2(g) (as amended in w.e.f. 11-5-2002) define that sale with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes (i) Transfer other that by contract (compulsory transfer) (ii) Goods involved in Works contract (iii) Right to use goods (like leasing) (iv) Transfer among members of unincorporated association (v) Supply of food articles (vi) Hire purchase; but does not include a mortgage or hypothecation or a charge or pledge on goods.
Amendment on 11 May 2002 – Definition of ‘sale or purchase of goods’ in Constitution was amended vice Article 366(29A) w.e.f. 2-3-1983. However, definition of ‘sale’ under CST Act was not amended till May 2002. Hence, till 11-5-2002, there was no CST on inter state transactions of goods involved in works contract, leasing, transfer among members of unincorporated association or sale of food articles.
Essentials of valid sale – As per aforesaid definition, essential requirements of sale are (a) there must be transfer of goods (b) general property in the goods should be transferred to buyer from seller (c) consideration i.e. price must be paid or agreed to be paid. It may be cash, deferred payment or any other valuable consideration (d) ‘Sale’ includes hire purchase, goods involved in works contract, lease or sale of food articles.
Transfer of ‘Property’ essential – There is no sale unless there is ‘transfer of property’. ‘Property’ means a thing over which a person has a domain. This implies transfer of ownership. Mere ‘agreement to sale’ does not mean sale as there is no transfer of property. ‘Property’ is different from ‘possession’. Property in goods can pass even before handing over possession. Conversely, transfer of possession does not necessarily mean that it is a transfer of property.
No sales tax on mere ‘agreement to sale’ – Though ‘sale’ includes ‘agreement to sale’, it is only for purposes of deciding whether a sale is an ‘Inter State Sale’ or ‘sale during export or import’. However, for purpose of sales tax liability, ‘sale’ only means ‘concluded sale’. In Tata Iron and Steel Co. (TISCO) v. S R Sarkar – (1960) 11 STC 655 (SC) = AIR 1961 SC 65 = (1961) 1 SCR 379, it was held that a transaction of sale is subject to tax under CST on the completion of sale, and a mere contract of sale in not a ‘sale’ for purpose of levy of CST.
Transactions which are not ‘sales’
Charge/mortgage/hypothecation/pledge is not ‘sale’ – Definition of ‘sale’ u/s 2(g) specifically state that ‘sale’ shall not include a mortgage or hypothecation or a charge or pledge of goods.
In mortgage, immovable property is transferred for securing payment or performance of a promise. Pledge is bailment of goods as security for payment of a debt or performance of a promise. (Thus, mortgage is of immovable property while pledge is of goods). In mortgage, the possession of immovable property may or may not be handed over. In pledge, possession of goods is handed over by owner to person making the advances. Hypothecation means a pledge without immediate possession of goods. In hypothecation, goods remain in possession of owner and he can deal with goods in normal course. However, person making advance has right to have possession if advances are not repaid in stipulated time. Banks normally make advances on the basis of hypothecation of stock of raw material, work in process, consumables and finished goods. The borrower is owner of these goods and can deal with them in normal course of business. This is termed as ‘floating charge’. Bank can take the possession of the hypothecated goods (raw material, WIP, finished goods, consumables etc.) if borrower fails to make payment of borrowed money when due.
Job Work/processing – Here, the owner sends the goods for some job work (like machining, cutting, heat treatment, welding etc.) or processing (like bleaching, painting etc.). Goods are returned to owner after such job work/processing. Property in goods remains with the person supplying material. Thus, this is contract for labour or work and not a contract of sale and there is no CST liability. This is so even if the job worker uses some material while doing the job work or processing, as materials added by job worker are affixed or blended with the material of the owner who sent the goods and hence these vest in the owner by accession and not under any contract of sale. – – Note that mere job work/processing is not ‘works contract’. Even if it is held as works contract, there is no ‘transfer of property in goods involved in works contract’ in job work/processing. Hence, CST is not payable even after amendment to definition of ‘sale’ w.e.f. 11-5-2002.
Consignment/depot transfer/branch transfer – Goods are despatched to Consignment Agent/branch/depot by Principal. Goods remain property of the Principal. Agent sells goods on behalf of Principal. Consignment Agent collects sale proceeds and remits the same to Principal.
Transfer of goods from one branch to another cannot be termed as ‘sale’ as a sale can be only from one person to another person. In case of branches, they are only one legal entity. This would be so even if accounting entries resembling sales are made and they are separately registered under Sales Tax Act. – KCP Ltd. v. State of AP – (1993) 88 STC 374 (AP HC DB) – same view in UP State Cement Corporation Ltd. v. CST – (1979) 43 STC 476 (All HC) * State of Orissa v. Orissa Road Transport Co. Ltd. – (1983) 53 STC 329 (Ori HC DB).
Barter or exchange is not a ‘sale’ – As per definition of CST Act, transfer of goods can be for ‘any other valuable consideration’ also. In Devi Dass Gopal Krishnan v. State of Punjab (1967) 20 STC 430 (SC), it was held that in definition of ‘sale’, ‘valuable consideration’ takes colour from preceding expression ‘cash or deferred payment’. It is consistent legislative practice to treat the expression as ‘monetary consideration’. If so, it can only mean some other monetary payment in nature of cash or deferred payment’.
Exchange of goods is a ‘barter’ and not a ‘sale’ and hence not taxable. – Steel Authority of India v. ACCT ILR 1996 Karn 1136.
Free gift is not ‘sale’ – It is obvious that free gifts given by Company cannot be taxed as there is no ‘consideration’.
Deemed sales under CST Act
There are some transactions which are defined as ‘sales’ under CST Act. Strictly, they may not amount to ‘sales’ as per Sale of Goods Act. However, these are ‘deemed sales’. Definition of ‘tax on sale or purchase of goods’ as contained in Article 366(29A) does make provision of taxing these ‘deemed sales’. These include compulsory sale, hire purchase, lease, transfer of right to use goods (hire), goods involved in works contract, sale of food articles and sale among members of unincorporated bodies. These are discussed below.
Compulsory sale is taxable – As per section 2(g)(i) [As amended on 11-5-2002], transfer of property, otherwise than in pursuance of contract, for cash, deferred payment or valuation consideration is ‘sale’. Thus, any transfer of property for valuation consideration will be taxable, even if there is no contract.
Goods involved in works contract – As per section 2(g)(ii) [as amended on 11-5-2002)], ‘sale’ includes a transfer of property in goods (whether as goods or in some other form) involved in execution of a works contract is taxable. Thus, Central Sales Tax can be levied on ‘goods involved in works contract’.
Hire Purchase is ‘Sale’ – As per section 2(g)(iii), ‘sale’ includes a delivery of goods on hire-purchase or any system of payment by instalments. [It was ‘sale’ under CST Act even prior to amendment of definition of ‘sale’ w.e.f. 11-5-2002].
In ‘hire purchase’, possession of goods is delivered by owner to hirer on condition of payment of agreed number of instalments. Hirer has option to purchase the goods as per terms of agreement. (usually, a nominal payment is provided at the end of hire period). Property in goods is passed on to the hirer after all terms of agreement are fulfilled. If the hirer does not fulfil the conditions of hire-purchase (e.g. does not pay instalments on due dates) possession of goods can be taken back by owner giving goods on hire purchase. Article 366(29A) of Constitution has been amended in 1983 to specifically include `hire purchase’ in definition of ‘sale’. Definition of ‘sale’ as per CST Act also states that ‘sales’ include ‘hire purchase’. Thus, hire purchase is ‘sale’, even prior to 11-5-2002.
Transfer of right to use (like leasing and hire) – As per section 2(g)(iv) as amended w.e.f. 11th May 2002, ‘sale’ includes a transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. — In common parlance, this transaction is termed as ‘leasing’ or ‘hire’.
The transaction is taxable only when exclusive possession of goods and right to enjoy them freely for contracted period is given.
Article 366 (29A) of Constitution has been amended in 1983 to include ‘leasing’ in definition of ‘sale’. Many State Governments had amended State Sales Tax laws to cover leasing for taxation. However, CST Act was not amended, and hence, there was no CST on leasing or hire upto 11-5-2002.
In lease, property in goods remains with owner and he only ‘leases’ the goods for use to another for certain charges. After the lease period is over, the owner can take back the goods.
Providing telephone apparatus and other appliances to subscriber is ‘transfer of right to use the goods’? – In State of Uttar Pradesh v. UOI 2003(130) STC 1 (SC), it has been held that supplying instrument./apparatus and other appliances in the premises of a subscriber, which are connected with a telephone line to area exchange is ‘transfer of right to use the goods’ and hence is taxable. – – After the judgment, State Governments have started levying sales tax on telephone rentals charged by telecom department to consumer. Tamilnadu Government has imposed tax even on mobile telephones.
In case of land lines, the telephone department gives telephone instrument on exclusive lease to subscriber. The cable connecting telephone instrument to the telephone pole can also be said to be exclusively leased to the subscriber. However, further cabling and the area exchange through which telephone calls are further transmitted are not for exclusive use of the subscriber. – – It should be noted that what is taxable is ‘transfer of right to use’ and not ‘right to use’.
‘Transfer’ must necessarily be accompanied by the hand from which and the hand to which something is to be transferred, that is to say, ‘transfer’ must carry with it ‘from’ and ‘to’. If either of them is wanting, there can be no transfer. – Deepchand Gulabchand Naik v. MPSRTC AIR 1977 MP 42 = 1971 MPLJ 667. The word ‘transfer’ as used in ‘Transfer of Property’, ‘Transfer of Shares’ indicates that after such ‘transfer’, the transferor loses possession of or right over the goods transferred (may be temporarily or permanently) and transferor gets exclusive rights over the article or thing transferred. — Thus, ‘transfer’ implies some exclusiveness to the transferee. For example, if a person boards a bus, can it be said that the bus owner has ‘transferred’ right to use bus to the passenger? The bus owner has only ‘allowed’ the use of bus to the passenger on non-exclusive basis. Similarly, the telephone department is only allowing use of the equipment in telephone exchange to subscriber on non-exclusive basis.
In case of mobile phone, even the equipment belongs to the subscriber himself and the mobile telephone company has not transferred right to use of that equipment or any other goods to the customer.
In view of this, in case of land line, at the most what can be charged to tax is the rental attributable to telephone equipment and cable from the telephone to the pole and not for full rental charges. In case of mobile equipment, there is really no ‘transfer of right to use goods’ to customer.
As discussed in following paragraph regarding taxability of ‘Hire of goods’, it has been consistently held that hire is taxable only when exclusive possession is transferred to the hirer. This is correctly so, as if the owner keeps the goods in his possession or control, there is no ‘transfer of right to use’, but only ‘allowing use’
In view of this, in the humble opinion of author, judgment of Supreme Court in respect of sales tax on telephone rental charges appears to need review.
Lease tax only on ‘goods’ and not on immovable property – Lease is taxable only if it is of movable property. Tax cannot be levied if plant and machinery fixed in building is leased, as it is immovable property and not ‘goods’. – Karthik Engineering Works v. State of Karnataka (2000) 119 STC 88 (Karn HC DB). – – This is correct, as section 2(g)(iv) uses the words ‘goods’ and hence only lease of movable property is taxable.
Sale to member of unincorporated association or body of persons – As per section 2g(v) of CST Act (as amended w.e.f. 11-5-2002), ‘sale’ includes supply of goods by an unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration.
In ‘sale’ there must be transfer of property from one person to another. There cannot be a sale or supply of goods by seller to himself. Thus, there is no ‘sale’ when goods are sold to members of a club or a hostel run by members themselves. Now, these transactions can be taxed w.e.f. 11-5-2002. Of course, such transactions will be mostly local and rarely on inter-State basis.
In fact, Constitution was amended in 1983 itself to permit such levy. State governments had already introduced such tax. In Cosmopolitan Club v. TNTST (2002) 127 STC 475 (Mad HC DB), it was held that supply of food to members is sale, whether the club is incorporated or un-incorporated.
Sale of food Articles – As per section 2(g)(vi), ‘sale’ include supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply or service is for cash, deferred payment or other valuable consideration.
Though inter state sale of food articles is taxable w.e.f. 11-5-2002, normally, such sale may be rare in ‘inter state sale’ as the transaction will be normally complete within the State itself. [Some problems may arise e.g. food served in aeroplane or train where food may be obtained in one State but may be ‘served’ in other State].
Sale in canteen to workmen is also taxable – In Delta Jute Industries v. CTO (2001) 121 STC 186 (WBTT), it was held that supply of food to workman at a price is a ‘sale’ and is taxable. – same view in – same view in Tata Iron v. State of Orissa (1975) 35 STC 195 (Ori) * Tata Iron v. State of Bihar (1985) 58 STC 302 (Pat). – – In a contrary decision, in CST v. Hukumchand Mills (1988) 68 STC 378 (MP) – followed in Shri Dayabhai v. State of MP (1999) 116 STC 500 (MP HC) – it was held that canteen run by contractor in factory as required under Factories Act is a service to workers. It is not ‘sale’ and there is no liability to sales tax.
Person liable to pay CST
Section 8(1) specifies that every dealer who in the course of inter State trade or commerce sales the goods shall be liable to pay tax under the Act. Thus, liability is on the dealer who ‘sells’ the goods.
Dealer – Section 2(b) defines that “dealer” means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly, for cash, or for deferred payment, or for valuable consideration, and includes (a) a local authority, a body corporate, a company, any cooperative society, club, firm, Hindu undivided family or other association of persons which carries on such business (b) a factor, broker, commission agent, del credere agent, or any other mercantile agent, by whatever name called, and whether the same description as herein before mentioned or not, who carries on the business of buying, selling, supplying or distribution, goods belonging to any principal whether disclosed or not and (c) an auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of principal.
There are two explanations to the definition of ‘Dealer’. Explanation 1 states that a mercantile agent, agent handling goods, agent for collection of payment and every branch or officer in a State of a firm of Company which is outside the State is also a ‘dealer’. Explanation 2 states that ‘Government’ is also a dealer except in case of sale of old and discarded stores or waste.
Government as dealer – Explanation 2 to section 2(b) clarifies that Government, which, whether or not in the course of business; buys, sells, supplies or distributes; goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration shall be a dealer.
The exception is sale, supply or distribution of un-serviceable or old stores or old materials or waste products or obsolete or discarded machinery or parts or accessories. This exception is made as all Government departments have to make such sale of old goods. However, this exception is only to Government and not for private enterprises. Public Sector Undertakings (PSU i.e. Government Companies) are not ‘Government’ and hence are not exempted under this clause.
Government can be dealer if specifically included in the definition of ‘dealer’ – In State of Uttar Pradesh v. UOI 2003(130) STC 1 (SC judgment dated 4-2-2003), the definition of dealer was inclusive definition and it read ‘Dealer includes Government which (whether in the course of business or otherwise) undertakes buying, selling, supplying or distribution of goods. – – In view of this definition, it was held that Department of Telecommunications (DOT) which is supplying telephone is a ‘dealer’. ‘Carrying on business’ is not required. [in view of specific definition]
Ancillary, incidental and casual business is also covered – It has been held that any activity which is incidental or ancillary to the main business also constitutes business and thereby the person engaged in such business becomes a dealer – Member, Board of Revenue v. Controller of Stores AIR 1989 SC 1468 = (1989) 74 STC 5 (SC). In State of Orissa v. Orissa Road Transport Co. Ltd. 1997 AIR SCW 3489 = 107 STC 204 = (1997) 5 SCALE 589 = AIR 1997 SC 3409 (SC 3 member), it was held that occasional sale of disposable un-serviceable spare parts at yearly interval by a transport company would make the organisation ‘dealer’. [Decision on basis of definition under Orissa Act, but relevant for CST].
Club as a dealer – A members’ club whether incorporated or unincorporated is a ‘dealer’ and will require registration. – Cosmopolitan Club v. State of Tamil Nadu 1999(115) STC 183 (TNTST) * All India Skin & Hides Tanners v. CTO (1999( 115) STC 388 (TNTST). [Article 366(29A)(e) of Constitution of India specifically states that supply of goods by unincorporated body to its members will be ‘sale’].
Collection of tax only by registered dealer – A ‘register dealer’ means a dealer who is registered under CST Act. [section 2(f)]. Section 9A specifies that only a registered dealer can collect taxes in respect of sales made by him in Inter State Trade. He can collect taxes only according to CST Act and rules. Further, a person who is not a registered dealer cannot collect any amount representing as CST.
‘Business’ under CST
Definition of ‘Dealer’ specifies liability on any ‘person’ who carries on ‘business’.
Business – Section 2(aa) of CST Act defines that ‘business’ includes (i) any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern and (ii) any transaction in connection with or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern.
Following points emerge from this definition :
Profit motive is immaterial.
Business normally implies something done on regular basis. However, since business includes ‘Adventure’, occasional transactions may also be covered. Adventure implies some ‘speculation’.
Incidental or ancillary business is also covered e.g. sale of used car, sale of scrap, sale of old machinery, sale of old furniture etc. is taxable, though normally the dealer may not be in business of selling cars, furniture or machinery e.g. Central Excise Authorities selling the goods confiscated by them are liable to pay sales tax.
Any transaction in connection with or incidental or ancillary to, the main business would constitute ‘business’, even though the transaction by itself may not have the characteristics of business as understood in ordinary parlance – State of Tamilnadu v. Binny Ltd. – (1982) 49 STC 17 (SC). (in other words, ingredients of frequency, continuity etc. would not be necessary).
State relevant to a dealer
Normally, State from which movement of goods commences is entitled to collect CST.
Appropriate State – As per section 2(a) of CST Act, ‘Appropriate State’ means (a) in relation to dealer who has one or more places of business in the same State, that State and (b) in relation to a dealer who has places of business situated in different States, every such State with respect to place or places of business situated within its territory. Thus, a dealer has to register only with sales tax authorities where he has ‘place of business’.
Place of Business – Section 2(dd) of CST Act defines that ‘Place of Business’ includes (i) Place of business of agent where dealer carries on business through an agent (ii) Warehouse, godown or other place where a dealer stores his goods (iii) place where a dealer keeps his books of account. This is an ‘inclusive definition’ i.e. other places of business e.g. where dealer has a shop or factory is obviously covered. A dealer can have more than one ‘places of business’ within one State or even within one City.
If a dealer has more that one place of business in one State, he has to make a single application in respect of all the places. One of the places should be specified as ‘principal place of business’. This place should be same as declared by him under general tax law of the State.
If a dealer has ‘places of business’ in different States, he will have to register in each such State.
State authorised to collect tax – According to section 9(1) of CST Act, the CST payable shall be collected in the State from which the movement of goods commenced. This is in case of section 3(a) i.e. sale occasions movement of goods or under section 3(b) i.e. sale effected by transfer of documents. In case of sale by transfer of documents, subsequent sales are exempt from tax if buyer is a registered dealer.
State from where movement of goods starts – Section 8(1) provides that every dealer who sells goods in Inter State sale is liable to pay CST. Section 9(1) provides that under CST Act, tax will be levied by Government of India, but tax so levied will be collected by State Government from where the movement of goods commenced. Thus, if goods are sold by a dealer from Andhra Pradesh to a purchaser in Kerala and goods are despatched from Andhra Pradesh, tax will be collected in State of Andhra Pradesh. Tax collected by Andhra Pradesh State is retained by Andhra Pradesh State itself. Dealer in Andhra Pradesh will be registered under CST Act with Sales Tax authorities in Andhra Pradesh and rules and procedures in respect of return, assessment, penalty, appeal, recovery etc. will be as per General Sales Tax Law of Andhra Pradesh.
Liability in case of subsequent sale – When the goods are sold by transfer of documents during the movement of goods from one State to another, there is no sales tax liability if (a) sale is by transfer of documents and (b) required declarations are given by seller and buyer. If such declarations are not received or if sale is not by transfer of documents, CST is payable in the State in which dealer is situated. The CST is payable by the subsequent seller. Liability arises even if such subsequent dealer is not a registered dealer.