Query
Please explain position of intra-state / interstate sale for Motor Vehicles, with reference to recent judgment.

Reply: Section 4(2) was introduced in the CST Act, 1956, to decide situs of sale.

Section 4(2) of the CST Act

Section 4(2) of the CST Act reads as under:

“S.4. When is a sale or purchase of goods said to take place outside a State.

(1) …

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State

1. In the case of specific or ascertained goods, at the time of the contract of sale is made; and

2. In the case of unascertained or future goods, at the time of their appropriation to contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.

Explanation – Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each places.”

It can be seen that the sale is deemed to have taken place in only one State, where the ascertainment of the goods is done to a particular sale contract. This is situs of sale. Once sale is determined to be in a particular State based on above section, it remains outside the taxation scope of all other states. The tax will be attracted in such State under Local Act or CST Act based on fact whether it is intra-state sale or interstate from such State.

Recently, Hon’ble Supreme Court had an occasion to deal with issue about situs of sale and whether sale of Motor Vehicle is intra state or interstate, in case of
Commissioner of Commercial Taxes, Thiruvananthapuram, Kerala v. M/s K.T.C. Automobiles (Civil Appeal No. 2446 of 2007 dated 29th January, 2016). This case is specifically in relation to Motor Vehicles, which are subject matter of registration of Motor Vehicles Act. The relevant facts noted by Hon’ble Supreme Court can be reproduced below for ready reference.

“2. The undisputed facts disclose that the respondent is in the business of purchase and sale of Hyundai cars manufactured by Hyundai Motors Limited, Chennai. As a dealer of said cars, bothat Kozhikode (Calicut), Kerala where their head office is located and also at Mahe within the Union Territory of Pondicherry where they have a branch office, they are registered dealer and an assessee under the KGST Act, the Pondicherry Sales Tax Act as well as the Central Sales Tax Act. The dispute relates to assessment year 1999-2000. Its genesis is ingrained in the inspection of head office of the respondent on 1-6-2000 by the Intelligence Officer, IB, Kozhikode. After obtaining office copies of the sale invoices of M/s. K.T.C. Automobiles, Mahe (branch office) for the relevant period as well as some additional period and also cash receipt books, cash book etc. maintained in the head office, he issued a show cause notice dated 10-8-2000 proposing to levy ` 1 crore by way of penalty under Section 45A by the KGST Act on the alleged premise that the respondent had wrongly shown 263 number of cars as sold from its Mahe Branch, wrongly arranged for registration under the Motor Vehicles Act at Mahe and wrongly collected and remitted tax for those transactions under the provisions of Pondicherry Sales Tax Act. According to the Intelligence Officer, the sales were concluded at Kozhikode and hence the vehicles should have been registered within the State of Kerala. Therefore, by showing the sales at Mahe the respondent had failed to maintain true and complete accounts as an assessee under the KGST Act and had evaded payment of tax to the tune of ` 86 lakhs and odd during the relevant period. The respondent submitted a detailed reply and denied the allegations and raised various objections to the proposed levy of penalty. The Intelligence Officer by his order dated 30-3-2001 stuck to his views in the show cause notice but instead of ` 1 crore, he imposed a penalty of ` 86 lakhs only.”

Thus, the issue before Hon’ble Supreme Court was about determination of situs for sale of cars. The fact considered by Hon’ble Supreme Court is about ascertainment of car to a particular sale, so as to determine situs of sale.

In this respect, Hon’ble Supreme Court has observed and decided as under:

“15. Article 286(2) of the Constitution of India empowers the Parliament to formulate by making law, the principles for determining when a sale or purchase of goods takes place in the context of clause (1). As per Section 4(2) of the Central Sales Tax Act, in the case of specific or ascertained goods the sale or purchase is deemed to have taken place inside the State where the goods happened to be at the time of making a contract of sale. However, in the case of unascertained or future goods, the sale or purchase shall be deemed to have taken place in a State where the goods happened to be at the time of their appropriation by the seller or buyer, as the case may be. Although on behalf of the respondent, it has been vehemently urged that motor vehicles remain unascertained goods till their engine number or chassis number is entered in the certificate of registration, this proposition does not merit acceptance because the sale invoice itself must disclose such particulars as engine number and chassis number so that as an owner, the purchaser may apply for registration of a specific vehicle in his name. But as discussed earlier, on account of statutory provisions governing motor vehicles, the intending owner or buyer of a motor vehicle cannot ascertain the particulars of the vehicle for appropriating it to the contract of sale till its possession is handed over to him after observing the requirement of Motor Vehicles Act and Rules. Such possession can be given only at the registering office immediately preceding the registration. Thereafter only the goods can stand ascertained when the owner can actually verify the engine number and chassis number of the vehicle of which he gets possession. Then he can fill up those particulars claiming them to be true to his knowledge and seek registration of the vehicle in his name in accordance with law.

Because of such legal position, prior to getting possession of a motor vehicle, the intending purchaser/owner does not have claim over any ascertained motor vehicle. Apropos the above, there can be no difficulty in holding that a motor vehicle remains in the category of unascertained or future goods till its appropriation to the contract of sale by the seller is occasioned by handing over its possession at or near the office of registration authority in a deliverable and registrable state. Only after getting certificate of registration the owner becomes entitled to enjoy the benefits of possession and can obtain required certificate of insurance in his name and meet other requirements of law to use the motor vehicle at any public place.

16. In the light of legal formulations discussed and noticed above, we find that in law, the motor vehicles in question could come into the category of ascertained goods and could get appropriated to the contract of sale at the registration office at Mahe where admittedly all were registered in accordance with Motor Vehicles Act and Rules. The aforesaid view, in the context of motor vehicles gets support from sub-section (4) of Section 4 of the Sale of Goods Act. It contemplates that an agreement to sell fructifies and becomes a sale when the conditions are fulfilled subject to which the properties of the goods is to be transferred. In case of motor vehicles the possession can be handed over, as noticed earlier, only at or near the office of registering authority, normally at the time of registration. In case there is a major accident when the dealer is taking the motor vehicle to the registration office and vehicle can no longer be ascertained or declared fit for registration, clearly the conditions for transfer of property in the goods do not get satisfied or fulfilled. Section 18 of the Sale of Goods Act postulates that when a contract for sale is in respect of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Even when the contract for sale is in respect of specific or ascertained goods, the property in such goods is transferred to the buyer only at such time as the parties intend. The intention of the parties in this regard is to be gathered from the terms of the contract, the conduct of the parties and the circumstances of the case. Even if the motor vehicles were to be treated as specific and ascertained goods at the time when the sale invoice with all the specific particulars may be issued, according to Section 21 of the Sale of Goods Act, in case of such a contract for sale also, when the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. In the light of circumstances governing motor vehicles which may safely be gathered even from the Motor Vehicles Act and the Rules, it is obvious that the seller or the manufacturer/ dealer is bound to transport the motor vehicle to the office of registering authority and only when it reaches there safe and sound, in accordance with the statutory provisions governing motor vehicles it can be said to be in a deliverable state and only then the property in such a motor vehicle can pass to the buyer once he has been given notice that the motor vehicle is fit and ready for his lawful possession and registration.”

Thus Hon’ble Supreme Court has arrived at the conclusion that in case of motor vehicle, the vehicle gets ascertained to the contract of sale only when it is approved by the Registration Authority under Motor Vehicles Act and that happens at the office of the registration authority. Therefore, Hon. Supreme Court has held that the place of sale of motor vehicle is such State of registration of vehicle.

This may have effect upon interstate sale nature of motor vehicle. Due to above interpretation that the ascertainment towards sale of motor vehicle takes place at the place of registration authority, it is possible to say that when the vehicle is sold to individual customer, which is liable for registration in its name, there will not be interstate sale even if such vehicle is dispatched from one State to another State. The sale will be local sale in the State of registration of vehicle in the name of buyer.

Thus, there are number of intricate issues before coming to decision about situs of sale. The above judgment though relates to sale of cars can also be guidance for other goods also.