Applicability of State VAT or CST

[manish dalwadi]

Query:

Ours is Gujarat base Engineering goods manufacturing company say ‘X’ and we export 99% of our final product, and no finished goods sale in Gujarat (except some scrap generated during manufacturing), procures raw material from Maharashtra by placing Order on Maharashtra Supplier say “A”, and instruct him to deliver the goods directly to a job-worker located in Maharashtra say ‘J’ without bringing the raw material in Gujarat. Raw Material supplier ’A’raises Invoice on us mentioning buyer as ‘X’ and consignee as ‘J’ after charging 2% CST against Form-C.

Job-worker ‘J’ sends us the processed raw material to us ‘X’ in Gujarat after charging Job work charges.

1. We have been advised that we cannot purchase the goods against From-C as the delivery does not occasion the movement of goods from Maharashtra to Gujarat. Is this correct?

2. Whether CST charged by supplier ‘A’ of the raw material is correct? Or we have to pay Maharashtra VAT ?

3. Whether the transaction between our company and job worker falls under works contract?

4. What should we do to minimize tax burden ?

I seek your valuable advice in the matter, do reply please.

[YAGAY andSUN]

Dear Manish,

We have gone through your query. This matter is bit complicated and needs to be understood, discussed and researched meticulously, before forming any final opinion in this regard.

We understand that in this matter stake involved are huge for your organization.

Such kind of transaction may fall either side, depending up-on the very material facts and terms and conditions of the Agreements/MOUs/Contracts/POs etc.

Further, if you received any assessment order or any objection raised by GVAT Department pertaining to this matter, then, you may share with us. We can help you out. For providing such services, we do charge reasonable fees .

You may contact us, in case, you intent to avail our services for seeking solution for above query.

We remain.

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

Mobile:- 09818131923.

E-Mail:- yagaysun@india.com

[SURESH ASTEKAR]

I will answer only first two questions:

1. We have been advised that we cannot purchase the goods against From-C as the delivery does not occasion the movement of goods from Maharashtra to Gujarat. Is this correct?

Yes. It is correct since there is no interstate movement of the goods from the raw material supplier to the job worker both of whom happen to be within the State of Maharashtra.

2. Whether CST charged by supplier ‘A’ of the raw material is correct? Or we have to pay Maharashtra VAT ?

Raw material supplier should charge Maharashtra VAT only and not CST.

[YAGAY andSUN]

Dear Manish and Suresh,

As discuss earlier this matter cannot be replied in one or two liner. Even, reply was submitted without giving any reference and understanding the Section 3 (a) of the CST Act, 1956,and judgments pronounced by various High Courts and Apex Court .

Time and again, we hereby submit that it is bit complicated matter and should be handled by experts.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

AI Summary

Interstate movement determines tax applicability; absence of movement means intrastate VAT applies, not CST, for delivery to in state job worker. Where raw materials are delivered by a supplier to a job worker located in the same State, there is no interstate movement and the sale cannot properly be treated as interstate for CST/Form C purposes; the supplier should charge the State VAT where delivery occurs. Whether the buyer's arrangement with the job worker is a works contract or a job work service depends on contractual terms, transfer of property and factual conduct and requires detailed review of documentation.