Liability of local tax

[A RAVINDRA]

X is a selling agent in Karnataka for Y who is a manufacturer in Karnataka. X procures an order from Z in Tamilnadu and informs Y to raise the invoice in the name of X and mention consignee as Z for the order so procured. Y prepares an invoice on X and consignee as Z and send the material directly to Z in tamilnadu attaching one more invoice raised by X on Z with 2% CST against form C. Y has not charged sales tax in his invoice to X (consignee as Z) The said transaction is done taking the benefit of section 8 & 6 of CST Act. I would like to know whether the said transaction is in order and as per section 8 of CST Act. Will there be any liability of local tax to Y in the said transaction. Please clarify

[Surender Gupta]

It is a interstate sale and not subject to local sales tax / VAT.

[SUNILKUMAR GUPTA]

As per my view transaction from Y to X will be a Local sale which is liable for Local VAT. The transaction between X & Z is an interstate sale.The benefit of sec. 8 & 6 of CST Act will not be available.Please refer to decision in case of Indus Steel & Alloys Ltd Vs. State of Tamilnadu and others Reported at (2008) 18 VST 546 ( CSTAA)

AI Summary

Interstate sale characterization affects whether local VAT applies to transactions routed through a selling agent involving consignee billing. A selling agent arrangement where manufacturer Y invoices agent X with consignee Z and goods are sent directly to Z raises whether the Y X invoicing is a local sale subject to local VAT liability or an inter-state sale exempt from local tax; advisors disagree, one treating the transaction as inter-state and not taxable locally, the other treating Y X as a local taxable sale and denying the inter-state benefit.