Page 205 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes 12.3 In the Course of Inter-state Trade

According to section 3, a sale or purchase of goods shall be deemed to take place in the course of
inter state trade or commerce if the sale or purchase:

(i) Occasions the movement of goods from one state to another; or (ii) Is effected by a transfer of
documents of title to goods during their movement from one state to another.

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Caution If sale or purchase of goods is effected by transfer of documents of title to the
goods during their movement from one state to another then, such sale or purchase shall
be deemed to take place in the course of inter-state trade.

12.3.1 Occasions Movement of Goods Section 3(a)

This means there is a completed sale in pursuance of contract of sale or purchase where by goods
move from one state to another.
A sale can be treated as an inter-state sale if, all the following conditions are satisfied:
1. Transaction is a Completed sale

2. The contract of sale contains a condition for the movement of goods from one state to
another.

3. There should be physical movement of good from one state to another.
4. The sale concludes in the state where the goods are sent and that state is different from the
state from where the goods actually moved.

5. It is not necessary that sale precedes the inter-state movement of goods, sale can be entered
before or after the movement of goods.

6. It is immaterial in which state the ownership of goods passes from seller to buyer.

12.3.2 Sale by Transfer of Documents Section 3(b)

If sale or purchase of goods is effected by transfer of documents of title to the goods during their
movement from one state to another then, such sale or purchase shall be deemed to take place in
the course of inter-state trade.
A Document of title to goods, bears internal evidence of ownership of goods by holder of
document. Some of the examples are Lorry Receipt (LR) in case of transport by road; Railway
Receipt (RR) in case of transport by rail.

12.4 Sale or Purchase of Goods Outside a State

As per section 4(1) when a sale or purchase is inside a state as per section 4(2) such sale or
purchase shall be deemed to have taken place outside all other States.
Sale inside a state as per section 4(2) means –
1. In case of specific goods or ascertained, if goods are within the state at the time of the contract
of sale is made.
2. In case of unascertained or future goods, if goods are within the state, at the time of their
appropriation to the contract.

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