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Sale in the course of Import – Proving the inextricable Link

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  • As a tax consultant we keep exploring ways to save taxes for our clients. Well many a times the risk taken by the client is too high and when we imagine the impact of future interest and penalties, it almost does not make sense to go that extra mile to take the risk. However here is one very practical way to save the taxes taking the clue from Central Sales Tax. Lets first take a look at the background behind this tax planning tool :-


  • Article 206 of the Constitution forbids a State from imposing or authorising the imposition of a tax on the sale or purchase of goods when such sale or purchased takes place:-
  1. outside the State or
  2. in the course of the import of goods into or export of goods outside the territory of India.
  • The Parliament had passed the Act with to formulate the principles for determining as to when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside the State or in the course of import into or export from India, to provided for levy of collection and distribution of taxes or commerce. Section 5 of the Act defines what Article 206 of the Constitution forbids and by virtue of clause 2 of Art. 286 the Parliament by enacting Section 3 of the Act has laid down the principle when a sale or purchase of goods takes place in the course of the import into or export of the goods outside India. Since a controversy has arisen as to the interpretation of principles embodied in Section 5 of the Act, it is necessary to examine the provisions of the Act.
  • Section 5(2) of the Act provides - A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasion such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India."
  • Section 5(2) of CST Act, 1956 with respect to sale occasioning import, is very crucial to handle as there are a lot of judgements prescribing various situations favouring or otherwise. I have come across the following ingredients, although not mandatory :
  1. There should be a Privity of contract between local buyer and foreign supplier.
  2. There must be integral connection or inextricable link between the sale and actual import.
  3. Importer should be acting like an agent of the actual user although not an agent.


  • In my opinion, the above ingredients are some of the key ones, which if kept shall make the life easy to claim the exemption.
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