• Dated 24^th March, 2026

Subsequent Sale Exemption under Section 6(2) Not Depends on Taxability of First Sale: Supreme Court

Brief Facts

The assessee, was engaged in inter-State trading involving chain transactions during the movement of goods. The goods were initially purchased from a supplier in West Bengal, where the first inter-State sale was exempt under Section 8(2A) of the CST Act on account of the goods being exempt within the State. During the same movement, the assessee effected subsequent sales to buyers in different States by transfer of documents of title, i.e., transit sales. The assessing authority denied exemption under Section 6(2) and raised tax, interest and penalty on the ground that since the first sale was exempt, the subsequent sales could not also be exempted. The High Court set aside the assessment and remanded the matter for fresh determination. The Revenue challenged the matter in appeal before the Supreme Court.

Assessee's Contention

The assessee contended that the subsequent transactions were inter-State sales falling under Section 3(b), as they were effected during the movement of goods by transfer of documents of title. It was submitted that exemption under Section 6(2) is available when the statutory conditions are fulfilled, including furnishing of E1/E2 forms and C Forms, and that such exemption operates independently of the taxability of the first sale. The assessee argued that the fact that the first sale was exempt is irrelevant for determining eligibility under Section 6(2).

Department's Contention

The department contended that the purpose of Section 6(2) is to prevent cascading or multiple taxation. Since the first sale was already exempted there was no tax incidence and therefore no question of double taxation. On this basis, it was argued that exemption under Section 6(2) should not be extended to subsequent sales, which ought to be subjected to tax.

Held

The Supreme Court upheld the judgment of the High Court and held that exemption under Section 6(2) is dependent solely on fulfilment of the prescribed statutory conditions and is not linked to the taxability of the first sale. The Court observed that there is no provision under the CST Act which denies exemption to subsequent sales merely because the first sale was exempt, including cases where such exemption arises under Section 8(2A). It further clarified that the objective of avoiding cascading does not lead to the conclusion that exemption must be denied where the first sale is exempted. Accordingly, once the conditions of Section 6(2) are satisfied, the dealer is entitled to exemption. The appeal filed by the Revenue was dismissed and the remand directed by the High Court was affirmed.

Comment

This ruling clarifies that exemption under Section 6(2) operates independently and is not linked to whether tax was paid on the first sale. The decision ensures consistency in treatment of inter-State chain transactions and prevents arbitrary taxation merely because an earlier transaction was exempt. The ruling reinforces that exemption under Section 6(2) is condition-based and not contingent upon prior tax incidence, thereby ensuring consistency in the treatment of inter-State chain transactions and protecting bona fide transit sales from arbitrary denial of exemption.

Case ref- VALUE ADDED TAX OFFICER Versus MITSUBISHI CORPORATION INDIA P. LTD. Civil Appeal No. 1993 of 2012, decided on 29-1-2026 (2026) 39 Centax 309 (S.C.)

Author-Aindrila Ghosh

Edited by-Sneha Nandi