A similar argument was going long time back and I got this document from a tax consultant.
Meaning of u2018Inter State Sale
Section 3 of CST Act defines Inter-State sale or purchase as follows : 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 (a) occasions the movement of goods from one State to another or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Thus, inter-state sale can be as per section 3(a) or section 3(b).
It has been held that these two modes are mutually exclusive. u2013 Tata Iron and Steel Co. (TISCO) v. S R Sarkar - (1960) 11 STC 655 (SC) = AIR 1961 SC 65 = (1961) 1 SCR 379 - confirmed in UOI v. K G Khosla & Co. Ltd. - (1979) 43 STC 457 (SC) = (1979) 2 SCC 242 = AIR 1979 SC 1160 = (1979) 3 SCR 453, i.e. when a sale falls under section 3(a) it cannot fall under section 3(b) and CST can be levied only once. In Bharat Heavy Electricals v. UOI - AIR 1996 SC 1854 = (1996) 102 STC 373 (SC) = (1996) 4 SCC 230 = JT 1996(4) SC 427, it was held that whether a particular sale is inter-state or not has to be decided only with reference to section 3 of CST Act alone and no other section. Similarly, to decide question in which State the tax is leviable, only section 9(1) is relevant - no other provision is relevant.
Sale which u2018Occasions movement of goodsu2019 - As per section 3(a), u2018Inter State saleu2019 takes place if the sale occasions movement of goods from one State to another. In CST v. Suresh Chand Jain - (1988) 70 STC 45 (SC), it was held that a sale can be said to be in the course of inter-state only if two conditions concur viz. sale of goods and (ii) a transport of those goods from one State to another.
There are following essential ingredients of inter-State sale under this sub-section:
Transaction must be a completed sale.
+Location of buyer and seller is immaterial. Thus, even if buyer and seller are within the same State, sale will be inter-state, if sale occasions movement of goods from one State to another. e.g. the buyer may have construction site in another State and may ask seller to despatch goods directly to the site. Inter State sale by transfer of documents is also possible even when buyer and seller are in same State.+
There should be an agreement to sale which contains a stipulation (express or implied) regarding movement of goods from one State to another. - Balabhgas Hulaschand v. State of Orissa (1976) 37 STC 207 (SC) = AIR 1976 SC 1016 = (1976) 2 SCC 44 = 1976 2 SCR 939.
It is immaterial whether a completed sale precedes the movement of goods or follows the movement of goods or takes place while the goods are in transit. What is important is that movement of goods and the sale must be inseparably connected - CST, UP v. Bakhtawar Lal Kailash Chand Arhti - (1992) 87 STC 196 = 1992 AIR SCW 2246 = AIR 1992 SC 1952 = JT 1992 (4) SC 388 (SC 3 member bench) [In Balabhgas Hulaschand v. State of Orissa (1976) 37 STC 207 (SC) = AIR 1976 SC 1016 = (1976) 2 SCC 44 = 1976 2 SCR 939, it was held that concluded sale should take place in a State which is different from the State from which goods move. However, now the later judgment (i.e. 1992 judgment) prevails].
From the above, you can conclude that tax should ONLY based on Ship To Party.
Hope this should be helpful to you.
thanks
G. Lakshmipathi
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