In case of interstate transaction, Sec 3, 4 and 5 makes taxing of intangibles difficult.
Physical location of asset is basic criteria for imposing sales tax by a state government. Controversy of location determination arises in case of assignment of patent, trade mark or copy right.
Section 3 and Section 5
Actual physical movement of goods is necessary from one state to another or from outside India to inside or from inside India to outside in order to be charged under CST. Such physical movement may be absent in the case of intangibles.
In India the test to determine whether a property is ‘goods’ for the purpose of sales tax, is not whether the property is tangible or intangible or incorporeal. The test is whether the item concerned is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc.
This necessarily implies that states have the right to tax transfer of IP.
Bharat Sanchar Nigam Ltd. -VS- Union of India (2006) 1453 STC 91
The Hon. Supreme Court held that goods may be a tangible property or an intangible one, it would become goods, if it satisfies the test.
Inter- state Transfer in case of tangible goods
As per sec 3&4 of the CST Act if goods moving in pursuance of contract:
Taxable in the state where the movement commences
In case of goods not moving pursuance of the contract, then taxable in the state where the appropiation is made.
Inter- state Transfer in case of intangible goods
Intangibles like patents, copyrights, trademarks since there is no movement of goods as such, transfer thereof is taxable in the State where agreement is made.