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A

Report

On

Central sales Tax Act,1956

SUBMITTED TO:

Prof. Vasudevan

(Faculty Legal & Tax Aspects of Business)BVIMSR, CBD Belapur, Navi Mumbai

SUBMITTED By:The Group member consisting

Bhasker Bagadia 62

(Division B, M.M.S. - ISTYear)

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CENTRAL SALES TAX ACT,1956

Brief History

India is Union of States - Our Constitution generally follows British pattern, though concepts of

federal structure are borrowed from American and other Constitutions. India is a Union of States.

The structure of Government is federal in nature. Government of India (Central Government) hascertain powers in respect of whole country. India is divided into various States and Union

Territories and each State and Union Territory has certain powers in respect of that particular

State. Thus, there are States like Gujarat, Maharashtra, Tamilnadu, Kerala, Uttar Pradesh, Punjab

etc. and Union Territories like Pondicherry, Chandigarh etc.

The authority to impose sales tax was given to the State Government under the Government of

India Act, 1935. As a result of which different provinces in the country enacted their sales-taxlaws. Since the State Government were free to levy tax on the goods in any manner. They

exercised this power much to the detriment of the consumers and traders. In most of the cases it

was found that rules were framed in such a way that even the sales taking place outside theterritorial limits of a State were treated as sales within that State. There was a great confusion

about the territorial limits of a State for the purpose of levy of sales-tax. In view of this, sales-tax

could be levied by more than one State on the same sales of goods. This created great difficulties

for trading communities and ultimately to the consumers also.

The Central Government was, therefore, urged to take necessary steps to control this State of

affairs through proper legislation. After consulting State Governments and recommendation ofthe Taxation Enquiry Commission (1953-54), the Central Government amended the article 286of the Constitution in September 1956.

Following restrictions were imposed by amended Article 286:

1. No law of the State shall impose or authorize the imposition of a tax on the sale orpurchase of goods if such sales or purchase takes place outside the State.

2. No law of the State shall impose or authorize the imposition of a tax on the sale or

purchase of goods which take place in the course of import of the goods into, or export of

the goods out of the territory of India.3. Any law of State imposing or authorizing to impose to impose tax on the sale or purchase

of goods in the course of inter-State trade or commerce shall be subject to restrictions andconditions regarding system of levy, tax rates etc as may be specified by the parliamentthrough legislation.

4. The Parliament may enact proper legislation for determining the place of sale orpurchase of goods.

It was in view of this authority provided by amended article 286 that the Parliament enacted theCentral Sales-Tax Act, 1956 which received the accent of the president on 21 st December, 1956.

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The Act was notified on 4th January, 1957, in the official Gazette and came into force on 1 st

October 1958. But the Central Sales tax was imposed on those sales only which were affected on

or after 1 July, 1957.

The Constitution (46th Amendment) Act, 1982 has widened the scope of levy of sales tax by the

Government of India as well as State Government. The Government may after enacting suitablelegislation, levy tax on the transaction of the following nature.

Transfer of property in goods (whether as goods or in any other form) involved in the

execution of a works contract.

Delivery of goods on hire purchase or any system of payment of installment.

Transfer of right to use goods for any purpose for cash, deferred payment or other

valuable consideration.

Supply by way of or as a part of any services of food (being food or any article for human

supply) or any drink for cash, deferred payment or other valuable consideration.

Further Central Government has been empowered to levy tax on consignment of goods, when

such consignment takes place in the course of inter-State trade or commerce. The tax is levied on

all sales of goods other than electrical energy affected by dealer in the course of inter- State tradeor commerce during the year.

Central sales tax (amendment) Act, 2001

A new chapter VI has been inserted in Central Sales Tax Act, 1956 by Central Sales Tax

(amendment) Act, 2001. It empowers Government to appoint an authority to settle dispute in

course of inter-State trade and commerce.

Amendment in Central Sales Tax through the Finance Act, 2002

The following important amendment has been made by the Finance Act, 2002 in CST Act:

The word Sale has been redefined.

Now, it will be mandatory to submit Form F in order to claim benefit of transfer of stock

from one State to another. If the dealer fails to submit Form F, it shall be deemed that thetransfer has been occasioned as a result of sale and it will be liable to tax.

Amendment of Section 8:

A. Earlier if the rate of local sales tax was less than 4% then inter-State sale of such

goods was also taxable at that rate without furnishing of Form C. Now in such

situation Form C will be required. If the buyer does not furnish Form C, he will berequired to pay tax at the following rate:

On Declared goods- double the tax rate

On undeclared goods - @ 10% or State rate, whichever is higher.

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B. If a State Government reduces tax in public interest by issuing notification, adealer can avail this benefit by submitting

Form C/Form.

C. An unregistered dealer will not be entitled to avail the benefit of the reduced taxrate.

D. Now goods can be purchased on Form C for the use in telecommunicationNetwork.E. Amendment of Section 15: Now State Government can levy tax on declaredgoods at more than one point. However, the rate of tax cannot exceed 4%. The Effect

of this amendment State Government can levy VAT on declared goods also by

making necessary amendment in the State Act.

Recent Changes

18-4-2006 LPG (liquid petroleum gas) for domestic use is added to list of declared

goods u/s 14 of CST Act to maintain tax rates at reasonable level.

1-4-2007 - CST rate reduced to 3%. 'D' form abolished. Tobacco products removed fromlist of declared goods.

1-6-2008 - CST rate reduced to 2%.

Objective of the Act

The objects of the Act, as stated in preamble of the CST Act are

To formulate principles for determining:

(a) When a sale or purchase takes place in the course of inter-state trade or commerce.(b) When a sale or purchase takes place outside a State.

(c) When a sale or purchase takes place in the course of imports into or export from India.

To provide for levy, collection and distribution of taxes on sales of goods in the course of

inter-state trade or commerce.

To declare certain goods to be ofspecial importance in inter-State trade or commerce

and specify the restrictions and conditions to which State laws imposing taxes on sale orpurchase of such goods of special importance (called as declared goods) shall be subject.

CST Act imposes the tax on inter state sales and states the principles and restrictions as per

the powers conferred by Constitution.

In general sense, the Section 6(1) of CST Act 1956 provides that subject to other

provisions of the CST Act, every dealer shall be liable to pay tax under this Act on all Sale ofgoods (other than electrical energy & newspaper) effected by him in the course ofInter-State

trade or Commerce.

Salient features of the CST Act

1) It extends to the whole of India.

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2) It is divided into 6 chapters and 26 sections.

3) It makes provision for single point as well as multiple point tax.

4) Under this act the goods have been classified as Declared Goods and Undeclared Goods.5) The rate of tax on declared goods is lower as compare to other goods.

6) Irrespective of turnover of the dealer tax is required to be paid.

7) Every dealer engaged in inter-state trade has to get himself registered and the certificateof registration has to be displayed at all places of his business.

8) The tax is levied by the Central Government and collected by that State Government.

9) CST is retained by the State from which it collected.10) The CST Act does not provide rules regarding submission of returns; payment of tax, etc.

General State Sales Tax law is followed.

11) The Central Government and the State Government are empowered to frame proper rules

and regulations for the implementation of the various provisions of this Act.

Provisions of the CST Act

1) There is a Dealer.2) He must be a Registered Dealer registered under the CST Act.

3) The dealer must carry on the business.4) There must be Sale.

5) The sale must be of Goods.

6) The sale may of Declared Goods or otherwise.7) Sale must in the course of inter-state trade or commerce.

8) It should not be a sale inside a state.

9) The sale should not take place in the course of import or export.10) The buyer may (or may not) be a registered dealer.

Important Definitions

Appropriate State [section 2(a)]

As per section 2(a) of CST Act, Appropriate State means(a) In relation to dealer who has one or more places of business in the same State, that

State and

(b) In relation to a dealer who has places of business situated in different States, everysuch State with respect to place or places of business situated within its territory. Thus, a dealer

has to register only with sales tax authorities where he has place of business.

Business [Section 2(aa)]

CST Act defines that business includes:

(i) any trade, commerce or manufacture, or any adventure or concern in the nature of trade,commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or

concern is carried on with a motive to make gain or profit and whether or not any gain or profit

accrues from such trade, commerce, manufacture, adventure or concern and

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(ii) Any transaction in connection with or incidental or ancillary to, such trade, commerce,

manufacture, adventure or concern.

Following points emerge from this definition:

Profit motive is immaterial.

Business normally implies something done on regular basis. However, since business

includes Adventure, occasional transactions may also be covered. Adventure impliessome speculation.

Incidental or ancillary business is also covered e.g. sale of used car, sale of scrap, sale of

old machinery, sale of old furniture etc. is taxable, though normally the dealer may not be

in business of selling cars, furniture or machinery e.g. Central Excise Authorities selling

the goods confiscated by them are liable to pay sales tax.Any transaction in connection with or incidental or ancillary to, the main business would

constitute business, even though the transaction by itself may not have the characteristics of

business as understood in ordinary parlance.

Dealer [section 2(b)]Section 2(b) defines that dealer means any person who carries on (whether regularly orotherwise) the business of buying, selling, supplying or distribution of goods, directly or

indirectly, for cash, or for deferred payment, or for valuable consideration, and includes

(a) a local authority, a body corporate, a company, any cooperative society, club, firm, Hinduundivided family or other association of persons which carries on such business

(b) a factor, broker, commission agent, del credere agent, or any other mercantile agent, by

whatever name called, and whether the same description as herein before mentioned or not,who carries on the business of buying, selling, supplying or distribution, goods belonging

to any principal whether disclosed or not and

(c) an auctioneer who carries on the business of selling or auctioning goods belonging to any

principal, whether disclosed or not and whether the offer of the intending purchaser isaccepted by him or by the principal or a nominee of principal.

(d) Government as dealer - section 2(b) clarifies that Government, which, whether or not in

the course of business; buys, sells, supplies or distributes; goods, directly or otherwise, forcash or for deferred payment or for commission, remuneration or other valuable

consideration shall be a dealer.

In other words , A mercantile agent, agent handling goods, agent for collection of payment and

every branch or officer in a State of a firm of Company which is outside the State is also a

dealer, and states that Government is also a dealer except in case of sale of old and

discarded stores or waste. (PSUs are not Government).

Section 8(1) specifies that every dealer who in the course of inter-State trade or commerce sales

the goods shall be liable to pay tax under the Act. Thus, liability is on the dealer who 'sells' thegoods.

Goods [section 2(d)]

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Section 2(d) of CST Act defines that goods includes all materials, articles, commodities and all

kinds of movable property, but does not include newspapers, actionable claims, stocks, shares

and securities. Following should be noted.Goods must be movable - Goods includes all movable property. It includes Electrical

energy, animals and bird in captivity; Goods include uprooted trees, second hand goods, rejected

goods, worn out goods etc.

No tax on Immovable Property - Section 3(14) of General Clauses Act define that Immovable

property includes land, benefits arising out of land and things attached to the earth orpermanently fastened to anything that is attached to the earth. Newspapers are in fact goods,

but are specifically excluded in view of entry No. 92A of List I to Seventh Schedule to

Constitution of India (Union List) where newspapers are specifically excluded from purview of

tax on inter-State sales of goods.

Goods of intangible character are goods - Goods of intangible character like patents, lottery

ticket, and advance licenses, copyright can be liable to sales tax.

However, in case of certain intangible goods like patent, copyright and trade mark, there

is no physical movement of goods from one State to another. These goods cannot be said to belocated at a particular place. In view of this, it seems that sale is concluded at a place where

agreement of sale is executed, as property in goods can be said to have passed in that State.

Declared Goods [section 2(c)]

It means goods declared under Section 14 of the Act to be of special importance in Inter-statetrade or commerce.

Under article 286 of the Indian Constitution, parliament can declare certain goods as of special

importance and regulate the taxation of such goods. Section 14 contains the list of such items,

some of which are: cereals (rice, wheat etc.), coal, cotton, cotton fabrics, crude oil, iron andsteel, jute, oil seeds, pulses, sugar etc. Tax on such goods within a State cannot exceed 4%. Such

tax must be charged only at one stage.

Turnover [section 2(j)]

Turnover means the aggregate of the sale prices received and receivable by a dealer in respect of

sales of any goods in the course of inter-State trade or commerce made during the prescribedperiod and determined in accordance with the provision of this Act and the rules made there

under. The goods may be sold either on cash / credit, or the accounts may be maintained on the

cash system, the sale prices of credit sales shall also be included in the turnover. The ingredientsof turnover are:

1. It is the aggregate of the sale prices

2. Sale prices may be received or due

3. Sale prices must be of the goods sold in the course of inter-State trade or commerce4. Sale prices must be of a prescribed period (in connection with Sales tax prescribed

means the period for which the return of sales has been filed)

5. The turnover must be determined in accordance with the provisions of this Act andthe Rules made there under

Sale [Section 2(g)]

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Sale means any transfer of property in goods by one person to another for cash or for

deferred payment or for any other valuable consideration, and includes

(i) Transfer other that by contract (compulsory transfer)

(ii) Right to use goods (like leasing)

(iii) Transfer among members of unincorporated association(iv) Supply of food articles

(v) Hire purchase

Till 11-5-2002, there was no CST on inter state transactions of goods involved in works

contract, leasing, transfer among members of unincorporated association or sale of food articles.

Essentials of valid sale As per aforesaid definition, essential requirements of sale are (a)

there must be transfer of goods (b) general property in the goods should be transferred to buyerfrom seller (c) consideration i.e. price must be paid or agreed to be paid. It may be cash, deferred

payment or any other valuable consideration (d) Sale includes hire purchase, goods involved in

works contract, lease or sale of food articles.

Transfer of Property essential - There is no sale unless there is transfer of property.Property means a thing over which a person has a domain. This implies transfer of ownership.

Mere agreement to sale does not mean sale as there is no transfer of property. Property isdifferent from possession. Property in goods can pass even before handing over possession.

Conversely, transfer of possession does not necessarily mean that it is a transfer of property.

No sales tax on mere agreement to sale - Though 'sale' includes agreement to sale, it isonly for purposes of deciding whether a sale is an 'Inter State Sale' or 'sale during export or

import'. However, for purpose of sales tax liability, 'sale' only means 'concluded sale'. In Tata

Iron and Steel Co. (TISCO) v. S R Sarkar - (1960) 11 STC 655 (SC) = AIR 1961 SC 65 = (1961)1 SCR 379, it was held that a transaction of sale is subject to tax under CST on the completion of

sale, and a mere contract of sale in not a sale for purpose of levy of CST.

Place of Business [section 2(dd)]

It is important to determine the place of business of a dealer because Central Sales Act is

collected by the government of that State where the place of business of the dealer is situated.Place of businesses includes:

1. in any case where a dealer carries on business through an agent (by whatever namecalled), the place of business of such agent

2. a warehouse, godown or other place where a dealer stores his goods and

3. a place where the dealer keeps his books of account.

Sale Price [section 2(h)]

Sale price means the amount payable to a dealer as consideration for the sale of any goods. Also,

if any sum is charged for anything done by the dealer in respect of the goods at the time of orbefore delivery thereof, it also forms a part of sale price.

Cash and Trade discount are deducted while the computation of sale price is done.

Year [section 2(k)]

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The year applicable for dealer, who is liable to pay sales tax under the general sales tax law of a

state, shall become the year for Central Sales tax Act also. In case, the Dealer is not liable to pay

general sales tax financial year will be the year i.e. starting from 1st April till 31st March.

Different Categories of Sales

1) Sale or purchase in the course of inter-state trade or commerce [Section 3]

As per section 3 of CST Act, sale or purchase of goods shall be deemed to take place inthe course ofinter-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) of the act.

A sale could be said to be in the course of Inter-state trade only if three conditions

concur:i. A sale of goods,

ii. A transport of those goods from one state to another under the contract of sale; and

iii. Such movement of goods must be caused or be due to the sale.

This may be understood easily with the help of illustration, suppose a dealer of U.P. comes to

Delhi to purchase goods. After purchasing the goods he carries the goods with him. It is not a

sale or purchase in the course of inter-state trade or commerce because the goods do not movefrom one state to another under the contract of sale.

If the sale or purchase is affected by a transfer of document of title (receipt of carrier, etc.) tothe goods during their movement from one state to another, under this clause a sale could be said

to be in the course of inter-state trade or commerce only if the following conditions are satisfied:

i. the goods are in movement from one state to another before sale is affected

ii. the sale or purchase of the goods is affected after the commencement of movement of thegoods but before the termination of such movement ; and

iii. the sale or purchase of the goods must be affected by a transfer of document of title of thegoods.

2) Sale or purchase of goods inside a state

I. A sale or purchase of goods shall be deemed to take place inside a state if the goods are

specific or ascertained at the time of the contract of sale and are within the state ; andII. In the case of purchase or sale of unascertained or future goods, when the goods are

appropriated by the seller or by the buyer (whether assent of the other party is prior or

subsequent to such appropriation) and the goods are within the state.

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3) Sale or purchase of goods in the course of exports [sec.5 (1) & (3)]

A sale or purchase of goods shall be deemed to take place in the course of the export ofgoods out of territory of India, if

a) The sale or purchase occasions such export; or

b) The sale or purchase is affected by a transfer of document of title to the goods have crossedthe customs frontier of India;

c) it is the last sale or purchase of any goods preceding the sale or purchase occasioning the

export of those goods out of the territory of India if such last sale or purchase took place after,and was for the purpose of complying with the agreement or order for or in relation to such

export.

In order to claim benefit u/s 5(3) the following conditions must be satisfied:

1) there must be pre existing agreement;

2) last purchase or sale must have been taken place after that agreement

was entered into;

3) Such last sale or purchase took place after and for the purpose ofcomplying with the pre-existing agreement or order in relation to such

export.4) The dealer must submit Form H to the prescribed authority within the

time of assessment by the first assessing authority. The form should be

duly filled and signed by the exporter to whom the goods are sold. Sec.5(4).

4) Sale or purchase of goods in the course of import [sec.5 (2)]

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, if:

a) The sale or purchase either occasion such import; orb) The sale or purchase is affected by a transfer of document of title to the goods before thegoods have crossed the custom frontiers of India.

Settlement of Disputes

A new chapter (VI) has been added in the central Sales Tax, 1956 by the Central Sales Tax(Amendment) Act, 2001. It empowers the central Government to appoint an authority to settle

disputes in course of inter-State trade and commerce.

Constitution of Authority [Section 19]

The authority shall consist of the following members appointed by the Central Government:

1. chairman: retired judge of the supreme court or a retired chief justice of the high court2. an officer of the Indian Legal Service who is or is qualified to be an Additional Secretary

to the Government of India

3. an Officer of a state government not below the rank of Secretary or an officer of thecentral Government not below the rank of Additional secretary, who is an expert in the

sales tax matters.

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4. Other officers and staff as may be necessary for the efficient exercise of the powers of theAuthority under this Act.

Appeals

1. If the dealer is not satisfied by any order of the assessing authority made under Section

6A read with Sec 9 which relates to any disputes concerning the sale of goods affected inthe course of inter-state trade or commerce, may file an appeal.

2. Appeal shall be filed within 45 days from the date on which the order is served on him.However the authority may entertain any appeal within 60 days from the date on whichthe order is served on the dealer, if it is satisfied that the appellant was prevented by

sufficient cause from filing the appeal in time.

3. The application shall be made in quadruplicate (four copies) and be accompanied by a feeof Rs. 5,000.

Procedure:

On receipt of an appeal, the authority shall cause a copy thereof to be forwarded to the A.O.

concerned as well as to each state government concerned and to call upon them to furnish the

relevant records. The authority shall return such records to the A.O. or such State Governmentconcerned as soon as possible.

The authority after examining the appeal and the records either allow or reject the appeal.

The authority shall as far as possible pronounce its order in writing within 6 months of the

receipt of the appeal.A copy of the order shall be sent to the appellant and to the A.O.

Transfer of Pending Proceedings

On and from the date when the authority is constituted u/s 19, the proceedings arising out of the

provisions contained hereby1. which is pending immediately before the constitution of such Authority before theappellate authority constituted under the General Sales Tax Law of a State or of the

Union Territory as the case may be,2. which would have been required to be taken before such appellate authority.

Applicability of Order Passed

An order passed by the authority shall be binding on the A.O. each State Government concerned

and other Authorities created by or under any law relating to general sales tax, in force for the

time being in any State or Union Territory.

Penalties and prosecutionIf any person commits any of the offences he shall be punished u/s 10:

1. Where a dealer fails to get himself registered under central sales tax when it is compulsory

to get him registered

2. Where a properly filled in application for registration remained pending with the authorityfor the years, the dealer could not be said to have failed to get himself registered

3. where he fails to furnish the security (cash, promissory note, in kind) within the specified

time and in the prescribed manner as required of him u/s 7 (3A)

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4. Where a part or full security has been forfeited and this security insufficient, he fails to

make up the deficiency in such a manner and within such time as prescribed.

5. Where he furnishes any of the following certificates or declaration which he knows or hasreason to believe, to be false:

Certificates regarding claim of exemption from tax u/s 6(2),

A declaration claiming that he is not liable to pay tax under this act in respect of goods,on the ground that the movement of such goods from one state to another was occasioned

by reason of transfer of such goods by him or any other place of his business or to his

agent or principle, A declaration u/s 8(8) duly filled and singed by the registered dealer who has purchased

the goods without paying tax.

6. Where he is a registered dealer under the C.S.T. Act but falsely represents whenpurchasing any class of goods that goods are covered by his certificate of registration

7. Where he is not a registered dealer under the C.S.T. act but falsely represents when

purchasing goods in the course of inter-state trade that he is a registered dealer

8. Where he purchases goods for any specific purposes but fails, without reason cause, tomake use of the goods for any such purpose:

Purchases goods specified in the certificate of registration for resale or for use by him inthe manufacture or processing of goods for sale.

Purchase containers or other materials specified in the certificate of registration intended

for the being used for the packaging of goods for sale.

9. Where he has in his possession any form ( Form C) which has not been obtained by him or

by his principal or by his agent in accordance with the provisions of this act.

Quantum of penalty

On the commitment of any of the above mentioned offences the person shall be punishable withthe simple imprisonment for the maximum period of six months, or with fine, or with both.

When the offence is a continuing offence, he shall be punishable with the daily fine which may

extend to fifty rupees for every day during which the offence continues.

Collection of penalty

In the case of an offence the penalty shall be levied and collected by the state in which the personpurchasing the goods obtained the declaration form (FORM C).

THE ACT AT A GLANCE

Sales tax Revenue to state - The CST Act provides for levy on Inter-State sales. The concept thatrevenue from sales tax should be collected by States has been retained. Thus, though it is called

Central Sales Tax Act, the tax collected under the Act in each State is kept by that State only.

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Tax collected in the State where movement of goods commences - The scheme of CST Act is

that Central Sales Tax is payable in the State from which movement of goods commences (i.e.

from which goods are sold). The tax collected is retained by the State in which it is collected.CST Act is administered by Sales Tax authorities of each State. Thus, the State Government

Sales Tax officer who collects and assesses local (State) sales tax also collects and assesses

Central Sales Tax.

Tax on interstate sale of goods CST is tax on inter State sale of goods. Sale is Inter-State when

(A) Sale occasions movement of goods from one State to another

OR

(B) Is effected by transfer of documents during their movement from one State to

another.

In respect of provisions like return, assessment, appeals etc., provisions ofGeneral Sales Tax

law of the State applies.

Sale within the State (Intra-State sale) is within the authority of State Government, while sale

outside State (Inter-State sale) is within the authority of Central Government (as per theconstitution of India).

In Simple Word, State government levy tax on Intra-state Sales and Central government levy tax

on interstate Sales. [Exception in case of newspaper as it has very vital role to play in a

democratic society]

Examples - Sale where both buyer and seller are from same State is Intra-State sale e.g. from

Mumbai to Pune or Ahmedabad to Surat, Howrah to Kolkata Mysore to Bangalore etc., these areIntra-State sales. However, when buyer and seller are in different States, it is Inter-state sales.

e.g.: Chennai (Tamil Nadu) to Trivandrum (Kerala), Allahabad (UP) to Hyderabad (Andhra

Pradesh), Bhubaneshwar (Orissa) to Daman (Union Territory) etc.

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