CENTRAL SALES TAX

1. CENTRAL SALES TAX PRI P RAJU IYER

2. PREAMBLE the fundamental principle behind the Sales Tax Laws “An Act to formulate principles when a sale or purchase of goods takes place in the course of inter-state Trade or Commerce or outside a State or in the Course of Import into or export from India, to provide for the levy, collection and distribution of taxes on sales of goods in the course of Inter-State Trade or Commerce and to declare certain goods to be of special importance in Inter-State Trade or Commerce and specify the restrictions and conditions to which State Laws imposing taxes on the sale or purchase of such goods of special importance shall be subject.”

3. Modern business operations and trading modalities have become so complex that Laws had to be amended frequently to stretch the arms for roping every type of transactions to maximize the revenue collection. The classification of sale for the purpose of Sales Tax Law can be analyzed: S - Inter-State Sales A - Intra-State / Local Sales L - Sale in the course of Import / Export E - Deemed Sales – Works Contracts, Hire- Purchase, Right to Use, etc.

4. The scheme of Sales Tax Levy based on above, comes within the purview of the following statutes – • Central Sales Tax Act, 1956 read with the Central Sales Tax (Registration & Turnover) Rules,1957 • Sales Tax Act read with the rules thereof enacted by the individual States concerned Individual States Sales Tax Act will be replaced by VAT

5. CST applicable in case of Inter-State Sales • Levy of the Central Government subject to the powers given under the Constitution of India. • Inter State Sales and Export Sales are taxed under CST. • The CST is 4 % where C form is applicable • Where C Form is not applicable, 10% or the respective TNGST levy whichever is Higher. • In case of declared goods, Double the levy to the unregistered Dealer. • Registration shall be before the Inter-State Sale and can be voluntary also.

6. Objects of CST • a.To formulate principles for determining when a sale or purchase of goods takes place i.in the course of Inter-State trade or commerce (S.3); or ii.outside a State (S.4); and iii. In the course of import or export from India (S.5)

7. b.  To provide for - i.Levy (S. 6 & 8) ii.Collection (S. 9 (1) & (2)) iii.Distribution (S. 9 (3) of taxes on sale of goods in the course of Inter-State trade or commerce c. To declare certain goods to be of special importance in Inter-State trade or commerce d.   To Specify the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subjected (S.15)

8. DEFINITIONS ‘Appropriate State’ means that State in which business is situated. If a dealer has one or more places of business situated in the SAME STATE, then, that State is the appropriate State. If a dealer has places of business in DIFFERENT States, then, every SUCH State with respect to the place (or places) of business situated within its territory shall be treated as “Appropriate State”. APPROPRIATE STATE – S. 2 (a)

9. BUSINESS – S. 2 (aa) Business includes the following: 1. Any trade, commerce or manufacture 2. Any adventure or concern in the nature of trade, commerce of manufacture. The above may be carried on WITH or WITHOUT motive to make gain or profit. Further, gain or profit MAY or MAY NOT accrue from such trade, commerce, manufacture, adventure or concern, 3. Any TRANSACTION in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern.

10. SALE - S. 2 (g) “Sale” means transfer of property (ownership) in the goods by one person to another. It may be – a. for cash or b. for deferred payment or c. for any OTHER valuable consideration

11. IT INCLUDES – • A transfer of property in any goods for cash, deferred payment OR other valuable considerations. This transfer is otherwise than in pursuance of the contract. • A transfer of property in goods involved in the execution of a works contract. This may be goods OR may be in any other form. • A delivery of goods on hire purchase or any system of payment by installments.

12. A transfer of the right to use any goods for any purpose. This may or may not be for a specified period. This may be for cash, deferred payment OR other valuable consideration. • A supply of goods by any incorporated association OR body of persons to its member. • A supply of goods being food or any other article for business consumption OR the supply of any drink which may or may not be intoxicating. The supply is made by way of OR part of any service.

13. ‘SALE’ DOES NOT INCLUDE – • A Mortgage OR • Hypothecation of OR • A charge on OR • A Pledge of the goods

14. PLACE OF BUSINESS • Place of Business includes – • Where a dealer carries on business through an AGENT, then the place of business of SUCH AGENT • A warehouse, go-down or other place where a dealer STORES goods and • A place where a dealer keeps his books of account.

15. SALE PRICE – S. 2(h) means the amount payable to a dealer as consideration for the sale of any goods. Any sum allowed as CASH DISCOUNT according to the practice normally prevailing in the trade shall be deducted from the above amount. Sale Price INCLUDES any sum charged for anything done by the dealer in respect of the goods at the TIME of or BEFORE the delivery of the goods. It DOES NOT INCLUDE the cost of freight or delivery or the cost of installation in cases where such cost is SEPARATELY charged.

16. GOODS - S. 2 (d) Sale of “goods” is liable to sales tax. Goods include all materials, articles or commodities and all kinds of movable property. IT DOES NOT INCLUDE newspapers, actionable claims, stocks shares or securities. Goods include animate objects such as livestock, animals and birds in captivity, uprooted trees, second hand goods, rejected goods, worn out goods, etc. Immovable property which includes things permanently attached to or permanently fastened to anything attached to the earth are not goods. Standing trees are not goods.

17. DECLARED GOODS – s. 2(c) “Declared Goods” means goods declared under Section 14 to be of special importance in Inter-State trade or commerce. Cereals (paddy, rice, wheat, maize, ragi Coal, Cotton, Cotton Fabrics, Cotton Yarn, Crude Oil, Iron and Steel, Jute, Oil Seeds, Pulses, Sugar, Woven fabrics of wool

18. DEALER – S. 2(b) “Dealer” means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods, directly or indirectly, for cash or for deferred payment or for commission, remuneration or other valuable consideration.

19. Includes – • a.A local authority, a body corporate, a company, any co-operative society or other society, club, firm, HUF 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 of the same description as hereinbefore mentioned or not, who carries on the business of buying, selling, supplying or distribution, goods belonging to any principal whether disclosed or not; and

20. 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 is accepted by him or by the principal or a nominee of the principal. Persons selling Illegal Goods is also a dealer for the purposes of CST Act. Professional services – A person providing services of professional nature (doctors) shall not be considered as Dealers. GOVERNMENT AS A “DEALER” – Government, which (whether or not in the course of business) buys, sells, supplies or distributes goods (directly or otherwise), for cash or for deferred payment or for commission, remuneration or other valuable considerations shall be a “dealer”.

21. The Provisions of CSA Act are attracted, if the following conditions are satisfied i.        There is a Dealer - S. 2 (b)ii.       He must be a registered dealer i.e. dealer registered under the CST Act – S.7iii.     The dealer must carry on a business - S. 2(aa)iv.     There must be sale –2 (g)v.      The sale must be of goods – 2 (d)

22.  vi.     The sale may be of declared goods or otherwisevii.   The sale must be in the course of Inter-State trade or commerceviii.  It should not be a sale inside a State – s. 4(2)ix.    The sale should not take place in the course of import or export – S.5x.      The buyer may be a registered dealer or not.

23. Newspaper specifically excluded – from Both Union and State List. The obvious reason is that newspaper have very vital role to play in democratic society. Freedom of speech and free flow of information is the backbone of democracy and hence newspapers have been excluded from the tax – “Newspapers” are “goods” in the normal sense, only specifically excluded.

24. Provisions of CST Act are attracted – if the conditions are satisfied 1.CST shall be levied • 2.It shall be levied on turnover, which is the aggregate of sale price, at a specified rate. • 3.It shall be collected in the State from which the movement of goods commences and by the registered dealer. • 4.The registered dealer shall submit return and assessment shall be completed by the assessing authority in the appropriate State. • 5.  As CST Act makes a very few provisions for rules and procedures, provision of the respective State shall be applicable regarding returns, assessment, appeals, etc.

25. Goods for the purpose of CST have been divided into two categories • i.Declared goods or goods of special importance in Inter-state Trade or Commerce – CST on such goods is charged at NIL rate or at a lower rate, which cannot be more than 4%, if such goods are sold to registered dealer. If such declared goods are sold to an unregistered dealer, CST will be charged at twice the rate applicable to such goods.

26. ii.Other goods – CST on such goods are charged at 10% or at rate applicable to such goods inside the appropriate State, whichever is higher. However, if such goods are sold to registered dealer against prescribed form issued by the registered dealer, the rate of CST will be 4% instead of normal rate. The prescribed forms are Form C – if buyer is Registered Dealer and Form D – if buyer is Government.

27. SALE – S. 2 (g) • Sale, with its grammatical variations and cognate expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable considerations, but does not include a mortgage or hypothecation of or a charge or pledge on goods.

28. DEEMED SALE – Pursuant to amendment of Article366 (29A) of the Constitution * the following deemed transactions are also covered by the expression “sale” – • a.a transfer otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; • b.a transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; • c.a delivery of goods on hire purchase or any system of payment by installments; • d.a transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;

29. e.supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; • f.a supply, by way of (or part of) any service (or in any other manner whatsoever) of goods, being food or any other article for human consumption or any drink (whether or not intoxication), where such supply or service, is for cash, deferred payment or other valuable consideration.

30. Hire Purchase – Constitution amended in 1982 to specifically include “hire purchase” in the definition of SALE. • Works Contract – Sales tax cannot be levied on the full value of the works contract, but only on value of goods actually transferred in execution of the works contract. • Sale v, Agreement to Sell – Unless there is ‘transfer of property’ there is no sale. Mere ‘agreement to sell’ does not amount to sale as there is no transfer of property.

31. Sale takes place only when there is transfer of property and goods transferred are ascertained goods. • Sale includes • -Barter / Exchange • -Illegal goods sale (like income from illegal source under IT Act) • -Compulsory transfer of controlled goods

32. Ingredients of Sale – i.A bargain or a contract of sale ii.The payment or promise of payment of price iii.The delivery of goods iv.The transfer of property in the goods i.e. actual passing of the title.

33. Sale DOES NOT Include mortgage or hypothecation of or a charge or pledge on goods

34. INTER-STATE SALE or PURCHASE • 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 to the goods during their movement from one State to another. • Can be as per S.3 a or b

35. Restrictions on powers of taxation on imposition of tax on sale or purchase of goods are provided in Articles of 286 of Constitution of India, as follows: • State Government cannot impose tax on sale or purchase during imports or exports; or tax on sale outside the State • Parliament is authorized to formulate principles for determining when a sale or purchase takes place (a) outside the State (b) in the course of import and export • Parliament can place restrictions on tax on sale or purchase of goods declared as goods of special importance and State Government can tax such declared goods only subject to these restrictions

36. SALE BY TRANSFER OF DOCUMENTS What is ‘Document to Title of Goods” • What is transfer ‘During Movement of Goods’ The documents of title (Lorry Receipt, Railway Receipt, Bill of Lading, AirWay Bill) is in favor of Agent/Banker/Self, who can transfer the title to Purchaser by way of endorsement. Transfer of Documents is a symbolic delivery of goods to the purchaser, which carries with it full ownership of goods.

37. The following shall not be part of sale price • 1.Freight / transport charges for deliver of goods, if charged separately • 2.Cost of installation, if charged separately • 3.  Cash discounts for making timely payment (shall be deducted from the sale price) • 4.Trade discounts (it may be given periodically a the end of month / quarter / year, it is not the requirement that it shall be given only at the time of sale) • 5.Insurance charged of goods insured on behalf of the buyer or at the request of the buyer • 6.Goods returned within 6 months of the date of sale • 7.Goods rejected.

38. TURNOVER – S. 2(j) • It is the aggregate of the sale prices received and receivable by the dealer in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period. Prescribed period is the period in which sales tax return is filed as per the local sales tax law of the State. • Turnover is determined in accordance with the provisions given in section 8A.

39. REGISTERED DEALER – S 2(f) • It means a dealer who is registered under Section 7. • S. 7 – There can be two ways in which a dealer can get himself registered - Compulsory registration or Voluntary registration.

40. Compulsory Registration – S. 7 (1) • Every dealer liable to pay tax under the CST Act shall (within such time as may be prescribed for the purpose) make an application for registration under the Act to such authority in the appropriate State as the Central Government (by general or special order) specify and every such application shall contain such particulars as may be prescribed. • As per S. 6 (1) every dealer effecting in the course of Inter-State trade or commerce is liable to CST. Every dealer liable to CST has to necessarily register himself with the Sales Tax Authority of the particular State

41. WHO IS A PERSON • The word ‘person’ is not defined under the CST Act. • However, includes the following – i. Natural Person, ii. legal person, iii. Company, iv. Associations, v. society, vi. a HUF, vi. Institutions, vii. Firm, viii. Chambers of Commerce; ix. clubs, x. A local authority, xi. Central Government, xii. State Government

42. STOCK TRANSFER / BRANCH TRANSFER • One of the important conditions to come within the purview of the term “inter-State sale” is that there should be sale is that there be sale. Transfer of goods to a branch or dispatch of goods to a consignment agent does not amount to “sale” and consequently there is not inter-State and CST liability, though goods move from one State to another. The person retains ownership of goods.

43. CROSSING THE CUSTOMS FRONTIERS OF INDIA – S. 2(ab) • It means crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities, “Customs station” and “Customs authorities” shall have the same meaning as in Customs Act, 1962.

44. Penultimate Sale for Export • As Exports is a specialized business (foreign buyer contacts and expensive advertisement & promotions) and many small units unable to export directly, effected through specialized agencies like Export Houses, etc. Certain goods can be exported through specialized agencies – State Trading Corporation. Such indirect exports also need exemption from taxes to make the Indian products competitive. Hence, such penultimate sales – sale preceding the sale occasion exports is also deemed to be in the course of export under S. 5 (3). Conditions to be fulfilled are:

45.   a.there must have been pre-existing agreement or order to sell the specific goods to a foreign buyer. • b. the last purchase referred to in section 5 (3)must have taken place after that agreement with the foreign buyer was entered into. • c.the last purchase must have been made for the purpose of complying with the pre-existing agreement or order. Only if these 3 conditions are satisfied, the transaction falls under S. 5(3).

46. Example – • A of Delhi receives an order for export of certain goods from G of Germany. To execute this order, he buys the goods from B of Ludhiana. The sale by B to A, which is the last sale before actual export sale, shall also be deemed to have taken place in the course of export, although B has sold the goods to A in India. This sale shall therefore, not be taxable under State Sales Tax law or CST law. • PURCHASE PRIOR TO PENULTIMATE SALE NOT EXEMPT – Only penultimate sale is exempt but purchases earlier to penultimate sale are not exempt and purchase tax is payable if prescribed – State of Tamilnadu Vs. Madras Pack Marine.

47. SALE DURING IMPORT • As per Article 286(1) of Constitution of India, sales tax cannot be levied in respect of sale during import. A sale or purchase of goods is deemed to be in course of import of the goods into the territory of India, only if (a) the sale or purchase either occasions such import or (b) is effected by a transfer of documents of title to goods before the goods have crossed the customs frontiers of India – S. 5(2).

48. Imports could be • i.direct imports • ii.imports through agent • iii.   imports by transfer of documents.

49. Year – S. 2(k) – • ‘Year’, in relation to a dealer, means the year applicable in relation to him under the general sales tax law of the appropriate State, and where there is no such year applicable, the financial year.

50. G S T • General Sales Tax Law means the law for the time being in force in any State or part thereof which provides for the levy of tax on the sale or purchase of goods generally. • Sales Tax law includes General Sales Tax Law, the law relating to imposition of surcharge and additional sales tax, etc.