tapl.in

Basic Scheme of the CST Act PDF Print E-mail

Basic Scheme of the CST Act

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

bullet

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

bullet

To provide for levy, collection and distribution of taxes on sales of goods in the course of inter-state trade or commerce

bullet

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 sale or purchase 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.

Basic scheme of the CST Act - The basic scheme of the CST Act is as follows.

Sales Tax Revenue to States - The CST Act provides for levy on Inter-State sales and also defines what is ‘Inter-State Sale’. However, the concept that revenue 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. This is provided in Article 269(1)(g) of Constitution of India. - - CST in each State is administered by local sales tax authorities of each State.

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 Inter State 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.

State Sales Tax law applicable in many aspects - CST Act makes provisions for very few procedures and rules. In respect of provisions like return, assessment, appeals etc., provisions of General Sales Tax law of the State applies.

CST Act defines some concepts - Under the authority of Constitution, the CST Act defines concepts of ‘Sale Outside the State’ and ‘sale during the course of import/import’.

Declared goods - Some goods are declared as goods of special importance and restrictions are placed on power of State Governments to levy tax on such goods.

Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads : ‘Taxes on the sale and purchase of goods other than newspapers, where such sale or purchase takes place in the course of Inter-state trade or commerce’. Entry 54 of list II - State List - reads : ‘Tax on sale or purchase of goods other than newspapers except tax on Inter State sale or purchase’. Thus, 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.

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 are Intra-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.

Newspaper specifically excluded - It can be seen that ‘newspapers’ are specifically excluded from purview of both Union as well as State list. The obvious reason is that newspapers have a very vital role to play in a democratic society. Freedom of speech and free flow of information is the backbone of democracy and hence newspapers have been excluded from tax. [Otherwise, ‘newspaper’ are ‘goods’, but for the exclusion].

Taxable event in sales tax - In re Sea Customs Act - AIR 1963 STC 437= (1964) 3 SCR 827 (SC 9 member bench), it was held that in case of sales tax, taxable event is the act of sale. It is not a tax directly on goods.

Categories of Sales - Sales can be broadly classified in three categories.

(a) Inter-State Sale

(b) Sale during import/export

(c) Intra-State (i.e. within the State) sale.

If sale or purchase to Marketing Agency is in same State, it will be an Intra-State sale even if goods are despatched outside the state as per instructions of the marketing agency. - ACC v. CST - AIR 1991 SC 1122.

Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax on Intra-State sale is levied by State Government of the State in which sale takes place. No tax is levied on sales during import or export.

Sale within the State is ‘residuary sale’ – As we will see later, ‘sale within State’ is residuary sale. Thus, first we have to decide if sale is ‘Inter State’. If not, we have to find if it is ‘Sale during export or import’. If not, then the sale is ‘Intra State’. Thus, if a sale is Inter State of during export or import, it cannot be ‘Sale within the State’.

Mode of a sales transaction - Initially, buyer places an order on seller for supply of goods, called ‘Purchase Order’. After the goods ordered are ready, the buyer may come to the business place (godown, factory or warehouse) of seller and obtain delivery of goods. This will be ‘Sale within the State’. Alternatively, buyer may ask seller to send the goods by transport. In such cases, the seller will book the consignment by rail, road, ship or air as per requirement of buyer to the destination where buyer requires the goods. In such a case, generally, (a) if buyer and seller are in the same State, it is Intra-State sale (b) if they are in different States, it is Inter-State sale (c) if buyer is outside India, it is sale during export (d) if seller is outside India, it is sale during import.

Background of CST

Sales Tax is one of the most important Indirect Tax for purpose of taxation by State Governments. Revenue from CST goes to State from which movement of goods commences. Total CST revenue in 98-99 was Rs 8,538 Crores. Revenue of some major States was - Maharashtra - Rs 1,442 Crores. Tamilnadu - Rs 934 Crores. West Bengal - Rs 799 Crores. Gujarat - Rs 787 Crores, Haryana - Rs 739 Crores. [ET, Bom 21.7.2000].

CST is proving to be a hindrance in introducing VAT. CST has been reduced to 3% (from 4%) w.e.f. 1-4-2007. It is announced that it will be reduced by 1% every year and made Nil by 1-4-2010.

Recent Changes – Following are recent change in CST Law.

1-3-2006 – Appeal to CST Appellate Authority will lie only against highest Appellate Authority of the State [During 17-3-2005 to 28-2-2006, appeal was to be filed with CST Appellate Authority directly against order of assessing authority].

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 from list of declared goods.

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