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Central Sales Tax Act, 1956Ajay Babu BandiPractising Chartered Accountant

M.Com, FCMA,ACA,IFRS(Certified)

Taxable eventIn commodity taxation, the concept of Sale is essential to attract levy

Features of SaleIn order to constitute a Sale , the following elements are necessary- Bargain or Contract of salePayment or promise of payment of priceDelivery of goodsTransfer of title to goods

Each of the above elements is necessary to constitute a SaleEven if one of these elements is missing, the transaction cannot be called sale under commodity taxation

Constitutional ProvisionsIntra- State Sale is within the authority of the state Government while inter-state sale is within the authority of the central GovernmentCentral Government levies central sales tax by drawing power from Entry 92A of the Union List which provides as follows:

Sources of the Central Sales Tax law CST Act 1956Annual Union Finance ActsRules NotificationsCirculars /InstructionsTrade Notices/ ClarificationsCase Laws

Nexus TheoryNexus = connection or relationshipNexus Theory in commodity taxation means that there should be a territorial nexus between the person sought to be taxed and the State seeking the tax i.e., territorial connection

Objects of the Central Sales Tax Act, 19561. To formulate principles for determining when a sale /purchase of goods takes place (a) In the course of inter-state trade or commerce (Sec.3)(b) Outside the state (Sec.4)( c) In the course of import / export from /outside India (Sec.5)

Objects of the Central Sales Tax Act, 19562. To provide for (a) Levy of tax (Sec.9(1))(b) Collection of tax (Sec.9(3))( c) Distribution of tax (Sec.9(5)) on sale of goods in the course of inter-state trade or commerce

Objects of the Central Sales Tax Act, 19563. To declare certain goods to be of special importance in the course of inter state trade or commerce [Sec.14]4. Taxation of Declared Goods : To specify the restrictions and conditions in the matter of imposing taxes on the sale or purchase of goods declared by the central Government to be of special importance in the course of inter-state trade or commerce [Sec.15]

Objects of the Central Sales Tax Act, 19565. To provide for collection of tax from companies in the event of liquidation [Sec.15]

Charge of Central Sales Tax

Definitions

Appropriate State [Sec.2(a) ]Number of places of businessAppropriate State isOnly one place of businessState in which place of business is situatedMany places of business (a) All in one StateState in which place of business is situated

(b) In different StatesEACH state in which a place of business is situated

Importance of Appropriate StateAdministration, levy and collection have been delegated to Appropriate StateRegistration should be made with the authorities of the Appropriate StateMonthly returns , appeals, reviews, references, refunds and compounding of penalties are to be dealt by Appropriate StateFor declared goods, tax rate is applicable for sales within the Appropriate State or 4%, whichever is lessFor other goods , tax rate is 10% or the rate applicable within the Appropriate State , whichever is higher

Business [Sec.2(aa) ]Business includes :1. any trade, commerce or manufacture, or2. any adventure or concern in the nature of trade , commerce or manufacture-(a) with a motive to make profit or not,(b) whether such profit actually accrues or not,3.any activity which is incidental or ancillary to such trade, commerce , manufacture , adventure or concern

Not considered to be incidental or ancillary to businessSale by a Temple Devasthanam, of offerings deposited in the HundiSale of unused application forms, iron scrap, etc. by Housing Board

Crossing the Customs Frontiers of India [Sec.2(ab) ]Crossing the Customs Frontiers of India means :(a) crossing the limits of the area of a customs station;(b) in which imported goods or exported goods are ordinarily kept before clearance by Customs Authorities

Dealer / Deemed Dealer Sec.2(b)Dealer means any personWho 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

Dealer includesPersons carrying on businessPersons carrying on business for any disclosed or undisclosed principalOthers.. (Auctioneer)

Deemed Dealer meansA Mercantile Agent as defined in the Sale of Goods Act, 1930 or..An agent for handling goods or documents of title relating to goods orAn agent for collection or payment of sale price of goods or as guarantor for such collection or paymentEvery Local branch or Office in a state, of a firm registered outside a state of a company or other Body corporate outside the state

Dealer excludesPersonsNature of TransactionCustoms DepartmentSale of confiscated goods in auctionPort TrustSale of unclaimed and unserviceable articles through AuctioneersRailwaysSale of unclaimed and uncollected goodsPawn BrokersSale of articles on which principal and / or interest is in defaultMedical PractitionersPreparation and supply of medicines on own to various patients after examining them or after consultation through correspondence

Government as a Dealer .When regarded as DealerWhen not regarded as Dealer

When regarded as DealerWhether 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 consideration shall be deemed to be a Dealer

When NOT regarded as DealerA Government whichIn relation to any sale , supply or distribution, of surplus, unserviceable or old stores or materials or waste products or obsolete or discarded machinery or parts or accessories ,Shall NOT be regarded as Dealer

Registered Dealer .Means a dealer who is registered u/s . 7

Declared Goods Sec.2(c)1 .Declared Goods declared u/s 14 to be of special importance in inter-state trade or commerce2. Restrictions / Conditions w.r.t Declared Goods [Sec.15](a) Maximum Tax Rate 4%(b) Reimbursement of Local Sales Tax . To the seller making Inter state sale

Declared Goods Sec.2(c)Special Provisions relating to paddy and pulses u/s 15 Where any tax is levied on paddy the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy

Goods Sec.2(d)Includes ..All materials, articles and commoditiesEvery kind of movable propertyExcludes..NewspapersActionable ClaimsStocks, Shares and securities

Movable PropertyMeans Except Immovable propertyImmovable Property includes..Land Benefits arising out of landThings attached to the earth or Permanently fastened to anything attached to the earth

Following have been held as GOODSAnimals, Birds and chicksElectricityCopyrightOld Newspapers Sold on weight basisREP licences and EXIM scripsLottery TicketsSoftware

Following have been held as NOT GOODSX-ray films supplied by a RadiologistAmulets /Charms supplied by spiritual Consultant

Place of Business [Sec.2(dd)]IncludesPlace of business of an agent, in case where a dealer carries on business through an agentPlace where stores his goods like warehouse / godownPlace where dealer keeps his books of account

Salemeans ..Transfer of property in any goods by one person to anotherConsideration may be cash, or deferred payment or commission, remuneration or other valuable consideration

Sale includes ..

Transfer of property in any goods for cash, or deferred payment or other valuable consideration other than in pursuance of contractTransfer of property in goods involved in the execution of a works contractDelivery of goods on hire-purchase or any system of payment by instalments

Sale includes ..

Transfer of the right to use any goods for any purpose for cash , deferred payment or other valuable considerationSupply of goods by any unincorporated Association or Body of Persons to be a Member thereof,Supply of goods being food or any other article for human consumption or any drink is for cash or deferred payment or valuable consideration

Sale excludes ..

Mortgage or hypothecation of or a charge or pledge on goods

Instances of Sale ..

Barter or exchange of goods is Sale

Allotment of Equity shares towards payment of price of machinery sold is Sale

Instances of Not Sale . ..

Beer sold to customers in bottles certain amount collected as deposit against return of empty bottles held as not saleUnited Breweries Ltd Vs State of AP

Instances of Not Sale . ..

Transfer of goods between two Firms having same partners ..orTwo concerns owned by the same person Isnot sale

Works Contract [Sec.2(ja)]Means a contract for carrying out any work which includesAlteringAssemblingBuildingConstructionErectionFabrication

Works Contract [Sec.2(ja)]Means a contract for carrying out any work which includesFitting outImprovementInstallationManufacturingProcessingRepair or commissioning of any movable or immovable property

Sale Price [Sec.2(h)]Meaning Amount payable to a dealer as consideration for sale of any goods

Sale Price in case of Works Contractsshall be determined in the prescribed manner, by making the prescribed deductions from the total consideration for the works contract, and such price shall be deemed to be the Sale price for this purpose

Sale Price includesSale ValueExcise DutyCost of Packing Material and Packing chargesInsurance paid by SellerFreight borne by SellerAny sum charged for anything done in respect of the goods before delivery thereof to buyerBonus Discount or Incentive Bonus for additional sales effected by the Distributor / Dealer

Sale Price excludesCash Discounts allowed as per trade practiceCost of Freight/delivery or cost of installation, if they are separately charged.Insurance paid on behalf of the buyer.Trade DiscountsQuantity DiscountsQuality AllowancesGoods returned within six monthsGoods rejected

Examples DharmadaCharity or Dharmada collected by the Dealer will form part of the sale price, since so far as the Purchaser is concerned he has to pay the whole amount for purchasing the goods(b) Weighment DuesWeighment Charges in respect of the goods are incidental to their being sold and hence they should be included in the sale proceeds.

(c )Insurance ChargesIn Arvind Motors and Another vs The State of Karnataka it was held that the freight and insurance charges incurred by the Dealer prior to the delivery of the goods at their places of business to their customers, form part of turnover.(d) Packing ChargesPacking charges are charged for the service rendered in packing the goods and are different from charges for packing material. The Supreme Court in Rai Bharat Das and Brothers vs CST (1988) 71 STC 277 held that the packing charges realized by the Dealer was an integral part of the sale price. Prabhat Marketing co.19STC 84 (SC).

(e)Indemnity / Guarantee ChargesIndemnity / Guarantee charges recovered from the same Buyer to insure against loss during transit at Buyers request do not form part of the sale price. (f)Discount according to Trade PracticeAny sum allowed as cash discount according to the practice normally prevailing in the trade, will not form part of the sale price. It is to be noted that such deductions are to be restricted to cash discount.

(g)Excise DutyExcise Duty paid by a Dealer in respect of the goods, which he sells, will form part of sale price. Hindustan Sugar Mills Ltd., vs State of Rajasthan 43 STC 13 (SC)(h) Government SubsidiesWhere a product is controlled and has to sell at controlled price, Subsidies are granted by the Government to manufacturers to compensate the cost of production which is usually higher than the controlled price. Such Subsidy will not form part of sale price or turnover.

(i) Returnable ContainersIn case of returnable goods, the ownership vests with the Dealer and does not pass on to the Purchaser. The containers are required to be returned to the Dealers. No consideration is chargeable in respect of such returnable containers. The definition of sale price u/s 2(h) does not include amounts not charged by the Dealer. Hence, cost of returnable containers cannot constitute sale price. [Dyer Meakin Breweries].

Sales Tax Law and General Sales Tax Law

Sales Tax Law [Sec.2(i)]General Sales Tax Law (GST)Means any law, for the time being in fore, in any State or part thereof which provides for levy of Taxes on sale / purchase of goods generally or on any specified goods expressly mentioned in that behalf and includes value Added Tax Law.Means any law, for the time being in force, in any State of Part thereof which provides for levy of taxes on sale / purchase of goods generally and includes Value Added Tax Law.

Turnover [Sec.2(j)]Means The aggregate of sale price received and receivable by a Dealer.In respect of sale of any goods,In the course of inter-state trade or commerce,Made during the prescribed period, and Determined in the prescribed manner, (as per Rules under the Act)

Year [Sec.2(k)]Where GST Law of appropriate State isYear isApplicableYear as applicable under the General Sales Tax lawNot ApplicableFinancial year 1st April to 31st March.

Sale or purchase of goods

Inter-State Trade[Sec.3]- Meaning

Meaning: A sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce effected either by (a) Transfer of goods.(b) Transfer of document of title to goods.

Sale/Purchase by transfer of goods [Sec.3(a)]When a sale or purchase occasions the movement of goods from one State to another.Such movement is in pursuance of contract of sale or purchase.

By transfer of documents of title to goods [Sec.3(b)]When a sale or purchase is effected by transfer of documents of title to goods during their movement from one state to another.Duration of movement: Duration of movement commences when the goods are delivered to a carrier or other bailee for transmission and ends at the time such delivery is taken from such carrier/ bailee.It shall be effected during the original movement of goods u/s 3(a).

Khosla and CoTo constitute a sale in the course of inter-state trade or commerce, delivery of goods to the buyer in the other State should have taken place.

Following transactions/movements are not covered under inter-State Sale:Movement commencing and terminating in the same State, but the goods passing through the territory of different State.Movement of imported goods during the course of original import from the State of port/airport to State of actual destination of the importer.Branch TransferTransfer to an Agent

Documents of TitleMeaning: A document of title to goods means an internal evidence of ownership of goods by holders of document.Definition: The Phrase document of title to goods is not defined in the CST Act.

But includes...Lorry Receipt(LR)In case of transport by roadRailway Receipt(RR)In case of transport by rail

Bills of Lading(BL)In case of transport by sea

Airway Bill(AWB)In case of transport by air

Other documents of similar natureIn case of transport by other means

Sale by V.P.P.u/s 3, in order to be an inter-state sale, there must be movement of goods in connection with the sale. In a sale by V.P.P., both the requirements of Sec.3 are satisfied

Sale/Purchase inside a State (intra-State) [Sec.4]

Sale or Purchase in the course of Export [Sec.5]

(b) Sale or Purchase effected by a transfer of documents of title to the goodsis effected by transfer of document to title like Bill of Entry , Airway Bill etc. during the movement of goods on original import

(b) Sale or Purchase effected by a transfer of documents of title to the goodsConditions..The movement of goods should commence as a prior contract of sale or purchaseThe transfer of property in goods should take place after the goods have crossed the customs frontier of India/of other country

Levy of Tax on Inter-State Sale [Sec.6]A dealer is liable to pay tax on all sales effected by him In the course of inter-state trade or commerceLiable even if no tax is payable by him under GST law or State tax law

Levy of Tax on Inter-State Sale [Sec.6]Exceptions.Penultimate sale which occasions for exportInter-State sale of Electrical energyPurchase of ATF by international flights

Exemption from CSTExemption by notification granted by the State GovernmentSale to a unit in SEZ

Tax rates under CST Act [Sec.8]

Concessional rate

Conditions to be fulfilled for concessional rate of CSTEligible GoodsSale made to a Registered DealerForm C by the purchasing Dealer

Eligible Goods

Declared goodsExempted goodsGoods sold to dealer in SEZBranch or Agent transferSubsequent SaleExport of goodsPenultimate salePurchase of ATF

Determination of Turnover [Sec.8A]Situation 1 When the Turnover or Sale is given exclusive of CST, no adjustment shall be made to the Turnover

Determination of Turnover [Sec.8A]Situation 2 If the Turnover / Sale is given inclusive of CST, then the Taxable Turnover shall be determined as