INDIRECT TAX-LAWS

Central Sales Tax

Central sales tax is an indirect tax which levied by the central government on the taxable turnover of inter-state sale of goods made by a registered dealer during the prescribed period in the course of his business.

F E A T U R E S O F C E N T R A L S A L E S T A X

a. central sales is levied on inter state sales of goods made by registered dealers.b. Central sales tax is levied at a specified rate.c. Central sales tax is not levied on sales inside a state. It’s liable for local sales tax.

d. Central sales tax is imposed by the central government

but it is collected by the state in which movement of goods

commences.

e. It’s administered by local sales tax authorities of each

state.

f. Eventhough it’s the revenue of the central government the

tax collected is retained by the state in which it’s collected.

The central government shall not take central sales tax from

states.

CENTRAL SALES TAX ACT-1956

Central sales tax Act was passed in the year 1956 to

levy central sales tax on inter sale of goods.

This Act came into force on 5th January, 1957 but

section. 6 of this Act was enforced from 1st July,

1957 and section. 15 was enforced from 1st

October, 1958.

Central sales tax Act envisages a single point levy

at the first point of inter-state sale.

Central sales tax Act 1956, makes provisions for

every few procedures and rules. In respect of

provisions like return, assessment, appeals etc.,

provisions of General sales tax law of the state

applies.

OBJECTIVES OF CENTRAL SALES TAX ACT, 1956

Formulating principles for determining when a sale

or purchase of goods takes place in the course of

inter-state trade or commerce or outside a state.

Formulating principles for determining when a sale

or purchase of goods takes place in the course of

import into or export from India.

To declare certain goods to be of special importance

in inter-state traders commerce.

To provide for the levy, collection ad distribution of

taxes on sales of goods in the course of inter-state

trade or commerce.

To specify the restrictions and conditions to which

state law in imposing taxes on the sale or purchases of

such goods of special importance shall be subject.

SCOPE OF THE ACT

The Central Sales Tax Act, 1956 deals with inter-State sales(Sec.3), sale or purchase of goods taking place outside a State (sec.4), sale of purchase in the course of export and import (Sec.5), liability and charge to sales tax (Sec.6), registration of dealers (Sec.7), determination of taxable turnover (Sec.8), levy and collection of tax (Sec.9), offences (Sec.10 to 12), declared goods (Sec.14 and 15).

CATEGORIES OF SALES

Inter-State Sale

Intra-State Sale

Sale in the course of import/export, and

Deemed sales

It has already been defined that the term ‘Sale’ means any transfer of property in goods by one person to another for cash or deferred payment or for any other valuable consideration and includes a transfer of goods on the hire-purchase or any other system of payment by installments, but does not include a mortgage or hypothecation of, or a charge or pledge on goods.

While tax on inter-state sale is levied by the Central Government, tax on intra-state sale is levied by the State Government of the state in which the sale takes place.

INTER-STATE SALE Sec.3 of the CST Act, 1956 has defined inter-State sale or purchase as follows; “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, orb) Is effected by transfer of documents of title to the goods during

their movement from one State to another” A careful scrutiny of the above definition would reveal that inter-state sale should occasion the movement of goods from one state to another. It can also take place by transfer of documents of title to the goods during their movement from one state to another.

FEATURES OF INTER-STATE SALE

The important essential or feathers of an inter-state sale are enumerated below:o There should be an agreement to sale containing a stipulation

in respect of movement of goods from one state to another.o There should be physical movements of goods from one state to

another.o Such movement of goods must be the result of a convent or

incidental to the contract of sale.o It’s not relevant in which state the property in the goods passes.o Concluded sale should take place in a State that is different

from the state from which movement of goods.

INTRA-STATE SALE

A sale takes place inside Tamilnadu. It should be intra-

state sale only. It should not be inter-state sale. This sale taking

place inside Tamilnadu is outside Kerala, Karnataka, Andhra

Pradesh, etc., Thus sale inside one state is outside all other states.

The other states have no nexus with the sale and hence they cannot

levy tax on such sales.,

SALE IN THE COURSE OF IMPORT/EXPORT

The sale is effected by seller and he is not connected with the export of

those goods which actually takes place, it is known as ‘sale for export’. In this

case the seller may not be definite about the goods he sold to the buyer which

are meant for export. The sale is not linked to export.

In the case of sale in the course of export, the seller would be definite

that the goods sold to the buyer are mainly for export. In other words, the

seller and the buyer both have an intention to export, an obligation to export

and there is an actual export goods. In other words, the sale is inextricably

connected to export. The obligation to export may arise from any law,

contract or from the nature of transaction itself.

1. This is governed by CST Act, 1956.

2. CST rates are uniform thought the country.

3. For inter-state trade transactions, the rates are levied by the Central Government.

4. Possibilities are remote to pay sales tax at more than one stage.

5. In this case, CST is levied when goods move from state to another State.

6. Thoroughly inter-state trade, there is possibility for export/import activities.

DIST INCT ION BETWEEN INTER-STATE & INTRA-STATE

1. This is governed by respective State Acts.

2. State sales tax rates are different from state to state.

3. The rates are determined by the respective State Government.

4. There may be necessities to pay sales tax at more than one stage.

5. In this case local tax is levied when sale/purchase takes place within the state.

6. Under intra-state trade, there is no possibility for export/import activities.

SECTIONS OF CENTRAL SALES TAX ACT, 1956

The different sections of the central sales tax Act 1956 have been given below;

Section Deals withSec.1 Short title, extent and commencement .Sec.2 DefinitionsSec.3 When is a sale or purchase of goods said to take place in the

course of inter-state trade or commerce. Sec.4 When is a sale or purchase of goods said to take place outside a

state.Sec.5 When is a sale or purchase of goods said to take place in the

course of import or export.Sec.6 Liability to tax on inter-state sales.Sec.6A Burden of proof etc., in case of transfer of goods claimed

otherwise than by of sale.

Sec.7 Registration of dealers.Sec.8 Rates of tax on sales in the course of inter-state trade or commerce.Sec.8A Determination of turnoverSec.9 Levy and collection of tax and penalties.Sec.9A Collection of tax to be only by registeredSec.10 Penalties.Sec.10A Imposition of penalty in lieu of prosecutionSec.11 Cognizance of offences.Sec.12 Indemnity (Legal exemption from penalties)Sec.13 Power to make rules.Sec.14 Certain goods to be of special importance in inter-state trade or

commerce (Declared goods)Sec.15 Restrictions and conditions in regard to tax and sale or purchase

of declared goods with in a state.

Sec.16 Definitions.Sec.17 Company in liquidationSec.18 Liability of directors of private company in liquidation.

IMPORTANT DEFINITIONS

1. APPROPRIATE STATE(SEC.2(A)

“Appropriate State” in relation to a dealer means a state in which a dealer has one or more places of business.

When the dealer has more than one place of business situated in different states, each of these states will be treated as “appropriate state”. Only an appropriate state can collect, retain and administer central sales tax.

In relation to a dealer who has one or more places of business situated in the same state-that state. That is, if a dealer has one or more places of business situated in the same or a particular state then that state is considered, as the “Appropriate State” to him for the tax purpose.

B U S I N E SS ( S E C . 2 ( A A ) )

“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 is carried on with a motive to make Gift or profit and whether or not any profit or gain accrues from such trade, commerce, manufacture, adventure or concern and

(ii) Any transaction in connection with or incidental or ancillary to such Trade, manufacture, adventure or concern.

CROSSING THE CUSTOMERS FRONTIERS OF INDIA (SEC.2(AB))

“Crossing the customs frontiers of India” means crossing the limits of the area of a customs station in which imported goods are ordinarily kept before clearance by customs authorities.

For the purpose of this clause “customs station” and “customs authorities” shall have the same meanings as in the customs Act, 1962.

D E A L E R ( S E C . 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.

KINDS OF DEALER :A dealer may beo a local authority o A body corporateo A companyo Any co-operative society or other societyo Club

o Firm o Hindu undivided familyo Other association of personso Factoro Brokero Commission agento Del credere agento Any other mercantile agento An auctioneer

DECLARED GOODS (SEC .2 (C ) )“ Declared goods” means goods declared u/s 14

to be of special importance in inter-state trade or commerce.

GOODS (SEC .2 (D)“Goods” include- all materials- articles- commodities- all other kinds of “movable property”

MOVABLE PROPERTY:Movable property is a property which may be lifted,

carried, drawn or conveyed or made to change the place or position in one way or the other.

THE WORD “GOODS ” DOES NOT INCLUDE:

- News papers- auctionable claims- stocks- securities- money

REGISTERED DEALER (SEC .2 (F ) )

“Registered dealer” means a dealer who is registered for inter-state sales tax under Section. 7 of the central sales tax Act, 1956.

SALE (SEC.2(G)‘Sales’ means any transfer of property is goods by one

person to another for cash or for deferred payment or for any other valuable consideration.

It includes a transfer of goods on the hire-purchase or other system of payment by installment. It does not include a mortgage or hypothecation of or a charge or pledge on goods.SALE PRICE (SEC.2(H)

“Sale price” means the amount payable to a dealer as consideration for the sale of any goods less any sum allowed as cash discount according to the practice normally prevailing in the trade, but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before the delivery there of other than the cost of freight or delivery or the cost of installation in case where such cost in separately charged.

REGISTRATION OF DEALER (SEC.7)

REGISTRAT ION :

A dealer, liable to pay tax under Central sales tax Act, is required to seek registration. Registration under Central sales tax Act is required even if inter-state is of a very small quantum.

The central government has authorized state government to prescribe state sales tax authorities for the purpose of registration.

Types of Registration:These are two types of registration. They are a) Compulsory registrationb) Voluntary registration

Registration of dealers

Compulsory

Registration

Voluntary Registrati

on

COMPULSORY REGISTRAT ION (SEC .7 (1 )

Compulsory registration is required if goods are sold outside the state or if sale is made in inter-state trade or commerce. There is no initial exemption and registration is required even if sales are of very small amount.

VOLUNTARY REGISTRATION (SEC.7(2))

A dealer who has registered with state sales tax authorities may voluntarily apply for registration under central sales tax Act even if he is not liable to pay central sales tax. It is called “Voluntary registration”.

It helps a dealer to make purchases in inter-state at a 4% concessional rate (by submitting ‘C’ form). Voluntary registration is mainly useful when the dealer makes purchase in inter-state but all his sales are within the state.

BENEFITS OF REGISTRATION

The following are the advantages of registration

INTER-STATE PURCHASE AT CONCESSIONAL RATE:

When an unregistered dealer makes inter-state purchase of goods for resale/manufacturing, he is required to pay 10% central sales tax. But a registered dealer can make inter-state purchases at 4% concessional rate.

EXEMPTION ON SUBSEQUENT SALES:Central sales tax Act provides a single point sales tax at

the point of first inter-state sale. All subsequent sales are exempt in certain cases to avoid multiple tax incidence.

EFFECTS ON NON-REGISTRATION:

If a dealer does not get himself registered, he would be subject to penalty under section. 10 of central sales tax Act., 1956. The defaulters is punishable.a) With simple imprisonment which extend upto 6 months orb) With fine orc) With both imprisonment and fine.

In case of continuing default, he is punishable with a fine of Rs.50 per day till the default continues.

PROCEDURE FOR REGISTRATION

The following is the procedure for registration under Central sales tax Act, 1956. Procedure

To be followed by the To be followed by the applicant registering authority.

PROCEDURE TO BE FOLLOWED BY THE APPLICANT:

A dealer, who wants to get himself registered under the Central sales tax Act is required to take the following steps.11. Making application for registration 2. 2. Supplying adequate information3. Paying fees for registration 4. Signing the application5. Furnishing security for registration

M A K I N G A P P L I C AT I O N F O R R E G I S T R AT I O N :

Application for registration should be made by a dealer who is seeking registration, in prescribed form ‘A’ as per Central sales tax (Registration and turnover) rules. It should be made to the notified authority.TIME LIMIT:For compulsory registration Within 30 days from the date when dealer becomes Liable to CST.For Voluntary registration at any time.

S U P P L Y I N G A D E Q U A T E I N F O R M A T I O N :The applicant should provide adequate information in the application form such as

• The places of business within the state and in other states.

• The date in which the business was started and the date in which the first inter-state sale took place.

• Details about inter-state purchases.• Accounting period to be followed.

PAYING FEES FOR REGISTRATION:

In order to get registration under the Central Sales tax Act, the applicant should pay application fee of Rs. 25/- in the form of court fee stamps.

S I G N I N G T H E A P P L I C AT I O N :

The application should be signed by the proprietor of the business.

If the applicant is by Application should be signed by• Partnership firm Any one of the partner• Hindu Undivided family (HUF) Karta• Association of persons Principal Officer• Company Director/Principal Officer• Government Authorized officer

F U R N I S H I N G S E C U R I T Y F O R R E G I S T R AT I O N :Before granting registration, the registering

authority may demand security from the applicant. The applicant should furnish the demanded security.FROM OF SECURITY:• Surety bonds• Government securities• Cash depositNUMBER OF REGISTRATION:• When a dealer has more than one places of business with in a

state, only one registration is required. • Additional places of business are endorsed on the certificate.• If a dealer has places of business in different states, he has to

obtain separate registration in each state.

PROCEDURE TO BE FOLLOWED BY THE REGISTERING AUTHORITY:

• Verifying the application• Granting of registration• Issuing certificate of registration.VERIFYING THE APPLICATION:

Before granting registration, the registration authority should verify whether• The application has been made as per the provisions of the Act.• The registration fee has been paid• The information given in the application are true• The demanded security has been furnished.GRANTING OF REGISTRAT ION:

After verifying the application, the notified authority may grant registration. If the authority is not satisfied, the application may be rejected.

ISSUING CERTIFICATE OF REGISTRATION:

When the sales tax authority is satisfied that the application is in conformity with the provisions of the central sales tax Act, it shall grant certificate of registration to the dealer in form ‘B’ specifying the class or classes of goods which may be purchased at the concessional rate of tax.

If the certificate is lost, the notified authority will issue a duplicate certificate after getting Rs. 5 in the form of court fee stamps.

CANCELLATION OF REGISTRATION:

The notified authority may cancel the certificate of registration issued to the dealer when,• The business of the dealer comes to an end• The dealer has ceased to exit• The dealer commits default in furnishing the security as

required.• The dealer fails to pay any tax or penalty payable under the

Act.• The dealer misuses his registration to evade tax.• The registering authority discovers any errors in the

certificate• The dealer requests the authority to cancel the certificate

(after paying all dues).Before cancelling the registration, due notice must be given to the dealer.