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The position w.e.f. 1-6-2008 is as follows , in case of both declared goods and other goods [section 8(1) of CST Act in respect of sale to registered dealer and section 8(2) of CST Act in respect of sale to unregistered dealer -
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In case where local sales tax rate is 4%, CST applicable in case of sale to unregistered dealer will be only 4% as against 10% as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 2% w.e.f. 1-6-2008 [The rate was 3% during 1-4-2007 to 31-5-2008 and 4% prior upto 31-3-2007].
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In case where local sales tax rate is 12.5%, CST applicable in case of sale to unregistered dealer will be 12.5%. This position is same as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 2% w.e.f. 1-6-2008 [The CST rate was 3% during 1-4-2007 to 31-5-2008 and 4% prior upto 31-3-2007].
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In case where local sales tax rate is 1 or 2%, CST applicable in case of sale to unregistered dealer will also be 1 or 2%, as against 10% as was applicable upto 31-3-2007. The rate will be 1% even when sale to unregistered dealer is by transfer of documents. In case of sale to registered dealers, the CST rate will be 1 or 2% as applicable to the goods within the State. This position is w.e.f. 1-4-2007.
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In case where local sales tax is Nil, CST applicable in case of sale to unregistered dealer will also be Nil. In case of sale to registered dealers, the CST rate will be Nil. This position is same as was applicable upto 31-3-2007 and also during the period 1-4-2007 to 31-5-2008.
Power to Central Government to further reduce rate of CST - CST has been reduced from 4% to 3% w.e.f. 1-4-2007. CST rate has been reduced to 2% w.e.f. 1-6-2008, vide Notification No. 1277(E) dated 30-5-2008.
Reduction in CST rate can be made by Central Government by issue of a notification under proviso to section 8(1) of CST Act. Thus, it will not be necessary to amend CST Act for this purpose.
CST was expected to be reduced to 1% w.e.f. 1-4-2009. However, no notification was issued. Hence, CST rate continues to be 2% at least till July 2009.
It seems GST (Goods and Service Tax) is proposed to be introduced w.e.f. 1-4-2010 and hence CST may be directly withdrawn w.e.f. 1-4-2010.
It is expected that when CST rate is reduced to Nil, i.e. inter-state sales and dispatches will be ‘zero rated’ and not ‘exempt’.
CST rate at a glance- The CST rates at a glance as applicable w.e.f. 1-6-2008 are as follows, in case of both declared goods and other goods –
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Sales tax rate for sale within the State
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CST rate in case of sale to registered dealers (applicable to declared goods as well as other goods)
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CST rate in case of sale to unregistered dealers (applicable to declared goods as well as other goods)
|
|
Nil
|
Nil
|
Nil
|
|
1%
|
1%
|
1%
|
|
2%
|
2%
|
2%
|
|
3%
|
2%
|
3%
|
|
4%
|
2%
|
4%
|
|
8%
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2%
|
8%
|
|
10%
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2%
|
10%
|
|
12.5%
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2%
|
12.5%
|
|
20%
|
2%
|
20%
|
|
Sales tax rate for sale within the State
|
CST rate in case of sale to registered dealers (applicable to declared goods as well as other goods)
|
CST rate in case of sale to unregistered dealers (applicable to declared goods as well as other goods)
|
|
Nil
|
Nil
|
Nil
|
|
1%
|
1%
|
1%
|
|
2%
|
2%
|
2%
|
|
3%
|
3%
|
3%
|
|
4%
|
3%
|
4%
|
|
8%
|
3%
|
8%
|
|
10%
|
3%
|
10%
|
|
12.5%
|
3%
|
12.5%
|
|
20%
|
3%
|
20%
|
|
Turnover
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=
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100 x S
-----------
100 + R
|
|
Tax Payable
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=
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S x R
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100 + R
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Note – Usually, State Vat rates of 2%, 3%, 8% and 10% do not exist. However, these rates are given only to explain the principle, particularly because Uttaranchal have not introduced Vat.
CST rate during 1-4-2007 to 31-5-2008- The CST rates at a glance as applicable during 1-4-2007 to 31-5-2008 are as follows, in case of both declared goods and other goods –
Goods eligible for registration by Dealer
All goods purchased by ‘Registered Dealer’ are not eligible for concessional rate. Only those goods for which he is eligible and which are contained in his Registration Certificate are eligible for concessional rate. Section 8(3) of CST Act indicates the goods which a registered dealer can obtain at concessional rate. Only those items can be incorporated in Registration certificate issued to him. As per this section, goods (a) for resale, (b) for use in manufacture or processing for sale (c) in telecommunications network (d) in mining (e) in power generation/distribution, or (f) containers and packing materials are only eligible for concessional rate. [The words ‘telecommunications network’ have been inserted w.e.f. May, 2002]
Meaning of ‘for use’ - ‘For use’ means ‘intended for use’. If the intention of legislature was to limit the exemption only to goods actually used, the phraseology would have been ‘goods used’ or ‘goods actually used’. Thus, when the purchase of goods was with intention to use, the mere fact that some of the material was in fact used for other purposes does not make any difference - State of Haryana v. Dalmia Dadri Cement Ltd. - (1988) 68 STC 173 (SC) = AIR 1988 SC 342. [Thus, bona fide intention to use is enough to avail the concession. Actual use is not essential.]
Tax at full rate payable if wrong declaration given - The tax at full rate will be payable on material in respect of which the declaration in form ‘C’ was wrongly given, and not on cost of finished product manufactured out of such material. – Hira Cement v. State of Orissa (1998) 108 STC 619 (Ori HC DB).
Resale - Resale means selling in the same condition in which the goods are purchased. Goods purchased for sale can be obtained by registered dealer at concessional rate. It may be noted that goods sold first time in the State are liable to State sales tax even if tax was paid while purchasing in Inter State transaction. Following example will illustrate the position. Assume that goods are purchased by a registered dealer in Karnataka from a registered dealer in Maharashtra. CST @ 4% was charged by dealer in Maharashtra while effecting the sale. Now, when goods are sold by Karnataka dealer in Karnataka State, the State Sales Tax (i.e. Karnataka State Sales Tax) will be payable by him, as it is the first sale in Karnataka State.
Use in manufacture - Manufacture implies a change but every change is not manufacture. There must be transformation; a new and different article having a distinctive name and character must emerge.
In Union of India v. Delhi Cloth Mills Co. Ltd. AIR 1963 SC 791 = 1963 Suppl (1) SCR 586 = 1977 (1) ELT (J199) (SC) and 1990 (27) ECR 151 SC]; a five member constitution bench of Supreme Court has held the manufacture means bringing into existence a new substance. Manufacture is end result of one or more processes, through which original commodity passes. Thus, manufacture implies a change but every change is not manufacture. A new and different article must emerge having a distinctive name, character or use. - same view in South Bihar Sugar Mills Ltd. v. UOI - AIR 1968 SC 922 = (1968) 3 SCR 21 reproduced in (1978) 2 ELT J336 (SC).* Hindustan Polymers v. CCE - 1989 (43) ELT 165 (SC) = (1989) 4 SCC 323 = AIR 1990 SC 1676 * Gramophone Co of India Ltd. v. CC - 1999 (7) SCALE 205 = 1999 AIR SCW 4501 = JT 1999(9) SC 275 = 1999(114) ELT 770 (SC 3 member bench) * Triveni Engineering v. CCE 2000(5) SCALE 468 = 2000 AIR SCW 3144 = 40 RLT 1= JT 2000(9) SC 38 = 120 ELT 273 (SC).
Trade Parlance is important - The test to be applied is whether a commodity subject to processing retains its original character and identity or whether the processed commodity is regarded in the trade by those who deal in it, as distinct identity from original commodity. Nature and extent of processing may vary. With each process, the original commodity experiences change. But it is only when the change or series of change take commodity to a point where commercially it is recognised as a new and distinct commodity, then it can be said that new commodity has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance, the processed commodity is regarded as distinct in character and identity from the original commodity - Sterling Foods v. State of Karnataka - 1986 (63) STC 239 = 1986(2) (3 ?) SCC 469 = AIR 1986 SC 1809 = 1986(2) SCALE 106 = 1986 (26) ELT 3 (SC). Similar views in Aditya Mills Ltd. v. UOI (1989) 1 CLA 137 (SC) = (1989) 73 STC 195 = 37 ELT 471 = AIR 1988 SC 2237.
Items eligible for concessional rate - Following items will be treated as ‘in manufacture’ of goods (a) Raw materials which form integral part of goods manufactured (b) Fuels and consumables consumed during manufacture (c) Machines, spares, tools, exhaust fan in plant (d) Storage and handling equipment for materials like storage racks, handling trucks (e) Goods required for process directly related to actual production e.g. research, training (f) Computer/Internal telephone system if used for production in offices.
Goods which will not be eligible are (a) Administrative use like office stationery, books (b) Motor cars for office work or transport of employees (c) Coolers, furniture etc. for office (d) Building material like sand, lime, cement, steel etc. required for construction of building even if the building is to be used for installing machinery and plant (e) Goods required for hospital attached to factory even if the hospital is a legal requirement for the factory.
Job work eligible - Goods need not be sold by the manufacturer himself - It is not necessary that goods are sold by the manufacturer himself. The intention of the provision is to ensure that cost of manufactured or processed goods should not be unduly enhanced by higher taxes. Hence, benefit of concessional rate should be available whether the goods are sold by manufacturer himself or by some one else who got the goods manufactured by the registered dealer - Assessing Authority v. East India Cotton Mfg. Co. - (1981) 48 STC 239 (SC). In this case, goods purchased by assessee under ‘C’ form were used for processing of goods belonging to others on job work basis. The goods, after processing, were sold by third parties. The purchase under ‘C’ form was held valid. - similar view in CTO v. Foreign Import & Export (1994) 95 STC 101 (SC) - also in Bhavnagar Chemical Works v. CST - (1992) 84 STC 432 (Guj HC DB) * State of Tamilnadu v. Photo Centre (1999) 114 STC 55 (Mad HC DB) * Prasad Productions v. State of Tamilnadu (1998) 111 STC 51 (Mad HC DB).
Use for agricultural production not permitted - In Travancore Tea Estate v. State of Kerala (1977) 39 STC 1 (SC) = (1977) 1 SCR 755, it was held that fertiliser used in agricultural process to cultivate tea is not eligible for concession 'for manufacture of tea'. - . - . - Fertiliser used is only for cultivation of tea, which ended with harvest of tea leaves.
Items declared as eligible by Government circular - Central Government, Ministry of Finance has issued circular No. 9(88) ST/57 dated 12-11-1958 giving list of goods eligible for about 60 different industries. The circular clarifies that all the machinery, plant, spare parts and accessories which are directly used in manufacturing, processing, mining and generation and distribution of power may be allowed to be purchased at concessional rate of tax. However, motor vehicles, office equipment and other similar items, which are not directly used in production, should not be considered as eligible. - -List of eligible items for unspecified industries is also given. This includes (1) Fuels (2) Electricity including lighting and heating (3) Lubricating oils and lubricants (4) Raw or basic materials (5) Chemicals and auxiliary materials (6) Other materials like spare parts, belts etc.
Rule 13 of CST (Registration and Turnover) Rules states that goods intended for use as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in (a) manufacture or processing of goods for sale (b) in mining (c) in generation or distribution of electricity or any form of power; are eligible.
Use in processing - Purchase at concessional rate against ‘C’ form is available for use ‘in processing’. Thus, the process need not amount to manufacture. In Chowgule and Co. (P.) Ltd. v. UOI - (1981) 47 STC 124 (SC) = AIR 1981 SC 1014 = (1981) 1 SCC 653 reproduced in 1993 (69) ELT 34 (SC), it was held that ‘blending’ is a ‘process’. In Hind Nippon Industries (P.) Ltd. v. State of Karnataka - (1991) 81 STC 46 (Kar HC DB), it was held that processing raw granite blocks and preparing them into finished granite blocks is a ‘process’ and hence crane purchased for lifting the granite blocks is eligible for concessional rate of CST.
Use in telecommunications network - Goods can be procured at concessional rate of sales tax for use in telecommunication network. [As per amendment to section 8(3)(b) w.e.f. 11-5-2002].
The term ‘telecommunications network’ has not been defined under the Act. Hence, it has to be understood the way it is understood in trade parlance, i.e. as understood by those who are dealing with it.
As per Concise Britannica Encyclopedia, ‘telecommunication’ is communication between parties at a distance from each other.
As per Encyclopedia Britannica, ‘telecommunication’ is science and practice of transmitting information by electromagnetic means. A wide variety of information can be transferred through a telecommunications system, including voice and music, still-frame and full motion pictures, computer files and applications and telegraphic data. - - ‘Telecommunication network’ is system of links and switches and the controls that govern their operation, that allows for data transfer and exchange among multiple users. When several users of telecommunications media wish to communicate with each other, they must be organised into some form of network. - - ‘Telecommunication media’ is equipment and systems - metal wire, terrestrial and satellite radio and optical fibre - employed in the transmission of electromagnetic signals. - [Source - www.britannica.com as downloaded on 1-5-2002]
As per Hercount Academic Press Dictionary of Science and Technology, telecommunications network is a system of telephone lines, switches, and signal repeaters that connect all users so that communication can take place. [Source - www.hercount.com as downloaded on 1-5-2002]
As per American Heritage Dictionary, telecommunication is science and technology of communication at a distance by electronic transmission of impulses, as by telegraph, cable, telephone, radio or television. . [Source - www. dictionary.com as downloaded on 1-5-2002]
Only goods used in network eligible - It may be noted that only goods used in telecommunications network will be eligible for purchase by registered dealer. Thus, telecommunication equipment not connected or associated with telecommunications network will not be eligible. Similarly, equipment used merely for servicing and repairs of telecommunication equipment may not be held as eligible.
Use in mining - Goods used ‘in mining’ are eligible. In case of Chowgule & Co. (P.) Ltd. v. UOI - AIR 1981 SC 1014 = (1981) 47 STC 124 (SC) = (1981) 1 SCC 653 reproduced in 1993 (67) ELT 34 (SC) the Company was mining ore. After extraction, ore was carried to dressing plant where processing of washing, screening and dressing was done. Later the ore was conveyed to river side by conveyors and transported to harbour by barges. It was stocked as per physical and chemical composition. Blending was done to meet specifications and ore was loaded in ship. Company contended that mining, conveying, carrying, dressing, blending and loading of ore is one integral process. It claimed that conveyors, machinery, vehicles, barges etc. used for carrying goods from mine to place of processing are used ‘in process’ and is eligible for registration. Department contended that mining is a distinct process and dressing is a distinct process. Conveyors, vehicles etc. used for carrying the ore is not used ‘in process’. However, contention of Company was upheld by Supreme Court and it was held that the whole processing operation is integral.
Use in power generation/distribution - Goods used in electricity or power generation or distribution are eligible. In National Aluminium Co. Ltd. v. State of Orissa - (1994) 93 STC 529 (Ori HC DB), (Para 7), it was held that ratio of decision of Supreme Court in J K Cotton Spinning Mills is applicable and concessional rate is applicable when the goods purchased are integrally connected with the process of generation and distribution of power though not directly used in the same. In CST v. Rajasthan Electricity Board (1997) 104 STC 89 (SC), it was held that electricity board can purchase motor vehicles, tyres, paints, varnishes etc. under 'C' form.
Packing Material - Packing material and containers used for packing of goods are eligible [section 8(3)(c) of CST Act]. Packing material and container used for packing of packing material is also eligible [section 8(3)(c) of CST Act]. Tin sheets and tin plates purchased and cut into different shape to make a container for packing the goods are eligible - Lt. Governor Delhi v. Ganesh Flour Mills Co. Ltd. - (1973) 31 STC 354 (SC).
Machinery, stores, spare parts, fuel, lubricants etc. are eligible - Rule 13 of CST (Registration and Turnover) Rules states that goods intended for use as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in (a) manufacture or processing of goods for sale (b) in mining (c) in generation or distribution of electricity or any form of power are eligible.
Calculation of Sales Turnover
Sales tax is payable on ‘turnover of a period’. Rate is determined as per section 8, while ‘turnover’ is determined as per section 2(j).
Turnover - ‘Turnover’ (often called ‘taxable turnover’) is defined under section 2(j) as 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 and determined in accordance with provisions of Central Sales Tax Act and Rules. Section 8A(1) states that in determining turnover, deduction of sales tax should be made from the aggregate of sale price. Prescribed period is the period in which sales tax return has to be filed as per local sales tax law. Such period is usually quarterly - it is monthly also in some States. Thus, total of ‘sale price’ of all Inter-State sales effected during the prescribed period (monthly, quarterly as the case may be) less the Central Sales Tax payable is the ‘turnover’ (taxable turnover) of dealer for that period.
The ‘aggregate sale price’ i.e. total sale price for the prescribed period, is assumed as inclusive of Central Sales Tax and backward calculation is made. Thus, if aggregate of sale price is ‘S’ and rate of tax is ‘R’; ‘turnover’ and ‘tax payable’ will be calculated as follows :
Round off of CST payable - As per section 9B of CST Act, tax payable should be rounded off to nearest rupee.
Prescribed period under CST - The ‘prescribed period’ is the period in respect of which a dealer is liable to submit returns under the General Sales Tax law of the appropriate State e.g. if the dealer is registered in West Bengal and if Sales Tax Law of West Bengal (local sales tax law) prescribes that return of tax should be submitted quarterly i.e. every three months, the turnover is ‘aggregate sale price’ of that three-month period less tax payable.
Yearly assessment of CST liability - It may be noted that though sales tax returns are submitted quarterly/monthly, sales tax assessment is done for the whole year. All sales, rejections, returns during the whole year are considered for assessment and tax payable is calculated. As per section 2(k), ‘year’ means the year applicable to a dealer under general sales tax law of the State (now, most of dealers follow the ‘April-March’ year, as that is compulsory for Income Tax purposes.)
Aggregate Sale price - Gross Turnover is aggregate sale price for a prescribed period. - - Section 2(h) states that, ‘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 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 thereof, other than cost of freight or delivery or the cost of installation, in cases where such cost is separately charged.
Sale price inclusive of CST - The ‘sale price’ is total consideration received and is taken as inclusive of CST, whether or not it is shown separately in Bill (Invoice). Invoice can be prepared (a) by showing sales tax separately in invoice or (b) by not showing it separately - in which case it will be cum-tax price i.e. price inclusive of CST. In either case, ‘Sale Price’ will be the total amount received by the seller i.e. inclusive of sales tax.
Inclusions in Sale price - Following items are includible.
Any sum charged for by dealer at or before delivery – ‘Sale Price’ includes any sum charged for anything done by the dealer in respect of goods at the time or before the delivery of goods. Thus, ‘sale price’ will include – (a) Weighment charges charged for weighing of goods at the time of delivery (b) Design charges in respect of goods.
Central Sales Tax - whether or not shown separately in invoice. [Then back calculations are made]. {If sales tax is not charged separately in invoice, the dealer has to prove that burden of sales tax has been borne by him and invoice includes sales tax. See case law discussed earlier in this chapter}.
Excise duty - The excise duty payable is includible in 'sale price' - Hindustan Sugar Mills v. State of Rajasthan - (1979) 43 STC 13 = 1978 UPTC 653 = AIR 1978 SC 1496 (2258 ?) = 1979(1) SCR 276 = 1978(4) SCC 271.
Packing material and packing charges - Sales tax is leviable on packing material as well as packing charges (i.e. labour charges for packing goods). Sales tax is leviable on packing charges, even if shown separately - CST v. Rai Bharat Das - (1988) 71 STC 277 (SC) = AIR 1989 SC 315. * Ramco Cement Distribution Co. (P.) Ltd. v. State of Tamilnadu - (1993) 88 STC 151 (SC) = AIR 1993 SC 123 = (1993) 1 SCC 192 = 1992 JT (Supp) SC 729. * Dalmia Cement (Bharat) Ltd. v. State of Tamilnadu - (1991) 83 STC 442 (Mad HC DB) * State of Tamilnadu v. V V Vanniaperumal (1990) 76 STC 203 (Mad HC FB).
Cost of freight - Freight is includible only if (a) Freight is not shown separately in invoice or (b) Contract is for sale FOR destination. This aspect has been discussed in following paragraph, under 'Exclusions from Sale Price'.
Freight and delivery charges incidental to sale only are deductible - Freight and delivery charges allowable as deduction are only those which are incidental to sale. Thus, in case of sale of goods from depot, transport charges from factory to the depot cannot be allowed as deduction - Dyer Meakin Breweries Ltd. v. State of Kerala - (1970) 26 STC 248 (SC).
Design Charges in respect of goods includible - Design Fee charged separately in respect of the goods manufactured as per design and sold to buyer is includible for purpose of sales tax, as it is a pre-sale expense and forms part of manufacturing cost - American Refrigerator Co. Ltd. v. State of Tamilnadu - (1994) 94 STC 261 (Mad HC DB).
Exclusions from sale price - Following charges are not to be included for calculation of CST liability.
Freight and transport charges for delivery of goods - Generally, CST is payable only on ex-works price and no CST is payable on freight and transport charges. However, CST is payable on freight charges if (a) Freight charges are not shown separately in invoice or (b) Contract is for FOR destination.
Cost of installation and commissioning - It is not includible if shown separately in invoice, as is clarified in section 2(h).
Cash Discount - The cash discount for making timely payment is not includible, as is clarified in section 2(h) itself.
Subsidy paid by Government not part of turnover - In Indian Aluminium Cables Ltd. v. CST (1999) 115 STC 161 (All HC), it was held that if excise duty is refunded to manufacturer under Central Government scheme (as benefit for deemed export for supply against global tender) and is not recovered from purchaser, it is not includible in taxable turnover. – confirmed in CST v. Indian Aluminium Cables (1999) 115 STC 172 (SC).
Transit Insurance - Transit Insurance charges incurred at the request by buyer are not chargeable to CST.
Goods returned by buyer - Section 8A(b) provides that if goods are returned by buyer within six months, its sale price will be deducted from ‘aggregate sale price’, if satisfactory evidence is produced before sales tax authority in respect of the same. Supreme Court in Dy CST v. Motor Industries Co. = 1983(2) SCC 108 = (1983) 53 STC 48 (SC) has held that the claim of deduction in respect of such returned goods is allowable in the assessment year relating to financial year in which sale of goods had taken place. If assessment is completed, adjustment or refund can be demanded by claiming in time. – quoted in State of Tamil Nadu v. English Electric - (1992) 84 STC 1 (SC). [confirmed and followed in State of Maharashtra v BASF (India) Ltd. (2000) 117 STC 543 (SC)]. e.g. if goods are sold in March 1993 (i.e. financial year 92-93) and these were returned in July 1993, deduction in respect of goods returned will be allowed during assessment of the year 92-93 and not 93-94, even if goods were returned in 93-94. The reason is goods returned formed part of turnover of 92-93 and not of 93-94.
Goods need not be returned to the place of despatch. Insisting on returning to seller may create hardships when there are various inter State sales. – Madras Petrochem v. State of Tamilnadu (1998) 109 STC 233 (Mad HC DB). [In this case, it was held that goods could be returned to agent or branch of the seller].
Goods Rejected by buyer - Calcutta High Court, in case of Metal Alloy Co. (P.) Ltd. v. CTO, Bhavanipur Charge Calcutta, (1977) 39 STC 404 (Cal HC), has held that the period of six months is not applicable in respect of rejected goods, as in respect of rejected goods, there is no ‘completed sale’ at all within the meaning of CST Act or Sale of Goods Act as the purchasing party has not accepted the goods. Return of goods and rejection of goods stand on different footings. Return of goods is a bilateral transaction brought about by consent of seller and purchaser, while rejection of goods is a unilateral transaction, open only to purchaser. Hence, liability of sales tax does not arise even if goods come back after six months.
Exemptions from CST
CST is leviable even if sale of goods inside a State is exempt from sales tax in that State [section 6(1A)]. - - However, this section is subject to (a) section 6(2) which provide for exemption of tax in respect of sales during movement of goods (b) section 6(3) which provide that Central Government can grant exemption to foreign diplomatic missions, UN, international organizations etc. (c) section 8(1) which provides for lower/nil sales tax rate when sale is to registered dealer/Government, when local sales tax is lower than 4%/Nil. (d) proviso to section 6(1) providing for exemption when sale is penultimate to export as defined u/s 5(3). (e) section 8(2)(c) providing for exemption if local sales tax is generally exempt (f) Section 8(6) exempting sale to SEZ unit. (g) Exemption by issue of notification by State Government. (h) Sale during export/import is not taxable, as charging section 6(1) levies tax only on inter-State sale.
Subsequent Sales by transfer of documents - CST Act envisages a single point levy at the first point of sale. Subsequent sales during movement of goods are exempt to avoid multi-point levy of tax. Section 6(2) of CST Act provides that notwithstanding anything contained in section 6(1) or 6(1A), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by transfer of documents of title during movement from one State to another, any subsequent sale during such movement effected by transfer of documents of title to such goods to (A) Government or (B) registered dealer is exempt from tax. The condition is that certificate in prescribed form has to be obtained from Government/Registered dealer.
First sale should be interstate - The first sale should be inter-State, i.e. (a) sale of goods should occasion movement of goods from one State to another or (b) sale should be effected by transfer of documents during movement of goods from one State to another. These are basic requirements of inter-State sale as per section 3 of CST Act, which we have already seen.
Transfer of documents of title - Documents of title should be transferred to subsequent buyer. Transfer is usually made by endorsement, but really, such endorsement is for purpose of convenience and easy proof only.
Certificate required - Dealer selling the goods has to issue a certificate in prescribed form to the purchasing dealer. Subsequent purchaser also has to issue certificate in prescribed form. These certificates have to be produced to Sales Tax assessing authority, within prescribed time. In absence of such certificates, the subsequent sale will not be treated as exempt [proviso to section 6(2)]. Such certificate is not essential if sale of such goods is generally exempt from tax inside the State or is generally subject to tax at less than 4%. However, in such cases, other satisfactory evidence has to be produced that the sale is to Government or registered dealer whose certificate of registration entitles him to procure the goods in question [second proviso to section 6(2)]. - - Interestingly, in case of sale by transfer of documents, submission of C or D form is not mandatory if local sales tax rate is less than 4% but more than Nil. Other evidence is acceptable. However, in case of direct sale, submission of C form is mandatory even if local sales tax rate is less than 4%.
Lower rate for sale to registered dealer if local sales tax rate is lower than 4% - As per section 8(1), CST payable in respect of sale to registered dealer/ is 4%. However, if local sales tax rate is less than 4%, same (i.e. lower) rate will apply in respect of sale to registered dealer. [Sale to Government will be equivalent to sale to unregistered dealer w.e.f. 1-4-2007].
In the opinion of author, if local sales tax rate is exempt or chargeable at rate lower than 4%, subject to certain conditions which cannot be complied with by the seller, the exemption/lower rate will not apply and CST will be payable @ 4%.
Inter State Sales to unregistered dealer exempt, if sale within the State is ‘generally exempt’- If sales within the State are generally exempt, same rate will apply for sale to unregistered dealers. [section 8(2)(c)] In such case, it is not necessary to obtain any sales tax form (like C form) from buyer. In fact, he cannot issue any form as he is not registered.
Section 8(2)(c) clarifies that the exemption in respect of inter state sale to unregistered dealers is available only if the sale within the State is generally exempt. As per explanation to this sub-section, such exemption granted by State Government should be ‘general’. It should not be in special circumstances or under specified conditions or at specified stages or on basis other than turnover e.g., if exemption of sales tax for sale within the State is available only to small units having lower than prescribed turnover or only to new units for limited number of years, the sale is not ‘exempt generally’. In such cases, inter-State sale will be taxable.
Exemption by notification - State Government can grant exemption under section 8(5) in respect of inter-State sales effected from the State. Such notification should be in (A) public interest and (B) by way of notification in Official Gazette (C) exemption may be subject to condition. (D) The exemption may be (a) to any dealer for goods or classes of goods or (b) in respect of all sales of classes of goods by any class of dealers (E) The exemption may be total or partial.
As per amendment inserted w.e.f. 11th May 2002, such notification can be issued only subject to fulfilment of requirements of section 8(4) in respect of submission of declaration by registered dealer/Government. In other words, such exemption cannot be granted to unregistered dealer (as he cannot furnish any C/D declaration).
State Government cannot waive condition of submission of C Form or D form when State Government has issued notification for concessional rate - State Government can grant concessions in CST under section 8(5) of CST Act, by issuing a notification.
As per amendment to section 8(5) w.e.f. 11-5-2002, the power is subject to fulfilment of requirements of section 8(4), i.e. subject to submission of C/D form by purchaser.
Exemption from CST if sale to SEZ - Sub-sections 8(6), 8(7) and 8(8) have been incorporated w.e.f. 11th May 2002 in CST Act to provide that inter state sale made to a unit in SEZ (Special Economic Zone) will be exempt from CST.
Special Economic Zone (SEZ) is set up for export purposes. Such zone is treated as if it is a foreign territory within India. Units in SEZ can import inputs and capital goods without payment of customs duty and procure indigenous inputs and capital goods without payment of Excise duty. All their products should be exported. If their final products are sold in India, excise duty equal to normal customs duty on such goods is required to be paid, as if the goods are ‘imported’. - - It may be noted that the exemption from CST is only if the sale is to unit in SEZ and not in respect of sale to EOU (Export Oriented Unit), unit in STP (Software Technology Park) or EHTP (Electronic Hardware Technology Park).
The registered dealer in SEZ can obtain goods from selling registered dealer outside the zone without payment of CST. The goods can be obtained for purpose of manufacture, production, processing, assembling, repairing, reconditioning, re-engineering, packaging or for use as trading or packing material or packing accessories. The registered dealer in SEZ should have been authorised to establish such unit in SEZ by authority specified by Central Government. [section 8(6)].
Development Commissioner of SEZ is authorised to permit a person to set up unit in SEZ.
The goods which the unit in SEZ can obtain without CST shall be specified in the sales tax registration certificate of SEZ unit. [section 8(7)]. - - Thus, existing SEZ units should get their sales tax registration certificate amended to include all the articles which they intend to procure.
The purchasing dealer has to submit a declaration in prescribed form. Consequential amendment is made by inserting section 13(1)(aa) to authorise Central Government to make rules to provide form and manner of furnishing declaration u/s 8(8).
SEZ unit has to submit H form duly certified - As per CST Rule 12(10)(a) (amended on 16-1-2003), SEZ unit will supply H form duly countersigned and certified by authority specified by Central Government authorizing establishment of unit in SEZ. [Development Commissioner is the authority to allow setting up of SEZ unit]. In such case, supplies to unit in SEZ will not be liable to CST.
Exemption to supplies to foreign missions/UN etc. - Central Government can, by issue of notification, exempt from CST (a) supplies made to officials or personnel of foreign diplomatic mission or consulate or UN or other similar international body entitled to diplomatic privileges (b) Supplies to consular or diplomatic agent of foreign mission or United Nations or similar international body. [section 6(3) inserted in CST Act].
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