Journal entries - section 4 of cst act

CA Kumar Mukesh (CA CMA FINAL and Advance Excel Trainer) (6881 Points)
Replied 06 April 2013

Originally posted by : Shivani
	On 26-4-2011, M/s National Traders, Chennai received a sales order from Excel Traders, Mumbai for 4 photo copying machines priced at Rs. 43,000 each. M/s National Traders raised a sales invoice for the said item vide invoice number 012, despatched 2 nos and requested the branch office – National Enterprises, Mumbai to despatch remaining quantity. CST @ 2% was charged while invoicing against C Form. The sale value and CST amount of goods despatched by branch office was reversed on 27-4-2011. Entries in Books of National Traders 26-4-2011 Excel Traders Debit 175440 To Interstate Sales 2% 172000 To CST Payable 2% 3440 27-4-2011 Interstate Sales 2% 86000 To Interstate Sales - Tax Free 86000 CST Payable 2% 1720 To National Enterprises 1720 These are the entries that the book says. My questions are 1. Why this entry on 27-4-2011 passed to reverse inter-state sale and cst? 2. What will be the entries in the books of National Enterprises? Thanks Shivani shivaniadream @ gmail.com

Books of national trader, chennai is maintained properly, beacause at time time of selling two units of machine, by Typographical error, this unit actually books revenue of four machines, whereas you already mentioned that only balance 2 machine is supplied by other branch. therefore reversal of sale and taxes is Necessary to reverse transaction of two machines, actually supplied by other unit

Note it is assumed that other unit located in Mumbai is also issue tax invoices for 2 machines

Shivani (Learner) (1881 Points)
Replied 06 April 2013

thanks for ur reply

2 things

1. if u look at the reversal entry all national traders has done is to transfer sales worth 86000 from interstate sales to tax free sales. it is still showing sales worth 86000 albeit now as tax free sales. it is still accounting for these sales!

shouldnt proper reversal shoud have been

Interstate Sales 2% 86000

To Excel Traders 86000

2. Also what shall be the entries in books of National Enterprises.

thanks

shivaniadream @ gmail.com

CA Kumar Mukesh (CA CMA FINAL and Advance Excel Trainer) (6881 Points)
Replied 06 April 2013

You are correct!! before checking adjustment entries mentioned below please check interunit reconciliation for both units to check whether any difference are lying.

Adjustment entry in the books of national traders

Tax free sale Dr 86000/-

National enter Dr 1720/-

To Excel 87720/-

Adjustment entry in the books of National Enterprises

Nil

assumes that sale passed at the time of making sale is

Excel Dr 87220/-

to 2% sale 86000/-

to 2% CST 1720/-

Shivani (Learner) (1881 Points)
Replied 06 April 2013

thanks

again 2 things. sorry but need complete clarity of things.

1. I feel adjustment entry in books of national traders should be

Interstate sale 2% Dr 86000/-

CST payable 2% Dr 1720/-

To Excel 87720/-

U debited tax free sales and national enterprises !

2. I feel it is a local sale at the end of National enterprises and National Enterprises will charge VAT to Excel traders as goods were lying in Mumbai at the time of sale.

and entry in books of national enterprises should be assuming vat rate to be say 5%

Excel traders 90300

to local sales 5% 86000

to output vat 5% 4300

Can you please confirm whether i am right. thanks

The relevant portion in yellow of section 4 reads below

(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State—

(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and

(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.

Explanation - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.

shivani

shivaniadream @ gmail.com

CA Kumar Mukesh (CA CMA FINAL and Advance Excel Trainer) (6881 Points)
Replied 06 April 2013

Originally posted by : Shivani
	thanks again 2 things. sorry but need complete clarity of things. 1. I feel adjustment entry in books of national traders should be Interstate sale 2% Dr 86000/- CST payable 2% Dr 1720/- To Excel 87720/- U debited tax free sales and national enterprises ! 2. I feel it is a local sale at the end of National enterprises and National Enterprises will charge VAT to Excel traders as goods were lying in Mumbai at the time of sale. and entry in books of national enterprises should be assuming vat rate to be say 5% Excel traders 90300 to local sales 5% 86000 to output vat 5% 4300 Can you please confirm whether i am right. thanks The relevant portion in yellow of section 4 reads below (2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State— (a) in the case of specific or ascertained goods, at the time the contract of sale is made; and (b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation. Explanation - Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places. shivani shivaniadream @ gmail.com

The Second adjustment you posted is correct, as 2% CST changes into 5% local Vat but not in first adjustement

As you mentioned that Interstate sales 2 % is already debited by crediting tax free sales & same in 2% CST where 2% CST is debited already by crediting national enterprises.

Threrefore adjustment entry posted last discussion is correct.