Guide to .. Tax Management ,Tax Planning and Tax Saving
 

Central Sales Tax (CST)

STRUCTURE

10.1.    INTRODUCTION

Central Sales Tax (CST) is a tax on sales of goods levied by the Central Government of India. CST is applicable only in the case of inter-state sales and not on sales made within the state or import/export of sales.

Inter-state sale is when a sale or purchase constitutes movement of goods from one state to another. Accordingly, consignments to agents or transfers of goods to branch or other offices is not a sale as per the CST Act

CST is payable in the state where the goods are sold and movement commences. The tax collected is retained by the state in which the tax is collected. CST is administered by Sales Tax authorities of each state. Thus, the State Government Sales Tax officer who assesses and collects local (state) sales tax also assesses and collects CST.

Sales Tax is a tax, levied on the sale or purchase of goods. There are two kinds of Sales Tax i.e. Central Sales Tax, imposed by the Centre and Sales Tax, imposed by each state.


10.2.    INTER-STATE SALE

An inter-state sale takes place when a sale or purchase:

  • Leads to movement of goods from one State to another State.

  • Is achieved by the transfer of documents of title while the goods are being moved from one State to another State.

Example 1: “A” in Orissa sells and delivers goods to “B” in Gujarat.

Example 2: “X” in Orissa delivers goods to “Y” in Calcutta. “Y” sells it to “C” in Delhi by transferring the document of title during the goods movement from Orissa  to Delhi.  

Note: Goods that are sold within a state, but while transporting travel through another state is not considered inter-state sales.


10.3.    WHAT ARE THE OBJECTIVES OF CST ACT ?

1.         Formulate principles for determining when a sale or purchase of goods takes place :-
-           in the course of interstate trade or commerce ; or
-           outside a State ; or
-           in the course of import into or export from India.

2.         Provide for the :-
-           levy of
-           collection and
-           distribution
Of taxes on sales of goods in the course of interstate trade or commerce.

3.         Declare certain goods to be of special importance of inter state trade or commerce.

4.         Specify the restriction and conditions to which state laws imposing taxes on the sale or purchase of such goods of special importance shall be subject.

5.         Provides for collection of tax in the event of liquidation of a company.

6.         Authority to settle disputes in course of interstate trade or commerce.

10.4.    WHAT ARE THE CONDITIONS FOR CST ACT TO BECOME APPLICABLE.

1.         The sale should not take place in the course of import into or export from India.
2.         There should be a Dealer and such dealer must be registered under the CST Act.
3.         He should made a sale to any buyer ( registered dealer or unregistered dealer)
4.         He should carry on any business.
5.         He should made a sale of any goods ( declared or undeclared)
6.         The sale should be made in the course of interstate trade or commerce ( i.e. the sale should not be a sale inside a state.

WHAT HAPPENS IF THE ABOVE CONDITION ARE SATISFIED

1.         The CST Act becomes applicable and CST is levied at the Rate specified.
2.         it is levied on Turnover, which in turn is computed on the basis of the sale price.
3.         it is payable by the dealer who makes the sale in the course of interstate trade or commerce.
4.         It is payable in respect of sale of goods effected by him during the year.
5.         It is so payable to appropriate state in which the dealer has a place of business.

10.5.    RATE OF CST

  • In an inter-state sale to a registered dealer against form C the rate of CST is 4% or local sales tax rate whichever is lower.

  • If under the local sales tax law, sale or purchase is exempt from CST the CST is Nil.

  • In an inter-state sale to government against form D the rate of CST is 4% or local sales tax rate whichever is lower.

  • Rate of CST in case of  inter-state sale of declared goods without  form C or D  is twice the rate of tax applicable to the local sale or purchase of such goods in that state.

  • Rate of CST in case of other goods ( i.e. non-declared goods) is 10% or the applicable local sales tax of that state, which ever is higher.

10.6.    SALE PRICE

“Sale Price” means the amount payable to a dealer as consideration fro the sale of any goods.
It does not include,

  • Cash Discount ( including Trade Discount, Quantity Discount, Additional Discount ). This sum is deducted from sale consideration.

  • Cost of installation, freight and delivery is excluded ( if such cost is separately charged).

  • Goods returned by buyer within 6 months.

  • Goods rejected by buyer.

It includes,

  • Consideration for sale any goods

  • Excise Duty ( whether included in sale price or separately charged)

  • Sales Tax payable by the dealer ( whether included in sale price or separately charged)

  • Sum charged for anything done by the dealer in respect of the goods at the time of or before the deliver thereof.

  • Cost of packing material and packing charges.

  • Insurance charges if the seller has insured the goods.

  • Bonus Disocunt / Incentive Bonus for attracting Sale Targets.

10.7.    CST Transaction Forms

Dealers have to issue certain declarations in prescribed forms to buyers/sellers. The type of forms are C, D, E1, E2, F, H and I. Forms C, E1, E2, F and H are printed and supplied by Sales Tax authorities. Dealers have to issue declarations in these forms printed and supplied by the Sales Tax authorities. Form D is to be issued by government organization departments making purchases. These forms are to be prepared in triplicate.

Form C
The sales tax on inter-state sale is 4% or the applicable sales tax rate for sale within the State whichever is lower if the sale is to a dealer registered under CST and the goods are covered in the registration certificate of the purchasing dealer. The purchasing dealer is eligible to get these goods at concessional rate if a declaration in C form is submitted to the selling dealer.

Form D
Sale to government is taxable  @ 4% or applicable sales tax rate for sale within the State whichever is lower. This concession on CST is applicable if Form D is issued by the government department which purchases the goods.

Form E1
This form is issued by the dealer who makes the first inter-state sale during movement of goods from one State to another. This enables the purchaser to claim exemption from CST on the second inter-state sale during the movement of goods by transfer of documents of title.

Form E2
This form is issued by the second or the subsequent seller when the goods move from one state to another in a series of inter-state sales by transfer of documents of title. This form enables the purchaser to claim exemption form CST on subsequent sale of goods.

Form F
This form is issued when goods are despatched to another state as a consignment or to the branch of a dealer in another State. The CST is not payable if there is only inter-state stock transfer and there is no sale. To claim inter-state movement of goods as “not a sale”, the dealer has to produce a declaration in Form ‘F’ received from Consignment Agent or Branch Office in another State.  One Form F covering receipts during one calendar month has to be issued.

Form H
This form is issued by an exporter for purchase of goods. The purchase of goods is for an export order or in pursuance of an export order.  These goods are then sold in export and the form enables seller of the goods to the exporter to claim deduction on the goods sold for export.

Form I
This form is issued by a dealer located in a Special Economic Zone (SEZ). No CST is levied when sales is made to a dealer located in SEZ.

 
10.8.    Basics of Central Sales Tax (CST)
It is important to understand the meaning of certain terms used in the CST Act.

Inter-State Sale

Inter-state sale is deemed to take place if there is: (i) Movement of goods from one state to another or

(ii) Transfer of documents of title to the goods during their movement from one State to another. The above two modes are mutually exclusive.

 

 

Declared Goods

 

Declared Goods means goods declared under Section 14 to be of special importance in inter- state trade or commerce. Some of the important items are cereals, iron and steel, jute, oil seeds, pulses, man-made fabrics etc.

 

 

Registration under CST Act

 

Every dealer who carries out the inter-state sales is liable to pay Central Sales Tax. As per the CST Act, every dealer who carries out inter-state sales has to be registered with the Sales Tax Authority. Intermediaries like agents and transporters are not required to be registered, since they do not affect sales. Registered dealers can purchase goods at concessional rates by issuing the C Form.

 

Rate of Central Sales Tax

Different rates are prescribed depending upon the nature of inter-state sale such as:

 

a. Sale to registered dealers.

 

b. Sale to unregistered dealers.

 

(i) Sale of declared goods to unregistered dealers.

 

(ii) Sale of goods other than declared goods to unregistered dealers. CST rates to various categories are discussed below:

Sale to Registered Dealers

 

Sale to registered dealer is @ 4% or sales tax rate for sale within the State, whichever is lower, if the goods are eligible and are specified in the Registration Certificate issued to the purchasing dealer. The  Purchasing dealer has to submit the declaration in the prescribed C Form to the selling dealer.

 

 Sale to Unregistered Dealers

 

The rate is twice the rate applicable to sale or purchase of such goods within the State with regard to declared goods. In case of goods other than declared goods, the rate applicable for sale within the state or 10%, whichever is higher. The purchaser is not required to give any declaration as he is not a registered dealer.

 

Forms for Declarations under CST Scheme

 

A registered dealer has to issue certain declarations in prescribed forms to buyers/ sellers. The Dealer has to issue declarations in the forms such as C, E-I, E-II, F and H which are printed and supplied by the Sales Tax Authorities. These forms are generally in triplicate.

Form C

 

As per CST Act, sales tax on inter-state sales is 4% or sales tax rate for sale within the state, whichever is lower, is applicable, when the sale is made to a registered dealer and the goods are covered in the registration certificate of the purchasing dealer. Otherwise, the tax is higher, i.e

10% or tax leviable on sale of goods inside the state, whichever is higher. This concessional rate is applicable only if the purchasing dealer submits a declaration in prescribed C Form.

 

One C Form covers all the transactions in a whole financial year, irrespective of the total amount or value of transactions during the year. However, for transactions exceeding one financial year separate C Form is required for each financial year.

 

 

Forms E1 and E2

 

According to Section 6(2) of the CST Act, only the first inter-state sale is taxable and the subse- quent sale during movement of goods by transfer of documents is exempt from tax, if the purchas- ing dealer is a registered dealer.

 

Usually, the transfer of a document refers to the document of title to goods which is endorsed and transferred in favour of the purchaser and is duly signed by the endorser. The document can be further transferred by subsequent endorsements.

The subsequent sellers have to obtain a declaration in C Form from the dealers who sold them the goods. The selling dealer has to make a declaration in E1 Form  in case of the first sale and E2 Form in case of subsequent sales.

 

 

Form F

 

Under CST Act, F Form  is used for Branch transfers and Consignment transfers. Goods when transferred from one place to another under the same principal, is known as Branch Transfer and when it is transferred to agents, it is termed as Consignment Sale. Here the dealer has to furnish a declaration in F Form received from the consignment agent or branch office in another state to prove that the interstate movement of goods is not a sale.

 

One F Form covers all transactions in one month, irrespective of the number of transactions and the total amount.

 

 

Form H

 

A sale during the course of export is exempt from CST and also the penultimate sale is deemed to be in course of exempt from CST under the CST Act. The dealer exporting the goods must have documents in proof of export such as an airway bill, bill of lading, shipping bill, customs docu- ments, bank certificate etc. However, if the penultimate seller is not having any proof evidencing that the sale is exempt, the actual exporter is required to issue a certificate in H Form to the penultimate seller.

 

 

Form I

 

Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations, duties and tariffs.

 

Under the CST Act, supplies made by a registered dealer to a unit in the Special Economic Zone

(SEZ) will not be subject to CST, provided such unit furnishes a declaration in I Form.
 
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