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The objects of the Act, as stated in preamble of the CST Act are -
CST Act imposes the tax on inter state sales and states the principles and
restrictions as per the powers conferred by Constitution.
Basic scheme of the CST Act - The basic scheme of the CST Act is as
follows.
SALES TAX REVENUE TO STATES - The CST Act provides for levy on Inter-
State sales and also defines what is ‘Inter-State Sale’. However, the concept
that revenue from sales tax should be collected by States has been retained.
Thus, though it is called Central Sales Tax Act, the tax collected under the
Act in each State is kept by that State only. This is provided in Article 269(1)
(g) of Constitution of India. - - CST in each State is administered by local sales
tax authorities of each State.
TAX ON INTER STATE SALE OF GOODS - CST is tax on inter State sale of
goods. Sale is Inter-State when (a) sale occasions movement of goods from
one State to another or (b) is effected by transfer of documents during their
movement from one State to another.
STATE SALES TAX LAW APPLICABLE IN MANY ASPECTS - CST Act
makes provisions for very few procedures and rules. In respect of provisions
like return, assessment, appeals etc., provisions of General Sales Tax law of
the State applies.
Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads :
‘Taxes on the sale and purchase of goods other than newspapers, where
such sale or purchase takes place in the course of Inter-state trade or
commerce’. Entry 54 of list II - State List - reads : ‘Tax on sale or purchase of
goods other than newspapers except tax on Inter State sale or purchase’.
Thus, sale within the State (Intra-State sale) is within the authority of State
Government, while sale outside State (Inter-State sale) is within the authority
of Central Government.
Sale where both buyer and seller are from same State is Intra-State sale e.g.
from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to Kolkata *
Mysore to Bangalore etc. These are Intra-State sales. However, when buyer
and seller are in different States, it is Inter-state sales. e.g. : Chennai (Tamil
Nadu) to Trivandrum (Kerala) * Allahabad (UP) to Hyderabad (Andhra
Pradesh) * Bhubaneshwar (Orissa) to Daman (Union Territory) etc.
TAXABLE EVENT IN SALES TAX - In re Sea Customs Act - AIR 1963 STC
437= (1964) 3 SCR 827 (SC 9 member bench), it was held that in case of
sales tax, taxable event is the act of sale. It is not a tax directly on goods.
Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax
on Intra-State sale is levied by State Government of the State in which sale
takes place. No tax is levied on sales during import or export.
Recovery from customer is not essential for sales tax – Normally, sales
tax is treated as indirect tax as it can be and is usually recovered from buyer.
However, the liability to pay tax is on the dealer, whether or not he collects if
from buyer.
Background of CST
Sales Tax is one of the most important Indirect Tax for purpose of taxation by
State Governments. Revenue from CST goes to State from which movement
of goods commences. Total CST revenue in 98-99 was Rs 8,538 Crores.
Revenue of some major States was - Maharashtra - Rs 1,442 Crores.
Tamilnadu - Rs 934 Crores. West Bengal - Rs 799 Crores. Gujarat - Rs 787
Crores, Haryana - Rs 739 Crores. [ET, Bom 21.7.2000].
12th May 2000 - Following changes were made vide Finance Act, 2000,
effective from 12-5-2000.
11th May 2002 - Substantial and far reaching changes have been made in
CST Act, vide Finance Act, 2002. Some of these are made to facilitate
introduction of VAT provisions in sales tax, while some are made to overcome
difficulties created by some Supreme Court Judgments. Major changes made
by Finance Act, 2002 are as follows -
Since there was no CST on leasing transactions, dealers were avoiding sales
tax by showing transaction as ‘inter state sale’. Only lease agreement was
executed in one State while goods were delivered in another State. Now, even
if lease is held as inter state, CST will be payable.
NO CST IF SALE TO SEZ - Sections 8(6), 8(7) and 8(8) have been
incorporated to provide that inter state sale made to a unit in SEZ (Special
Economic Zone) will be exempt from CST. 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). [CST Rule
12(10)(a) has have been subsequently amended on 16-1-2003. It is provided
that 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].
14th May 2003 - Following changes have been made vide Finance Act, 2003 -
Constitutional Background
Union List relevant to taxation - List I, called “Union List”, contains entries like
Defence of India, Foreign affairs, War and Peace, Banking etc. Entries in this
list relevant to taxation provisions are as follows :
ENTRY NO. 92A - Taxes on the Sale or purchase of goods other than
newspapers, where such sale or purchase takes place in the course of
Interstate trade or commerce.
ENTRY NO. 97 - Any other matter not included in List II, list III and any tax not
mentioned in list II or list III. (These are called ‘Residual Powers’.)
ENTRY NO. 52 - Tax on entry of goods into a local area for consumption, use
or sale therein (usually called Octroi or Entry Tax).
Under these powers, CST Act has defined the terms ‘sale outside a State’ and
‘sale during export/import’. Provisions for ‘declared goods’ have also been
made in the CST Act.
No restriction on Inter-State Trade and Commerce - Each State and Union
Territory has certain autonomy. However, the trade and commerce has to be
free all over India, without which India cannot be ‘One Nation’. As we saw
above, tax on Inter-State sale/purchase can be imposed only by Central
Government. Provisions in respect of inter-State Trade and Commerce in
Constitution of India are summarised below :
Tax on local goods and goods from other States must be same
Local Sales Tax rate (i.e. Sales tax payable under State sales tax laws) must
be same both for local goods and goods brought from other States. e.g.
assume that if a product is manufactured in M.P. the sales tax rate is 6%. In
that case, same rate will apply in case of goods brought from other State on
stock transfer and sold within the State of M.P.
As per the Constitution, tax on Inter State sale/purchase can be levied only by
Union Government. CST Act has been enacted for this purpose. Section 6(1)
of CST Act provides that subject to other provisions of the CST Act, every
dealer shall be liable to pay tax under this Act on all sale of goods (other than
electrical energy) effected by him in the course of Inter-State trade or
Commerce. Section 6(1) is called as ‘Charging Section’ as it imposes levy on
sale of goods on Inter-State sale.
It has been held that these two modes are mutually exclusive. – Tata Iron and
Steel Co. (TISCO) v. S R Sarkar - (1960) 11 STC 655 (SC) = AIR 1961 SC 65
= (1961) 1 SCR 379 - confirmed in UOI v. K G Khosla & Co. Ltd. - (1979) 43
STC 457 (SC) = (1979) 2 SCC 242 = AIR 1979 SC 1160 = (1979) 3 SCR 453,
i.e. when a sale falls under section 3(a) it cannot fall under section 3(b) and
CST can be levied only once. In Bharat Heavy Electricals v. UOI - AIR 1996
SC 1854 = (1996) 102 STC 373 (SC) = (1996) 4 SCC 230 = JT 1996(4) SC
427, it was held that whether a particular sale is inter-state or not has to be
decided only with reference to section 3 of CST Act alone and no other
section. Similarly, to decide question in which State the tax is leviable, only
section 9(1) is relevant - no other provision is relevant.
There are following essential ingredients of inter-State sale under this sub-
section:
Section 3(a) requires that sale should ‘occasion movement of goods’. There is
no such requirement in section 3(b). Hence, for purpose of section 3(b), the
movement of goods from one State to another need not be occasioned by
sale. For example, if the goods are being sent to a branch by transport, sale
during movement by transfer of document will also be an ‘inter state sale’ u/s
3(b).
What is ‘Document of Title of Goods’ - When the goods are handed over to
the carrier, he hands over a receipt to the seller. The seller sends the receipt
to buyer. The buyer gets delivery of goods on submission of the receipt to the
carrier at other end. The receipt of carrier is ‘document of title of goods’. The
words ‘document of title’ is defined under section 2(4) of Sale of Goods Act.
Such document is usually called (a) Lorry Receipt - LR in case of transport by
Road (b) Railway Receipt - RR - in case of transport by rail (c) Bill of Lading -
BL - in case of transport by sea (d) Air Way Bill - AWB - in case of transport by
air. It is called ‘document of title’ as one who submits the same is entitled to
get delivery of goods, if document is in his name or endorsed in his name.
One of the basic and obvious conditions of Inter-State sale is that there should
be a sale. If a manufacturer sends goods to his branch in other State, it is not
a ‘sale’ as you cannot sell to yourself. Similarly, if a dealer sends goods to his
Agent in other State who stocks goods on behalf of the dealer, it is not a sale.
Such agent is usually called ‘Consignment Agent’. Goods are despatched to
another State on consignment basis and the person despatching goods
retains ownership of goods. Since no sale is involved, there is no ‘Inter State
Sale’.
In Goodyear India Ltd. v. State of Haryana - (1990) 76 STC 71 (SC) (at page
98), it was held that mere consignment of goods by a manufacturer to his own
branches outside the State does not amount to sale or disposal as such; the
consignment of goods is neither sale nor a purchase.
C&F AGENT – Some times, Clearing & Forwarding Agents [C&F Agents] are
appointed at various places. Such agents stock and sale goods on behalf of
the principal. In Piramal Health Care Ltd. In re (2000) 37 CLA 353 (MRTPC), it
was observed, ‘A C&F Agent does not have the right to property in the goods
stocked with him by the manufacturer. His duties are confined to stocking the
goods and forwarding them to persons and places as instructed by the
manufacturer. The right to sell the goods does not vest in him’.
Let us assume that Tata Iron and Steel Co. Ltd. (TISCO), manufacturing
Steel, has a factory at Jamshedpur, Bihar. TISCO manufactures Steel of
various standard shapes and sizes. TISCO has a depot at Howrah in West
Bengal. Steel plates, rods, billets etc. are sent to its depot at Howrah. When
the goods are sent from Jamshedpur to Howrah, there is inter State
movement, but the movement has not occasioned on account of any covenant
or contract for sale. Hence, it is not an Inter-State sale but a stock transfer.
Sale takes place when a customer approaches TISCO depot at Howrah and
takes delivery from Howrah. Here, the sale by TISCO from its Howrah depot is
an Intra-State sale within West Bengal.
However, assume that a buyer from Howrah wants Steel of a particular size
and specification, which is not a standard size and specification and hence is
not available in Howrah depot of TISCO. He approaches TISCO and TISCO
manufactures Steel in its Jamshedpur factory in Bihar as per the specific
requirements of the buyer. After manufacture, goods are sent to depot of
TISCO at Howrah and goods are sold to the buyer from Howrah depot of
TISCO. In such case, the movement of goods from Jamshedpur, Bihar to
Howrah, West Bengal has occasioned as a necessary incident of contract and
hence it is a Inter State sale, even if goods are supplied from depot of TISCO
at Howrah and invoice is raised from TISCO, Howrah.
Double taxation when stock transfer held as sale - In Ashok Leyland Ltd.
v. UOI 1997(2) SCALE 242 = (1997) 9 SCC 10 = (1997) 105 STC 152 (SC),
the dealer despatched the goods to his depot in another States from his
factory in Tamilnadu, treating the same as stock transfer. Dealer sold the
goods from the depots and paid sales tax in the State in which goods were
sold. Later, the dealer received notice from Tamilnadu sales tax authorities
that in respect of its sale of vehicles to various State transport undertakings
from the depot, the movement of goods from Tamilnadu has to be treated as
'inter state sale'. Dealer pleaded that if Tamilnadu sales tax authorities ask
him to pay tax on such stock transfer, it will be double taxation, as he has
already paid sales tax in respective States when goods were sold from the
depots. Other State Governments will not refund the sales tax collected by
those State Governments. Supreme Court appreciated the difficulty, which
has arisen because there is no central mechanism which would decide
questions of such nature. Supreme Court directed dealer to continue with
assessment. If the assessing authority and appellate authority of Tamilnadu
decided against the dealer, the dealer should approach Supreme Court for
suitable directions. – similar directions were given in KCP Ltd. v. State of MP
(1998) 108 STC 580 (SC).
In Bharat Heavy Electricals v. UOI - AIR 1996 SC 1854 = (1996) 102 STC 373
(SC) = 1996(4) SCC 230 = JT 1996(4) SC 427, somewhat similar situation
arose, when sales tax really payable to one State was collected by another
State. The Supreme Court ordered the another State Government to pay tax
to State Government to which it was really due [After formation of Central
Sales Tax Appellate Authority, that authority will be in a position to give such
a relief].