Unit II

Sales Tax, VAT & Service

Tax
Dr. Mohita
Structure: Indirect Tax (India)
Indirect Tax
Pre GST

Consumption
Production
/ Purchasing

Goods Services Sales Tax

Excise Duty Service Tax VAT

Custom Duty
Types of Sales
• Intra State: within state In India : VAT (Value added tax) is applicable
• Inter State: One state to another in India : CST (Central State Tax)
• Sales during the course of Import: Custom Duty
• Sales during the course of Export: Custom Duty
 Central Sales Tax: CST
• Sales tax is applied whenever sales is made of goods
• Since sale can be made at 2 levels
• Within state (Intra State) : previously State Sale Tax but now VAT
• Outside State (Inter State): CST (Central Sales Tax)
• VAT on sales since applied on Intrastate sales and was implemented against
State Sales Tax so the revenue collection and administration of VAT is done
State: State List
• Administration & collection of CST is done by State government: Union List
• CST revenue is the revenue which is rendered by the Union govt to the State
Govt.
• In case when the sales are interstate, which state is going to collect the
revenue: State of selling dealer will collect the revenue of CST
When is a sale or purchase of goods said to take place in the course of inter-
State trade or commerce?
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; or
(b) is effected by a transfer of documents of title to the goods during their
movement from one State to another.
The tax payable by any dealer under this Act on sales of goods effected by him in
the course of inter-State trade or commerce, whether such sales fall within
clause (a) or clause (b) of section 3, shall be levied by the Government of India
and the tax so levied shall be collected by that Government in accordance with
the provision of sub-section (2), in the State from which the movement of the
goods commenced
CST Act 1956
Objectives of Central Sales Tax Act
The government introduced the Central Sales Tax Act in a bid to simplify and
streamline tax collection in the country.
• Provide provisions for levying, collecting and distributing taxes collected via
interstate sale of goods and products.
• Frame policies to determine when sale and purchase of goods occurs, with
reference to interstate commerce.
• Classifying certain goods as being essential and important for trade and
commerce.
• Establish which competent authority will settle interstate trade disputes.
CST Act 1956
CST Law covers following details
a. CST Act 1956
b. CST Rules, 1957: Rules of Registration and Turnover

The Law answers following questions

1. When is sale considered as Inter State Sale / Export / Import
2. Levied on whom (seller / purchaser), when will the tax collected (levy/
collection at same time), who will levy and who will collect
3. Declaration of goods of special importance
Levy & Collection of CST
• Levy is decided by Central govt.
• Collection is done by the State Govt.
• CST extends to whole of India
• CST is paid by any Dealer on Sale of Goods affected by him in the course of
Inter State Trade /Commerce being levied by Govt of India except electrical
energy
• levy and collection will be done in the state from where the movement of
goods started.
• Sec 2(d): Goods are any material, article, thing or movable property, except
newspaper, Stocks and Shares, Actionable Claims
• Normal Sale means any transfer of property in goods by one person to another
(2 different parties) for consideration / cash or any deferred payment or any
other valuable consideration and includes deemed sales
Requisites of Normal Sales
• Property in goods
• There must be 2 parties
• Between 2 states
• There must be a contract of sale
• Transfer of goods from Seller to buyer
• consideration must be paid in cash or valuable consideration
https://www.wirc-icai.org/images/material/Final_Presentation_CST.pdf
• Case 1
Dealer in gold in Maharashtra effected sales of gold to certain customers
located in different states. Delivery of gold was personally taken by the
representative of the buyers who came to Maharashtra for taking delivery? Is it
an Inter state sale (Surajmull Gouti vs. State of Maharasthra)
• CST is collected by the state in which the sale is originated
• CST is payable when the goods are sold and the movement commences
• Consignments sent to the agents or transfers of goods to branch or other
offices is not a sale as per the CST Act
• According to Section 6(2) of the CST Act, only the first inter-state sale
is taxable and the subsequent sale during movement of goods by transfer
of documents is exempt from tax, if the purchasing dealer is a registered
dealer
Deemed Sale
• Deemed Sale is when there is no contract between the parties is also considered
as sale: transfer other than a contract of property for cash through mutual
consent
• Giving service against the goods is not covered under sales, but if goods is also
given along with service eg: Assembly of Computer (parts + service of
assembling )
• Work Contract: a contract for carrying out any work including assembling,
constructing, processing, fabrication, Installation, fitting, repairing attached to
movable and immovable property
Eg: Painter, Mechanic
• Hire Purchase
• Instalment
• lease (Financial Lease not operating lease )
• Supply of goods by unincorporated association is run by its members (both are
considered same) and if sale is made to the members, it is considered as
Deemed Sale
• Supply by of or any part of the service of any sale made with the sale of food /
any other article for human consumption (include supply or service)
eg: Restaurant, Café’s (Dominant Factor: Service)
Does not include mortgage or pledge
CST Applicability
•  There should be a Dealer and such dealer must be registered under the CST Act.
• He should made a sale to any buyer ( registered dealer or unregistered dealer)
• He should carry on any business.
• He should made a sale of any goods ( declared or undeclared)
• 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.
• The sale should not take place in the course of import into or export from India.
• CST is levied on the turnover which is calculated on the basis of Sale Price
• Payable by the Seller
• Payable in the State where the Seller is based (Originating State)
Rates 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.
• 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.
• If under the local sales tax law, sale or purchase is exempt from CST the CST is
Nil.
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 dispatched 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.
Declared Goods
• Section 2(c) of CST Act defines 'Declared Goods' as those declared under
section 14 of CST Act as 'goods of special importance in Inter State Trade or
commerce.
• Section 14 of CST Act gives a list of such goods
• Section 15 specifies restrictions on power of States to tax such goods.
Sec 14: List of Declared goods
(i) cereals i.e -paddy, rice, wheat, Jowar, bajra, maize, barley etc.
(ia) coal, including coke in all its forms, but excluding charcoal
(ii) cotton, that is to say, all kinds of cotton (indigenous or imported) in its
unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but
not including cotton waste
(iia) cotton fabrics
(iib) cotton yarn, but not including cotton yarn waste;
(iic) crude oil, that is to say, crude petroleum oils and crude oils etc.
V) Jute
Va) LPG for domestic use etc
Full List:
https://taxguru.in/goods-and-service-tax/summary-of-provisions-related-to-declared-g
oods-under-the-cst-act-1956.html
Restrictions on state taxation on declared goods
i. Tax on Declared Goods cannot exceed 4% within the state(Section 15(a)
ii. Reimbursement of local tax if declared goods are sold interstate
It has been provided u/s 15(b) of CST Act that if the Declared goods which are
purchased from within a state or in other words on which intra state tax i.e local
tax has been paid and those Declared goods are sold interstate then the local tax
paid on such goods shall be reimbursed to the person making such interstate sale
iii. The act talks about Reimbursement i.e. the tax need to be deposited first and
then on the presentation of the papers and submission proof, amount will be
reimbursed
CST Act 1956
• The act was formulated to decide the principles for determining when a sale or purchase
of goods takes place in the in the course of inter state or between two states.
• “Goods" includes all materials, articles, commodities and all other kinds of movable
property, but does not include 1 [newspapers] actionable claims, stocks, shares and
securities.
• Dealer is an entity or organization which purchase or sale a commodity from one state
to another (Individual, HUF, Firm, Incorporated)
• “Sale", with its grammatical variations and cognate expressions, means any transfer of
property in goods by one person to another for cash or deferred payment or for any
other valuable consideration.
• “Sale price" means the amount payable to a dealer as consideration for the sale of any
goods, less any sum allowed as cash discount but inclusive of all the expenses when
done during the time of delivery
• CST is governed by CST Act 1956
• List 1: Union List : Entry 92 (A)
• Taxes on purchase or sale of goods inter state except newspaper
• CST is levied by the central govt. but it is administered and collected by the
State Govt.
• Revenue is for State govt.
• The taxable event is
• Sale of goods (as per the definition of goods)
• Sale is Interstate (2 different states)
• Inter State Sale : Sec 3 (a) & 3 (b)
• Sec 3 (a): Inter State Sale takes place if sale occasions the movement of goods
from one state to another. Sale is transfer of property from one person to
another for a consideration
• Occasion is immediate cause of movement
• Sale excludes mortgage and Pledge
• Place of business is where the account books are kept
• Tax is levied by the state from where the movement is starting
• If any item is returned within 180 days, this tax will not be levied
• CST does not offer Tax credit as Tax collecting state and claiming party are in different
state
• Case 1: Sale before the movement
Refinery (Bihar) & Godown in UP, both are connected with underground pipe line,
Customer (UP) connected with underground pipe line. UP customer order godown (UP)
• Case 2: Sale during the movement of goods
State 1 & State 2: Delivery of 100 sack of wheat, stock transfer is taking place with
Documents of title to the goods which are sent with Truck. Party A of State 2 orders 100
sack of wheat.
Movement of goods start as soon as the goods are with transporter. Movement is
considered to be continuing if they are with the transporter
• A & B residing in the same state and sale is made, is it inter state sale?
• A is residing in Delhi and B is residing in UP, is it inter state sale?
• A has branch in Delhi and in UP as well, A transfers goods from Delhi to UP, is it
Inter state sale? Stock Transfer
• Can a State govt, exempt any product from being charged to Sales Tax?
• If a products is exempted under VAT (Intra state), does the same product is
exempted from CST also?
• D of Delhi comes to Hyderabad and purchases certain goods and transfers in
his own name to delhi, is the sale chargeable to Central Sales Tax?
Central Sales Tax Exemptions
Central Sales Tax is exempted on certain occasions, some of which are
mentioned below:
• Central Sales Tax is excluded if outward freight is charged separately and if the
outward insurance of goods are passed on to a buyer during dispatch.
• No CST is to be paid if goods are returned within 180 days.
• CST is exempted in cases when a sale within a particular state is exempt.
• Any sale to SEZs and foreign missions are exempt from CST
• Indirect taxes are levied on production & Consumption
• Indirect Tax on production was Excise duty
• Indirect tax on Consumption is on
• Consumption of goods (Sales Tax)
• Consumption of Service (Service Tax)
• Sales Tax was divided in 2 categories: State Sales Tax & Central Sales Tax
• State Sales Tax was applied when sales are made within the state (Intra State Sales
Tax)
• Central Sales Tax are applied when sales are made between 2 states (Inter State Sales
tax)
• State Sales Tax is different for different states as they are regulated & decided
independently by individual states
• After GST: Excise, Sales Tax, VAT and Service Tax are merged in GST
VAT & CST Registration
• VAT registration is done to obtain the TIN (Tax Identification Number)
• If the entity makes the sale of goods beyond Rs.5 lakh (range is different for
different states) within the state, the entity shall register VAT
• TIN consists of 11 digit numerals throughout the country. Its first two
characters represent the State Code and the set-up of the next nine
characters can vary in different States