Objects and Basic Scheme of the CST Act

The objects of the Act, as stated in preamble of the CST Act are -

1) To formulate principles for determining (a) when a sale or purchase

takes place in the course of inter-state trade or commerce (b) When a
sale or purchase takes place outside a State (c) When a sale or purchase
takes place in the course of imports into or export from India

2) To provide for levy, collection and distribution of taxes on sales of

goods in the course of inter-state trade or commerce

3) To declare certain goods to be of special importance in inter-State

trade or commerce and specify the restrictions and conditions to which
State laws imposing taxes on sale or purchase of such goods of special
importance (called as declared goods) shall be subject.

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 collected in the State where movement of goods commences - The

scheme of CST Act is that Central Sales Tax is payable in the State
from which movement of goods commences (i.e. from which goods are
sold). The tax collected is retained by the State in which it is collected.
CST Act is administered by Sales Tax authorities of each State. Thus,
the State Government Sales Tax officer who collects and assesses local
(State) sales tax also collects and assesses Central Sales Tax.

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.

CST Act defines some concepts - Under the authority of Constitution,

the CST Act defines concepts of ‘Sale Outside the State’ and ‘sale
during the course of import/import’.

Declared goods - Some goods are declared as goods of special

importance and restrictions are placed on power of State Governments
to levy tax on such goods.
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.

Newspaper specifically excluded - It can be seen that ‘newspapers’ are

specifically excluded from purview of both Union as well as State list.
The obvious reason is that newspapers have a very vital role to play in
a democratic society. Freedom of speech and free flow of information
is the backbone of democracy and hence newspapers have been
excluded from tax. [Otherwise, ‘newspaper’ are ‘goods’, but for the
exclusion
.

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.
Categories of Sales - Sales can be broadly classified in three categories.
(a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e.
within the State) sale. - Murli Manohar and Co. v. State of Haryana
(1990) 4 CLA 304 (SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 =
(1991) 1 SCC 377 (SC 3 member bench). In this case, it was observed
that they cannot conceive fourth category of sale.

If sale or purchase to Marketing Agency is in same State, it will be an

Intra-State sale even if goods are despatched outside the state as per
instructions of the marketing agency. - ACC v. CST - AIR 1991 SC
1122.

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.

Sale within the State is ‘residuary sale’ – As we will see later, ‘sale
within State’ is residuary sale. Thus, first we have to decide if sale is
‘Inter State’. If not, we have to find if it is ‘Sale during export or
import’. If not, then the sale is ‘Intra State’. Thus, if a sale is Inter State
of during export or import, it cannot be ‘Sale within the State’.

Mode of a sales transaction - Initially, buyer places an order on seller

for supply of goods, called ‘Purchase Order’. After the goods ordered
are ready, the buyer may come to the business place (godown, factory
or warehouse) of seller and obtain delivery of goods. This will be ‘Sale
within the State’. Alternatively, buyer may ask seller to send the goods
by transport. In such cases, the seller will book the consignment by rail,
road, ship or air as per requirement of buyer to the destination where
buyer requires the goods. In such a case, generally, (a) if buyer and
seller are in the same State, it is Intra-State sale (b) if they are in
different States, it is Inter-State sale (c) if buyer is outside India, it is
sale during export (d) if seller is outside India, it is sale during import.

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].

CST is proving to be a hindrance in introducing VAT. CST has been

reduced to 3% (from 4%) w.e.f. 1-4-2007. It is announced that it will be
reduced by 1% every year and made Nil by 1-4-2010.

Recent Changes – Following are recent change in CST Law.

1-3-2006 – Appeal to CST Appellate Authority will lie only against

highest Appellate Authority of the State [During 17-3-2005 to 28-2-
2006, appeal was to be filed with CST Appellate Authority directly
against order of assessing authority].

18-4-2006 – LPG (liquid petroleum gas) for domestic use is added to

list of ‘declared goods’ u/s 14 of CST Act to maintain tax rates at
reasonable level.
1-4-2007 - CST rate reduced to 3%. 'D' form abolished. Tobacco
products removed from list of declared goods.

1-6-2008 - CST rate reduced to 2%.

Constitutional Background

India is Union of States - Our Constitution generally follows British

pattern, though concepts of federal structure are borrowed from
American and other Constitutions. India is a Union of States. The
structure of Government is federal in nature. Government of India
(Central Government) has certain powers in respect of whole country.
India is divided into various States and Union Territories and each State
and Union Territory has certain powers in respect of that particular
State. Thus, there are States like Gujarat, Maharashtra, Tamilnadu,
Kerala, Uttar Pradesh, Punjab etc. and Union Territories like
Pondicherry, Chandigarh etc.

Taxation under Constitution - In the basic scheme of taxation in India,

it is envisaged that (a) Central Government will get tax revenue from
Income Tax (except on Agricultural Income), Excise (except on
alcoholic drinks) and Customs (b) State Government will get tax
revenue from sales tax, excise on liquor and tax on Agricultural Income
(c) Municipalities will get tax revenue from octroi and house property
tax.

Income Tax, Central Excise and Customs are administered by Central

Government. As regards sales tax, Central Sales Tax is levied by
Central Government while State Sales Tax is levied by individual State
Governments. Though Central Sales Tax is levied by Central
Government, it is administered by State Governments and tax collected
in each State is retained by that State Government itself.

Article 246 of our Constitution indicates bifurcation of powers to make

laws, between Union Government and State Governments. Parliament
has exclusive powers to make laws in respect of matters given in list I
of the Seventh Schedule of the Constitution (called ‘Union List’’). List
II (State List) contains entries under jurisdiction of States. List III
(concurrent list) contains entries where both Union and State
Governments can exercise power. [In case of Union Territories, Union
Government can make laws in respect of all the entries in all three
lists].

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. 82 - Tax on income other than agricultural income.

Entry No. 83 - Duties of customs including export duties.

Entry No. 84 - Duties of excise on tobacco and other goods

manufactured or produced in India except alcoholic liquors for human
consumption, opium, narcotics, but including medical and toilet
preparations containing alcohol, opium or narcotics.
Entry No. 85 - Corporation Tax.

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. 92B - Taxes on consignment of goods where such

consignment takes place during 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’.)

State list pertaining to taxation - State Government has exclusive

powers to make laws in respect of matters in list II of Seventh Schedule
to our Constitution. These entries include Police, Public Health,
Agriculture, Land etc. Entries in this list relevant to taxation provisions
are as follows:

Entry No. 46 - Taxes on agricultural income.

Entry No. 51 - Excise duty on alcoholic liquors, opium and narcotics.

Entry No. 52 - Tax on entry of goods into a local area for consumption,
use or sale therein (usually called Octroi or Entry Tax).
Entry No. 54 - Tax on sale or purchase of goods other than newspapers
except tax on interstate sale or purchase.

Restrictions on powers of taxation

Restrictions on power of State Government on imposition of tax on sale

or purchase of goods are provided in Article 286 of Constitution of
India, as follows :

State Government cannot impose tax on sale or purchase during

imports or exports; or tax on sale outside the State. [Art 286(1)]

Parliament is authorised to formulate principles for determining when a

sale or purchase takes place (a) outside the State (b) in the course of
import and export. [Article 286(2)]

Parliament can place restrictions on tax on sale or purchase of goods

declared as goods of special importance and State Government can tax
such declared goods only subject to these restrictions [Article 286(3)].

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 :
Trade, commerce and intercourse throughout the territory of India shall
be free, subject to provisions of Articles 302 to 304 of Constitution. (as
stated below) [Article 301]

Restrictions on trade or commerce can be placed by Parliament in the

public interest. (Article 302)

No discrimination can be made between one State and another or give

preference to one State over another [Article 303(1)]. Such
discrimination or preference can be made only by Parliament by law to
deal with the situation arising from scarcity of goods [Article 303(2)]

State can impose tax on goods imported from other States or Union
Territories, but a State cannot discriminate between goods
manufactured in the State and goods brought from other States [Art.
304(1)].

State Legislature can impose reasonable restrictions on freedom of

trade and commerce within the state in public interest. However, such
bill cannot be introduced in State Legislature without previous sanction
of the President (proviso to Article 304).

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.
Charging section of CST

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.

Important words in charging section - (a) Levy is on sale of goods (i.e.

levy is not on purchases) (b) it is on sale as defined under section 2(g)
(c) sale should be of goods as defined in section 2(d) (d) there is no
levy on electrical energy, though electrical energy is ‘goods’. [section
6(1)] (e) sale should be in course of inter-state Trade or commerce as
defined in section 3.

Liability Subject to other provisions of Act - The levy is subject to

other provisions of Act, i.e. the liability is not absolute. e.g. section 8(1)
prescribes lower rate of taxes in certain cases, section 6(2) exempts
subsequent sales by transfer of documents during movement of goods
etc. Proviso to section 6(1) exempts sale of goods in the course of
exports. Thus, the levy is subject to these and other exemptions.

Meaning of ‘Inter State Sale’

Section 3 of CST Act defines Inter-State sale or purchase as follows : 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. Thus, inter-state sale can be as per section 3(a) or
section 3(b).

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.

Sale which ‘Occasions movement of goods’ - As per section 3(a), ‘Inter

State sale’ takes place if the sale occasions movement of goods from
one State to another. In CST v. Suresh Chand Jain - (1988) 70 STC 45
(SC), it was held that a sale can be said to be in the course of inter-state
only if two conditions concur viz. (i) sale of goods and (ii) a transport
of those goods from one State to another.

There are following essential ingredients of inter-State sale under this

sub-section:

Transaction must be a completed sale.

Location of buyer and seller is immaterial. Thus, even if buyer and
seller are within the same State, sale will be inter-state, if sale
occasions movement of goods from one State to another. e.g. the buyer
may have construction site in another State and may ask seller to
despatch goods directly to the site. Inter State sale by transfer of
documents is also possible even when buyer and seller are in same
State.

There should be an agreement to sale which contains a stipulation

(express or implied) regarding movement of goods from one State to
another. - Balabhgas Hulaschand v. State of Orissa (1976) 37 STC 207
(SC) = AIR 1976 SC 1016 = (1976) 2 SCC 44 = 1976 2 SCR 939.

It is immaterial whether a completed sale precedes the movement of

goods or follows the movement of goods or takes place while the goods
are in transit. What is important is that movement of goods and the sale
must be inseparably connected - CST, UP v. Bakhtawar Lal Kailash
Chand Arhti - (1992) 87 STC 196 = 1992 AIR SCW 2246 = AIR 1992
SC 1952 = JT 1992 (4) SC 388 (SC 3 member bench) [In Balabhgas
Hulaschand v. State of Orissa (1976) 37 STC 207 (SC) = AIR 1976 SC
1016 = (1976) 2 SCC 44 = 1976 2 SCR 939, it was held that concluded
sale should take place in a State which is different from the State from
which goods move. However, now the later judgment (i.e. 1992
judgment) prevails].

Even if goods move from one state to another in pursuance of

agreement to sale and the sale is completed in the State in which goods
are received, it will be an inter-State sale. - Balabhgas Hulaschand v.
State of Orissa 1976 2 SCR 939 = (1976) 37 STC 207 (SC) = AIR
1976 SC 1016 = (1976) 2 SCC 44. [However, this would be so only if
there is stipulation in the agreement regarding transfer of property in
goods].
There should be physical movement of goods from one State to
another. Such movement must be inextricably connected with sale. -
Balabhgas Hulaschand v. State of Orissa (1976) 37 STC 207 (SC) =
AIR 1976 SC 1016 = (176) 2 SCC 44 = 1976 2 SCR 939 * State of
Andhra Pradesh v. National Thermal Power Corporation (NTPC) 2002
AIR SCW 1956 = 127 STC 280 (SC 5 member bench).

The contract may not provide for movement of goods. It is enough if

such movement is result of covenant of sale or is incidental to the
contract. It is sufficient if the movement of goods is implicit in the
sale.- UOI v. K G Khosla and Co. (P.) Ltd. - (1979) 43 STC 457 (SC) =
AIR 1979 SC 1160 = (1979) 2 SCC 242 = (1979) 3 SCR 453. It is not
necessary that covenant regarding inter-State movement must be
specified in the contract itself. It is enough if the movement is in
pursuance of and incidental to the contract of sale - English Electric
Co. of India Ltd. v. Dy CTO - (1976) 38 STC 475 (SC) = AIR 1978 SC
19 = (1977) 1 SCR 631 - same view in Oil India Ltd. v. Superintendent
of Taxes - (1975) 35 STC 445 (SC) = AIR 1975 SC 887 = (1975) 3
SCR 797 (SC).

It is immaterial in which State the property (i.e. ownership) of goods

passes to the buyer. - Oil India Co. Ltd. v. Superintendent of Taxes
(1975) 3 SCR 797 (SC) = AIR 1975 SC 887 = (1975) 35 STC 445 (SC)
* English Electric Co. of India Ltd. v. Dy CTO - (1976) 38 STC 475
(SC) = (1977) 1 SCR 631 = AIR 1978 SC 19. Property may pass in
either State – Tata Iron and Steel Co. (TISCO) v. S R Sarkar - (1960)
11 STC 655 (SC) = AIR 1961 SC 65 = (1961) 1 SCR 379.

.
Movement of goods should be incident of sale and should be
necessitated by the contract of sale and this be inter-linked with the sale
of goods - Kelvinator of India Ltd. v. State of Haryana (1973) 32 STC
629 (SC). The movement or despatch of goods from one State to
another should be under a covenant or incident of contract of sale with
the buyer – Tata Iron and Steel Co. (TISCO) v. S R Sarkar - (1960) 11
STC 655 (SC) = (1961) 1 SCR 379 = AIR 1961 SC 65.

Mode of transport is immaterial. It may be aircraft, rail, post, motor

transport, angadia, ship or hand cart - State of Bombay v. United
Motors – AIR 1953 SC 252 = (1953) 4 STC 133 (SC)

Even if buyer takes delivery from the seller, it can be inter-State sale if
movement of goods to other State is a necessary part of transaction, e.g.
if cement is issued within the State to a buyer but as per allotment order
the buyer had to necessarily take the goods out of the State, it is an
Inter-State Sale. - Mohanlal Hargovandas v. State of MP - (1955) 6
STC 687 (SC).

Situs of a sale or purchase is wholly irrelevant as regards its inter-state

character - Bengal Immunity Co. Ltd. v State of Bihar AIR 1955 SC
661 = (1955) 2 SCR 603 = (1955) 6 STC 446 (SC). Situs of sale is
immaterial.

Sale of machinery is inter-state even if it is erected and commissioned

in another State. In Inter State sale, situs of sale is irrelevant. – State of
Andhra Pradesh v. Usha Breco (2001) 121 STC 621 (AP HC DB).

Sale should conclude in different State. - State of Andhra Pradesh v.

National Thermal Power Corporation (NTPC) 2002 AIR SCW 1956 =
127 STC 280 (SC 5 member bench). [Meaning that if sale concludes in
the same State, subsequent movement will be on behalf of purchaser
alone and will not be inter State sale].

Temporary movement through another State is not Inter State sale -

Explanation 2 to section 3 states that if movement of goods starts from
one State and ends in the same State, it will not be deemed to be
movement of goods during ‘inter State sale’; even if during transit
goods pass through other State.

Stock Transfer/Branch Transfer

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.

This is called ‘stock transfer’ or ‘branch transfer’. Here, movement of

goods takes place from one State to another, but it is not an inter State
sales.
Stock transfer for works contract – Stock transfer for works contract in
different State is permissible and in such case, there will be no sales tax
liability in State from which goods moved. – State of AP v.
Bhooratnam (2000) 117 STC 371 (AP HC DB). [Now tax will be
payable after 11-5-2002].

No stock transfer of tailor made goods - As explained later, stock

transfer envisages transfer of standard products, which are sold off the
shelf. If buyer is known or identified before removal of goods from
factory, it is not really a 'stock transfer'. In short, stock transfer of tailor
made goods or custom built products is a bogus stock transfer, shown
just to avoid CST.

Consignment Agent - Goods are despatched to Consignment Agent by

Principal. Goods remain property of the Principal. Agent sells goods on
behalf of Principal. Consignment Agent collects sales proceeds and
remits the same to Principal. The Consignment Agent can recover his
commission, godown charges, insurance charges etc. Despatch to
Consignment is not a sale as property in goods is not transferred and
hence no CST is payable.

Branch Transfer - Here, the Principal has his own branch/depot in

another State where goods are sent. These are stocked at depot in the
branch and sold. There is no transfer of property when goods are
despatched to branch and hence there is no liability of CST. This is
often called ‘stock transfer’ or ‘branch transfer’ or ‘depot transfer’.

When Stock Transfer is treated as Inter-State sale - Goods are

despatched to branch/consignment agent in another State and then these
are sold from the branch, depot or place of consignment of agent.
However, if the movement of goods is occasioned on account of sale,
the movement will be treated as inter-State Sale. One illustration will
make the distinction clear.

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, 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].

Authority to resolve disputes in course of inter state sale – To

overcome the difficulties as above, ‘Central Sales Tax Appellate
Authority’ has been constituted u/s 19 of CST Act. [Sections 19 to 26
were incorporated in CST Act w.e.f. 11.9.2001]. The provisions are
discussed in a later chapter. [The CST Appellate Authority has not been
constituted till May, 2003].
Burden of proof in case of consignment despatches - Since
consignment despatches are usually resorted to avoid liability of CST,
section 6A of CST Act provides that when a dealer claims that transfer
of goods outside State is not a sale (i.e. it is branch
transfer/consignment sale); he has to prove that the inter-State transfer
of goods is not a sale. (In legal terminology; this means that burden of
proof is on dealer to establish that the inter-State transfer of goods is
not a sale). Sales tax authorities do not have to prove that the sale is
‘Inter State’. The authorities can presume the same unless contrary is
proved by the dealer. Dealer will have to prove that it is not an Inter-
State sale. For this purpose, he must produce a declaration from
agent/branch from other State in prescribed form ‘F’. [Till 11-5-2002,
production of ‘F’ form was not mandatory and other proof could be
produced to prove stock transfer].

Sale within the State

Article 286(1) of Constitution of India specifies that a State shall not

impose tax on sale or purchase of goods where such sale or purchase
takes place (a) outside the State or (b) in the course of imports of goods
into, or export of the goods out of territory of India. Article 286(2) of
Constitution states that Parliament may by law formulate the principles
for determining when a sale or purchase of goods takes place in any of
the ways mentioned above i.e. outside the State or in the course of
import/export. In absence of such powers, each State might have had its
own definition of ‘sale outside the State’ or ‘sale during import/export’,
which could have caused confusion or double taxation. In exercise of
these powers conferred by Constitution, Parliament introduced section
4 of CST Act to define what is ‘sale outside a State’ and section 5 of
CST Act to define what is ‘sale during course of import/export’.
What is ‘Sale outside a State’ - CST Act defines 'sale outside a State'.
[This definition is under powers conferred vide Article 286(2) of
Constitution, as explained above]. - - This definition is important as
'sale outside a State' cannot be taxed by State Government.

Section 4(1) defines ‘Sale Outside a State’ in a round about way. The
section states that ‘subject to provisions of section 3, when a sale or
purchase is inside a State as per section 4(2), such sale or purchase will
be outside all other States’. Thus, it is necessary to understand ‘what is
sale inside a State’.

Sale inside a State - Section 4(2) states that 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 un-ascertained 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 to this section states that
where there is a single contract of sale or purchase of goods situated at
more than one place, provisions of section 4(2) shall apply as if there
were separate contracts at each of such places.

Inter State sale is not covered - Definition of ‘sale inside State’ is

subject to section 3 of CST Act, i.e. it is subject to condition that the
sale should not be ‘Inter State Sale’. This is obvious because tax on
Inter State sale cannot be imposed by State Government as per
Constitution. Thus, if the sale is ‘Inter State’ it cannot be inside the
State, even if by aforesaid definition, it could be called as Intra State
(inside the State) sale.
In Gannon Dunkerley v. State of Rajasthan (1993) 66 Taxman 229 =
(1993) 1 SCC 364 = (1993) 88 STC 204 (SC - 5 member bench), it was
observed, ‘Location of situs of the sale in sales tax legislation of the
State would have no bearing on the chargeability of tax on sales in the
course of inter-State sale or commerce since they fall outside the
legislative competence of the State Legislatures and will have to be
excluded while assessing the tax liability under the State legislation.
The same is true of sales which are outside the State and sales in the
course of import and export. The question whether a sale is an outside
sale or sale inside the State or whether it is a sale in the course of
import or export will have to be determined in accordance with the
principles contained in sections 4 and 5 of CST Act and the State
Legislature while enacting the sales tax legislation for the State cannot
make a departure from these principles.

'Inter State sale' or 'sale during export' is not 'intra state sale' - If sale is
'inter state sale' or 'sale during export', it cannot be termed as 'intra state
sale'. - State of Karnataka v. B M Ashraf 1997(6) SCALE 425 (SC) =
1997 AIR SCW 4011 = (1997) 107 STC 571 (SC) - reversing the
decision in B M Ashraf v. State of Karnataka - (1991) 84 STC 394 (Kar
HC DB). Thus, such sale has no 'situs'. [For further discussions on this
topic, see discussions on 'Situs of inter state sale'].

Sale to ship which is within territorial waters is ‘local sale’ – One

interesting question, which has not yet been finally resolved, is whether
the territorial waters belong to respective State Government or to
Central Government. If the territorial waters belong to State
Government, sale from coastal town to a ship in territorial waters will
be ‘sale within the State’. If territorial waters belong to Union, the sale
will have to be held as ‘inter State sale’.
High Courts have taken a consistent view that sale within territorial
waters is ‘Sale within the State’. In other words, the territorial waters
belong to respective coastal State Government. This view seems to be a
practical view also, as considering these areas under Union
Government will cause tremendous administrative problems like
police, maintenance of law and order, control over fishing, taxation etc.
In fact, the territorial waters is not declared as ‘Union Territory’ and
hence really cannot be under Union Government as per Article 1(3) of
Constitution of India.

Person liable to pay CST

Section 8(1) specifies that every dealer who in the course of inter State
trade or commerce sales the goods shall be liable to pay tax under the
Act. Thus, liability is on the dealer who 'sells' the goods.

Dealer - Section 2(b) defines that “dealer” means any person who
carries on (whether regularly or otherwise) the business of buying,
selling, supplying or distribution of goods, directly or indirectly, for
cash, or for deferred payment, or for valuable consideration, and
includes (a) a local authority, a body corporate, a company, any
cooperative society, club, firm, Hindu undivided family or other
association of persons which carries on such business (b) a factor,
broker, commission agent, del credere agent, or any other mercantile
agent, by whatever name called, and whether the same description as
herein before mentioned or not, who carries on the business of buying,
selling, supplying or distribution, goods belonging to any principal
whether disclosed or not and (c) an auctioneer who carries on the
business of selling or auctioning goods belonging to any principal,
whether disclosed or not and whether the offer of the intending
purchaser is accepted by him or by the principal or a nominee of
principal.
There are two explanations to the definition of ‘Dealer’. Explanation 1
states that a mercantile agent, agent handling goods, agent for
collection of payment and every branch or officer in a State of a firm of
Company which is outside the State is also a ‘dealer’. Explanation 2
states that ‘Government’ is also a dealer except in case of sale of old
and discarded stores or waste.

Government as dealer - Explanation 2 to section 2(b) clarifies that

Government, which, whether or not in the course of business; buys,
sells, supplies or distributes; goods, directly or otherwise, for cash or
for deferred payment or for commission, remuneration or other
valuable consideration shall be a dealer.

The exception is sale, supply or distribution of un-serviceable or old

stores or old materials or waste products or obsolete or discarded
machinery or parts or accessories. This exception is made as all
Government departments have to make such sale of old goods.
However, this exception is only to Government and not for private
enterprises. Public Sector Undertakings (PSU i.e. Government
Companies) are not ‘Government’ and hence are not exempted under
this clause.

Government can be dealer if specifically included in the definition of

‘dealer’ – In State of Uttar Pradesh v. UOI 2003(130) STC 1 (SC
judgment dated 4-2-2003), the definition of dealer was inclusive
definition and it read ‘Dealer includes Government which (whether in
the course of business or otherwise) undertakes buying, selling,
supplying or distribution of goods. - - In view of this definition, it was
held that Department of Telecommunications (DOT) which is
supplying telephone is a ‘dealer’. ‘Carrying on business’ is not
required. [in view of specific definition]
Ancillary, incidental and casual business is also covered - It has been
held that any activity which is incidental or ancillary to the main
business also constitutes business and thereby the person engaged in
such business becomes a dealer - Member, Board of Revenue v.
Controller of Stores AIR 1989 SC 1468 = (1989) 74 STC 5 (SC). In
State of Orissa v. Orissa Road Transport Co. Ltd. 1997 AIR SCW 3489
= 107 STC 204 = (1997) 5 SCALE 589 = AIR 1997 SC 3409 (SC 3
member), it was held that occasional sale of disposable un-serviceable
spare parts at yearly interval by a transport company would make the
organisation 'dealer'. [Decision on basis of definition under Orissa Act,
but relevant for CST].

Club as a dealer – A members’ club whether incorporated or

unincorporated is a ‘dealer’ and will require registration. –
Cosmopolitan Club v. State of Tamil Nadu 1999(115) STC 183
(TNTST) * All India Skin & Hides Tanners v. CTO (1999( 115) STC
388 (TNTST). [Article 366(29A)(e) of Constitution of India
specifically states that supply of goods by unincorporated body to its
members will be ‘sale’].

Collection of tax only by registered dealer - A 'register dealer' means a

dealer who is registered under CST Act. [section 2(f)]. Section 9A
specifies that only a registered dealer can collect taxes in respect of
sales made by him in Inter State Trade. He can collect taxes only
according to CST Act and rules. Further, a person who is not a
registered dealer cannot collect any amount representing as CST.
Goods of special importance

There are restrictions on imposition of sales tax on declared goods.

Article 286(3)(a) of Constitution of India authorises Parliament to

declare some goods as of ‘special importance’ and to impose
restrictions and conditions in regard to power of States in regard to
levy, rates and other incidence of tax on such goods. Parliament can
restrict powers of State Government to tax such ‘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 and section 15 specifies restrictions on power of States to tax
such goods.

Goods of special importance - Section 14 gives list of ‘goods of special

importance’ called ‘declared goods’. Important among them are Cereals
i.e. paddy, rice, wheat, bajra, jowar, barley etc.

Coal and coke in all forms excluding charcoal

Cotton in un-manufactured form but not cotton waste

Cotton fabrics, cotton yarn

Crude oil

Hides and skins

Iron and Steel i.e. pig iron, sponge iron, iron scrap, steel ingots, billets,
steel bars, steel structurals, sheets, plates, discs, rings, tool steel, tubes,
tin plates, steel wheels, wire rods; defectives of above etc.
Oil-seeds i.e. groundnut, til, cotton seed, linseed, castor, coconut,
sunflower, mahua, kokum, sal etc.

Pulses i.e. gram, tur, moong, masur, urad etc.

Man-made fabrics - fabrics of man-made filament yarn i.e. artificial

textile materials, polyester filament yarn, staple fibres, polyester staple
fibre, tyre cord fabric, impregnated textile fabrics etc.

Sugar and Khandsari Sugar

Woven fabrics of wool

Aviation Turbine Fuel sold to a turbo-prop aircraft

Un-manufactured tobacco, cigars, cigarettes, biris, chewing tobacco,

snuff etc. were 'declared goods' upto 31-3-2007. Now, they are not
'declared goods' w.e.f. 1-4-2007.

Restrictions on State taxation on declared goods

Section 15 of CST Act places following restrictions and conditions in

regard to powers of State Governments to tax declared goods inside the
State.

Tax on declared goods not to exceed 4% - Tax on declared goods

within a State cannot exceed 4%. [section 15(a)].

As per provision in section 15(1) upto 11-5-2002, tax on declared

goods could be imposed only at one stage. Now, this restriction has
been removed w.e.f. 11th May 2002, as such restriction was against
principles of VAT.
Normally, such tax was imposed by States at first stage for convenience
and control. After that, subsequent sales within State were exempt from
tax. Now, there is no such restriction on imposing local/Central sales
tax on subsequent sale.

However, such tax will not be automatic. Each State will have to
suitably amend their sales tax laws to impose the tax on re-sale.

Reimbursement of local tax if declared goods sold Inter-State - If any

declared goods, on which Intra-State sales tax (i.e. State sales tax) is
paid; is sold in Inter-State sale; then the tax levied on sale within the
State should be reimbursed to the person making such Inter-State sale
[section 15(b)]. However, (a) the Inter-State sale of goods must be in
same form. (b) If Inter-State sale of the goods are exempt from tax,
refund of tax paid on Intra-State sale is not available. (c) The word used
is ‘reimbursement’. Thus, the tax on local sale must have been paid.

Goods must be sold in same form to obtain reimbursement - Declared

goods purchased must be sold in same form i.e. identical goods must be
sold. Identity of goods must not be lost e.g. (a) Mung, chana and urad
converted into dal is same commodity. (b) Round timber logs are
different from sized timber (c) Dried coconuts and watery coconuts are
different commodities. (d) Condensed milk is different from ‘milk’. (e)
Oil seeds and oil extracted from these seeds are different commodities.
(f) Ice is different commodity than water. Thus, if goods sold after
processing are different commodity, reimbursement of local sales tax is
not available.

Some articles which are held as ‘declared goods’ - Some items which
are held as ‘declared goods’ are as follows. Thus, sales tax cannot be
levied at rates higher than 4%.
Cast Iron castings are ‘declared goods’ - In case of Pyare Lal
Malhotra v. State of Tamilnadu (1976) 3 SCR 168 (SC) = (1976) 37
STC 319 (SC) = 1976 UPTC 282 = AIR 1976 SC 800 - reproduced in
1983 (13) ELT 1582 (SC) - a 4 member bench decision, Supreme Court
held that when separate commercial commodity comes into existence,
they become separately taxable goods. Central Government, vide its
letter dated 28th Feb., 1977 had clarified that ‘Cast Iron’ includes ‘Cast
Iron Castings’. One entry in section 14 reads ‘pig iron and cast iron
including ingot moulds, bottom plates, iron scrap, cast iron scrap,
runner scrap and iron skull scrap.’ In view of this entry and clarification
of Central Government, manufacture of Cast Iron Castings from pig
iron was not treated as ‘manufacture’ as both fall under same heading
and no tax was levied. This circular has been upheld in Vasantham
Foundry v. UOI - AIR 1995 SC 2400 = (1995) 99 STC 87 (SC) = 1995
AIR SCW 3556 = 94 ELT 32 = (1995) 5 SCC 289 - 3 member bench.
In this case, it was held that cast iron castings in its basic rough form is
‘Cast Iron’ and hence is ‘declared goods’
.

GI pipes are declared goods - Steel tubes are galvanised to make the
pipe corrosion resistant. After galvanising, it is called ‘Galvanised iron
pipe’. Since galvanising does not change the structure and function,
making GI pipe from Steel tubes does not bring a new commodity into
existence and hence GI pipes are ‘declared goods’ - Gujarat Steel
Tubes Ltd. v. State of Kerala (1989) 2 CLA 100 (SC) = (1989) 74 STC
176 (SC) = (1989) 2 JT 474 (SC).

Corrugated sheets - Corrugated iron sheets even after corrugation are

still ‘iron and steel’. – State of Gujarat v. Shah Veljibhai Motichand
(1969) 23 STC 288 (Guj HC) – followed in Gujarat Small Industries
Corp v. CST (1999) 116 STC 193 (Guj HC DB).

HR and CR steel strips - In Jindal (India) Ltd. v. Dy CCT (2000) 117

STC 426 (WBTT), it was held that both HR (Hot Rolled) Steel strips
and CR (Cold Rolled) steel strips are one for purposes of ‘declared
goods’ under CST Act. [The decision was in respect of dispute over
incentive scheme].

Sewing thread is declared goods - In State of Tamilnadu v. R V

Krishniah - (1994) 92 STC 262 (Mad HC DB), it was held that ‘sewing
thread’ and ‘cotton yarn’ are ‘same commodities’ and hence is liable
only to single point tax - similar decision of Orissa High Court - (1982)
51 STC 410 and 411 - contrary decisions in (1976) 37 STC 227 (Ker
HC), (1976) 38 STC 11 (All HC) and (1981) 48 STC 460 (Ker HC).

Special provisions about paddy and pulses - Special provisions in

respect of paddy and pulses are as follows.

Set off of tax on paddy - If paddy is taxed within State and rice (which
is produced from paddy) is also taxed, tax paid on paddy should be
given set off while levying tax on rice e.g. if tax of Rs. 1,000 is paid on
paddy and tax payable on rice produced from the paddy come to Rs.
1,500, then tax of only Rs. 500 will be actually payable on rice [section
15(c)].

No tax on conversion of pulses - Each of the pulses whether whole or

separated and whether with or without husk, shall be treated as a single
commodity for purpose of levy of tax under State tax law i.e. if tax is
paid on raw pulses, no further tax is payable after it is processed
[section 15(d)].

Purchase of paddy and export of rice - If paddy is purchased on

payment of sales tax and rice procured out of such paddy is exported,
the paddy and rice will be treated as ‘same goods’ for purpose of
section 5(3) of CST Act. [section 15(ca) of CST Act.] Thus, paddy can
be purchased without payment of sales tax, if rice made from such
paddy is exported. As per normal provisions, the procurement of paddy
should be specifically for export purposes. In Veerumal Monga v. State
of Haryana (2001) 123 STC 158 (P&H HC DB), rice miller purchased
paddy and sold rice to the exporter. It was held that in such case, only
sale of rice to exporter is penultimate sale and is exempt. However,
purchase of paddy by millers will not be exempt. – same view in
Monga Rice Mill v. State of Haryana 2002(125) STC 304 (P&H HC
DB). Thus, to get benefit of this provision, the exporter should himself
procure paddy and then get job work done to convert into rice. He
should not purchase rice directly from miller.

Sales Tax rates applicable for sale of declared goods - State

Governments cannot charge sales tax for sale within the State at the
rate which is more than 4%. As per section 8(2) of CST Act, if declared
goods are sold to unregistered dealer, the sales tax rate is equal to Vat
rate as applicable within the State. [Till 31-3-2007, it was twice the rate
applicable in case of local sales]. It may be remembered that State
cannot levy tax on declared goods at rates over 4%.

Source of Procedures under CST Act

Procedures are important for any taxation law. Often valuable tax
concessions are lost or penalties are imposed only because prescribed
procedures are not followed.

Procedures for CST Act are covered as follows :

Rules framed by Central Government

Rules framed by State Governments under CST Act

Rules as prescribed in State Sales Tax Laws of each State.

Central Sales Tax Act is a peculiar Act - though the tax is levied as
Central Sales Tax, it is administered by respective State Governments.
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 State Machinery acts as machinery of Central Government for
administration of CST Act. In Khemka & Co. v. State of Maharashtra
AIR 1975 SC 1549 = (1975) 3 SCR 753 = 1975(2) SCC 22, it was held
that substantive laws of Central Act must be applied. State Act is
applicable for procedures alone.

CST Act and Rules framed by Central Government make provisions for
very few procedures. In respect of other procedures and provisions,
provisions as applicable in the State in respect of the General Sales Tax
Law of the State are also applicable in respect of Central Sales Tax in
respect of dealers registered in that State. State Governments are also
authorised to frame rules under CST Act.

Some Provisions of State Laws applicable to CST - Section 9(2) of

CST Act provides that all provisions of 'General Sales Tax Law' of
each State, except those provided in CST Act and Rules itself, in
respect of the following shall also apply to persons liable under Central
Sales Tax Act in that State :

Periodic Returns

Assessment, provisional assessment and reassessment

Advance payment of taxes

Registration of transferee and imposition of tax liability on transferee

Recovery of tax from third parties

Appeals, review, revision and references [except in case of appeals u/s

6A or 9]
Refunds, rebate, penalties and interest

Compounding of offences

Treatment of documents furnished by dealer as confidential.

Offences and penalties (except those covered in CST Act itself)

State authorised to administer and collect Tax - CST Act is

administered by States. The State authorised to collect tax is authorised
to administer the tax.

Registration under CST Act

CST Act makes provisions for registration of dealer. Registration

brings many advantages e.g. the dealer can issue ‘C’ form and purchase
goods at concessional rate.

Compulsory Registration under CST - Section 2(f) states that

'registered dealer' means a dealer who is registered under section 7 of
CST Act. As per section 7(1), every dealer liable to pay Central Sales
Tax has to register himself with sales tax authority. As per section 6(1)
of CST Act, every dealer effecting sale in the course of Inter State trade
or commerce is liable to pay CST. Thus, only those dealers who
‘effect’ inter state sales are required to register under CST Act. ‘Effect’
means ‘bring about, accomplish, cause to exist or occur’ [Concise
Oxford Dictionary 1994 edition]. Thus, intermediaries like agents,
transporters etc. who only facilitate sales are not required to be
registered, as they do not ‘effect’ sales.

Central Government has authorised State Governments to prescribe

State Sales Tax authorities authorised for the purpose of registration.
Thus, registration under CST Act is done by State Sales Tax authorities
who are authorised for the purpose.

Voluntary Registration - A dealer registered with State sales tax

authorities may voluntarily apply for registration under CST Act even
if he is not liable to pay Central Sales Tax [section 7(2) of CST Act].
He is entitled to apply for registration even if goods sold or purchased
by him are exempt under State sales tax law. This application for
registration can be made any time. This provision is mainly useful
when the dealer makes purchases in Inter State but all his sales are
within the State. Thus, he is not liable for payment of any CST.
However, he can make purchases in Inter State at concessional rate
only if he is registered. Hence, he can register even if he is not liable to
pay any CST.

Application for registration - Application for registration should be

made in prescribed form ‘A’ as per CST (Registration and Turnover)
Rules; within 30 days from the date when dealer becomes liable to
CST. Application fee of Rs. 25 is payable (by way of court fee stamps).
Application has to be signed by (a) proprietor of business (b) one of the
partners in case of business owned by partnership firm (c) Karta or
Manager of HUF (d) director or principal officer of Company (e)
principal officer in case of association of individuals or (f) officer
authorised by Government in case of Government.

Additional Places of business - If a dealer has places of business in

different States, he has to obtain separate registration in each State.
However, if he has more than one places of business within the same
State, he has to get only one registration with additional places of
business endorsed on the Certificate. Definition of 'place of business'
has already been explained in earlier chapter.
Security from dealer under CST Act - As per section 7(2A) of CST
Act, the Registering authority can ask for proper security from the
applicant for (a) realisation of taxes due and (b) proper custody and use
of forms (like C, E-I/E-II, F and H) which are supplied by Sales Tax
authorities for use by the dealer [section 7(2A)]. Additional security
can also be demanded from a dealer who is already registered [section
7(3A)]. Security cannot be demanded without granting opportunity of
personal hearing. The security should not be more than estimated tax
liability for the current year i.e. year in which security/additional
security is demanded [section 7(3BB)]. Security may be in form of
surety, execution of a bond, by deposit of Government securities or by
way of cash deposit. Demanding security is not essential. Moreover,
security demanded should be reasonable and for good and sufficient
reasons.

The security can be forfeited, after giving personal hearing, if the CST
due is not paid by dealer or the blank sales tax forms issued to him are
misused [section 7(3D)]. After such forfeiture, additional security has
to be furnished. If such additional security is not furnished, sales tax
authority may not issue further blank sales tax forms.

The security can be refunded, partly or wholly, if, sales tax authorities
are of opinion that such security is not required.

Order demanding security or additional security or not refunding

security is appealable. Appeal should be filed within 30 days. The
appellate authority can condone the delay in filing of appeal, if
sufficient cause is shown [section 7(3H)]. There is no further appeal
against the order of Appellate Authority and the order passed by
Appellate Authority is final [section 7(3J) of CST Act].
Other documents required at time of registration - Other documents
required at the time of registration vary from State to State. Normally,
following are asked for - (a) Particulars of Directors/ partners (b)
Copies of articles of association, memorandum in case of company and
partnership deed if applicant is a firm (c) Copies of rent agreements (d)
Nominations as Manager (e) List of places of business, godown (f)
Details of machinery (g) Details of bankers (h) Photographs of
directors / partners.

Certificate of Registration under CST - The registering authority will

ensure that application is in conformity with provisions of CST Act. He
can make necessary enquiries e.g. (a) particulars given are correct (b)
Materials requested for registration are eligible for inclusion and the
goods are in fact needed for the business. After he is satisfied and after
obtaining required security, the dealer will be issued a Certificate of
Registration in prescribed form ‘B’. A copy of the same will be issued
for every additional place of business in the State. This certificate
should be kept at principal place of business and a copy of the
certificate should be kept at each additional place of business in the
State.

Amendment of Certificate - The certificate can be amended e.g. change

of name, change of business, change of class of goods in which he
carries business, change/addition of place of business, warehouses etc.
This amendment can be made on application from dealer or by sales tax
authorities themselves after giving notice to dealer. In Orient Paper
Mills v. CST - (1969) 23 STC 308 (MP HC), it was held that the
amendment will be effective from date of application for amendment -
quoted with approval in Larsen and Toubro Ltd. v. CCT - (1995) 97
STC 102 (Pat HC FB). [In view of SC judgments cited above in respect
of effective date of registration, these decisions appear to be correct].
All items of purchase and sale must be included in Registration - The
‘Registration certificate’ is indeed very important. As per section 10(c),
false representation when purchasing any goods that the class of goods
are covered by the registration certificate, is an offence. As per section
10(a), furnishing a false certificate is an offence. Thus, while issuing
‘C’ form or other forms under the Act, it must be ensured that goods
are covered in the Registration Certificate. This is particularly so
because there is no provision to amend the Registration Certificate with
retrospective effect.

Cancellation of CST Registration - Registration can be cancelled either

on request of dealer or suo motu by sales tax authorities.

Appeals to Appellate Authority

Assessment of Central Sales Tax is done by sales tax officer who also
does assessment of local sales tax. Normally, appeal against assessing
authority lies with State sales tax authorities (like Appellate
Commissioner or Tribunal etc). However, in case of decision of
assessing authority u/s 6A read with 9 of CST Act, the appeal will lie
with ‘Central Sales Tax Appellate Authority’, if the issue relates to
dispute concerning the sale of goods effected in inter-state sale. In other
matters, the appeal will lie with State Appellate authorities as per local
sales tax law.

These provisions have been made effective from 17-3-2005.

Section 6A states that if a dealer claims a particular transaction as stock

transfer and not a sale, the burden of proof will be on him to prove that
it was not a sale. Section 9 provides that sales tax will be collected in
the State from which the movement of goods commenced, by State
Government of that State. In case of subsequent sale by transfer of
documents, the sales tax is exempt if it is a E-I – E-II transaction u/s
6(2). However, if such sale is to unregistered dealer, the transaction
will not be supported by E-I E-II forms. In such case, fresh tax becomes
payable in the State in which the buyer could have obtained the sales
tax form.

Formation of Appellate Authority – A separate ‘Central Sales Tax

Appellate Authority’ will be constituted by Central Government. The
Authority will consist of Chairman, Officers of Legal Service of
Central government of level of Additional Secretary and officer of
State Government of rank of Secretary who is expert in sales tax
matters / officer of Central Government of rank of Additional Secretary
who is expert in sales tax matters. Central Government will provide
administrative staff to the Authority. [section 19 of CST Act]. The
authority will regulate its own procedures. [section 23 of CST Act].

Till such separate authority is formed, ‘Authority for Advance Ruling’

formed u/s 245-O of Income Tax Act will function as ‘Appellate
Authority’, by making suitable changes in the present structure of the
‘Authority for Advance ruling’. After constitution of Appellate
Authority’ u/s 19 of CST Act, the appeals will be transferred to that
authority. [section 24]. The Authority for Advance Ruling has been
constituted as CST Appellate Authority w.e.f. 17-3-2005.

Matters appealable to the authority – Appeals against the decision of

assessing officer u/s 6A read with section 9 of CST Act will lie with
‘Central Sales Tax Appellate Authority’, if the issue relates to dispute
concerning the sale of goods effected in inter-state sale. In such case,
appeal will lie with the CST Appellate Authority and not with
Appellate Authority of State Government. [section 20(1)]. Dealer
whose claim u/s 6A or 9 is rejected by assessing authority will file
appeal to CST Appellate Authority, if the dispute relates to sale of
goods effected in inter-state sale. Appeal should be filed within 45 days
from date on which order is served on him. Further extension of 15
days can be granted by Appellate Authority. [section 20(2)]. Appeal
must be filed in quadruplicate and accompanied by a fee of Rs 5,000/-.

Procedure for hearing – On receipt of appeal, a copy of appeal will be

forwarded to assessing authority as well as State Governments
concerned. Appellate Authority will call upon assessing authority and
State Government/s to furnish relevant records. The records will be
returned to assessing authority/State Government as soon as possible.
[section 21(1)]. Authority will hear the matter, examine the matter and
either accept or reject the appeal. Before rejecting appeal, opportunity
of hearing will be given to appellant or his authorised representative
and also to State Government concerned. [section 21(3)]. Appeal
should be normally decided within 6 months. [section 21(4)]. Copy of
order will be sent to appellant and assessing authority. [section 21(5)].

Authority can order refund by one State Government – It may happen

that sales tax was paid to one State Government while in fact, it was
payable to another State Government. In such case, the Appellate
Authority, which is an All India Authority, can order one State
Government to order payment of taxes to another State Government.
Section 26 provides that order of CST Appellate Authority will be
binding on assessing authorities and other authorities under State sales
tax laws. - - There is no provision for appeal against the order of CST
Appellate Authority.

Offences under the Act

Central Sales Tax Act provides for penalties and punishments in

respect of certain offences. In respect of offences not provided in the
CST Act, provisions of General Sales Tax Law of the State where the
dealer is carrying on business are applicable.
CST Act envisages three types of punishments (a) Imprisonment and
fine which can only be imposed by Court of Law (b) Compounding of
offences by Sales Tax authorities (c) Penalty in certain cases which can
be imposed by Sales Tax authorities.

Section 10 of CST Act provides that punishment upto six months of

simple imprisonment or with fine or both can be imposed for following
offences under CST Act.

Knowingly giving declaration in form C, E-I, E-II, F or H which he

knows, or has reason to believe, to be false

Not registering under CST Act when required to be registered

False representation by a registered dealer that the goods being

purchased are covered under his Certificate of Registration for
concessional rate

Falsely representing that he is a registered dealer, though he is not.

Misusing or using for different purpose the goods obtained under C

form or H form prescribed for SEZ unit, at concessional rate

Collecting any amount representing as Central Sales Tax by an

unregistered dealer or by a registered dealer in contravention of
provisions of Act.

Provisions regarding offences in ‘General Sales Tax Law’ (excepting

those enumerated above) are applicable in respect of offences
committed by dealers in that State.
Punishment by Court of law - Punishment of imprisonment and/or
fine can be imposed only by Court of law. If the offence is a continuing
offence, fine of Rs. 50 per day till offence continues can be imposed.
The person has to be prosecuted in a criminal case. Such prosecution
can be launched only with previous sanction of State Government or its
authorised officer. The offences are cognizable and bailable.

Compounding of offences - Some offences can be compounded by

Sales Tax Authorities. Compounding means the dealer agreeing to pay
a fine and sales tax authorities agree to drop further action in respect of
the offence. - - This is termed as ‘penalty in lieu of prosecution’ under
CST Act.

Penalty in lieu of Prosecution - Section 10A of CST Act authorises

imposition of penalty in lieu of punishment in respect of offences
regarding (a) obtaining goods not included in registration certificate (b)
purchasing goods representing that he is registered dealer, though he is
not (c) using goods for purposes different than the purposes for which
purchased. (Other offences can be compounded by Sales Tax
authorities, if provision exists in State Sales Tax Law). The penalty can
be upto one and half time the tax which would have been payable. The
penalty can be imposed by Sales Tax Authority having jurisdiction over
the dealer’s place of business. Once penalty is imposed, prosecution for
same offence shall not be instituted. The penalty is collected by Union
of India in the State in which the dealer is registered or if he is not
registered - in which he should have got himself registered.

Offences cognizable and bailable - The offences under CST Act are
cognizable and bailable. [section 11(2)]. However, Court can take
cognizance of offence under CST Act only with previous sanction of
State Government or its authorised officer. The offence can be tried
only in court of presidency magistrate of a magistrate of first class or
court above that. [section 11(1)]
Punishment for other offences - Besides above, State laws provide for
other offences like late payment or non-payment of tax, false
declaration of turnover, non-filing or late filing of returns etc. These
provisions are also applicable in respect of dealers in that State who
make inter State sale [section 9(2A) of CST Act].

No limitation for launching prosecution - As per Economic Offences

(Inapplicability of Limitation) Act, 1974; there is no limitation for
launching prosecution in respect of offenses under CST Act and any
other offense that may be tried along with offense under Central Sales
Tax Act, 1956.

Other provisions

Liability of company in liquidation - As per section 17(1), if a

liquidator or receiver is appointed for a Company, he should inform
sales tax authorities within 30 days of the appointment. The appropriate
authority [assessing officer i.e. sales tax officer - section 16(a)] will
inform him within three months the amount of tax due from company
which is in liquidation. [section 17(2)]. Liquidator cannot sell assets of
company before setting aside amount of due as informed by sales tax
authorities - unless such transfer or sale is by order of Court. [section
17(3)]. Otherwise, liquidator is personally liable. [section 17(4)].

Priority of State dues - Government dues most of the times have

priority over other dues in case of liquidation. The priority is subject to
provisions of Companies Act.

Liability of directors of Private limited Company in case of liquidation

- Section 18 provides that if a private limited company is being wound
up, liability of directors of such private limited company is personal if
amount cannot be recovered in liquidation i.e. the tax due can be
recovered from his personal property. He can save the liability only if
he proves that non-payment of tax cannot be attributed to any gross
neglect, misfeasance or breach of duty on his part in relation to affairs
of the company.

Recovery of CST – Provision of State Sales Tax laws apply for

recovery of CST also. Many of State Sales Tax Laws provide that sales
tax dues will have priority over any tax due and a charge is created. In
the opinion of author, such a provision, even if contained in local sales
tax law, cannot apply to CST. The reason is that only procedural
provisions of local sales tax law can apply and not substantive
provisions.