Sales tax reduced to 2 per cent from April 1, 2008.

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

When is Sales Tax payable?

Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state Trade or commerce or, outside a State or, in the course of import into or, export from India .

What is Inter-state sale?

According to S3, a sale or purchase shall be deemed to take place in the course of interstate trade or commerce in the following cases:

• when the sale or purchase occasions the movement of goods from one State to another;
• when the sale is effected by a transfer of documents of title to the goods during their movement from one State to another.

Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods for the purpose of clause (b) above, is deemed to start at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another.

To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale.

There can be an interstate sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, the goods are sold while they are in transit by transfer of documents.

To whom is Sales Tax payable? By whom is it payable?

Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. It is to be paid by every dealer on the sale of any goods effected by him in the course of inter-state trade or commerce, notwithstanding that no liability to tax on the sale of goods arises under the tax laws of the appropriate state.

What are the possible offences, which may be committed, that are liable to be penalized? What are the penalties for such offences?

The offences that may be committed and, the penalties, prescribed for can be summarised as under. Offences, under section10, are punishable with simple imprisonment (up to 6months) with or without fine.

1. Giving false declaration in Form C, E-I, E-II, F or H, which he knows or has reason to believe it to be false.
2. Not getting registered under the CST Act, when required to be registered or not complying with provisions relating to security.
3. False representation by a registered dealer that the goods, purchased are covered under his certificate of registration for a concessional rate.
4. Falsely representing that he is a registered dealer, though he is not.
5. Misusing or using for different purpose, the goods, obtained under C form at a concessional rate.
6. Having possession of form C, which is not obtained as per provisions of the CST Act.
7. Collecting any amount, representing as sales tax, by an unregistered dealer or by a registered dealer in contravention of the provisions of the CST Act.

What is the liability of a Company in liquidation, with respect to payment of Central Sales Tax? What is the liability of the directors of a private company?

If a liquidator or receiver is appointed in the case of a company, he should inform the Sales Tax authorities within 30 days of his appointment. The Sales Tax Authority shall intimate him the amount of tax due from the company in liquidation within 3 months. The Sales Tax authorities are "preferential creditors' in a case of liquidation.

The Liquidator shall not dispose of assets of the company before setting aside the amount of dues as intimated by sales tax department. The liquidator may, however, part with such assets or properties in compliance with any order of a court or for the purpose of payment of the tax, payable by the company under the CST Act or, for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to the government, on the date of liquidation or, for meeting such costs and expenses of the winding up of the company, as are in the opinion of the appropriate authority, reasonable.

What is the liability of the directors of a private company with respect to payment of Central Sales Tax?

If a private limited company is in liquidation and, any tax, assessed on the company, cannot be recovered, it becomes the personal liability of the directors, jointly and severally.

Directors can however avoid this liability; if they prove that the non-payment of tax was not on account of neglect, misfeasance or breach of duty on the part of the directors, in relation to affairs of the company.

The power to levy Sales tax

1. No state can levy sales tax on any sale or purchase where such sale or purchase takes place
   outside the state and oin the course of import of goods into or export of goods outside India .
2. Only the parliament can levy tax on inter-state sale or purchase of goods

Main Principles in State Sales Tax Laws

1. A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money.
2. The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods.
3. In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point.
4. Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assessee on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied).
5. Generally , a quarter return of sales or purchases is insisted upon and the assessee is required to furnish the return in the prescribed form.
6. At the time of assessment, the assessee has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer.
7. The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal.
8. Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in all the bill / cash memos.

Transactions not amounting to Inter-state sales

Not all dispatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales. There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales :-

• Intra-state sales
• Stock transfer from head office to branch & vice versa
• Import and Export sales or purchases
• Sale through commission agent / on account sales
• Delivery of Goods for executing works contract

Sales Tax ID number

A state sales tax ID number is basically a business version of your Social Security number under which you collect and pay tax for any service or product you sell that qualifies for taxation in your state. The state department of taxation provides sales tax ID numbers and it takes about a month to get one.

The rule of thumb for sales tax is that most services are exempt and most products are taxable except for food and drugs. However, states have been gradually adding to the list of services that are taxable for the last few years. Check with your state department of taxation to determine if the product or service you sell is taxable in your state.

Exception in the sales taxes

• Sales to resellers such as wholesalers and retailers that have a valid state resale certificate.
• Sales to tax-exempt institutions such as schools or charities

Which forms are to be filled?

• Form C;
• Form D;
• Form G;
• Forms E-I & E-II.

Liability to tax on Inter-State sales

6. (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the dateof such notification, be liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter­Statetrade or commerce during any year on and from the date so notified:

³[Provided that a dealer shall not be liable to pay tax under this Act on any sale of goods which, in accordance with the provisions of sub-section (3) of section 5, is a sale in the course of export of those goods out of the territory of India.]

(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.

(2) Notwithstanding anything contained in sub-section (1) or sub-section (IA), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected by a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods,-

1. to the Government, or
2. to a registered dealer other than the Government, if the goods are of the description referred to in sub-section (3) of section 8, shall be exempt from tax under this Act:

Provided that no such subsequent sale shall be exempt from tax under this sub-section unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit,-

1. a, certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed particulars in a prescribed form obtained from the prescribed authority; and
2. if the subsequent sale is made-
   1. to a registered dealer, a declaration referred to in clause (a) of sub- section (4) of section 8, or
   2. to the Government, not being a registered dealer, a certificate referred to in clause (b) of sub-section (4) of section 8

Provided further that it shall not be necessary to furnish the declaration or the certificate referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if,-

1. the sale or purchase of such goods is, under the sales tax law of the appropriate State exempt from tax generally or is subject to tax generally at a rate which is lower than ⁴[four] per cent (whether called a tax or fee or by any other name); and
2. the dealer effecting such subsequent sales proves to the satisfaction of the authority referred to in the preceding proviso that such sale is of the nature referred to in clause (a) or clause (b) of this sub-section.

Burden of proof, etc., in case of transfer of goods claimed otherwise than by way of sale.

6A. (1) Where any dealer claims that he is not liable to pay tax under this Act, in respect of any goods, on the ground that the movement of such goods from one State to another was occasioned by reason of transfer of such goods by him to any other place of his business or to his agent or principal, as the case may be, and not by reason of sale, the burden of proving that the movement of those goods was so occasioned shall be on that dealer and for thispurpose he may furnish to the assessing authority, within the prescribed timeor within such further time as that authority may, for sufficient cause, permit, a declaration, duly filled and signed by the principal officer of the other place of business, or his agent or principal, as the case may be, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, along with the evidence of despatch of such goods.

(2) If the assessing authority is satisfied after making such inquiry as he may deem necessary that the particulars contained in the declaration furnished by a dealer under sub-section (1) are true, he may, at the time of, or at any time before, the assessment of the tax payable by the dealer under this Act, make an order to that effect and thereupon the movement of goods to which the declaration relates shall be deemed for the purpose of this Act to have been occasioned otherwise than as a result of sale.

Rates of tax on sales in the course of Inter-State trade or commerce

8. (1) Every dealer, who in the course of inter-State trade or commerce-

1. Sale to the Government any goods; or
2. Sale to a registered dealer other than the. Government goods of the description referred to in sub-section (3);
   shall be liable to pay tax under this Act, which shall be ⁶[four] percent of his turnover.

(2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1)-

1. In the case of declared goods, shall be calculated ⁷[at twice the rate] applicable to the sale or purchase of such goods inside the appropriate State; and
2. In the case of goods other than declared goods, shall be calculated at the rate of ten per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher;
   and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact may not be so liable under that law

Determination of turnover.

8A. (1) In determining the turnover of a dealer for the purpose of this Act, the following deductions shall be made from the aggregate of the sale prices, namely:-

(a) The amount arrived at by applying the following formula­

Rate of tax X aggregate of sale prices

100 plus rate of tax

Provided that no deduction on the basis of the above formula shall be made if the amount by way of tax collected by a registered dealer, in accordance with the provisions of this Act, has been otherwise deducted from the aggregate of sale prices.

Explanation: Where the turnover of a dealer is taxable at different rates, the aforesaid formula shall be applied separately in respect of each part of the turnover liable to a different rate of tax;

(b)The sale price of all goods returned to the dealer by the purchasers of such goods-

1. Within a period of three months from the date of delivery of the goods, in the case of goods returned before-the 14th day of May, 1966;
2. Within a period of six months from the date of delivery of the goods, in the case of goods returned on or after the 14th day of May, 1966:

Provided that satisfactory evidence of such return of goods and of refund or adjustment in accounts of the sale price thereof is produced before the authority competent to assess or, as the case may be, re­assess the tax payable by the dealer under this Act; and

(c) Such other deductions as the Central Government may, have regard to the prevalent market conditions, facility of trade and interests of consumers, prescribe.

(2) Save as otherwise provided in sub-section (1), in determining the turn­over of a dealer for the purposes of this Act, no deduction shall be made from the aggregate of the sale prices.

Goods of Special Importance In Inter-State Trade or Commerce

Certain goods to be of special importance In Inter-State trade or commerce.

14. It is hereby declared that the following goods are of special importance in inter-State trade or commerce:-

10[(i) Cereals, that is to say,-

(i) paddy (Oryza sativa L.);

(ii) rice (Oryza sativa L.);

(iii) wheat (Triticum vulgar, T. compactum, T. sphaerococcum, T. edurum, T aestivum L. T. dicoccum);

(iv)jowar or milo (Sorghum vulgare Pers);

(v) bajra (Pennisetum typhoideum L.);

(vi) maize (Zea maYs L.)

(vii) ragi (eleusine coracana Gaertn.);

(viii) kodon (paspalum scrobiculatum L.);

(ix) kutki (Panicum miliare L.) ;

(x)barley (Hordeum vulgare L.) ;]

¹¹[(ia)]coal, including coke in all its forms, but excluding charcoal:

Provided that during the period commencing on the 23rd day of February, 1967 and ending with the date of commencement of section 11 of the Central Sales Tax (Amendment) Act, 1972 (61 of 1972), this clause shall have effect subject to the modification that the words "but excluding charcoal" shall be omitted;

(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;

¹²[(iia) cotton fabrics covered under heading Nos. 52.05, 52.06, 52.07, 52.08, 52.09, 52.10, 52.11, 52.12, 58.01, 58.02, 58.03, 58.04, 58.05, ¹³[58.06,] 59.01, 59.03, 59.05, 59.06 and 60.01 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 4 986);]

(iib) cotton yarn, but not including cotton yarn waste;

¹⁴[(iic)crude oil, that is to say, crude petroleum oils and crude oils obtained from bituminous minerals (such as shale, calcareous rock, sand), whatever their composition, whether obtained from normal or condensation oil-deposits or by the destructive distillation of bituminous minerals and whether or not subjected to all or any of the following processes:-

(1) decantation;

(2) de-salting ;

(3) dehydration

(4) stabilisation in order to normalise the vapour pressure;

(5)elimination of very light fractions with a view to returning them to the oil-deposits in order to improve the drainage and maintain the pressure;

(6)the addition of only those hydrocarbons previously recovered by physical methods during the course of the above mentioned processes;

(7)any other minor process (including addition of pour point depressants or flow improvers) which does not change the essential character of the substance;]

(iii) hides and skins, whether in a raw or dressed state;' (iv) iron and steel, that is to say,-

(i)pig iron and cast iron including ¹⁵lingot moulds, bottom plates], iron scrap, cast iron scrap, runner scrap and iron skull scrap;

(ii)steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);

(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;

(iv)steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths) ;

(v)steel structurals (angles, joists, channels, tees, sheet piling sections, Z sections or any other rolled sections);

(vi)sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition ;

(vii) Plates both plain and chequered in all qualities

(viii) discs, rings, forgings and steel castings ;

(ix) tool, alloy and special steels of any of the above categories;

(x)steel melting scrap in all forms including steel skull, turnings and borings;

(xi)steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings ;

(xii) tin-plates, both hot dipped and electrolytic and tinfree plates;

(xiii)fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails--- heavy and light crane rails;

(xiv) wheels, tyres, axles and wheel sets;

(xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;

(xvi) defectives, rejects, cuttings or end pieces of any of the above categories;

(v) jute, that is to say, the fibre extracted-from plants belonging to the species Corchorus capsularies and Corchorus olitorius and the fibre known as mesta or bimli extracted from plants of the species Hibiscus cannabinus and Hibiscus sabdariffa-Var altissima and the fibre known as Sunn or Sunnhemp extracted from plants of the species Crotalaria juncea whether baled or otherwise;

(vi) Oilseeds, that is to say,-

(i) Groundnut or Peanut (Arachis hypogaea);

(ii) Sesamum or Til (Sesamum orientale);

(iii) Cotton seed (Gossypium Spp.);

(iv) Soyabean (Glycine seia);

(v) Rapeseed and Mustard­

(1) Toria (Brassica campestris var toria);

(2) Rai (Brassica juncea);

(3) Jamba-Taramira (Eruca Sativa);

(4) Sarson, yellow, and brown (Brassica campestris var sarson)

(5) Banarsi Rai or True Mustard (Brassica nigra);

(vi) Linseed (Linum usitatissimum);

(vii) Castor (Ricinus communis);

(viii) Coconut (i.e., Copra excluding tender coconuts) (Coconucifera);

(ix) Sunflower (Helianthus annus) ;

(x)Nigar seed (Guizotia abyssinica)

(xi) Neem, vepa. (Azadirachta indica);

(xii)Mahua, illupai, Ippe (Madhuca indica M. Latifolia, Bassia, Latifolia and Madhuca longilolia syn. M. Longifolia);

(xiii)Karanja, Pongam, Honga (Pongamia pinnata syn. P. Glabra);

(xiv)Kusurn (Schleichera oleosa syn. S. Trijuga);

(xv)Punna, Undi (Calophyllum inophyllum);

(xvi)Kokum (Corcinia indica);

(xvii)Sal (Shorea robbusta);

(xviii) Tung (Aleurites fordii and A. montana);

(xix) Red palm (Elaeis guinensis);

(xx) Safflower (Carthanus tinclorius);

¹⁶[(via) pulses, that is to say,-

(i) gram or gulab gram (Cicerarietinum L.);

(ii) tur or arhar (Cajanus cajan);

(iii)moong or green gram (Phaseolus aureus);

(iv)masur or lentil (Lens esculenta Moench, Lens culinarie Medic);

(v)urad or black gram (Phaseolus mungo);

(vi)moth (Phaseolus aconitifolius Jacq);

(vii)lakh or Khesari (Lathvros rativus L.)

¹⁷[(vii) man-made fabrics covered under heading Nos. 54.08, 54.09, 54.10, 54.11, 54.12, 55.07, 55.08, 55.09, 55.10, 55.11, 55.12, 58.01, 58.02, 58.03, 58.04, 58.05, ¹⁸[58.06,]59.01, 59.02, 59.03, 59.05, 59.06 and 60.01 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(viii) sugar covered under sub-heading Nos. 1701.20, 1701.31, 1701.39 and 1702.11 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) ;

(ix) unmanufactured tobacco and tobacco refuse covered under sub-heading No. 2401.00, cigars and cheroots of tobacco covered under heading No. 24.02, cigarettes and cigarillos of tobacco covered under sub-heading Nos. 2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos. 2404.11, 2404.12, 2404.13, 2404.19, 2404.21, 2404.29, 2404.31, 2404.39, 2404.41 ¹⁹[, 2404.50 and 2404.60], of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(x) woven fabrics of wool covered under heading Nos. 51.06, 51.07, 58.01, 58.02, 58.03 and 58.05 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).]

Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.

15. Every sales tax law of a State shall, insofar as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely :-

(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed ²⁰[four] per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage;

(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter­State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State;

²¹[(c)where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub-clause (i) of clause (i) of section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy;

^21a[(ca) where a tax on sale or purchase of paddy referred to in sub-clause (1) of clause (1) of section 14 is leviable under that law and the rice procured out of such paddy is exported out of India, then, for the purposes of sub­section (3) of section 5, the paddy and rice shall be treated as a single commodity.]