The Central Sales Tax Act, 1956 defines the guidelines which determine if a trade can be categorised as a sale or purchase of goods by way of inter-state commerce in order to outline the conditions and restrictions regarding the tax that is imposed.
The structure and sections of the Indian tax system is fairly comprehensive, with simple and coherent variation in power between local, state and central governments. The taxes on earnings, service tax, central excise, and customs obligations are imposed by the central government. Income cited does not comprise of profits made from agriculture. The sixth alteration in the Constitution of India totally revolutionized the picture of taxation in the country by declaring the Central Sales Tax (which is now referred to as CST). The revision brought about the duties on procurement or trade of merchandises and services between states particularly within the authority of the constitutional power of the Indian Parliament. The limits shall be put on the hegemonies of state legislatures affecting to the tax impositions on purchasing or selling of goods within the state where they are of distinct consequence in the state-to-state trade or exchange. According to the Article 266 of the Indian Constitution, it is plainly detailed that government cannot impose tax on a person until or unless it is lawfully authorized.
So while completing this step, the Central and Sales Tax of 1956 was approved, which directs and leads the current Central Sales Tax System. Central Sales Tax is imposed by the Central Government of India as specified in the Entry 92-A of List I (Union List) of the Seventh Schedule to the Indian Constitution. But it can be only collected by that particular state government from where the products were vended. So any proceeds thus gathered is to be submitted to the same State Government that levies the tax. The current Central Sales Tax rate in our nation is only three percent. Central Sales Tax is levied only on those dealings between two or more states and is not applicable for those happened within the state. Section 3 (a)/ (b) of the Sales Tax Act explicitly states this. And if any such deal between people from two different states document the shifting of merchandise, then it is known as interstate transaction. A sale, made by transference of title deeds to products, when they are in any kind of inter-state trade or movement.
Categorization of Goods and Services
Central Sales Tax Act has also given added significance to specific products and services so as to surge their spread. Section 2-(d) of the Sales Tax Act categorizes these merchandise into two:
- Declared Goods: Declared goods are those merchandises/ imports that have been given singular prominence thanks to Section 14. Cereals, sugar, cotton, pulses, crude oil, oilseeds and jute are a few examples for the same.
- Other Goods: The rates of tax on these goods are much lesser as compared to the declared ones.
Central Sales Tax Transaction Forms
Manufacturers, dealers, brokers, exporters and industrialists, during the course of business deal, have to provide certain statements in the agreed format to the wholesalers and consumers. These forms are printed and delivered by sales tax officials and has to be drafted in three copies.
Some essential forms are listed below:
- Form D: Every sale made to the Government is taxed at the rate of four percent or pertinent sales tax rate for the specific sale within the state, whichever is lesser. To enjoy this discount on CST, Form D is provided by the government department that buys those products.
- Form I: This form is provided by the businessman or dealer living or operating in a Special Economic Zone (SEZ). This form offers rebate on the Central Sales Tax as there are no taxes imposed when the deal is made to a dealer from SEZ.
Procedure to get Central Sales Tax Registration
Are you an industrialist, merchant, exporter or broker? Steps involved in registering for central sales tax (CST) is exactly the same as that of VAT.
First thing to do is to get your TIN registration number. Confused? TIN stands for Taxpayer Identification Number and is a unique 11-digit number issued by the Department for Commercial Tax of corresponding states. This has to be specified in every VAT dealing and business correspondence. TIN number is also a way to categorize merchants and brokers registered under VAT. It is a single number and is allocated to the traders to register for each of the three taxes, namely, CST, VAT and Service Tax. The first two digits of TIN denote the state from which it is availed. But the purpose of the remaining nine digits of the TIN number usually vary for each state. It is applicable whether the commercial operations are intrastate or inter-state. Under the Indian Income Tax.
Documentation for Central Sales Tax
Mandatory documents required to apply for a TIN registration are:
- ID Proof: Copy of PAN Card, Driving License, Passport, Voter’s ID, Aadhaar Card or any government photo-bearing ID issued by government
- Residence proof: Copy of any of the above (except PAN Card), Ration Card, Rental/ Lease Agreement, any of your recent utility bill
- Four to six passport sized photos
- Address proof of the business establishment
- First sale or purchase invoice
- Duplicate copy of LR / GR and proof of payment along with bank statement
- Guarantee, security and / or reference letter
- Nevertheless, the documentation procedure varies from state to state because state government has the liberty to frame the rules and guidelines and amend them for their people.