India is a democracy which is run by the people for the people, where the money to administer and develop the country also come from the people. Taxes are the primary source of income for the government and are used to maintain the nation. The government imposes different types of taxes on different products and services, in a bid to improve governance and improve infrastructure.
Central Sales Tax is an integral component of the tax structure of the country, having been introduced in the sixth Constitutional Amendment. Central Sales Tax has been a major source of revenue for the government since its inception and is considered crucial in Indian trade and commerce.
What is Central Sales Tax?
Central Sales tax refers to the tax levied on sales generated during inter-state trade and commerce in a country. In essence it is the tax one has to pay on the sale of goods which are sold through inter-state trade. Central Sales Tax (CST) is an indirect, origin based tax on customers and is payable in the state where a particular product is sold. CST is charged only on inter-state transactions and any transaction within a state or import/export of goods does not fall under its purview.
Central State Tax in India:
India, is a union of states and the strength of our country lies in its ability to handle these states collectively, which is where Central Sales Tax comes into play, by eliminating any confusion regarding inter-trade tax. Central Sales Tax came into existence through an act of the parliament and was enacted in the year 1956 to regulate sale of commodities and taxes regulating such sales. Although CST is levied by the Central Government and falls under the Union List of the Seventh Schedule, it is administered by the state in which a particular sale originates.
A trader dealing in goods which involve inter-state trade is expected to pay both the state sales tax and the central sales tax on such transactions.
Central Sales Tax Act, 1956
Sales Tax in India falls under the ambit of Central Sales Tax Act, 1956, which extends to the whole of India and defines the rules and regulations guiding sales tax. This Act was introduced in the Sixth Constitutional Amendment and brought the taxes on sale/purchase of goods in inter-state trade under the purview of the legislative jurisdiction of Parliament. This act came into force in 1957 and forms the backbone for Central Sales Tax in India, containing various provisions for the same.
This Act mentions the definitions of inter-state trade, situations where CST is applicable, penalties involved, important goods for interstate trade, trade restrictions, appeals and any other information which might be relevant.
Objectives of Central Sales Tax Act:
The government introduced the Central Sales Tax Act in a bid to simplify and streamline tax collection in the country. Some of the main objectives of Central Sales Tax Act are mentioned below.
- Provide provisions for levying, collecting and distributing taxes collected via interstate sale of goods and products.
- Frame policies to determine when sale and purchase of goods occurs, with reference to interstate commerce.
- Classifying certain goods as being essential and important for trade and commerce.
- Establish which competent authority will settle interstate trade disputes.
Central Sales Tax Rate:
Central Sales Tax rates are determined by the government and have changed since the time the Act first came into force. The original Central Sales Tax rate was 1%, which was then increased periodically to 2% and finally became 4% from July 1975 onwards. Goods which are extremely important for inter-state travel are not taxed under certain provisions of the CST Act, ensuring that essential commodities do not become dearer.
In 2007, an amendment to central sales tax rates was accepted, which saw the sales tax coming down to 3% from the previously charged 4%.
June 2008 witnessed a further reduction in the tax rate, with the rate coming down to 2%. A major reason for the reduction in CST rates was the need to introduce Goods and Services Tax (GST), which would make CST inconsistent with GST.
The table below highlights the central sales tax rates for different scenarios.
|Local Tax Rate||Central Sales Tax Rate|
|When sale is to registered dealer|
|Goods exempt from local tax||Nil|
|>2%||2% (form C required)|
Central State Tax Rules:
There are certain rules which an individual participating in interstate trade is expected to adhere to. Some of the major rules are mentioned below.
- A dealer should submit an application (Form A) for registration under section 7 of the Act. This application should be duly signed by the proprietor and verified by a competent authority.
- Only a single application will be entertained even if an applicant has multiple places of business in a state.
- The certificate of registration should be kept at the principal place of business and copies of the registration should be displayed at other business locations.
- In case a registration certificate is lost or destroyed, the applicant should make a payment in the form of court fee stamps to receive a duplicate copy.
How to get Central Sales Tax Registration?
Individuals wishing to register for Central Sales Tax need to furnish their TIN registration number. This TaxPayer Identification Number is the first step in the process, post which they are required to fill in the necessary forms and pay the registration fee for the same.
Individuals registering for CST need to furnish the following documents:
- Government approved ID proof
- Address Proof
- PAN card
- Address proof of business establishment
- Purchase invoice
- Bank statement
Note: The documents required may wary from state to state.
Central Sales Tax Exemptions:
Central Sales Tax is exempted on certain occasions, some of which are mentioned below:
- Central Sales Tax is excluded if outward freight is charged separately and if the outward insurance of goods are passed on to a buyer during dispatch.
- No CST is to be paid if goods are returned within 180 days.
- CST is exempted in cases when a sale within a particular state is exempt.
- Any sale to SEZs and foreign missions are exempt from CST
News About Central Sales Tax
Odisa CM, Patnaik Requests For Compensation for CST accounting for loss Incurred in 4 years
Naveen Patnaik, Odisha Chief Minister urged Arun Jaitkey, Union Finance Minister to take steps immediately to compensate the state for the Central Sales Tax (CST) loss for 4 financial years, including 2013-14 to 2016-17, due to the GST rollout.
In his statement Patnaik has mentioned that in the request that the union finance ministry do something immediately to compensate the 4 year loss. Said to be one of the most sought tax reform since Independence, India is looking to rollout the Goods and Services Tax starting from April 2017.
21st September 2016
Andhra seeks Rs.7,269 Crore As CST Compensation from Centre
Andhra Pradesh is seeking Rs.7,269.46 crore from the Central Government as compensation against the central sales tax pending to the state since financial year 2012-13. The dues are divided thus: Rs.935.74 crore for 2012-13, Rs.2,247.98 crore for 2013-14, Rs.618.19 crore till June 2014 when Telangana separated from the state, Rs.1,467.54 crore from July 2014 to March 2015, and around Rs.2,000 crore in 2015-16.
This request comes following concerns among states that once the Goods and Services Tax is implemented, the Centre might not compensate the States on the pending dues and revenue loss.
This request was made by State Finance Minister Yanamala Ramakrishnudu to Union Finance Minister Arun Jaitley at the Empowered Committee meeting of Finance Ministers in New Delhi recently.
10th August 2016
Odisha demands compensation of CST loss and revision of coal royalty
Odisha government is demanding revision of coal royalty as well as compensation of CST loss from the union government. CST or Central Sales Tax was phased out keeping in mind the rolling out of Goods and Services Tax or GST. Finance Minister of Odisha said that the union government had decided to compensate the state government for loss in CST which was to be phased out over a period of 4 years at an annual rate of reduction of 1%.
Now, the state is losing heavily in CST due to reduction of rate while the union government has still not fully compensated the states for this rate reduction. The Odisha government has also urged the central government to look at revision of upper ceiling for professional tax. The tax currently is capped at Rs.2500 per year and has not been revised for the past 26 years.
5th July 2016
Government Offers a Whopping Rs.6K Crore Package to the Textile Sector
In a bid to boost exports and create employment opportunities in the textile sector, the cabinet has cleared a package of Rs.6,000 crores on 22.06.2016. In the wake of increased competition in the region led by Vietnam and Bangladesh, the government hopes to push on improving India’s share globally by increasing exports.
The package is primarily led by tax sops to companies operating in this sector along with reforms in the labor wing. The government is staring at an additional investment of $11 billion in the next three years with generation of over 1 crore jobs. One of the main highlights of this package is that the government will take over employer's contribution to the EPF for new employees earning Rs.15,000 or less per month.
On the tax front, garment companies will be allowed to claim a refund from the central government on various taxes and other levies paid to the state government.
27th June 2016
Unregistered Dealers in Delhi face crackdown from the Government
A recent survey has revealed that unregistered dealers in Delhi are selling illegally via e-commerce websites. The capital’s Trade and Taxes department has launched a crackdown against the dealers. Dealers with yearly turnovers over Rs.20 lakh and those making inter-state purchases and sales have been issued an advisory to get immediately registered.
The department has found out that there are close to 2 lakh unregistered dealers so far. Enforcement teams have been sent to the dealers to carry out search and survey operations and revealed tax evasions amounting to crores of rupees. The department is planning to take strict action on the tax evading illegal dealers.
Under the 2004 Delhi Value Added Tax Act and the Central Sales Tax Act, various awareness drives have been launched through hoardings, print and electronic media to educate dealers about registration based legal requirements.
6th June 2016
Tax Exemptions to Industry in J&K Budget
The PDP-BJP coalition government in Jammu and Kashmir has announced a state budget of Rs. 64,669 crore for 2016-17. The budget includes women’s welfare measures including fee waivers for female students in government schools and tax exemptions to the healthcare sector. The government has proposed tax exemptions for hospitals, health clubs, gyms and slimming and wellness centres. Items such as cell phones, jewellery, apparels and ready-to-serve food will become dearer, but local industry would be exempt from paying Value Added Tax and Central Sales Tax, and exemption on toll on raw material and finished products.
Finance Minister Dr. Haseeb Drabu also said that many drugs would be provided free of cost to patients in state’s health centres.
1st June 2016
Haryana Government waives off CST and VAT for dealers affected by stir
Central Sales Tax, CST and VAT has been waived off by the Haryana government for the month of february for dealers who were affected by the stir in the state during the pro-quota agitation. These dealers suffered losses of goods that were damaged, lost or burnt during the agitation.The date for payment of CST and VAT has also been extended for the affected dealers from April 30th to July 31st. No additional interest will be charged from these dealers as a result of delayed payment.
Compensation amount received by dealers will not be counted to compensate as valuable towards the damaged goods.
6th May 2016
Supreme Court dismisses VAT claim against ABB
The High Court of Delhi had granted tax exemption to ABB Ltd. for its deal with the Delhi Metro Railway Corporation Ltd (DMRCL). The Commissioner of Delhi VAT had filed an appeal against this with the Supreme Court. However, the apex court dismissed this appeal last week.
The High Court had said that the inter-state movement of goods by ABB was required to supply the materials under the contract between the company and the DMRCL. This means that the inter-state movement, sales and purchase of the goods connected with the deal were well within the ambit of the VAT exemptions granted under the Central Sales Tax Act.
28th April 2016
GST an Important Economic Reform: Kelkar
According to former chairman of 13th Finance Commission Vijay Kelkar, Goods and Services Tax (GST) will bring about an important reform that will drive the country on the path of economic growth.
GST will include all the main central and state taxes, which will reduce the number of tax items, and eventually reduce the compliance cost. The GST Bill is with the Rajya Sabha currently.
Kelkar said the current round of reforms, targeting land, labour and capital, would be of immense benefit to the economy in the long run.
18th April 2016
GST to reduce Additional Tax Burden on E-Commerce Industry
The introduction of the GST is likely to have a positive effect on the E-Commerce industry by relieving many of these companies from the added burden of extra taxation. With the introduction of the GST, indirect taxes in India will eventually be consolidated under one tax umbrella and eventually lead to the resolution of pertinent taxation issues faced by the E-Commerce industry. The move will also result in the promotion and growth of E-Commerce companies, as the reduced costs and taxation will lead to the establishment of bigger hubs in various Indian states. However, this does not apply if Central Sales Tax has already been paid. Once paid, it is non-adjustable and cannot be offset by the business.
31st March 2016