CST useful for students appearing for CA CS CMA ICWA exams in November/ December 2015

1. Central Sales Tax Act, 1956
• Ajay Babu Bandi
 Practising Chartered Accountant
 M.Com, FCMA,ACA,IFRS(Certified)

2. Taxable event
 In commodity taxation, the concept of
“Sale” is essential to attract levy

3. Features of Sale
In order to constitute a “Sale” , the
following elements are necessary-
Bargain or Contract of sale
Payment or promise of payment of
price
Delivery of goods
Transfer of title to goods

4. Each of the above elements is
necessary to constitute a “Sale”
 Even if one of these elements is missing,
the transaction cannot be called “sale”
under commodity taxation

8. Constitutional Provisions
 Intra- State Sale is within the authority of the state
Government while inter-state sale is within the
authority of the central Government
 Central Government levies central sales tax by drawing
power from Entry 92A of the Union List which
provides as follows:

10. Sources of the Central Sales Tax
law
CST Act 1956
Annual Union Finance Acts
Rules
Notifications
Circulars /Instructions
Trade Notices/ Clarifications
Case Laws

11. Nexus Theory
 Nexus = connection or relationship
 Nexus Theory in commodity taxation means
that there should be a territorial nexus between
the person sought to be taxed and the State
seeking the tax i.e., territorial connection

12. Objects of the Central Sales Tax
Act, 1956
1. To formulate principles for
determining when a sale /purchase of
goods takes place –
(a) In the course of inter-state trade
or commerce (Sec.3)
(b) Outside the state (Sec.4)
( c) In the course of import / export
from /outside India (Sec.5)

13. Objects of the Central Sales Tax
Act, 1956
2. To provide for –
(a) Levy of tax (Sec.9(1))
(b) Collection of tax (Sec.9(3))
( c) Distribution of tax (Sec.9(5)) on
sale of goods in the course of inter-
state trade or commerce

14. Objects of the Central Sales Tax
Act, 1956
 3. To declare certain goods to be of special
importance in the course of inter – state
trade or commerce [Sec.14]
 4. Taxation of Declared Goods : To specify
the restrictions and conditions in the matter
of imposing taxes on the sale or purchase of
goods declared by the central Government
to be of special importance in the course of
inter-state trade or commerce [Sec.15]

15. Objects of the Central Sales Tax
Act, 1956
5. To provide for collection of tax from
companies in the event of liquidation
[Sec.15]

17. Charge of Central Sales Tax

19. Appropriate State [Sec.2(a) ]
Number of places of
business
Appropriate State is
Only one place of business State in which place of
business is situated
Many places of business
(a) All in one State State in which place of
business is situated
(b) In different States EACH state in which a place
of business is situated

20. Importance of Appropriate State
 Administration, levy and collection have been
delegated to Appropriate State
 Registration should be made with the authorities of
the Appropriate State
 Monthly returns , appeals, reviews, references,
refunds and compounding of penalties are to be dealt
by Appropriate State
 For declared goods, tax rate is applicable for sales
within the Appropriate State or 4%, whichever is less
 For other goods , tax rate is 10% or the rate applicable
within the Appropriate State , whichever is higher

21. Business [Sec.2(aa) ]
 Business includes :
 1. any trade, commerce or manufacture, or
 2. any adventure or concern in the nature of
trade , commerce or manufacture-
 (a) with a motive to make profit or not,
 (b) whether such profit actually accrues or not,
 3.any activity which is incidental or ancillary
to such trade, commerce , manufacture ,
adventure or concern

22. Not considered to be incidental
or ancillary to business
 Sale by a Temple Devasthanam, of
offerings deposited in the Hundi
 Sale of unused application forms, iron
scrap, etc. by Housing Board

23. Crossing the Customs Frontiers of
India [Sec.2(ab) ]
 Crossing the Customs Frontiers of India means :
 (a) crossing the limits of the area of a customs
station;
 (b) in which imported goods or exported
goods are ordinarily kept before clearance by
Customs Authorities

24. Dealer / Deemed Dealer
Sec.2(b)
 Dealer means any person…
 Who carries on (whether regularly or
otherwise) the business of ,
 Buying, selling , supplying or distributing
goods, directly or indirectly,
 For cash, or for deferred payment, or for
commission, remuneration or other valuable
consideration

25. Dealer includes…
 Persons carrying on business
 Persons carrying on business for any
disclosed or undisclosed principal
 Others.. (Auctioneer)

26. Deemed Dealer means…
 A Mercantile Agent as defined in the Sale of
Goods Act, 1930 or..
 An agent for handling goods or documents of
title relating to goods or
 An agent for collection or payment of sale
price of goods or as guarantor for such
collection or payment
 Every Local branch or Office in a state,
 of a firm registered outside a state
 of a company or other Body corporate outside the
state

27. Dealer excludes…
Persons Nature of Transaction
Customs
Department
Sale of confiscated goods in auction
Port Trust Sale of unclaimed and unserviceable articles
through Auctioneers
Railways Sale of unclaimed and uncollected goods
Pawn Brokers Sale of articles on which principal and / or
interest is in default
Medical
Practitioners
Preparation and supply of medicines on
own to various patients after examining
them or after consultation through
correspondence

28. Government as a Dealer .…
 When regarded as Dealer
 When not regarded as Dealer

29. When regarded as Dealer
 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 deemed to be a
Dealer

30. When NOT regarded as Dealer
 A Government which—
 In relation to any sale , supply or
distribution, of surplus, unserviceable or
old stores or materials or waste products or
obsolete or discarded machinery or parts
or accessories ,
 Shall NOT be regarded as Dealer

31. Registered Dealer .…
 Means a dealer who is registered u/s . 7

32. Declared Goods Sec.2(c)
1 .Declared Goods declared u/s 14 to be of
special importance in inter-state trade or
commerce
2. Restrictions / Conditions w.r.t Declared
Goods [Sec.15]
 (a) Maximum Tax Rate – 4%
 (b) Reimbursement of Local Sales Tax …. To
the seller making Inter state sale

33. Declared Goods Sec.2(c)
Special Provisions relating to paddy and pulses
u/s 15
Where any tax is levied on paddy… the tax
leviable on rice procured out of such paddy
shall be reduced by the amount of tax levied
on such paddy

35. Goods Sec.2(d)
Includes ..
All materials, articles and commodities
Every kind of movable property
Excludes..
 Newspapers
 Actionable Claims
 Stocks, Shares and securities

36. Movable Property
Means Except Immovable property
Immovable Property includes..
 Land
 Benefits arising out of land
 Things attached to the earth or
 Permanently fastened to anything attached to
the earth

37. Following have been held as
“GOODS”
Animals, Birds and chicks
Electricity
Copyright
Old Newspapers Sold on weight basis
REP licences and EXIM scrips
Lottery Tickets
Software

38. Following have been held as “NOT
GOODS”
X-ray films supplied by a Radiologist
Amulets /Charms supplied by spiritual
Consultant

39. Place of Business [Sec.2(dd)]
Includes…
Place of business of an agent, in case where a
dealer carries on business through an agent
Place where stores his goods like warehouse /
godown
Place where dealer keeps his books of account

40. Sale
means ..
 Transfer of property in any goods by one person to
another
 Consideration may be cash, or deferred payment
or commission, remuneration or other valuable
consideration

41. Sale includes ..
 Transfer of property in any goods for cash, or
deferred payment or other valuable consideration
other than in pursuance of contract
 Transfer of property in goods involved in the
execution of a works contract
 Delivery of goods on hire-purchase or any
system of payment by instalments

42. Sale includes ..
Transfer of the right to use any goods for any
purpose for cash , deferred payment or other
valuable consideration
Supply of goods by any unincorporated
Association or Body of Persons to be a
Member thereof,
Supply of goods being food or any other article
for human consumption or any drink is for
cash or deferred payment or valuable
consideration

44. Sale excludes ..
Mortgage or hypothecation of or a charge or
pledge on goods

46. Instances of Sale ..
Barter or exchange of goods is “Sale”
Allotment of Equity shares towards payment
of price of machinery sold is “Sale”

47. Instances of “Not Sale” . ..
Beer sold to customers in bottles –
certain amount collected as deposit against
return of empty bottles – held as “not sale”
United Breweries Ltd Vs State of AP

48. Instances of “Not Sale” . ..
Transfer of goods between
two Firms having same partners ..or
Two concerns owned by the same person
Is…not sale

49. Works Contract [Sec.2(ja)]
Means a contract for carrying out any work
which includes…
Altering
Assembling
Building
Construction
Erection
Fabrication

50. Works Contract [Sec.2(ja)]
Means a contract for carrying out any work
which includes…
Fitting out
Improvement
Installation
Manufacturing
Processing
Repair or commissioning of any movable or
immovable property

51. Sale Price [Sec.2(h)]
Meaning …
Amount payable to a dealer as consideration
for sale of any goods

52. Sale Price in case of Works
Contracts
shall be determined in the prescribed manner, by
making the prescribed deductions from the total
consideration for the works contract, and such
price shall be deemed to be the Sale price for this
purpose

53. Sale Price includes…
 Sale Value
 Excise Duty
 Cost of Packing Material and Packing charges
 Insurance paid by Seller
 Freight borne by Seller
 Any sum charged for anything done in respect
of the goods before delivery thereof to buyer
 Bonus Discount or Incentive Bonus for
additional sales effected by the Distributor /
Dealer

54. Sale Price excludes…
 Cash Discounts allowed as per trade practice
 Cost of Freight/delivery or cost of installation, if
they are separately charged.
 Insurance paid on behalf of the buyer.
 Trade Discounts
 Quantity Discounts
 Quality Allowances
 Goods returned within six months
 Goods rejected

55. Examples
(a)Dharmada Charity or Dharmada collected by
the Dealer will form part of the
sale price, since so far as the
Purchaser is concerned he has to
pay the whole amount for
purchasing the goods
(b) Weighment Dues Weighment Charges in respect of
the goods are incidental to their
being sold and hence they should
be included in the sale proceeds.

56. (c )Insurance Charges In Arvind Motors and Another vs The State of
Karnataka it was held that the freight and
insurance charges incurred by the Dealer
prior to the delivery of the goods at their
places of business to their customers, form
part of turnover.
(d) Packing Charges Packing charges are charged for the service
rendered in packing the goods and are
different from charges for packing material.
The Supreme Court in Rai Bharat Das and
Brothers vs CST (1988) 71 STC 277 held that
the packing charges realized by the Dealer was
an integral part of the sale price. Prabhat
Marketing co.19STC 84 (SC).

57. (e)Indemnity / Guarantee Charges Indemnity / Guarantee charges
recovered from the same Buyer to
insure against loss during transit
at Buyer’s request do not form
part of the sale price.
(f)Discount according to Trade
Practice
Any sum allowed as cash discount
according to the practice normally
prevailing in the trade, will not
form part of the “sale price”. It is
to be noted that such deductions
are to be restricted to “cash
discount”.

58. (g)Excise Duty Excise Duty paid by a Dealer in respect of
the goods, which he sells, will form part
of sale price. Hindustan Sugar Mills Ltd.,
vs State of Rajasthan 43 STC 13 (SC)
(h) Government
Subsidies
Where a product is ‘controlled’ and has to
sell at ‘controlled price’, Subsidies are
granted by the Government to
manufacturers to compensate the cost of
production which is usually higher than the
controlled price. Such Subsidy will not
form part of sale price or turnover.

59. (i) Returnable Containers In case of returnable goods, the
ownership vests with the Dealer and does
not pass on to the Purchaser. The
containers are required to be returned to
the Dealers. No consideration is
chargeable in respect of such returnable
containers. The definition of sale price
u/s 2(h) does not include amounts not
charged by the Dealer. Hence, cost of
returnable containers cannot constitute
sale price. [Dyer Meakin Breweries].

60. Sales Tax Law and General
Sales Tax Law

61. Sales Tax Law [Sec.2(i)] General Sales Tax Law
(GST)
Means any law, for the time
being in fore, in any State or
part thereof which provides for
levy of Taxes on sale /
purchase of goods generally or
on any specified goods
expressly mentioned in that
behalf and includes value
Added Tax Law.
Means any law, for the time
being in force, in any State of
Part thereof which provides
for levy of taxes on sale /
purchase of goods generally
and includes Value Added
Tax Law.

62. Turnover [Sec.2(j)]
Means …
 The aggregate of sale price received and receivable
by a Dealer.
 In respect of sale of any goods,
 In the course of inter-state trade or commerce,
 Made during the prescribed period, and
 Determined in the prescribed manner, (as per
Rules under the Act)

63. Year [Sec.2(k)]
Where GST Law of
appropriate State is
Year is
Applicable Year as applicable under the
General Sales Tax law
Not Applicable Financial year – 1st April to 31st
March.

65. Inter-State Trade[Sec.3]- Meaning
 Meaning: A sale or purchase of goods shall be deemed
to take place in the course of inter-state trade or
commerce effected either by –
 (a) Transfer of goods.
 (b) Transfer of document of title to goods.

66. Sale/Purchase by transfer of goods
[Sec.3(a)]
 When a sale or purchase occasions the movement
of goods from one State to another.
 Such movement is in pursuance of contract of sale or
purchase.

67. By transfer of documents of title
to goods [Sec.3(b)]
 When a sale or purchase is effected by transfer of
documents of title to goods during their movement
from one state to another.
 Duration of movement: Duration of movement
commences when the goods are delivered to a carrier
or other bailee for transmission and ends at the time
such delivery is taken from such carrier/ bailee.
 It shall be effected during the original movement of
goods u/s 3(a).

68. Khosla and Co
 To constitute a sale in the course of inter-state trade or
commerce, delivery of goods to the buyer in the other
State should have taken place.

69. Following
transactions/movements are not
covered under inter-State Sale:
 Movement commencing and terminating in the same
State, but the goods passing through the territory of
different State.
 Movement of imported goods during the course of
original import from the State of port/airport to State of
actual destination of the importer.
 Branch Transfer
 Transfer to an Agent

75. Documents of Title
 Meaning: A “document of title” to goods means an
internal evidence of ownership of goods by holders of
document.
 Definition: The Phrase “document of title to goods” is
not defined in the CST Act.

76. But includes...
Lorry Receipt
(LR)
In case of transport by road
Railway Receipt
(RR)
In case of transport by rail
Bills of Lading
(BL)
In case of transport by sea
Airway Bill (AWB) In case of transport by air
Other documents of similar
nature
In case of transport by other
means

78. Sale by V.P.P.
 u/s 3, in order to be an inter-state sale, there must
be movement of goods in connection with the
sale.
 In a sale by V.P.P., both the requirements of Sec.3
are satisfied

83. Sale/Purchase inside a State
(intra-State) [Sec.4]

89. Sale or Purchase in the course
of Export [Sec.5]

102. (b) Sale or Purchase effected by a
transfer of documents of title to
the goods
 is effected by transfer of document to title like
Bill of Entry , Airway Bill etc. during the
movement of goods on original import

103. (b) Sale or Purchase effected by a
transfer of documents of title to
the goods
Conditions..
The movement of goods should commence as a
prior contract of sale or purchase
The transfer of property in goods should take
place after the goods have crossed the customs
frontier of India/of other country

105. Levy of Tax on Inter-State Sale
[Sec.6]
 A dealer is liable to pay tax on all sales effected by
him
 In the course of inter-state trade or commerce
 Liable …even if no tax is payable by him under
GST law or State tax law

106. Levy of Tax on Inter-State Sale
[Sec.6]
 Exceptions….
 Penultimate sale which occasions for export
 Inter-State sale of Electrical energy
 Purchase of ATF by international flights

112. Exemption from CST
 Exemption by notification granted by
the State Government
 Sale to a unit in SEZ

117. Concessional rate

120. Conditions to be fulfilled for
concessional rate of CST
 Eligible Goods
 Sale made to a Registered Dealer
 Form C by the purchasing Dealer

121. Eligible Goods
 Declared goods
 Exempted goods
 Goods sold to dealer in SEZ
 Branch or Agent transfer
 Subsequent Sale
 Export of goods
 Penultimate sale
 Purchase of ATF

122. Determination of Turnover
[Sec.8A]
Situation 1 …
When the Turnover or Sale is given
exclusive of CST, no adjustment shall be
made to the Turnover

123. Determination of Turnover
[Sec.8A]
Situation 2 …
If the Turnover / Sale is given inclusive of
CST, then the Taxable Turnover shall be
determined as …