Central Sales Tax Act Introduction - Indirect Tax Laws | Indirect Tax Laws - B Com PDF Download

What is Central Sales Tax?

• The Sixth Amendment to the Constitution of India changed how taxation works in the country by introducing the Central Sales Tax (CST).
• This amendment allowed the Parliament to create laws regarding taxes on the buying or selling of goods during inter-State trade or commerce, putting some limits on what State legislatures can do about taxing sales within their own states.
• According to Article 266 of the Constitution, no one can be taxed unless there is a law supporting it. To follow this rule, the Central Sales Tax Act of 1956 was established, which sets the current system for Central Sales Tax.
• The Central Sales Tax is imposed by the Central Government of India, based on Entry 92A of the Union List in the Seventh Schedule of the Constitution, but it is collected by the government of the state where the goods are sold.
• The revenue from this tax goes to the same state that collected it. The current rate for Central Sales Tax in India is 3 percent.
• This tax only applies to transactions that happen between different states, not to sales made within a single state or to imports or exports.
• Section 3(a)/(b) of the Act explains what an interstate transaction is. If goods move from one state to another in a transaction between two parties, it is considered interstate.
• A sale that involves transferring ownership documents while the goods are moving between states is also an interstate sale.
• However, if goods are sent to agents or transferred to branches or other offices, this does not count as an interstate sale.
• Additionally, goods sold within a state but passing through another state during transport are not classified as interstate sales.
• There is no minimum turnover limit for applying the Central Sales Tax.
• The Central Sales Tax Act highlights some goods to promote their circulation.
• Section 2(d) divides goods into two categories: declared goods and other goods.
• Declared goods are those recognized as important by Section 14. Examples include cereals, coal, cotton, crude oil, jute, oilseeds, pulses, and sugar.
• The tax rates for declared goods are generally lower than those for other goods.

CST Transaction Forms

• Manufacturers, Traders, Exporters, and Dealers must provide specific declarations in the required format during transactions with buyers and sellers.
• The forms needed for these declarations are printed and provided by sales tax authorities and should be prepared in triplicate.
• Important forms include:
  • Form D: This form is used when selling to the Government. The tax rate is 4 percent or the applicable sales tax rate for that state, whichever is lower. To benefit from this concession on Central Sales Tax (CST), Form D is issued by the government department making the purchase.
  • Form I: Issued by a dealer or buyer in a Special Economic Zone (SEZ), this form provides a concession on the central sales tax. This is because no tax is charged on sales made to a dealer located in the SEZ.

Procedure to get CST registration

• The process to register for Central Sales Tax (CST) is similar to registering for Value Added Tax (VAT).
• To register for CST, manufacturers, traders, exporters, and dealers must first obtain a TIN, which stands for Tax-Payer Identification Number.
• The TIN is a unique 11-digit number assigned by the Commercial Tax Department of each state.
• This number is crucial for all VAT transactions and communications, as it helps to identify dealers registered under VAT.
• The TIN serves as a single number for registering all three taxes: VAT, CST, and Service Tax.
• The first two digits of the TIN represent the state code where it was issued.
• The remaining nine digits of the TIN may vary depending on the state.
• TIN is used for both sales conducted within a state and those between multiple states.
• It also helps identify dealers similarly to how the PAN is used to identify taxpayers under the Income Tax Act.
• To apply for a TIN registration, the following mandatory documentsare needed:
  • ID Proof
  • Address Proof
  • PAN card of the proprietor
  • 4 to 6 passport-sized photographs
  • Address proof of the business premises
  • First sale or purchase invoice
  • Copy of LR/GR and proof of payment or collection with bank statement
  • Surety, security, or reference
•  The required documents may vary from state to state. 
•  This variation occurs because, although the central government creates the rules for CST, state governments have the authority to set their own rules as needed.