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Understanding Central Sales Tax
Central Sales Tax or CST was the tax imposed upon the sales generated because of inter-state business trade. Central Sales Tax was an indirect tax that fell on the customers and it was payable to the government of the state where the product was sold. CST ended for all goods subsumed by GST on 1 July 2017, when inter-state sales became subject to IGST instead; CST now survives only for the few goods kept outside GST, such as petroleum products and alcoholic liquor for human consumption.
As per the Indian Constitution, no state was entitled to demand sales tax on sales or purchase of goods that occurred in interstate trade and commerce. The Constitution states that only the parliament has the authority to levy tax during interstate business transactions. In the year 1956, the Central Sales Tax Act was presented; this Act formulated the different fundamentals for determining when goods transactions took place during interstate trade or commerce. The CST Act, 1956 also issued a declaration of certain goods to be provided special value in inter-state trade or commerce by laying down restrictions on tax imposition on such items.
Documents that had to be submitted for Central Sales Tax
To register for Central Sales Tax, one had to furnish a TIN registration number. Producing a Taxpayer Identification Number was the first step, after which the applicant was required to fill the necessary forms and pay a registration fee. Inter-state suppliers of GST-covered goods now register for a GSTIN instead — see GST registration.
Anyone registering for Central Sales Tax had to provide the following documents:
- A Government approved ID proof.
- Address Proof.
- PAN card details.
- Passport sized photographs.
- Address proof for the business establishment.
- Purchase invoice.
- Bank statement.
- Security or Reference.
The documents required for registering CST could, however, vary from one state to another.
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CST Transaction Forms
Every manufacturer, trader, exporter or dealer had to issue certain statements in the order form to sellers and buyers during the transaction. The Sales Tax Authorities supplied the forms.
The different types of forms were as follows:
Form C: This form was submitted when the sales tax on an inter-state sale was 4%. The buyer in such a case had to be registered under CST so that the sale of goods was covered in the registration certificate of the purchasing dealer. The purchasing dealer became eligible for a concessional rate of tax exemption if a declaration in Form C was submitted to the seller.
Form D: If the government purchased goods from dealers, the tax rate was 4% and to avail this concession, Form D was issued by the government department which had made the purchase.
Form E1: Form E1 was required to claim CST exemption for the purchasers during any first-time, inter-state sale of goods.
Form E2: When goods moved from one state to another Form E2 was issued by the second or the following seller in the order of interstate sales by transfer. This form allowed the purchaser to claim exemption from CST.
Form F: When goods were shipped off to another state or transferred to a branch in another state, of the same dealer, then CST was not payable where only inter-state stock transfer happened without a sale. The dealer had to produce a declaration in Form F to claim inter-state movement of goods issued by the Consignment Agent or Branch Office in another State.
Form H: Form H was supplied by exporters for goods purchase where the goods were sold for the export purpose. This form was submitted to claim a deduction on CST for the sold goods which were exported.
Form I: The dealer or buyer located in a Special Economic Zone issued this form for giving concession as no CST was imposed in these regions.
Rate of Central Sales Tax
The rate of Central Sales Tax varied as per the situation. The tax rates for Service Tax and VAT were fixed, but CST did not have a fixed rate. The CST rate was also not entirely dependent upon the category of goods.
The applicability of CST rates could be categorized as;
For Declared Goods:
- When Form D was submitted during the sale, the tax rate was 4% of the sale or the rate of State Sales Tax; whichever happened to be lower.
- Submission of Form C when a sale was made to a registered dealer for resale or use of manufacturing items imposed a tax rate of 4% or the rate of State Sales Tax; whichever was lower.
- Sale in any other case imposed a 2% VAT rate.
For Other Type of Goods:
- When Form D was submitted during the sale, the tax rate was 4% of the sale or the rate of State Sales Tax; whichever happened to be lower.
- Submission of Form C when a sale was made to a registered dealer for resale or use of manufacturing items imposed a tax rate of 4% or the rate of State Sales Tax; whichever was lower.
- Sale in any other case imposed a 10% tax rate.
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Objectives of Central Sales Tax Act
The government launched the Central Sales Tax Act to simplify and organize tax collection in India.
Some of the main objectives of the Central Sales Tax Act were as mentioned below:
- Provide a smooth system for levying, collecting and distributing all the taxes accumulated through an interstate sale of goods and products.
- To set up a policy to track the sale and purchase of goods, related to interstate commerce.
- Categorizing certain class of goods because of its significance in trade and commerce.
- Establish a capable authority for settling any interstate disputes during a trade.
Central Sales Tax Exemptions
The exemption of Central Sales Tax was applicable in certain instances like:
- If a separate external freight was charged and if the external insurance of goods got passed on to the buyer then CST was exempted.
- On the return of goods within 180 days there were no CST charges.
- CST was not payable on installation, commissioning or when goods were rejected.
- Sales to Special Economic Zones (SEZ) and foreign missions were exempted from CST.
