Central Sales Tax Act

1. THE CENTRAL SALES TAX ACT,
1956

2. What is Central Sale Tax ?
• A sales tax is a consumption tax imposed by the government
on the sale of goods and services. A conventional sales tax is
levied at the point of sale, collected by the retailer and
passed on to the government.
• Central State Tax (CST) is an indirect tax which is paid
ultimately by the consumer of the product. CST is levied by
the Central Government on taxable turnover of inter-state
sale of goods made by registered dealer in ordinary course of
business.

3. • It is a tax on sale
• It is not a tax on inter-State movement
• Though it is a Central Tax – But it is collected and retained by the State from where
movement of goods commences
• “Sale” of goods shall be deemed to take place in the course of inter-State trade or
commerce, if
• Occasions the movement of goods; or
• Transfer of documents of title during movement of goods
• A sale within the State, which is not an inter-State sale or export or import, is a ‘intra-
State sale’
• Tax generally depends upon location of goods – That is, state where invoice is raised
is immaterial
Central Sales Tax Act – In Brief

4. Sales Tax
Intra-State or Local –
Movement of goods
within a State –
called as VAT– Entry
No. 54 / List II / Sch.
VII of COI
Inter-State –
Movement of goods
from one State to
another – Called as
CST – Entry No.
92A/ List I / Sch. VII
of COI
Type of Taxes On Sales in India

5. ` 5
Registration of Dealer
A Dealer doing interstate sale or purchase is required to get registered
under CST.
A Dealer can voluntarily get registered in CST. Hence there is two types
of registration in CST;
I. Compulsory Registration
II. Voluntary Registration

6. Compulsory Registration
• As per section 7(1), every dealer liable to pay Central Sales Tax has to
register himself with sales tax authority.
• As per section 6(1) of CST Act, every dealer effecting sale in the course of
Inter State trade or commerce is liable to pay CST.
• Thus, only those dealers who ‘effect’ inter state sales are required to
register under CST Act.
• Thus, registration under CST Act is done by State Sales Tax authorities who
are authorized for the purpose.
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7. Voluntary Registration
• A dealer registered with State sales tax authorities may voluntarily
apply for registration under CST Act even if he is not liable to pay
Central Sales Tax [section 7(2) of CST Act].
• He is entitled to apply for registration even if goods sold or purchased
by him are exempt under State sales tax law.
• This application for registration can be made any time. This provision
is mainly useful when the dealer makes purchases in Inter State but all
his sales are within the State.
• Thus, he is not liable for payment of any CST. However, he can make
purchases in Inter State at concessional rate only if he is registered.
Hence, he can register even if he is not liable to pay any CST.
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8. Application for registration
• Application for registration should be made in prescribed form ‘A’ within 30 days
from the date when dealer becomes liable to CST.
• Application fee of Rs. 25
• Application has to be signed by
• (a) proprietor of business
• (b) one of the partners in case of firm
• (c) Karta or Manager of HUF
• (d) director or principal officer of Company
• (e) principal officer in case of association of individuals or
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9. Other documents required at time of registration
• Normally, following are asked for –
• (a) Particulars of Directors/ partners
• (b) Copies of articles of association, memorandum in case of company
and partnership deed if applicant is a firm
• (c) Copies of rent agreements
• (d) Nominations as Manager
• (e) List of places of business, godown
• (f) Details of machinery
• (g) Details of bankers
• (h) Photographs of directors / partners.
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10. Certificate of Registration under CST
• The registering authority will ensure that application is in conformity
with provisions of CST Act. He can make necessary enquiries e.g.
• (a) particulars given are correct
(b) Materials requested for registration are eligible for inclusion and
the goods are in fact needed for the business.
• After he is satisfied and after obtaining required security, the dealer
will be issued a Certificate of Registration in prescribed form ‘B’.
• A copy of the same will be issued for every additional place of
business in the State. This certificate should be kept at principal place
of business and a copy of the certificate should be kept at each
additional place of business in the State.
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11. Meaning of “Sale”
 Meaning of sale (Sec.2(g)) and its ingredients -
 Two persons
 transfer of property in goods by one person to another
 For cash or deferred payment or any other valuable consideration.
 Six types of deemed sales also included in definition of sale -
 Transfer of property otherwise than sale
 Hire Purchase – at the time of delivery of goods
 Goods involved in Works Contract
 Transfer of right to use goods (Leasing)
 Supply by Clubs and association to its members
 Supply of food and beverages along with services

12. Central Sales Tax – Meanings of Terms
 Sale price is defined in sec. 2(h)
“sale price” means the amount payable to a dealer as
consideration for the sale of any goods, less any sum allowed
as cash discount according to the practice normally prevailing
in the trade, but inclusive of any sum charged for anything
done by the dealer in respect of the goods at the time of or
before the delivery thereof other than the cost of freight or
delivery or the cost of installation in cases where such cost is
separately charged
 Freight & Insurance – Tax to be levied on sale price Whether
form part of sale price.

13. Central Sales Tax – Meanings of Terms
 Meaning of “goods” u/s 2(d) – Movable Goods
“goods” includes all materials, articles, commodities and all
other kinds of movable property, except newspapers,
actionable claims, stocks, shares and securities
 Taxable event of sale – At the time of transfer of ownership -
Necessary for accounting, CST returns and issuance of forms
 Deeming fiction – Inter-State sale to override over local sale
 Purpose of section 3 is to define inter-State sale, even though
sale completes in accordance with section 2(g) and even
though the situs of sale will fall in one of the State

14. Central Sales Tax Act – Section 3(a)
Sale occasions movement from one State to another – 3(a)
(A) There is an agreement to sell which contains a stipulation, express or implied,
regarding the movement of the goods from one State to another;
(B) In pursuance of the said contract, the goods in fact moved from one State to
another; and
(C) Ultimately a concluded sale takes place in the State where the goods are send
which must be different from the State from which the goods moved.

15. Central Sales Tax Act – Section 3(a)
Sale occasions movement from one State to another – 3(a)
 Agreement to sell for movement of goods from one State to another, either express
or implied;
 Physical Movement of goods from one State to another – Mere passing through
another State is not enough;
 Sale to conclude in the Other State;
 Property may pass in either State.
 No difference between existing goods & unascertained goods – SC – Two mixtures
moving from other State, Mixed and delivered at the buyers place - ISS

16. Central Sales Tax Act – Section 3(a)
Sale occasions movement from one State to another – 3(a)
 Purchasers coming from other States – Counter Sale – Can it be ISS – Depending
upon facts – Goods must move from one State to another in pursuance of
contract of sale
 Parties within the State; Goods dispatched to some other State as per contract -
An ISS Sale (STC, Orissa) – However, use section 6(2) to avoid double CST (2%)
 Unfructified Sale – Not taxable

17. Central Sales Tax Act – Section 3(a)
Sale occasions movement from one State to another – 3(a)
 Name of consignee on the GR – May be self
 Significance of GR /RR - To substantiate the inter-State sale
 Documentary evidences in the absence of GR/RR: -
 Purchase Order,
 Sale Invoice,
 Entry Forms,
 Toll Receipt, etc.

18. Sale by transfer of documents of titles during movement of goods– 3(b) –
 Meaning of “during movement of goods”
 Meaning of “documents of titles” – G.R., L.R., R.R., B.L. etc.
 Unfructified sale u/s 3(a) – Sec. 3(b) may be used
 Transfer of goods by the dealer to his branch in other State; and sale during
movement by transfer of documents of title
 ISS u/s 3(b) when seller and buyer are within same State
Central Sales Tax Act – Section 3(b)

19. Central Sales Tax Act – Section 3(b)
Sale by transfer of documents of titles during movement of goods– 3(b) –
 Sale contemplated by clause (b) is one which is effected by transfer of documents of
title to the goods during their movement from one State to another. property in goods
must transfer during movement of goods
 Where the property in the goods has passed before the movement has commenced or
after the movement from one State to another has ceased, it would not be covered by
clause (b) of section 3

20. Sale by transfer of documents of titles – 3(b) –
 Manner of “transfer” –
 Endorsement or Delivery of documents - section 2(4) of the Sale of Goods Act,
1930 as, “The phrase ‘Documents of title to goods’ includes a bill of lading, dock-
warrant, warehouse-keeper’s certificate, wharfinger’s certificate, railway receipt,
warrant or order for the delivery of goods and any other document used in the
ordinary course of business as proof of the possession or control of goods, or
authorising or purporting to authorise, either by endorsement or by delivery, the
possessor of the document to transfer or receive goods there by represented
 Authorization letter - No
Central Sales Tax Act – Section 3(b)

21.  Section 5(1) of the Central Sales Tax Act: -
(i) Direct Export
(ii) Transfer of documents of title when Goods are in movement
 Goods must move from one country to another legally.
 Property may pass in either country
 Sale to foreign embassy in India or sale against foreign exchange in India
or sale at duty free shop in India is not export.
Sale in the Course of Export

22.  Section 5(3) has been enacted to extend the exemption from tax liability under the Act, not
to any kind of penultimate sale but only to such penultimate sale, which satisfies, all the
following conditions:-
(a) Such sale to the exporter must be made after the agreement by exporter with the
foreign importer in relation to such export is entered into;
(b) Sale must be made for the purpose of complying the terms of an agreement in
relation to an export, i.e., the exporter must have the confirmed orders;
(c) Same goods must be exported i.e., deduction under this section is not available for
raw material used in the production of goods to be exported. However, packing and
re-packing of the goods does not alter the substance and still exemption can be
claimed u/s 5(3); and
(d) Person making such sale shall obtain a certificate, in form “H” in the CST Act from the
exporter. Form H is mandatory
Penultimate Export

23.  As per section 5(2) of the CST Act, a sale or purchase of goods is deemed to be in the
course of import of goods into territory of India only if: -
(i) sale or purchase occasions such import; or
(ii) sale or purchase is effected by transfer of documents of title to the goods before
the goods have crossed the custom frontiers of India.
 The course of import of goods starts at a point when the goods cross the customs
barrier of the foreign country and ends at a point in India after the goods cross the
customs barrier.
Sale in the course of Import

24. FIRST LIMB – OCCASIONS THE MOVEMENT
 Sale must occasion the import
 There must be an integral connection or inextricable link between first sale following
the import and the actual import
 An obligation to import may arise from statute, contract or mutual understanding or
nature of the transaction
 Links between sale to the import, which cannot, without committing a breach of
statute or contract or mutual understanding, be snapped
Sale in the course of Import

25. SECOND LIMB - HIGH SEAS SALE
 When the goods are sold before these cross the customs frontiers of India, i.e. after
crossing the customs barrier of foreign country but before crossing the customs
station of India, these types of transactions are also covered by section 5(2) of the
CST Act. These kinds of sale are popularly known as “high sea sale”, where sale is
effected by endorsement on documents when the goods are on high seas.
 Sale of imported goods at duty free shops beyond the customs area - To be treated
as High Seas Sale,To be applied to Bonded Warehouse also.
Sale in the course of Import

26. Sale in the course of Import
Documentation - High Seas Sale
In every High Seas Sale transaction, following documents should be raised / endorsed
and delivered when the consignment is on “HIGH SEAS” :-
a. Offer for sale of goods on high seas;
b. Acceptance of offer – agreement to sale;
c. Endorsed Bill of Lading in favour of buyer;
d. High Seas Sales Invoice in favour of buyer.
e. Bill of entry in the name of High Seas purchaser;
f. Payment of customs duty by the HS Purchaser.

27. • Movement of goods from one State to another by a dealer to his other place of his
business or to his agent or principal;
• Goods would include even the consumables & capital goods
• Goods moving to out-state Godown
• Exempt against Form F – Mandatory
• Burden of proof with transferor– to prove whether -
• Goods are moving to the branch not in pursuance of sale agreement with the third
party
• the agent to whom goods are transferred is not a principal buyer [i.e. transfer
must be from ‘P’ to ‘A’]
• Amendment in the Central RC for addition of branch
• Goods need not be specified in the RC of transferor/transferee
Stock Transfer u/s 6A

28. • Failure to Furnish Form F –
• Deemed as inter-State Sale
• Taxable Event – Date of dispatch
• If deemed as ISS (generally in the case of transfer to agent) -
• Form C can be obtained from the transferee branch even if they are same
person – Provided the recipient State considers it as ‘deemed purchase’ – And
goods are included in the RC of the transferee
• Value of Form F:
• Whether shortfall in the value of Form F and the sale value be questioned by the
AA of the receiving State
Stock Transfer u/s 6A

29. • Maintain Records as prescribed in State CST Rules
• Documentary evidence : –
• 1. Dispatch proof; 2. Agents records;
• 3. Sale patti; 4. Agreement with agent;
• 5. Statement of account and Copy of ledger;
• 6. Conduct between the Parties
• Power of Reassessment to the AA on the ground of discovery of new facts; and
Revision to a Higher Authority on the ground that the findings of AA are contrary to
law [Sec. 6A(3)]
• Opportunity to furnish Form C , if stock transfer is rejected and assessed as ISS
(Sawhney Steel – SC)
Stock Transfer u/s 6A

30. Inter-State transfers to Third Party for Job Work : -
• Sale pertains to those goods which are used in the contract by the job worker and
transferred to the contractee
• CST shall be charged by the job worker in the other State
• Form F shall be furnished in those cases also where goods are transferred for
processing or job work to other States
• Supreme Court, without interfering Ambica Steel, allows time to submit forms
• Later, Allahabad HC in ACPL Jewels held that AA to complete assessment on merits, if
the assessee fails to submit forms
Stock Transfer u/s 6A

31. Various Forms Under CST
Form AFORM _A.pdf Application for Registration under Section 7(1)/7(2) of Central Sales Tax Act, 1956.
Form BFORM_B.pdf Certificate of Registration
Form CFORM_C.pdf Form of Declaration
Form DFORM_D.pdf Form of Certificate for making Government Purchases(omitted)
Form E1FORM_E1.pdf Certificate under sub-section **(2) of Section 6.
Form E2FORM_E2.pdf Certificate under sub-section (2) of Section 6. 62[See rule 12(4)]
Form FFORM _F.pdf Form of declaration to be issued by the transferee
Form GFORM_G.pdf Form of Indemnity Bond
Form HFORM _H.pdf Certificate of Export