CONTENTS OBJECTS AND BASIC SCHEME OF THE CST ACT CONSTITUTIONAL BACKGROUND OF CST

Transcription

1 CONTENTS u Chapter-heads I-5 u Central Sales Tax Act, 1956 : Section-wise Index I-29 1 OBJECTS AND BASIC SCHEME OF THE CST ACT 1.1 Introduction Objects of CST Act Basic scheme of the CST Act Inter-State and Intra-State Sale Taxable event in sales tax Categories of Sales Recovery from customer is not essential for sales tax Background of CST Act Historical background of CST Act Incompatibility of VAT and CST 7 2 CONSTITUTIONAL BACKGROUND OF CST 2.1 Constitution of India Administration of State Judicial Organ Legislative Organ Administrative Organ Taxation under Constitution Union list relevant to taxation State list pertaining to taxation Aspect theory of taxation Service tax and VAT (sales tax) are mutually exclusive, Vat cannot be imposed on value of service 13 I-7

2 CONTENTS I Restrictions on powers of taxation No restriction on Inter-State Trade and Commerce Limitations of Taxation Powers Sales Tax does not directly affect free movement of goods Tax on local goods and goods from other States must be same Constitutional validity of Entry Tax 20 3 INTER-STATE SALE 3.1 Charging section of CST Meaning of Inter-State Sale Sale which Occasions movement of goods Sale should occasion movement of goods Property passing in the State where sale takes place Contract did not provide movement of goods, but movement of goods incident of contract of sale Case where movement inextricably connected with sales Dispatch through depot or branch only for name sake Person buying goods in one State and necessarily despatching to another State Goods moving under agreement to sale is also Inter- State sale Goods moving as per condition of supply Cases where movement of goods was compulsory as per statutory provisions Contract need not be in writing - it can be inferred also Sale not inter-state if movement of goods is not related to contract for sale Sale can be inter-state even if goods are processed after clearance from place of dealer Sale direct to ultimate buyer but delivery through local dealer Inter-State sale even in case of works contract Temporary movement through another State is not Inter-State sale Sale not inter-state simply because buyer is from outside the State Auction sale 41

3 I-9 CONTENTS 4 INTER STATE SALE BY TRANSFER OF DOCUMENTS 4.1 Document of title and its transfer What is Document of Title of Goods Transfer of Document Sending documents through Bank What is transfer during Movement of Goods Movement of goods is complete only when delivery is taken All sales during movement of goods can be under section 3(a) of CST Act? Contract for subsequent sale should be after commencement of movement of goods? Precautions to be taken to ensure that dealer is not affected by SC decision in A & G Projects Illustrations of transfer during movement of goods Buyer and seller can be in same State Buyer in one state, goods bought from another State, but goods despatched to third State Goods transferred to another buyer as first buyer did not take delivery Hire purchase or leasing can be during transit Sale through commission agent is not covered if property does not pass to him 55 5 STOCK TRANSFER/BRANCH TRANSFER 5.1 Background of stock transfer Stock transfer for works contract No stock transfer of tailor made goods Consignment Agent Agency need not be in writing Payment of advance by agent does not mean that the agent is purchaser Principal need not be registered in the State where consignment agent is operating Distinction between contract of sale and contract of agency Distinction between commission agent, consignment agent and C&F agent When Stock Transfer is treated as Inter-State sale Illustrations where claim of stock transfer not upheld 60

4 CONTENTS I Goods despatched through depot but only one known buyer Goods despatched through agent to buyer already identified Buyer identified before removal of goods from factory Direct despatch to buyer from factory Submission of C form at appellate stage if transaction held as inter state sale Illustrations where claim of stock transfer was upheld Movement of standard goods not inter-state sale even if there were firm orders in other State Movement of goods for mixing in other State or using for manufacture in other goods and then ultimate sale Consignment agent paying advance does not mean it is inter-state sale Double taxation when stock transfer held as sale Comparison between stock transfer and direct sale F form for stock transfer Burden of proof in case of consignment despatches F form is mandatory Submission of F form is not a conclusive evidence, but it is conclusive after Assessing Officer passes an order Form F required if goods sent outside the State for job work, repairs etc Goods can be sent to other State for further manufacture Enquiry regarding truth of contents in Form F can be conducted at the time of assessment or even later Contents of Form F Procedural requirements in respect of issue of form F F form only in case of completed transactions, not in case of rejection Missing F form does not mean that goods moved Penalty if details in invoice and F form contradictory 77 6 SALE OUTSIDE THE STATE 6.1 Background What is Sale outside a State Sale inside a State 79

5 I-11 CONTENTS 6.2 Location of goods is vitally important Sale when goods are ascertained Inter State sale is not sale inside State Inter State sale or sale during export is not intra-state sale Illustrations of Intra-State sale Sale when there is no foreign destination Sale to ship which is within territorial waters is local sale Territorial waters of India Sale to foreign going vessels from bonded warehouse Sale by transfer of documents when goods are in bonded warehouse Situs of sale in Inter State sale or during export 87 7 GOODS UNDER CST ACT 7.1 Definition of goods Goods must be movable Plant & machinery assembled at site is not goods Newspapers are not goods for purpose of CST Act and State Act Stock, shares etc. not liable under CST Actionable claim is not goods Sale of business is not sale of goods Definition of goods as per Constitution Intangible articles are goods Electromagnetic waves transmitted through telephones is not goods Can there be inter-state sale of intangible goods? Software Development of software for customer is not sale of software Distinction between copyright and copyrighted software Excise duty and service tax on software Position w.e.f Renewal of license of packaged software Summary of taxability of Information Technology Software Position prior to Can service tax be imposed on IT software? 113

6 CONTENTS I-12 8 SALE UNDER CST ACT 8.1 Sale and deemed sale Essentials of valid conventional sale Sale must be a complete sale Ascertained goods Sale of illegal goods is taxable Free supply is not sale Sale to one-self can also be sale, if capacities are different Transaction between two companies during the effective date of amalgamation and actual date of order of HC is stock transfer and not sale Sale and purchase are complimentary terms Transfer of Property essential in sale No sales tax on mere agreement to sale Transactions which are not sales Charge/mortgage/hypothecation/pledge is not sale Job Work/processing Consignment/depot transfer/branch transfer Barter or exchange or loan of goods is not a sale Loan transaction is not sale - Same goods need not be returned Transfer of goods to partner on dissolution of partnership is not sale of goods Supply of material to contractor in case of works contract can be sale Giving replacement by charging repair charges No tax if despatch is on account of contract of agency Test whether sale is by Agent or by Principal Sale under Sale of Goods Act Sale as defined in Constitution DEEMED SALES UNDER CST ACT 9.1 Transactions which are deemed sale Compulsory sale is taxable Goods involved in works contract Hire Purchase is Sale Hirer is not owner of goods 133

7 I-13 CONTENTS Goods must be returned to owner if buyer company is wound up Owner can take possession in case of default Distinction between hire purchase and instalment purchase Distinction between hire purchase and hire purchase finance There can be inter-state sale in hire purchase or lease Transfer of right to use (like leasing and hire) Transfer implies exclusive possession to transferee Meaning of transfer of right to use goods Hire of goods when taxable Right to exhibit or telecast of films and programmes Right to use trade mark can be taxed Rental charges for gas cylinders Hiring of lockers is not taxable Sale price in case of hire or leasing or hire purchase transaction Situs of sale in case of transfer of right to use goods Providing telephone apparatus and other appliances to subscriber is not transfer of right to use the goods Valuation in case of transfer of right to use goods Input tax credit (set off) on purchases made for leasing Leasing Financial and Operating Lease Meaning of Financial lease Distinction between hire purchase and lease Distinction between hire and lease Tax only on goods and not on lease/hire of immovable property Earlier case law in respect of lease in inter-state transaction Lease transaction can be inter-state sale No sales tax on sale and lease back? Sale to member of unincorporated association or body of persons Sale of food articles Sale in canteen to workmen is also taxable Free meals to employees is not sale GOODS INVOLVED IN WORKS CONTRACT 10.1 Works contract and deemed sale 161

8 CONTENTS I What is works contract Sales tax (VAT) is on goods involved in works contract and not on works contract as such Meaning of goods in other form No transfer of property in goods if material gets exhausted/evaporated in execution of works contract Only one deemed sale and one taxable event even when work is done by sub-contractor Distinction between contract of sale and a works contract Transfer of property should be during execution of works contract Dominant intention need not be transfer of property There is no sale when hospital uses some goods during operation How to distinguish works contract from sale Main object should not be to transfer chattel as chattel Intention of parties is to be seen Person executing works contract never has property in goods as whole Mode of payment does not determine whether it is a works contract No standard test can be laid down Main goods should belong to the buyer? Severable contract or divisible contract Works contract if contract for construction is made with prospective buyer Distinction between contract for sale of immovable property and sale of immovable property If any payment is obtained from customer prior to obtaining completion certificate, it will be deemed service and service tax is payable w.e.f This amendment does not apply to works contract service Effect of the amendment Contract of skill & labour Basic distinction between sale of goods and works contract No actual sale in case of works contract Amendment to cover sales tax on goods in works contract Indivisible contract artificially converted into sale contract Illustrations of works contract Building contract Tailor and garment Supply and fixation of rolling shutters Retreading of old tyres 184

9 I-15 CONTENTS Photographic work Giving Xerox copy Supply of printing material as per requirement of buyer Contract for supply designing, supplying, erection and commissioning Supplying spare parts in repair contract or maintenance contract Other illustrations of works contract Illustrations where transaction was held as sale not works contract 192A 10.6 Job work and works contract 192A 10.7 Contractor need not be owner of flat if he sells flat before construction Value liable for Works Contract Tax Tax can be only on value of material Deductions permissible while calculating value for purpose of tax Composition scheme permitted Rate can be different from other goods Value of material supplied by buyer to be added to sale price Royalty payable cannot be included for purpose of works contract tax Whether Vat is payable on service tax portion in case of works contract Valuation rules to determine sale price of works contract CST on immovable property in works contract Works contract of movable property Inter-State Works contract in case of immovable property State cannot artificially treat Inter-State works contract as local sale Judgments that there can be Inter-State Works Contract Other aspects relating to works contract Supply of material to contractor can be a sale C form can be supplied/received for purchases/sales for works contract TDS on works contract Taxability of BOT projects Income Tax provisions Service tax on works contracts 210

10 CONTENTS I DEALER UNDER CST ACT 11.1 Person liable to pay CST Dealer Ancillary, incidental and casual business is also covered Government as dealer Government company or corporation is not Government Government dealer only if it carries on business of selling, buying of goods etc Government can be dealer if specifically included in the definition of dealer Customs and excise department selling confiscated goods are dealers Railways is dealer Agent as a Dealer Definition of dealer includes Agent Intermediaries are not to be registered Transporters and C&F agents are not dealers Distinction between contract of sale and contract of agency Agent can be dealer if principal undisclosed Club as a dealer Other persons held as dealer State Road Transport Corporation is a dealer Insurance company is a dealer Pawnbroker as dealer Bank/NBFC can be dealer in respect of sale of pledged/hypothecated goods Auctioneer is not a dealer Hospital selling drugs to patients is dealer Official liquidator of company is dealer Agriculturist is not dealer Collection of tax only by registered dealer Dealer liable even if he does not collect sales tax BUSINESS UNDER CST 12.1 Definition of Business Business Main activity should be business 224

11 I-17 CONTENTS 12.3 Sale of business is not business Incidental business can be taxed Transactions held as incidental to business Transactions held as not incidental to business History behind expanded definition of business Person under CST Act STATE RELEVANT TO A DEALER 13.1 Meaning of Appropriate State Appropriate State Place of Business State authorised to collect tax Liability in case of subsequent sale State authorised to collect tax when chain of transfer of document is broken Two State Governments cannot tax same transaction QUANTUM OF CST PAYABLE 14.1 Rate of Central Sales Tax CST rates to various categories, as applicable upto State sales tax to be inclusive of additional tax/surcharge/turnover tax Calculation of Sales Turnover Turnover Round off of CST payable Prescribed period under CST Value must have relation to sale of goods at the time of sale - VAT cannot be imposed on basis of MRP Service tax and VAT (sales tax) are mutually exclusive, Vat cannot be imposed on value of service Effect of changes in sales tax rates after contract of sale on the price of goods as agreed in the contract Aggregate Sale price Terms of contract are important, how invoice is prepared is not relevant Entire amount payable as consideration for sale can be taxed 247

12 CONTENTS I Entire consideration of sale, even when price is statutorily fixed Inclusions in sale price Any sum charged for by dealer at or before delivery Central Sales Tax Taxes and duties on goods sold Packing material and packing charges Cost of freight Subsidy paid to supplier when includible Dharamda (Charity) Other charges which are includible Exclusions from sale price Discounts Freight, transport and other charges for delivery of goods Subsidy paid by Government not part of turnover Duty refunded on deemed exports is not includible Export incentives to seller Duty drawback on exports Deposits for returnable containers Transit Insurance Cost of installation and commissioning Valuation when value includes value of service Free of cost material supplied by customer Royalty paid for mining lease Post delivery charges not connected with sale of goods not includible in sale price Handling charges of motor vehicle Goods returned/rejected Sale price in case of works contract Whether VAT is payble on service tax portion in case of works contract GOODS ELIGIBLE FOR REGISTRATION BY DEALER 15.1 Goods at concessional rate Goods which can be purchased at concessional rate Meaning of for use Goods intended for resale 270

13 I-19 CONTENTS 15.3 Goods for use in manufacture New and identifiable product must emerge in manufacture Goods for any process integral with ultimate production eligible Items eligible/not eligible for concessional rate Job work eligible - Goods need not be sold by the manufacturer himself Dealer need not himself be the manufacturer, he can be trader Goods need not be manufactured or re-sold in the same State Goods can be manufactured outside the State and then brought in the State of purchase, under concessional rate of CST Use for agricultural production not permitted Items declared as eligible by Government circular Illustrations in respect of eligible/not eligible goods Goods for use in processing What is a process Goods for use in telecommunications network Goods for use in mining Goods for use in power generation/distribution Packing material Raw material purchased by newspapers eligible EXEMPTIONS FROM CST 16.1 Exemptions and exclusions from CST Subsequent sales by transfer of documents Conditions for exemption Certificate required Declarations in E-I and E-II forms Contents of E-I declaration Contents of E-II declaration Some provisions of C form applicable to E-I/E-II forms Submission of both E-I/E-II forms from seller and C form from buyer is mandatory Lower rate if local sales tax rate is lower than 2% Inter State Sales to unregistered dealer exempt, if sale within the State was generally exempt 293

14 CONTENTS I Exemption by notification Competition among States States have agreed to stop unhealthy competition State Government cannot waive condition of submission of C form Exemption can be for whole year even if notification issued in middle of year but what about increase in middle of the year Sales tax may be payable on packing even if goods are exempt Sale during Import/Export Exemption from CST if sale to SEZ unit or SEZ developer What is SEZ Goods that can be obtained by SEZ without CST SEZ unit has to submit I form Exemption to supplies to foreign missions/un etc Constitutional validity of exemption provisions SALE IN COURSE OF EXPORT 17.1 Constitutional background of export sale Export sale and sale in the course of export What is Sale in course of Export Purchase of aviation turbine fuel by Indian carriers and foreign aircrafts flying abroad Sale should occasion the export Goods should be destined to foreign country, though actual reaching of destination not necessary Sale outside territorial waters but within Exclusive Economic Zone is export Purchase by branch for transfer to other State for ultimate export is in course of export Goods must physically move out of India - mere payment in foreign exchange not sufficient Sale in course of export by transfer of documents Meaning of Crossing Customs Frontiers of India Exports with help of or through agents Export through agents Penultimate sale for export Purchase prior to penultimate sale not exempt Normal wastages allowed 318

15 I-21 CONTENTS This is not a deemed export Pre-existing arrangement essential Same goods purchased should be exported though they need not be in same form for exemption under CST Act Purchase of paddy and export of rice Fitting bus body on chassis and selling bus Purchase in auction can also be in course of export Penultimate sale is not a local sale for purpose of purchase tax Purchase of packing material for export permissible Certificate in form H H form mandatory Contents of form H Manufacturer has to prove actual exports? SALE IN THE COURSE OF IMPORT 18.1 Constitutional background of sale on imports Direct Imports Sale in duty free shops in international airports Sale by Agents in India Privity of contract between the ultimate buyer and exporter necessary Import when there is no privity of contract Sale need not precede import, movement under agreement to sale is sufficient Sale in the course of import by Transfer of Documents Sale in the course of import for leasing Sale of goods stored in customs bonded warehouse is sale during import Meaning of crossing customs frontier Meaning of customs station and customs area Meaning of clearance under customs Sale of goods when goods are in bonded warehouse is sale in the course of import What can be document of title? Customs Duty paid by buyer when sale is by transfer of documents is not includible in sale price Sale after import is a distinct sale 338

16 CONTENTS I GOODS OF SPECIAL IMPORTANCE 19.1 Declared Goods Constitutional background Additional Excise in lieu of sales tax State Government can impose sales tax on goods leviable to AED Goods of special importance Articles held as declared goods Articles held as not declared goods The item must be construed strictly when the words used are that is to say Restrictions on State taxation on declared goods Tax on declared goods not to exceed 5% Reimbursement of local tax if declared goods sold Inter-State Goods must be sold in same form to obtain reimbursement Special provisions about paddy and pulses Sales Tax rates applicable for sale of declared goods PROCEDURES UNDER CST ACT 20.1 Source of Procedures under CST Act State provisions apply for many procedures Rules framed by Central Government Rules by State Governments Some Provisions of State Laws applicable to CST Sales Tax Law of each State Provisions of Central Act and Rules to prevail over State laws in CST matters Registration under CST Act Compulsory Registration under CST Voluntary Registration Application for registration Security from dealer under CST Act Other documents required at time of registration Certificate of Registration under CST 361

17 I-23 CONTENTS Amendment of registration certificate All items of purchase and sale must be included in Registration Refusal of Registration under CST Cancellation of CST Registration Forms and declarations under CST Declarations to be submitted dealer When to submit the declarations Who can sign the declarations Declaration form can be submitted at appellate stage if sufficient cause shown Re-assessment if declaration form submitted later and delay explained Declaration form cannot be rejected for minor defects STO should allow rectification of defects in declarations Recovery of difference if buyer refuses to issue required declaration form Refusal to issue of blank declaration forms not justified Rule can be amended to provide for non-issue of blank declaration form in case of defaults Declarations cannot be issued if goods are rejected Issue of sales tax form is not acknowledgement of debt Practical aspects of declaration form Prescribed forms under CST Declaration in form C Authority to issue blank C form Contents of C Form under CST C Form is mandatory to avail concessional rate Quarterly submission of C certificate Original and Duplicate and Counterfoil copy Procedure in case of Loss of C form Selling dealer not liable for false declaration by buyer C form should be issued after purchase with full particulars Issue/receipt of C form against goods used in works contract Declaration cannot be issued if goods are rejected C form issued by one branch but goods used by another branch of the same owner not permissible? Submission of C form is not conclusive evidence Certificate in D Form 385

18 CONTENTS I APPEALS AND PENALTY UNDER CST ACT 21.1 Appeals under CST Appeal if issue relates to inter state stock transfer or consignment of goods Further appeal against order of highest appellate authority, in certain cases under CST Formation of Appellate Authority Matters appealable to the authority Time limit for filing appeal Fees for filing appeal Department can file appeal against order of highest appellate authority Procedure for hearing appeal by CST Appellate Authority Stay by appellate authority Transfer of pending proceedings with CST Appellate Authority as on Authority can order refund by one State Government only to the extent of CST payable Offences under the CST Act Offences punishable Punishment by Court of law Compounding of offences Offences cognizable and bailable Punishment for other offences Mere possession of cash and undisclosed income not enough to sustain demand of sales tax, actual sale must be shown Mens rea in the CST offences Lenient view for technical lapses No limitation for launching prosecution Other provisions Liability of company-in-liquidation Liability of directors of private limited company in case of liquidation Recovery of CST Indemnity to Government Officers Sales Tax Planning 402

19 I-25 CONTENTS 22 STATE LEVEL VAT 22.1 Introduction State-wise position of VAT Compromised VAT No model law for all States Defects that had cropped up in sales tax system in India Steps taken to stop the menace AED (GSI) Act Basic Concept of VAT Meaning of cascading effect of tax Disadvantages of cascading effect of taxes Disadvantages of single point tax VAT avoids cascading effect of tax Illustration of tax credit method to avoid cascading effect Consumption types of VAT Nature of VAT/GST Meaning of Value added Revenue Neutral Rate (RNR) Advantage of VAT over conventional system of taxation Advantages of State Level VAT Deficiencies in present State VAT System Highlights of State Sales tax VAT Tax rates Concession for small dealers Policy about turnover tax, surcharge, additional tax etc. imposed by State Governments Non-availability of input credit in certain cases Credit of duty on capital goods Procedural provisions Provisions in State VAT relating to CST Provisions of assessment and audit Other provisions of State VAT Input Tax Credit even if selling dealer does not pay tax Record of Input Tax Credit Records of purchases of Inputs Quantity record of inputs 429

20 CONTENTS I Record of credit notes received from supplier Record of capital goods Other records Record of tax credit available Record of output tax Payment of tax and filing returns Disadvantages and pitfalls in VAT Carousel fraud in VAT Accounting treatment of VAT GOODS AND SERVICES TAX - SHAPE OF THINGS TO COME 23.1 GST is finally coming Background of GST Present structure of indirect taxes What is Goods and Service Tax? GST is consumption based tax Duel GST Expected rates of GST /4 Integrated GST for interstate transactions /4-1 Finance Cost will increase Central Excise duty on petroleum and tobacco products Sales tax on petroleum products and alcoholic liquor within State Tax on entertainment only by Municipalities, panchayat, regional council and district council Tax of 1% on inter-state supply of goods for two years Abolition of other duties and taxes Issue relating to Purchase tax Definition of deemed sale to continue Taxation powers of district council Goods and Service Taxes Council IGST is a novel idea Area based exemptions Information Technology Network Registration number of assessee Value for purpose of GST Electronic returns 442

21 I-27 CONTENTS Composition Scheme for small dealers Exemption to small assessees Administration of taxes Conclusion 443 APPENDICES Appendix 1 Central Sales Tax Act, Appendix 2 Central Sales Tax (Registration and Turnover) Rules, Appendix 3 Goods eligible for purchase at concessional rate under CST 512 SUBJECT INDEX 541