NOTES ON CST ACT

OBJECTIVES OF CST ACT
(I) Objects of Enacting the Central Sales Tax Act, 1956
The act has been enacted to formulate the principles regarding the following:
(A) To formulate principles for determining when a sale or purchase of goods takes place:
i) in the course of Inter-State trade or commerce u/s 3; or
ii) outside a state u/s 4; or
iii) in the course of import into or export from India u/s 5.
(B) To provide for levy u/s 9(1) and 9(2) and distribution of taxes u/s 9(3) on sale of goods in the
course of Inter-State trade or commerce.
(C) To declare certain goods to be of a special importance in Inter-State trade or Commerce u/s 14.
(D) To specify the restriction and condition to which state laws imposing taxes on sale or purchase of
goods of special importance in the course of Inter-State trade and commerce shall be subjected
to u/s 15.

 FEATURES OF CST ACT
(II) Features of the Central Sales Tax Act, 1956
These are the important features of the Act:
(a) This Act extends to the whole of India.
(b) There are 26 sections in this Act.
(c) It contains the provision for single point tax.
(d) It also contains the provision for multiple-point tax.
(e) The declared goods (goods of special importance in inter-state trader or commerce) are taxed at
lower rate in comparison to other goods.
(f) The dealer, who have inter-state trade, is subject to tax without no exemption limit.
(g) The dealers, who are dealing in inter-state trade, are require to get themselves registered and
they should display the registration certificate at all places of business.
(h) Where the goods have been sold outside the state, the tax shall be levied by the Central
Government but it is collected by that State Government from where the goods have been sold
outside the state.
(i) The tax collected is given to the same State Government which has collected the tax.
(j) Tax collected is deposited in the ‘Consolidated Fund of India’, in case of Union Territories.
(k) For proper implementation of various provisions of this Act, the Central Government and the
State Government are empowered to frame rules and regulations.
1. Explain the Nexus theory Concept and discuss the remedies to the practical problems posed by
the nexus theory in case of taxability of inter-State transactions.
The 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. (Nexus means
connection or relationship).
Elements of territorial connection:
(a) The connection must be real, not imaginary.
(b) The liability sought to be imposed must be pertinent to the connection.
However, nexus theory is not a licence for States to assume extra-territorial jurisdiction and levy tax on
transactions outside the State for simple reasons, such as:
· Mere presence of goods in the taxing State on the date of agreement even though property may
have passed elsewhere.
· Mere production or manufacture of goods in a State.
The limited utility of the Nexus Theory was discussed at length by the Supreme Court in the following
cases:
· Bengal Immunity Co. State of Bihar.
· Tata Iron and Steel Co. Ltd. vs. State of Bihar.
Article 286 was introduced in the Constitution to remedy this problem. It provides that:
No law of a State shall impose, or authorise the imposition of a tax on the sale or purchase of goods
where such sale or purchase takes place –
· Outside the State, or
· In the course of the import of the goods into, or export out of, the territory of India.
(III) Important Definitions Under Section 2 of CST
(a) Appropriate State [Sec. 2(a)]
As per Section 2(a) of CST Act, ‘Appropriate State’ means
(a) in relation to dealer who has one or more places of business in the same State, that State
(b) in relation to a dealer who has places of business situated in different States, every such State
with respect to place or places of business situated within its territory.
Thus, a dealer has to register only with sales tax authorities where he has ‘place of business’.
For example:
Places of Business Appropriate State
1. Allahbad, Kanpur, Varanasi and Lucknow Uttar Pradesh
2. Allahbad and Varanasi, Bhopal and Katni for Allahabad & Varanasi would be Uttar Pradesh
and for Bhopal and Katni would be M.P.
Importance of Appropriate State:
 The administration, levy and collection of tax has been delegated to the state, although it is a
Central Act.
 The provisions regarding returns, appeals, penalties, etc. are dealt with by the appropriate state.
 The tax payable by a dealer depends on the rates applicable to the sale or purchase of goods in
the appropriate state.
 Registration is carried out in the appropriate state.
 The authority to assess, reassess, collect and enforce the payment is entrusted to the officers of
the appropriate state.
(b) Business [Sec.2 (aa)]
Section 2 (aa) of CST Act defines that ‘business’ includes
(i) any trade, commerce or manufacture, or any adventure or concern in the nature of trade,
commerce or manufacture, whether or not such trade commerce, manufacture, adventure or
concern is carried on with a motive to make gains or profit and whether or not any gains or
profit accrues from such trade, commerce, manufacture, adventure or concern; and
(ii) any transaction in connection with or incidental or ancillary to, such trade, commerce,
manufacture, adventure or concern.
Note:
Thus, as per this definition, profit motive is immaterial. Business includes ‘Adventure’,
occasional transactions will also be covered. Adventure implies some ‘speculation’. Incidental
or ancillary business is also covered e.g. sale of used fixed assets, sale of scrap, sale of old
machinery & old furniture etc. is taxable, though normally the dealer may not be in business of
selling fixed assets, furniture or machinery e.g. Central Excise Authorities selling the goods
confiscated by them are liable to pay sales tax.
(c) Crossing the Custom Frontiers of India [Sec. 2 (ab)]
Section 2 (ab) of CST Act states that crossing ‘Customs Frontiers’ of India means crossing the
limits of the area of a customs station in which imported goods or exported goods are ordinarily
kept before clearance by customs authorities. Customs Station and Customs Authorities have
same meaning as per Customs Act.
Customs Station means customs port (for vessels), customs airport (for Aircrafts) or land
customs station (for trucks or motor vehicles). Central Government is authorized to specify such
places. Within such customs port, Customs area is specified by Customs Authorities where
imported goods or export goods are ordinarily kept by customs authorities.
(d) Dealer [Sec. 2 (b)]
Section 2(b) defines that “dealer” means any person who carries on (whether regularly or
otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly,
for cash, or for deferred payment, or for valuable consideration, and includes
(i) a local authority, a body corporate, a company, any co-operative society, club, firm, Hindu
Undivided Family or other association of persons which carries on such business
(ii) a factor, broker, commission agent, del- credere agent, or any other mercantile agent, by
whatever name called, whether the same description as herein-before mentioned or not,
who carries on the business of buying, selling, supplying, or distribution, goods belonging
to any principal whether disclosed or not and
(iii) an auctioneer who carries on the business of selling or auctioning goods belonging to any
principal, whether disclosed or not and whether the offer of the intending purchaser is
accepted by him or by the principal or a nominee of principal and
(iv) Any government which whether or not in course of business, buys or sells, supplies or
distributes goods for cash or for deferred payment or for commission, remuneration or
other valuable consideration is deemed to be a dealer.
However, in relation to any sale, supply or distribution of surplus, un-serviceable or old
stores or materials or waste products or obsolete or discarded machinery or part of
accessories, thereof, the government shall not be deemed to be a dealer under this Act.
(3) Following are not dealers:-
(a) a tailor; (b) a dry cleaner; (c) a doctor who treats a patient; (d) ornament maker who is
contractor for work and labour; (e) a photographer; (f) a painter; (g) a sculptor; (h) an
advertising (i) an artist who creates a work of art for reward (j) a newspaper publisher (k) a
radiologist.
Note: If the damaged goods of insurer are possessed by insurance company under the
‘doctrine of Subrogation; which is sold by the insurance company later on, than the
insurance company shall be treated as dealer.
(e) Declared Goods [Sec. 2(c)]
Section 2(c) of CST Act defines Declared Goods as those declared under Section 14 of CST Act
as goods of special importance in inter-state Trade or Commerce. Section 14 of CST Act gives
a list of such goods and section 15 specifies restrictions on power of States to tax such goods.
U/s 14, the following goods have been declared as goods of special importance in inter state
trade or commerce.
(1) Coals and coke in all forms (excluding charcoal.)
(2) Cotton in unmanufactured form but not cotton waste.
(3) Manmade fabrics___ fabrics of manmade filament yarn i.e. artificial textile material,
polyester filament yarn, staple fibres, polyester staple fibre tyre card, fabric, impregnated
textile fabrics etc.
(4) Cotton fabrics, cotton yarn (excluding cotton yarn waste).
(5) Hides and skins (Raw or cleaned)
(6) Iron and steel
(7) Jute – whether baled or otherwise
(8) Oilseeds
(9) Sugar and Khandsari sugar
(10) Unmanufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc.
(11) Cereals i.e. paddy, rice, wheat, bajra, jowar, barley, maize, ragi, kolon, kutki etc.
(12) Crude oil i.e. crude petroleum oil and crude oil obtained from bituminous minerals
(13) Pulses i.e. gram, tur, masur, moong, urad, arhar, moth, khesari etc.
(14) Woven fabrics of wool.
(15) Aviation Turbine fuel sold to a Turbo Prop Aircraft.
Note:
(1) Under Section 15, there are some restriction and conditions in regard to taxation of declared
goods.
(2) The Tax payable on the sale or purchase of declared goods inside the state shall not exceed
4%.
(3) Tax shall not be levied at more than one stage in case of declared goods.
(4) The dealer shall be entitled to refund of tax, if the following conditions are satisfied.
(a) Tax has been paid at the time of sale or purchase to a state government of the declared
goods.
(b) Afterwards, all above goods are sold in the course of interstate trade or commerce.
(c) Tax has been paid on such goods under CST . Act.
(d) The dealer is fulfilling the conditions with regard to refund in the State Act.
(e) The refund shall be granted to the dealer who sells the goods in the course of Inter-State
trade commerce.
(f) The dealer who has paid tax to the state government shall not be entitled to claim refund.
(f) Goods [Sec. 2 (d)]:
Section 2 (d) of CST Act defines that ‘goods’ includes all materials, articles, commodities and all
kinds of movable property,
but does not include newspapers, actionable claims, stocks, Shares and securities.
Goods must be movable. CST cannot be levied on immovable property.
(1) Following are the instances of goods for C.S.T. Act:
(a) Electricity; (b) Copy right; (c) Patent; (d) Lottery ticket; (e) Readymade computer
software; (f) Advance REP license; (g) growing crops, grass, standing tress on the land, if
these have been served from the land, they shall become goods; (h) Air or water, if there are
made available to customers or consumers at cost (i) Old Newspaper if sold as waste.
(2) Following are the instances of not-goods (since these items has been specially excluded from
the meaning of goods for CST Act )
(a) Share; (b) securities like debentures; (c) Money; (d) Stocks; (e) Newspapers;
(f) Actionable claims; (g) Growing crops, grass, standing trees on the land.
Note: Actionable claims means which can be recovered through civil court.
(g) Place of Business [Sec. 2(dd)]
Section 2(dd) of CST Act defines that ‘Place of Business’ includes
(i) place of business of agent where dealer carries on business through an agent
(ii) warehouse, godown or other place where a dealer stores his goods
(iii) place where a dealer keeps his books of account. This is an ‘inclusive definition’ i.e.
other places of business e.g. where dealer has a shop factory is obviously covered.
A dealer can be have more than one ‘places of business’ within one State or even
within one city.
If he has ‘places of business’ in different States, he will have to register in each such State.
(h) Registered Dealer
It means a dealer who is registered under Section 7 of this Act. No dealer can make an Inter
State Sale unless he is registered under CST Act.
(i) Sales [Sec. 2(g)]
Section 2 (g) defines that Sale with its grammatical variations and cognate expressions, means
any transfer of property in goods by one person to another for cash or for deferred payment or
for any other valuable consideration, and includes a transfer of goods on hire-purchase or other
system of payment by installments, but does not include a mortgage or hypothecation or a
charge or pledge on goods.
Essential elements of sale are
(1) there must be transfer of goods;
(2) general property in the goods should be transferred to buyer from seller;
(3) consideration i.e. price must be paid or agreed to be paid;
(4) there must be two parties – buyer &seller;
(5) valid mutual consent of both parties is essential.
Deemed Sale [ Sec.2(g) (i), (ii), (iii), (iv), (v) and (vi)]
i. Transfer of property in goods for Cash, Deferred Payment or Other Valuable Consideration;
ii. Transfer of Property in goods (whether as goods or in some other form) involved in the execution of
Works Contract;
iii. Delivery of goods on Hire Purchase or under Instalment System;
iv. Transfer of right to use any goods for any purpose(whether or not for a specified period) for cash,
deferred payment or other valuable consideration;
v. Supply of goods by any unincorporated association or body of persons to a member thereof for
cash, deferred payment or other valuable consideration;
vi. Supply, by way of any service, of goods, being food or any other article for human consumption or
any drink(whether or not intoxication), where such supply or service, is for cash, deferred payment
or other valuable consideration.
Notes:
· ‘Hire-purchase’ is also included in the definition of ‘sale’.
· Sales tax cannot be levied on the full value of Works Contract but only on value of goods actually
transferred in execution of works contract.
· Incidence of tax only when property in goods is transferred and property is
transferred only when goods are ascertained. No Tax till the goods remain un ascertained.
· CST is payable even if there is compulsory transfer under Government orders,
if goods are a controlled commodity.
· Sale of illegal goods are also liable to sales tax.
· Sales include Barter.
There are some transactions which are not sales:
(a) Charge/mortgage/hypothecation etc.
(b) Leasing
(c) Job work/processing
(d) Consignment/depot transfer/branch transfer
(e) Work contract.
(j) Sales Price [Sec. 2 (h)]
Section 2(h) states that, ‘Sale Price’ means the amount payable to dealer as consideration for the sale of
any goods.
Sale price inclusive of CST: The ‘sale price’ is total consideration received and is taken as inclusive
of CST, whether or not it is shown separately in Bill (Invoice). Invoice can be prepared (a) by showing sales
tax separately in invoice, or (b) by not showing it separately-in which case will be cum-tax price i.e. price
inclusive of CST. In either case, ‘Sale Price’ will be the total amount received by the seller i.e. inclusive of
sales tax.
Sale Price is inclusive of following:
(a) Central Sales Tax- whether or not shown separately in invoice;
(b) excise duty-Sales tax is payable on excise duty whether or not shown separately in invoice and even if
paid directly by purchaser;
(c) cost of packing material;
(d) packing charges –i.e. labour charges for packing goods;
(e) bonus discount or incentive bonus for additional sales effected by the distributor/dealer
(f) insurance charges –if incurred by seller as per contract for F.O.R. delivery of goods:
(g) cost of freight if not separately charged in invoice (borne by seller);
(h) design charges charged separately in respect of the goods manufactured as per design and sold to
buyer is includible for purpose of sales tax;
(i) Any sum charged for any thing done by the dealer in respect of goods at the time of or before delivery of
the goods.
Exclusions from sales price are:
(a) freight & transport charges for delivery of goods when freight transport charges are charged separately
in invoice(borne by buyer);
(b) cost of installation and commissioning – if shown separately in invoice(borne by buyer);
(c) cash discount for making timely payment;
(d) trade discount – deduction from list price to wholesaler/dealer.
(e) transit insurance charges incurred at the request by buyer;
(f) goods returned by buyers within six months;
(g) goods rejected by buyers;
(h)custom duty paid by buyer, if goods sold on C.I.F. basis and documents handed over to buyer for taking
delivery of goods from customs after paying customs duty directly to customs authorities.
Determination of Sale Price
Detail Rs Rs
Price (Inclusive of Excise andcustoms duty ) xxx
Less: (i) Trade Discount xxx
(ii) Off-Seasonal Discount xxx
(iii) Special Discount xxx
Add: Expenses incurred before or at the time of delivery of goods e.g. Packing expenses,
Weightment etc.
Less: Cash Discount
(l) Sale Tax Law[Sec.2(i)]
Section 2(i) of CST Act, defines ‘Sales Tax Law’ as any law for the time being in any state or part thereof ,
which provides for the levy of taxes on sale or purchase of goods generally or on any specified goods
expressly mentioned in that behalf.
Section 2(i) also defines ‘General Sales Tax Law’ as the law for the time being in force in any State or part
thereof, which provides for the levy of tax on the sale or purchase of goods generally.
Some States also have laws for levy of tax on specified commodities or specified transactions. Such law is
not ‘general sales tax aw’ of a state.
(m) turnover [Sec. 2(j) ]
It is defined under Section 2(j) as aggregate of the sales prices received and receivable by him in respect of
sales of any goods in the courts of Inter- State trade or commerce made during any prescribed period and
determined in accordance with provisions of Central Sales Tax & Rules.
How to calculate Tax Payable?
CST(Rs.) = xRate
+
Aggregate Sale Price inclusive of CST
Rate of CST
of CST
100
(n) Works Contract [Sec.2(ja)]
Goods Returned [Sec. 8A(b)]
Section8A(b) provides that if goods are returned by buyer within six months, its sales prices will be
deducted
From ‘aggregate sale price’, if satisfactory evidence is produced sales tax authority in respect of the same.
(o) Exemptions from CST
(a) The exemptions are: (a) subsequent sales by transfer of document
(b) sale of goods which are exempt/chargeable to lower tax if sold within the State;
(c) exemption by issuing a notification; (d) sales in course of import/export.
(p) Exemptions by Issuing Notification
State Government can grant exemption under Section 8(5) in respect of inter-state sales effected from the
state.
Such notification should be in
(1) Public interest;
(2) by way of notification in official Gazette;
(3) exemption may be subject to condition;
(4)The exemption may be (i) to any dealer for goods or classes of goods or (ii) in respect of all sales of
classes of goods by any class of dealers
(5) The exemption may be total or partial.
(V) Formulation of Principles for Determining when a Sale or Purchase Of Goods Takes Place in the
Course of Inter-State Trade or Commerce (Sec. 3)
Section 3 of CST Act defines Inter-State sale or purchase as follows: A sale or purchase of goods shall be
deemed To take place in the course of Inter-State trade or commerce if the sale or purchase (a) occasions
the movement of Goods from one State to another or (b) is effected by a transfer of documents of title to
the goods during their movement from one state to another. Thus, inter-State sale can be as per Section
3(a) or Section 3(b).
As per Section 3(a), ‘Inter-State sale’ takes place if the sale occasions movement of goods from one State
to another. In Commissioner of Sales Tax Vs. Suresh Chand Jain- (1988), it was held that a sale can be
said to be in the course of inter-state only if two conditions occurs viz. (i) sale of goods and (ii) a transport
of those goods from one State to another. The essential ingredients of Inter-State sale, as decided in
various Supreme Court decisions are as follows:
(i) Transaction must be a completed sale.
(ii) There should be an agreement to sale which contains a stipulation(express or implied) regarding
movement of goods from one State to another.
(iii) It is immaterial whether a completed sale precedes the movement of goods or follows the movement of
goods are in transit. What is important is that movement of goods and the sale must be inseparably
connected.
(iv) There should be physical movement of goods from one state to another. Such movement must be
inextricably connected with sale. The contract may not provide for movement of goods. It is enough if such
movement is result of covenant of sale or is incidental to the contract. It is sufficient if the movement of
goods is implicit in the sale.
(v) It is immaterial in which State the property (i.e. ownership) of goods passes to the buyer.
(vi) Sale need not precede the inter-State movement. Sale can be either before the movement or after the
movement.
(vii) There should be no break between purchase and movement of goods to another State. The words
“occasion movement of goods” from one State to another are most important words in the section & are
subject matter of lot of litigation. The legal position is more or less settled through various judgements of
Supreme Court. The basis requirements are already enumerated above.