Tax on sales by Union and State Governments

Sale tax on Inter State sale is levied by Union Government under Entry 92A of List I (Union List), while sales tax on intra-State sale (sale within State) (now termed as Vat) is levied by State Government under Entry 54 of List II (State List)  of Seventh Schedule to constitution of India.

Categories of sales

Sales can be broadly classified in three categories. (a) Inter-State Sale (b) Sale during import/export (c) Intra-State (i.e. within the State) sale. State Government can impose sales tax only on sale within the State.

State cannot discriminate between local goods and goods from outside State

State cannot discriminate between goods manufactured/produced within the State and goods brought from outside the State i.e. tax on local goods and goods from other States must be same

Rate of CST

CST is payable on inter-State sales @ 2%, if C form is obtained. No CST if form H or I is obtained from purchaser. Otherwise, CST rate is same as applicable for sale within the State.

Revenue of CST goes to State Government

Even if CST is levied by Union Government, the revenue goes to State Government. State from which movement of goods commences gets revenue. CST Act is administered by State Government.

Types of Inter-state sale

Inter State can be either direct u/s 3(a) or by transfer of documents u/s 3(b) of CST Act.

Sale should occasion movement of goods u/s 3(a)

In case of inter state sale u/s 3(a), sale is inter state if it occasions movement of goods from one State to other. There should be express or implied stipulation for movement of goods outside the State.

Movement of goods can be under agreement to sale u/s3(a)

Sale is inter state even if goods move from one State to another under ‘agreement to sale’. The agreement may be express or even implied. Movement of goods should be inter-linked with sale or agreement to sale.

Property in goods can pass in either State u/s 3(a)

In inter-state sale, property in goods can pass to buyer in either State. Sale can be inter-state even if buyer takes delivery of goods within the State, if he is required to take the goods outside the State.

Buyer and seller can be in same State u/s 3(a)

Sale can be inter state even if both buyer and seller are in same State if goods are moving out of State on account of sale.

Sale by transfer of documents u/s 3(b)

Inter Stale sale can be by transfer of documents of title during movement of goods from one State to another u/s 3(b) of CST Act. Sale can be inter-state even if buyer and seller are in same State.

Meaning of ‘during movement of goods’ for purpose of section 3(b)

The movement of goods commences as soon as goods are handed over to transporter. The ‘movement’ is deemed to be continuing till delivery of goods is taken at other end.

Exemption to subsequent sale during movement of goods u/s 3(b)

E-I/E-II transactions are required to establish sale during movement. If done, all subsequent sales are exempt from sales tax/Vat.

Stock transfer/Branch transfer of goods

In stock/branch transfer, goods move from one State to another, but there is no ‘sale’. Goods are sent to branch or depot or consignment agent in other State. Stock transfer/branch transfer is not subject to tax since there is no ‘sale’.

Stock transfer can be only of standard goods where buyer is not known

If buyer is identifiable before goods are dispatched, it is ‘Inter State’ sale and not a ‘stock transfer’.

Form F for stock transfer/branch transfer of goods

Form F is required to be submitted to establish stock transfer. Sales Tax Officer can make enquiry regarding truth of contents in form F.

Double taxation of stock transfer/branch transfer held as inter state sale

If dealer claims dispatches as stock transfer but Sales Tax Authorities treat it as ‘sale’, there is double taxation. In such case, CST Appellate Authority can grant relief.

Sale subsequent to stock transfer/branch transfer

After stock transfer, sale in that other State is first sale and State sales tax (Vat) will be payable.

Sale inside the State

If a sale is inside one State, it is outside all other States.

Sale in case of ascertained/unascertained goods

In case of specific or ascertained goods, sale within State takes place at the time of contract. In case of unascertained or future goods, sale takes place when goods are appropriated to contract in the State.

Sale inside the State is a ‘residuary sale’

If sale is inter-state as defined in section 3 of CST Act, it can never be ‘intra state’ sale. Thus, inter-state sale is a residuary sale.

Sale not export if no specific destination

Sale when there is no specific foreign destination is local sale. It is not export sale. Sale to ship which is within territorial waters is ‘local sale’.

Sale within territorial waters of India is local sale

Sale within territorial waters of India i.e. within 12 nautical miles from the base line on the coast of India the is ‘local sale’. It is not inter-state sale.