INDEX

S. Page
No. CONTENTS / TOPICS No.

Introduction 1
1.
2. Central Sales Tax 1

3. Objective of Central Sales Tax 2

4. Condition for Central Sales Tax to Become 3

Applicable
5. When Condition Are Satisfied 4

6. Concept Of Central Sales Tax 4

7. Rate Of Central Sales Tax 5

8. Sale Price 5

9. Importance Of Central Sales Tax 6

10. Exemptions and Exclusions from CST 7

11. Some Provision of State Laws Applicable to CST 8

12. Conclusion 10
 INTRODUCTION
• Central Sales Tax (CST) is a tax on sales of goods levied by
the Central Government of India. CST is applicable only in
the case of inter-state sales and not on sales made within
the state or import/export of sales.

• Inter-state sale is when a sale or purchase constitutes

movement of goods from one state to another.
Accordingly, consignments to agents or transfers of goods
to branch or other offices is not a sale as per the CST Act.

• CST is payable in the state where the goods are sold and
movement commences. The tax collected is retained by the
state in which the tax is collected. CST is administered by
Sales Tax authorities of each state. Thus, the State
Government Sales Tax officer who assesses and collects
local (state) sales tax also assesses and collects CST.

• Sales Tax is a tax, levied on the sale or purchase of goods.

There are two kinds of Sales Tax i.e. Central Sales Tax,
imposed by the Centre and Sales Tax, imposed by each
state.

Central Sales Tax – Concept

• Tax on inter-state sale of goods

• Tax collected by the State where movement of goods

commences

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 • No tax on

– Stock transfer/ branch transfer

– In transit sales

– Sale in the course of imports

– Export sale

INTER-STATE SALE

• An inter-state sale takes place when a sale or purchase:

• Leads to movement of goods from one State to another

State.

• Is achieved by the transfer of documents of title while the

goods are being moved from one State to another State.

THE OBJECTIVES OF CST ACT

1. Formulate principles for determining when a sale or purchase
of goods takes place:-

- in the course of interstate trade or commerce or

- outside a State or

- in the course of import into or export from India.

2. Provide for the:-

- levy of

- collection and

- distribution

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 - Of taxes on sales of goods in the course of

interstate trade or commerce.

3. Declare certain goods to be of special importance

of inter-state trade or commerce.
4. Specify the restriction and conditions to which
state laws imposing taxes on the sale or purchase of such
goods of special importance shall be subject.
5. Provides for collection of tax in the event of
liquidation of a company.
6. Authority to settle disputes in course of interstate
trade or commerce.

THE CONDITIONS FOR CST ACT TO BECOME

APPLICABLE

1. The sale should not take place in the course of import into
or export from India.

2. There should be a Dealer and such dealer must be

registered under the CST Act.

3. He should made a sale to any buyer (registered dealer or

unregistered dealer)

4. He should carry on any business.

5. He should made a sale of any goods (declared or

undeclared)

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The sale should be made in the course of interstate trade or
commerce ( i.e. the sale should not be a sale inside a state.

WHAT HAPPENS IF THE ABOVE CONDITION

ARE SATISFIED

1. The CST Act becomes applicable and CST is levied at the

Rate specified.

2. It is levied on Turnover, which in turn is computed on the

basis of the sale price.

3. It is payable by the dealer who makes the sale in the course

of interstate trade or commerce.

4. It is payable in respect of sale of goods effected by him

during the year.

5. It is so payable to appropriate state in which the dealer has

a place of business.

Central Sales Tax – Concept

• RATE Of CST
– Sale to registered dealer for manufacture, resale or used
Telecommunication network, Mining, electricity
generation/ distribution – 4% against Form - C
– Sale to Government – 4% against Form - D
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 – Others not covered by above
– Declared goods twice the rate applicable in the
State – 8%
– Others- higher of 10% or Sales Tax/ VAT
applicable
– No CST if goods generally exempt from VAT/ Sales tax.

RATE OF CST

1. In an inter-state sale to a registered dealer against form C

the rate of CST is 4% or local sales tax rate whichever is
lower.
2. If under the local sales tax law, sale or purchase is exempt
from CST the CST is Nil.
3. In an inter-state sale to government against form D the rate
of CST is 4% or local sales tax rate whichever is lower.
4. Rate of CST in case of inter-state sale of declared goods
without form C or D is twice the rate of tax applicable to the
local sale or purchase of such goods in that state.
5. Rate of CST in case of other goods (i.e. non-declared goods)
is 10% or the applicable local sales tax of that state, which
ever is higher.

SALE PRICE

1. “Sale Price” means the amount payable to a dealer as

consideration for the sale of any goods.
2. It does not include,
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3. Cash Discount (including Trade Discount, Quantity
Discount, Additional Discount). This sum is deducted from
sale consideration.
4. Cost of installation, freight and delivery is excluded ( if such
cost is separately charged).
5. Goods returned by buyer within 6 months.
6. Goods rejected by buyer.

It includes,
• Consideration for sale any goods
• Excise Duty (whether included in sale price or separately
charged)
• Sales Tax payable by the dealer (whether included in sale
price or separately charged)
• Sum charged for anything done by the dealer in respect of
the goods at the time of or before the deliver thereof.
• Cost of packing material and packing charges.
• Insurance charges if the seller has insured the goods.
• Bonus Discount / Incentive Bonus for attracting Sale
Targets.

Central Sales Tax – Importance

• CST never intended as a major revenue generating

legislation but mere a regulative legislation
• Today some States are reluctant to give up CST revenues
whereas for some States CST is irrelevant

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• As per the budget announcement CST is likely to be
reduced to 3% from April 1, 2007
Total phase out expected by 2010

Exemptions and Exclusions from CST

• Sec 6(2) provides that no tax shall be payable in respect of

subsequent sales during movement of goods.
• Sec 6(3) provides that no tax is livable on supplies to foreign
diplomatic missions, UN, international organizations etc.
• Sec 8(1) provides for lower / nil sales tax rates when sales is
to registered dealer/ government.
• Proviso to Sec 6(1) provides that no tax shall be payable
when sales is penultimate to export as defined u/s 5(3).
• Sec 8(6) states that no tax is payable if sales is to SEZ
developer and SEZ unit.
• Sales during export/import is not taxable, as charging Sec
6(1) levies tax only on inter-state sale.

Exemption from CST by notification by Government

• Sec 8(5) empowers state Government to grant partial or full
exemption by issue of notification. Proviso to Sec 8(1) of
CST Act empowers Central Government to reduce rate of
CST.

Source of Procedures under CST Act

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• Procedures are important for any taxation law. Often
valuable tax concessions are lost or penalties are imposed
only because prescribed procedures are not followed.
• Central Sales Tax Act is a peculiar Act- though the tax is
leived as Central Sales Tax, it is administered by respective
State Government. Procedures for CST Act are covered as
follows:
– Rules framed by Central Government
– Rules framed by State Government under CST Act
Rules as prescribed in State Sales Tax Laws of each State.

Some Provision of State Laws Applicable to CST

• Sec 9(2) of CST Act provides that all provision of ‘General

Sales Tax Law’ of each State, except those provided in CST
Act and rules in respect of the following shall also apply to
persons liable under Central Sales Tax Act in that State:
– Periodic Returns
– Assessment, Provisional assessment and reassessment
– Advance payment of taxes
• Registration of transferee and imposition of tax liability on
transferee
• Recovery of tax from third parties
• Appeals, review, revision and references [except in case of
appeals u/s 6A read with Sec 9]
• Refunds, rebate, penalties and interest
• Compounding of offences
• Treatment of documents furnished by dealer as confidential

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 Offences and penalties (except those covered in CST Act
itself.

CONCLUSION

The Central Sales Tax (CST) has been a significant aspect of

India's tax landscape, influencing interstate trade and commerce
for decades. Since its inception, CST has undergone various
reforms and amendments, shaping the economic policies of the
country. In evaluating its impact and effectiveness, one must
consider its historical context, objectives, implementation
challenges, and eventual reforms.

Introduced in 1956 as part of the Central Sales Tax Act, CST

aimed to regulate interstate trade and commerce, prevent
double taxation, and facilitate a common market within India. It
served as a means for the central government to collect revenue
from inter-state transactions while allowing states to retain tax
autonomy. Initially set at a rate of 1%, CST gradually increased
over the years, reaching 4% by the early 2000s.

However, despite its intended objectives, CST faced numerous

challenges in its implementation. One of the primary issues was
the lack of uniformity in tax rates across states. Each state had
the authority to determine its VAT (Value Added Tax) rates,
leading to disparities and complexities in the taxation system.
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This non-uniformity hindered seamless interstate trade and
created compliance burdens for businesses operating across
state borders.

Moreover, the cascading effect of CST resulted in tax-on-tax,

making goods more expensive and reducing competitiveness in
the market. This discouraged businesses from expanding their
operations beyond state boundaries and hindered the growth of
a unified national market.

Recognizing these challenges, the government initiated several

reforms to rationalize and streamline the CST regime. One
significant step was the introduction of the Goods and Services
Tax (GST) in 2017, which aimed to replace multiple indirect taxes,
including CST, with a unified tax structure. GST subsumed CST
and other indirect taxes, fostering a harmonized tax environment
across states and simplifying compliance for businesses.

In conclusion, the Central Sales Tax (CST) played a significant role

in India's tax framework, albeit with its share of challenges. Over
the years, CST evolved in response to changing economic
realities and administrative needs. The eventual transition to the
Goods and Services Tax (GST) marked a milestone in India's tax
history, fostering a unified and efficient tax regime. While CST
had its limitations, its legacy is reflected in the reforms that
followed, shaping the modern tax landscape of the country.

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