Sales Tax

Sales Tax In India
Sales tax is levied on the sale of a commodity which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax.
Sales tax can be levied either by the Central or State Government, Central Sales tax department. Also, 4 per cent tax is generally levied on all inter-State sales. State sales taxes, that apply on sales made within a State, have rates that range from 4 to 15 per cent. Sales tax is also charged on works contracts in most States and the value of contracts subject to tax and the tax rate vary from State to State. However, exports and services are exempt from sales tax. Sales tax is levied on the seller who recovers it from the customer at the time of sale.
Table of contents:-
Who Pays Sales Tax In India?
Constitutes Of Sales Tax Act In India.
Inter State Trade or Commerce.
Dealers In Sales Tax india.
Import Or Export Of Goods In Sales Tax India.
Business, Manufacture And Works Contract In Sales Tax India.

Who Pays Sales Tax In India?
Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state Trade or commerce or, outside a State or, in the course of import into or, export from India.
Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. It is to be paid by every dealer on the sale of any goods effected by him in the course of inter-state trade or commerce, notwithstanding that no liability to tax on the sale of goods arises under the tax laws of the appropriate state.
Sales Tax In Course Of Import Or Export Of Goods.A sale, which is made in the course of the export of goods outside the territory of India, does not attract Central Sales tax. Similarly, a sale made in the course of an import of goods into the territory of India does not attract Central Sales Tax. This is because goods exported or imported are subject to Customs duties.
Constitutes Of Sales Tax Act In India
According to S2 (g), a sale refers to any transfer of property in goods by one person to another for cash or, deferred payment or, for any other valuable consideration. It also includes the following:
A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money.
The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods.
In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point.
Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assessee on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied).
Generally , a quarter return of sales or purchases is insisted upon and the assessee is required to furnish the return in the prescribed form.
At the time of assessment, the assessee has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer.
The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal.
Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in all the bill / cash memos.
A supply, by way of or, as part of any service or, in any other manner whatsoever of goods, of goods, being food or any other article for human consumption or any drink (whether intoxicating or not), where such supply or service if for cash, deferred payment or other valuable consideration.
However, this does not include a mortgage or hypothecation of or a charge or pledge on goods.
In order to constitute a sale, it is necessary that the following conditions must exist:
The parties are competent to contract.
There is an agreement between the parties for the purpose of transferring title to the goods.
It must be supported by money consideration.
As a result of the transaction, the property must actually pass in the goods.
What are goods?Goods, for the purposes of the Act, include the following:
Materials.
Articles.
Commodities.
All kinds of movable property. (Movable property is property, which is capable of being lifted, carried, drawn, turned or conveyed or in any way made to change place or position. The nature of movable property is such that its identity is not lost if it is moved from one location to another.).
Standing crops, grass, trees, timber and other things attached to the earth, if it is agreed under the contract of sale that they will be severed or cut off the land where they are so attached; or, if the crop or timber is identified; the contract is unconditional; or the crop or timber is in a deliverable state.
Electric meters, which are the equipments, used for measuring electricity for the purpose of selling it to consumers, are goods.
It is important to note that only for the purposes of the CST Act, the following are not deemed to be �goods� and, therefore, are not assessable to CST.
Newspapers.(Exception: sale of old or waste newspapers is taxable & a dealer may buy raw material for newspapers at a concessional rate on submission of Form C)
Actionable claims.
Stocks shares and securities.

Inter State Trade or Commerce In Sales Tax
A sale or purchase of goods shall be deemed to take place in the course of interstate trade or commerce if the sale or purchase--
Occasions the movement of goods from one state to another.
Is effected by a transfer of documents of title to the goods during theirmovement from one state to another.
Where the goods are delivered to a carrier or other bailee for transmission, the movement of the goods for the purpose of clause is deemed to start at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Also, when the movement of goods starts and terminates in the same State, it shall not be deemed to be a movement of goods from one State to another.
To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale.
There can be an interstate sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, the goods are sold while they are in transit by transfer of documents.
Transactions not amounting to inter-state sales :Not all despatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales.There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales :-
Intra-state sales.
Stock transfer from head office to branch & vice versa.
Import and Export sales or purchases.
Sale through commission agent / on account sales.
Delivery of Goods for executing works contract.
Dealers In Sales Tax India
A dealer under Section 2(b) means any person, who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distributing goods directly or indirectly for cash or, for deferred payment or for commission remuneration or, other valuable consideration.
Dealer also includes:-
A local authority, a body corporate, a company, any co-operative society or other society, club, firm, Hindu undivided family or other association of persons which carries on such business.
A factor, broker, commission agent, del credere agent or any other mercantile agent, by whatever name called and, whether of the same description as mentioned earlier or not, who carries on the business of buying, selling, supplying or distributing goods belonging to any principal, whether disclosed or not.
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 the principal.
Every person, who acts in any State, as an agent of a dealer residing outside that State and buys, sells, supplies or distributes goods in the State or, acts on behalf of such dealer as-
A mercantile agent, as defined in the Sale of Goods Act, 1930.
An agent for handling of goods or documents of title relating to goods.
An agent for the collection or the payment of the sale price of goods or, as a guarantor for such collection or payment.
Every local branch or office in a State of a firm, registered outside that State or, a company or, other body corporate, the principal office or headquarters that is outside that State, shall be deemed to be a dealer under the Act.
Dealers Must Furnish Security.The Sales Tax Authority has the power to impose a condition for the issue of certificate of registration and requires the dealer to furnish security, as specified in the prescribed manner and, within the prescribed time.This security is required for the following reasons:
To insure that the tax payable is properly realized.
For custody and use of forms.
Maximum amount of security that a dealer can be asked to furnish.There is an upper limit to the amount of security that can be asked for by the authorities to the dealer.
In the case of a dealer who applies for compulsory registration, the amount of tax, payable by him for the current year(I.e. for which the security or additional security is demanded), under the CST Act (tax payable is estimated on the basis of turnover of the dealer for the current year).
In the case of a dealer, who has made an application under voluntary registration or, is otherwise registered under voluntary registration, a sum equal to tax, leviable under the CST Act (the amount, estimated in accordance with the sales to such dealer in course of inter-state trade or commerce for the current year, had such dealer not registered under the Act.

Import Or Export In Sales Tax India
Inside Or Outside A State Sale Or Purchase.Section 4(2) Central Sales Tax Act states that a sale or purchase of goods shall be said to take place inside a state, if the goods are within the State, in the following situations:
If the goods are specific (Goods, identified and agreed upon at the time of making of the contract of sale) or ascertained, at the time the contract of sale is made.
In the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party has been made prior or subsequent to such appropriation.
Hence, Sub-section 2 to S 4 lays down that the sale or the purchases of goods are deemed to take place inside a state in the following cases:
In case of ascertained goods or specific goods�i.e. such goods are within the state at the time of contract of sale.
In the case of unascertained or future goods�i.e. such goods are in that State in which the goods are situated at the time of their appropriation to the contract of sale by the buyer or seller.
When goods are sold or purchased inside any state, as explained above, such sale or purchase is said to have taken place outside ALL other states. Where there is a single contract of sale or purchase of goods, situated at more than one place, the provisions of the Act will apply as if there were separate transactions in respect of the goods at each of such places.
Sales Or Purchase In The Course Of Export.Section 5(1) Central Sales Tax Act states that a sale or purchase of goods is deemed to take place in the course of export of the goods out of the territory of India, only if the sale or purchase either occasions such export or is effected by a transfer of documents of title after the goods have crossed the customs frontiers of India.
To constitute a sale in the course of export, there must be an intention on the part of both the buyer and seller to export. There must be an obligation to export and there must be an actual export. In order to prove that a sale was occasioned in the course of export, a person will not only have to prove that the goods have moved from a place inside India to a place outside India. The mere taking of the goods out of India does not amount to the export of the goods.
Notwithstanding anything in sub-section (1), the last sale or purchase of any goods, preceding the sale or purchase occasioning the export of those goods out of the territory of India, shall also be deemed to be in the course of export. However, such last sale or purchase should have taken place after and was for the purpose of complying with the agreement or, order for or, in relation to such export.
Sales Or Purchase In The Course Of Import.Section 5(2) Central Sales Tax Act states that a sale or purchase of goods is deemed to take place in the course of import of the goods into the territory of India only if the sale or purchase either occasions such import or, is effected by a transfer of documents of title before the goods have crossed the customs frontiers of India.
If a sale is effected by a transfer of documents of the goods before the goods have crossed the customs frontiers of India, a sale or purchase is deemed to have taken place in the course of import of the goods into the Indian territory. S 2(ab) defines �Crossing the customs frontiers� as crossing the limits of the area of a customs station in which imported goods or export goods are ordinarily kept before clearance by customs authorities.
Business, Manufacture And Works Contract In Sales Tax India
What Is Business?
What Is Place Of Business?
What Is A Works Contract?
What Is Turnover?
What Is Meant By Manufacture?
What Is Business?Section 2(aa) states that a business includes the following:-
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 gain or profit and, whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure or concern.
Any transaction in connection with or incidental or ancillary to such trade, commerce, manufacture, adventure or concern.
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What Is Place Of Business?A place of business includes the following:-
In any case, where a dealer carries on business through an agent by (whatever name called) the place of business of such agent.
A warehouse, godown or other place where a dealer stores his goods.
A place where a dealer keeps his books of accounts.
A dealer may have one or more places of business in more than one State or city. In such case, he will have to get himself registered under the sales tax authority of each state.Thus, the place of business is the place where the business is actually carried out as well as where an agent carries on the business, where the goods are stored (e.g. godown or warehouse) and the place where the books of accounts of the business are stored.
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What Is A Works Contract?A works contract is an agreement, which is entered into for the following purposes:
For carrying out construction, fitting out, improvement or repair of any building, road, bridge or other immovable or movable property.
For cash, or for deferred payment, or for other valuable consideration.
In other words, whenever there is a contract, by which one person promises to make something which, when made, will not be his absolute property, and by which, the other person promises to pay for the work done, will be considered to be a contract for work. This will be the case even if the payment maybe called a price for the thing and if the materials, of which the thing is made, may be supplied by the maker.
Though the Central Sales Tax Act still has no definition for a contract or works contract, the definition of sale includes a transfer of property in goods, involved in the execution of a works contract.
In order to prevent evasion of tax by the transfer of property through a works contract, the Indian Constitution was amended to make such transactions taxable. Works contracts are taxable under most State sales tax laws (but not under the Central Sales Tax Act). However, it is only taxable to the extent of the value of the goods that have been transferred. This means that the full value of the Works Contract is not taken into account while calculating tax that is payable under the state sales tax laws.
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What Is Turnover?Turnover is defined under S 2(j) to mean the aggregate of the sale prices in respect of sales of any goods in the course of inter-State trade or commerce, made during any prescribed period. This is determined in accordance with the provisions and rules of the Act.
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What Is Meant By Manufacture?Manufacture refers to the conversion of goods into a new form, whereby an altogether different article emerges. The conversion of raw material to finished goods is termed as manufacture.A checklist of goods, which may be used in manufacture, is given below:-
Raw material.
Fuels and consumables.
Machines, spare tools etc.
Storage and handling equipment for materials.
Goods required for research and development.
Computer internal telephone system used for production purposes.