mvat & cst

Management Accounting Indirect Tax

MVAT

INTRODUCTION

1. VAT AND THE CENTRAL TAXES: (article written in 2002)

VAT is introduced in India. What is nature of true VAT and how it is

proposed to be introduced in India? How it will affect the Central Sales

Tax? What measures are necessary to make VAT palatable to Economists

as well as politicians? We have tried to get answers to all such queries with

reference to Vat in Maharashtra.

VAT Council of States, the body of State Finance Ministers and Standing

Council Of Commissioners have agreed that the VAT should be

implemented all over India From 1-4-2001. However, subsequently, after

taking into consideration the fact that the groundwork is still in progress, the

date has been extended to 1-4-2002.One thing is certain that the word

‘VAT’ [Value Added Tax] is a symbol of Globalization and Liberalization,

which is a universal phenomenon for the current age, is bond to be

implemented in India.

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2. SUCCESSFUL TAX SYSTEM:

Among many other things, the successful tax system always tries to avoid

Cascading effect of the tax. The VAT, being Value Added Tax, it presupposes

That, if the tax is levied on sale value, all the taxes paid while making

purchases as Well as all the taxes paid during the process of manufacture or

import are to be Refunded. The CREDIT method or INVOICE method of VAT

system ensures that the taxes shown in the purchase bills are given the credit

to the dealers. The Uncontrolled incidence of tax always shrinks the industry

and trade and keeps Away from the developing process of the national

economy. The tax system has to be neutral so far as its effect on the choice of

inputs and outputs for the Manufacturer and choice of the goods for a

consumer is concerned.

At the same time multiplicity of the rates has to be removed in a model

system of Taxation. That’s why the Finance Ministers Committee has agreed

to keep the Number of rates to four. Widespread taxation encourages the

vertical integration of Industries and thus discourages small-scale ancillary

industries. Heterogeneity in the structure of tax, that is having different taxes

like Sales Tax, Turnover Tax, Surcharge, Additional Tax, makes the system

so much complicated that either There is tendency towards evasion or it

makes a way for clashes between the Administration and the assesses.

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3. STEPS TOWARDS VAT:

3.1 As pointed above VAT Council of States, and Standing Council of

Commissioners have agreed that the VAT should be implemented from

1-4-2002. It was also agreed that there should be floor rates common to

all the States. Though Maharashtra State had introduced the floor rates

from 1-1 2000.But due to the pressure from people they were corrected

on 13-1-2000 and 22-1-2000. However some fine-tuning of the

classification has yet to be done Giving another look at the grouping of

the goods in to four-rate categories and Floor-rates.

3.2 Abolition of the tax-related incentives scheme is another step in the

direction of Bringing VAT in to operation. In fact the States have taken

this opportunity to Stop the incentives to be given in the name of

Backward Area. This will not only Raise the revenue of the States but

will also put end to the war among the States In the form of harmful

competition of reducing tax rates to give tax incentives.

3.3 Draft model of VAT legislation has been prepared by the National

Institute of Public Finance and Policy. The circulation of papers on VAT

will certainly be creating the atmosphere towards readiness to accept

VAT.

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4. EXPERIENCE OF VAT IN MAHARASTRA:

4.1 During the period from 1-10-1995 to 31-3-1999 Maharashtra had VAT

in a Limited sense. Initially the limit covering the dealers under VAT was

Rest. One Core but was brought down on 1-7-1997 to Rest. 40 laces.

Though the additional Tax and Turnover Tax was abolished the rates

were over all increased to cover those taxes [most of the goods taxable

at 10% were taxed at 13%]. Some 12 Industries and 100% export units

were allowed the full set-off of the sale tax Paid on inputs.

4.2 It is said that the VAT was abolished from 1-4-1999 due to fall in the

Sales Tax Revenue. But the Economists do not agree to such

reasoning. Since there was a General recession in the industry during

1996 to 1999 the govt could not have expected the increase in the tax

revenue on implementation of VAT. In fact the fall in the tax revenue

augmented by the set-off policy of giving refund to Manufacturers

manufacturing tax-free goods, 100% exporting Units, 12 Preferred

industries and reduction in the burden of taxes on inputs from 4% to 3%

to all manufacturers. The decision to abolish Vat in Maharashtra was

thus a Non-economic one, tinted with political surroundings.

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Assessment under VAT

In Maharashtra state Bombay Sales Tax has been replaced by VAT from

1-4-2005. Attempt is made in this article to visualize the process of

assessment under MVAT Act. The real picture will be clear only after 2

years when the actual process of assessment will start.

1. Long awaited VAT has seen the light of the day on 1-4-2005. Much was

advertised by The Govt about the VAT. By now the time for submission

of first return is over and the dealers as well as practicetioners in

taxation, after filing the first return, are thinking of the stage of

‘assessment’ to come.

2. SELF ASSESSMENT AND NOTICES:

Right from Mr. Chidambaram & Mr. Asim Das to Mr. Jayant Patil had

said several times that the VAT brings the era of ‘Self assessment’. But

the Maharashtra Value Added Tax Act 2002 [MVAT Act] does not

contain a single provision about self assessment of Acceptance of

returns except only Margin-heading of section 20. But this section 20 is

in fact Is a provision for submission of returns. On the contrary under old

Act, section 33[2] of BST Act 1959, in clear words provided that if the

Commissioner is satisfied that the returns are Correct and complete he

may assess according to the returns. Thus MVAT Act is more

Regressive than the BST Act.

The section 21 of the original MVAT Act was for self assessment. It

provided for the intimation to be given about the dues or refund. It had

also provided that if such intimation is Not received by the dealers, the

acknowledgement of the returns will serve as the intimation. This means

that the acknowledgement is the evidence of acceptance of the returns.

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But now amended section 21 does not provide, neither for assessment

as per returns nor for the acceptance of the returns. Section 21 provides

only for a restriction that the notice for assessment can not be issued

after 2 years if the returns are filed in time; and after 3 years if the

returns are not filed by the prescribed date. [However this limit is

extended Upto 4 years In case of the period ending on 31-3-2008.] But

what is the position of returns and assessment if the said notices are not

issued is not clearly mentioned anywhere in MVAT Act.

3. ASSESSMENT OF DEALERS:

The assessment in particular is provided in section 23 of MVAT Act.

Surprisingly it starts with the provision for assessment in cases of

defaulters, as if the defaulters will be the order of the day in VAT regime.

Under section 23[1], if the dealer files the return late, the Commissioner,

[that is, the STO/AC/DC], will pass expert assessment order without

issuing any notice and without any

Opportunity of hearing. Such order can not be passed after three years.

The power to pass the Best judgment assessment order against the

principles of natural justice may be the singular

Model among 126 countries where the VAT is said to have been

introduced. The power of passing the order against the dealer without

calling him and without giving hearing may Be the meaning of

‘transparency’ much published in White Paper and the Govt advertisements

about VAT. If such expert order is passed by the STO/AC/DC, then the only

way out for the

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Dealer is to file the writ in the High Court because under section 85[1][1-

b] such order is non appealable. If the dealer has filed the return and

has paid the taxes then he can put the application in form 304 attaching

the proof of submission of return and payment of taxes. Thereafter the

STO/AC/DC will cancel the expert assessment order passed by him if

the payment of tax was made before issue of notice. If the payment of

tax is made after issue of the notice how it will affect the expert

assessment and total payment of taxes is not clear in the MVAT Act.

This section 23[1] is the best example of excessive delegation of the

powers granted to STO/AC/DC to pass the order without notice and take

it back if on his satisfaction. Looking In to the big volume and the task

involved in collection of returns from the Banks and their Dispatch to the

respective STO/AC/DC and the present experience in this respect, it is

very evident that the new source of enormous work will be created for

the STO/AC/DC.The dealers who have filed the returns in time will be

assessed u/s 23[2]. By issue of notice in form 301 [similar to old form

27], the STO/AC/DC can call for the evidence on the basis of which the

returns are filed by the dealer and after considering that evidence he will

pass the assessment order. The date fixed for hearing should not be

less than 15 days from the date of service [rule 21 of MVAT Rules

2005]. The assessment order will be in form 303 [similar to old form 30].

The notice can be served at any time but the assessment order can not

be passed after the expiry of 3 years from the end of the year containing

the period which is being assessed. The dealers who have filed the

returns late will be assessed u/s 23[3]. But notice in form 301 has to be

served with in 3 years and the assessment order has to be passed

within 4 years. The dealers can be assessed for the unregistered period

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u/s 23[4] by issue of notice in form 301 within 5 years but such

assessment order has to be passed within 8 years.

4. ASSESSMENT OF TRANSACTION:

Section 23[5] provides for the assessment of the transaction or of the

claim. The prescribed authority for this sub-section is not the

Commissioner but, the STO. AC, DC, or Sr. DC is prescribed authorities

under Rule 21[2]. The notice in form 302 [rule 21] can be issued to the

dealer if the prescribed authority is satisfied that the tax is being evaded

by not recording or by incorrect recording the transactions or any claim

in incorrectly made. Even if the notice for regular assessment is issued

by the STO/AC/DC, the notice under this sub section can be issued. If,

during the search, the STO/AC/DC finds that the tax is being evaded,

then the visiting officer can make the assessment of such transaction,

even though the proceedings are not transferred to him u/s 59. The

assessment order can be passed separately for each transaction. If

there are 100 bills which could not be explained by the dealer to the

satisfaction of the visiting offer at the time of visit, there will be 100

assessment orders in a single year. This is unique provision giving

powers to the visiting officer who takes the search of the premises of the

dealer to assess the dealer though he may not be within his jurisdiction.

[Good example of excessive delegation to bureaucracy]. The

STO/AC/DC having a regular jurisdiction can also take up the regular

assessment of the dealer. Thus there will be two or more assessing

authorities for one dealer, assessing the same period with out any

transfer of proceedings. MVAT Act has really provided the polyandry in

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the days when even polygamy is condemned. However the MVAT Act is

very kind to provide that no tax will be levied again in the regular

assessment if it is already levied in transaction-wise assessment

[proviso to sec 23[5][d]].

5. RE-ASSESSMENT BEFORE ASSESSMENT:

The MVAT has found out, for the first time in taxation history of

Maharashtra, the concept of reassessment of escaped turn over before

the assessment. Section 23[6] gives powers to the STO/AC/DC to

assess the dealer who in his opinion has,

- Not disclosed the turn over of sales or purchases in the returns,

- paid tax at a lower rate,

- set-off has been wrongly claimed,

- any deduction has been wrongly claimed.

Notice in form 315 [similar to old form 28] is to be issued for this purpose

and 15 days time from the date of service, has to be given for hearing [rule

21]. Though the notice in from 301 & 302 for assessment can not be issued

after 2 years in case of dealer filing returns in time and 3 years in case of

defaulters, the notice in form 315 for deemed reassessment u/s 23[6], can

be issued with in 5 years from the end of the period which is to be

assessed. The assessment order under this section has to be passed

within 6 years. Looking into the past experience about allowance of claims

and the dispute about rate of tax, each and every dealer is likely to be

covered by 4 defaults mentioned above. Therefore the limit of 2 or 3 years

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kept for assessment will be meaning less and all the dealers will be

covered by the time limit of 6 years, though they commit bonafide mistakes.

6. FRESH ASSESSMENT AFTER REMAND:

Where the appeal is filed against the assessment order, the appellate

authority [except Tribunal] has no power to remand the case for fresh

assessment. In case the Tribunal remands the case for fresh

assessment, the assessing authority has to complete the same within 36

months as provided in section 23[7]. The period of 36 months can be

counted from the date of supply of the copy of the appeal order by the

dealer to the assessing authority.

7. DIRECTIONS BY THE COMMISSIONER:

A novel provision has been made in the MVAT Act for seeking the

directions of the Commissioner during the course of assessment. A

dealer can apply in form 305 to the Commissioner [likely to be delegated

to Jt. Commissioner] seeking his guidance in any assessment case. The

Commissioner can examine the matter, hear the dealer and then give

directions as to the completion of the assessment. Such directions will

be binding on the STO/AC/DC. The practical utility of this provision can

be very much disputed because at one Place the Commissioner is

empowered to pass the orders contrary to the law laid down by the

Tribunal and if that is the policy, the chances are very rare that the

directions will in favour of the dealer.

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8. SINGLE ORDER FOR DIFFERENT PERIODS:

A provision is made u/s 23[10] for issue of single notice for different

periods and passing of single order for different periods if all such

periods are comprised in one year. It is not clear from the Rules as how

the notice in form 301 and 315 which are differently worded and for

different purposes, can be issued in one single piece even if the different

periods are covered by one and same year.

9. UNFETTERED OMNI-POWER OF THE MONARCH:

In the biggest land of democracy, where the rule of law is implemented

through the Constriction, the MVAT Act 2002 gives unfettered powers of

the monarch to the Commissioner [in turn to STO/AC/DC]. Section 23[8],

which is the sub section of provisions related to assessment, gives

powers to the Commissioner to call for record of any matter. Mind the

words ‘matter’ and not ‘assessment’, which will mean he can call for any

file of assessment, appeal, revision, grant of registration certificate or

issue of documents etc. He can also call for the evidence from the

dealer. And thereafter he can pass appropriate order. The meaning of

the word ‘appropriate’ is very well known to the persons practicing in

taxation. The order to be passed by him need not be ‘just & proper’.

Thank the Creator that the provision is made for the hearing of the

concerned. There is no time limit for issue of notice or for passing the

order. No statutory notice is provided in this sub-section nor is any form

prescribed for notice. For assessment, reassessment or review different

time limits from 2 years to 8 years are provided, but for this sub-section

the matter is open till eternity. The ‘appropriate’ order under this sub-

section can be the order which is totally and wholly against the law laid

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down by the Tribunal, if the Govt is in reference or appeal against that

decision before the High Court or Supreme Court.

Again thank the Creator that he has made the provision that the recovery

can not be effected in pursuance of such order passed u/s 23[8] till the

High Court or Supreme Court decides the issue. REALLY, THE KING IS

VERY KIND !

Rectification under VAT

The provisions relating rectification under MVAT Act 2002, which is in

force in Maharashtra State, are discussed in the article.

By N.T.Nirale, M.A. M.Com. LL.B. D.M.S. Advocate

RECTIFICATION

In the earlier article, we have seen the assessment provisions under

VAT Act. When the assessment is over, the next step is concerned with

the corrections to be made in the assessment order. From the view point

of the dealer, two important corrective measures are Rectification and

the other Appeal. Section 24 provides for Rectification and section 26

provides for Appeals.

RECTIFICATION OF APPARENT MISTAKE -

The mistake is apparent when it is very clear and glaring. That means to

expose the mistake, long drawn arguments are not necessary. Time limit

- Rectification provisions u/s 24 of VAT Act are almost similar to old

section 62 of the BST Act. Section 24[1] fixes the time limit of 2 years

from the end of a financial year in which the order is passed. Who can

apply - Any person can bring to the notice of the commissioner any

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mistake. Similarly the commissioner can suomoto rectify the mistake.

Procedure - If the rectification is resulting in demand then it is

compulsory of the Commissioner to give reasonable opportunity of

hearing to the dealer. Even if the application of rectification is to be

rejected if there is no mistake, the hearing is necessary. Stay of

recovery - Provision is also made for stay of recovery if the application

for Rectification is pending. But later on, if the dues are confirmed then

there will be interest the stay order will be in form 308. Forms - As per

Rule 27 the Commissioner has to give notice in Form 306 before

Passing the rectification order. As per Rule 28, the dealer has to make

application for rectification in form 307. There is no Court Fess for

rectification application. There is form 311 for application requesting

Stay order in appeal proceedings but there is no form of application for

stay in rectification proceedings. The stay order for rectification is in

Form 308.

RECTIFICATION OF MISTAKE WHICH IS NOT APPARENT -

New provision was made from 1-7-2004 in BST Act for the mistake,

which was not apparent. Similar provision is incorporated in section

24[2]. If the dealer has claimed any deduction for sales against

declarations or certificates and he has not received the same till the time

of assessment, then even if that claim is disallowed and the tax is levied

on the same, the dealer can apply, with in 2 years from the

end of the financial year in which that assessment order was received,

for rectification if receives those declarations or certificates.

If the dealer wants to take advantage of this type of rectification, then he

should not have filed the appeal. This suggests that if he had filed the

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appeal and at the time of hearing of appeal, he had not received the

declarations, then he cannot go for rectification if he receives the

missing declarations within two years. For such rectification, the

Commissioner has to give hearing and verify the forms and allow the

same.

The dealer can take advantage of this type of rectification only one time

for one assessment order. So it is advisable to wait for 23 months and

then file the application for rectification on account of receipt of missing

forms.

RECTIFICATION BY APPELLATE AUTHORITIES:

Provision is made in section 24[3] for rectification of the mistakes made

by appellate authorities. The provisions of rectification applicable to

assessing authority are also applicable to mistakes to be rectified by

appeal authorities. However the proviso to section 24[3] is very

threatening. It empowers the appellate authority to rectify any mistake

though that particular point was not challenged in the appeal. This

means any point, which is not raised in appeal, can also be rectified by

the appellate authority. This proviso was not in the old section 62 BST

Act and is introduced for the first time. This proviso to section 24[3]

overrides the entire VAT Act. Does this mean that the time limit of two

years will not apply to the actions of rectification under proviso to section

24[3] is question which is not easy to answer. Perhaps this will be

another example of unfettered powers of the Monarch as pointed out in

my earlier article on assessment provisions. It is to be seen whether the

dealer can, on application, take the benefit of this proviso to section

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24[3].Thank the Creator that he has made the provision in section 24[4]

for refund of the amount found to be paid in excess.

APPEALS under VAT

The provisions relating appeals under MVAT Act 2002, which is in force in

Maharashtra State, are discussed in the article N.T.Nirale, Advocate In

a leading case of Hoosier Kamas Dada the Supreme Court has pointed

out that the right to appeal is not merely a matter of procedure; it is a

matter of substantive right. [4 STC 114]. Right to appeal is vested in a

dealer when the return is filed or on the date, the return was due. In

case of Vijay Parsed [72 STC 324 SC], Hon Justice Sabyacachi Kukri

has said, “Right to appeal is neither an absolute right nor an ingredient

of Natural Justice. Right to appeal is a statuary right which is

circumscribed by the conditions of grant”. VAT drafters are very kind that

they have provided for right of appeal under section 26 and 27 of VAT

Act. To whom appeal lies:

The provisions of section 26 govern the right of appeal under VAT Act,

which is similar to old section 55 of BST Act. If the order is passed by

the STO or AC the appeal can be filed to the Deputy Commissioner of

Sales Tax. If it is passed by the DC or Sr. DC then the appeal will lie to

Joint Commissioner. If the order is passed by the Jet. Commissioner,

Addle Commissioner or the Commissioner then it will lie to the Tribunal.

[The copy of the notification changing the designations of the Sales Tax

authorities is not yet available with the PRO of the Sales Tax dept. It is

said that all Class I STOs will be designated as ACs, all ACs will be

designated as DCs and all DCs will be designated as Jet.

Commissioners. After introduction of VAT, one has not yet experienced

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the increase in transparency, but there is certainly increase in the

nominal structure of the authorities due to introduction of VAT.] The

second appeal against the order passed in appeal by the DC or JT.

Commissioner will lie to the Tribunal. Unlike to old provision giving

option to file second appeal either to Commissioner or to the Tribunal,

new provision of section 26[2] provides the second appeal only to the

Tribunal.

Non-appeable Orders:

All orders are not appeable but section 85[2] bars filing of appeal

against certain notices and order viz. --

i] Any notice,

ii] Summons,

iii] Exparte assessment order where any Return is not filed by the dealer by

the prescribed date,

iv] Installment order,

v] notice or order for recovery as arrears of land revenue,

vi] seizure order,

vii] order transferring the proceedings,

viii] part payment and stay order passed by appellate authority.

[Though the appeal against the part payment order is barred, the admission

of appeal is not dependent of the payment of the part payment amount.]

As under old law, under new VAT Act also, all appeal orders are final, but

they can be reviewed [revised] u/s 25 or rectified u/s 24 of VAT Act. The

time limit for filing the appeal is 60 days from the date of communication

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of the order appealed against. The power of the appellate authority to

condone the delay in filing the appeal for sufficient cause is not taken

away under VAT Act. [See how kind is the King !] The provisions of

section 4 & 12 of Limitation Act are made applicable by section 80 of

VAT Act and the power to condone the delay is granted by section 81 of

VAT Act. However, the delay cannot be condoned on the ground that

any judgment or decision, on which reliance is placed, was delivered

after the limitation period was over.

Powers under appeal:

The powers of appellate authorities u/s 26[5] have been classified under

four categories, viz.

a] Appeal against assessment orders - In this case the appellate authority

gets the power to confirm, reduce, enhance or cancel the assessment.

The power to remand the case is only with the Tribunal. It can only direct

to make fresh assessment of the appellant.

b] Appeal against the penalty, the appellate authority gets the power to

confirm or cancel , or modify the penalty. The words “ in accordance with

the provisions of the Act” are added under VAT Act, these words were

not in the BST Act. When the appellate authorities are the officers

appointed under the Act for the carrying out the purposes of the Act,

there is no significance to the newly added words. Only the time will

show the purpose of this addition.

c] Appeal against the interest - Here the appellate authority gets the power

to confirm, cancel or modify it in accordance with the provisions of the

act.

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d] In case of appeal of any other kind, the appellate authority gets the

power to pass ‘just and proper order.’ The BST Act section 55[7] had

provided that the appellate authority could pass the appeal order against

the point decided by the Tribunal, if the State had gone in reference

against that decision to High Court. But VAT Act does not provide so in

section giving powers to appellate authority. However section 23[8]

provides for passing the appropriate order of assessment even against

the judgment of the Tribunal. Whether this power can be used by the

appellate authority is a question to be decided.

Power to grant Stay:

The appellate authority has u/s 26[6], a power to grant stay against the

operation of the order appealed against. He can ask for the part

payment and can put some conditions before granting such stay.

Priorities and Senior citizen:

In India, the law does not recognize a person of particular age to be

senior citizen. For railway concession, Sr. Citizen should be 60 old, but

for income tax, he should be 65 old. According VAT Act {proviso to

section 26[7]}, the person does not become old unless he attends age of

75 years. As per section 26[7] the appeals are to be decided on the

prescribed priorities, but the rules have not yet prescribed the list of

priorities. If the proprietor, partner or a director has attained the age of

75 years, as per Rule 34, he can apply in form 313, for the

disposal of his appeal on priority.

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Appeal to High Court:

Section 27 of VAT Act provides for appeal to High Court against the

order of the Tribunal. Under sec 61 of BST Act it was called Reference,

and it was to be routed through the Tribunal. Now, against the Tribunal

decision, the appeal can be directly filed to Bombay High Court.

However, such appeals are restricted to the points of Law only. Thus,

Tribunal is still a final body on the points of Facts. However, unlike to the

reference, the High Court can now decide the issue, which has not been

determined by the Tribunal. The High Court has no power to grant stay

when the appeal is filed to High Court. The Tribunal has to give the

effect to the judgment of the High Court.

Power to assess the turn over under any other Law:

Section 28 of VAT Act gives unique power to assess the turn over under

any other Law. If the appellate authority sets aside, any assessment on

the grounds that it should have been assessed under any other law

other than the law under which it was assessed, then such turn over can

be by the Sales Tax authorities. The time limit of 5 years is put for

correction of such assessments. Imagine an example where the AC

levies tax on certain transaction and the dealer files appeal to DC. In

appeal, if the DC finds that the tax cannot be assessed on that

transaction, as it is a ‘service’ transaction on which the service tax could

have been levied. Do the wordings of section 28 suggest that the Sales

Tax authorities get the power to levy service tax, which is a Central tax,

is the question calling attention. If the answer is no, then the purpose of

such power to assess the turnover related to ‘Other Law’ is beyond

imagination of the man of ordinary prudence.

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Procedure for appeal:

The appeal has to be filed in form 310. It is felt that under VAT the appeal

cannot be filed on plain paper giving all the details required by VAT Rule 31.

Under BST Rule 58 it was provided that the appeal should be ‘as far as

possible in accordance with Form 37’ but VAT Rule 31 is differently worded

and it says that, ‘the appeal including second appeal shall be made in form

310’. The details and enclosures to be given in appeal form are almost similar

to old form No. 37 of BST Act. If the dealer wants stay order against the

recovery as per order appealed against, the application in form 311 is to be

made to appellate authority. The stay order will be issued inform 312. This

form 312 is like old admission - cum - stay order. When the admission is not

conditional on payment of the dues, it is not understood why this order is

called as ‘admission memo cum stay order’? Before the stage of final hearing,

the appeal can be summarily rejected under Rule 35, if the appeal memo

omits to give the particulars required or if the authenticated copy of order is

dispute is not enclosed or any other sufficient ground. But before rejecting the

appeal summarily, the opportunity of hearing has to be given to the appellant

to correct the omissions. The application for restoration can be made within 30

days. If the appellate authority is satisfied that the notice of hearing was not

served on him or that, he was prevented by sufficient cause from amending

the appeal memo or from appearing, then the summery rejection order can be

set aside and the appeal can be restored. If the appellate authority does not

pass any order on the restoration application within 30 days, it will be

presumed that the appeal is restored. {Look how kind is the creator?}

As per Rule 36, the intimation of fixing appeal for final hearing has to be

given 10 days in advance. If any date is to be given, it should be after 10

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days, unless the appellant agrees for earlier date. If on the date fixed the

appellant remains absent the appeal can be decided expert. Such expert

appeal order can also be restored on application if it is found that the

notice was not served or that there was sufficient cause for his absence.

Rule 36[2] expects the appellate authority including the Tribunal, to

maintain the Register showing the date of filing of appeal and the

disputed quantum in that appeal.

Rule36[4] prescribes that the appellate authority including the Tribunal

should in any month fix 50% appeals which are against the DDQ orders

passed u/s 56 and old appeals and 50% out of appeals involving highest

quantum of relief sought.

Copy of the appeal order:

The certified copy of appeal order is to be supplied free of cost by the

appellate authority to the appellant as per Rule 37, and one copy has to

be sent to the officer against whose order was appealed.

Award of Costs by Tribunal:

Rule 38 of VAT Rules empowers the Tribunal to award the costs at its

discretion. However, before awarding the costs the dealer or the person

against whom the costs are being awarded has to be given the

opportunity of hearing.

Court Fees:

Rule 73 prescribes the court fees to be paid. The appeal memo requires

the CF of Rs. 100/- if the amount of relief is less then Rs. 1 lac. If it is 1

lac or more then the CF is equal to 10% of the relief or maximum Rs.

1000/-. Where there is no amount in dispute the CF will be Rs. 100/-.

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There is no distinction as to first or second appeal or appeal to Tribunal.

The CF for restoration application is Rs. 10/-. The CF for stay application

is Rs. 25/-.On application by Sr. Citizen for taking, the appeal on priority

there is no CF.There is no CF for application of condonation of delay.

The adjournment application and the miscellaneous also do not require

CF.

Amendments to MVAT Act

1. Brand Name: Sec. 2 (3-a) w.e.f. 20-6-2006 : Except two entries in

Schedule A this phrase is not used in any other schedule . The newly

inserted definition of brand name is restrictive as it is defined for the

purpose of schedule only. It states ‘ “brand name" when used in the

Schedule means a brand name, (whether registered or not), that is to

say, a name or a mark such as a symbol, monogram, label, signature or

invented words or any writing which is used in relation to a product for

the purpose of indicating, or so as to indicate, a connection in the course

of trade between the product and some person using such name or

mark with or without any indication of the identity of that person.

2. Purchase price: Sec. 2(20) w.e.f 1-4-2005: Explanation IV added to

definition of purchase price is contrary to the circular issued by

Commissioner (28T 20-9-2005) regarding grant of setoff. It was decided

that, when tax has been paid at the time of the first sale on the MRP of

medicines and subsequently the medicines are sent on inter-State

consignment, the reduction of 4% would be effected only on the actual

purchase price of the dealer making the inter-State consignments. The

MBA SEMESTER 1 22


new explanation states that ‘The amount of valuable consideration paid

or payable by a dealer for the purchase of drugs specified in entry 29 of

Schedule C shall be the maximum retail price printed on the package

containing the drugs; “The retrospective amendment may prove

burdensome for dealers who have claimed benefit of earlier circular.

3. Works contract defined : Sec. 2 (24)(b)(ii) w.e.f. 20-6-2006: So far

what is works contract was not defined under MVAT Act though CST Act

did provide for definition in 2002. The definition of sale is amended.

Transfer of property in the works contracts mentioned in the new

definition only would be subject to tax namely, an agreement for carrying

out for cash, deferred payment or other valuable consideration, the

building, construction, manufacture, processing, fabrication, erection,

installation, fitting out, improvement, modification, repair or

commissioning of any movable or immovable property. The new

definition is similar to the definition of the term in K. Raheja’s case and

will open flood gates of litigation.

4. Registration: Sec. 3 w.e.f. 20-6-2006. In sub-sections 4 & 5 of sec.

3:The word Turnover is replaced by ‘Turnover of sales’. The reference to

turnover of purchase is deleted. Thus it is now crystal clear that turnover

of sales only would be determining the liability for registration under

MVAT Act.

MBA SEMESTER 1 23


5. Liability to Register: Sec. 3 w.e.f. 20-6-2006. Sub-section 7 of sec. 3

is deleted as a result now the dealer registered under C S T Act will be

liable for registration only on exceeding the prescribed turnover under

MVAT Act else he can obtain voluntary registration by paying Rs. 5,000

fees.

6. Developer of the Special Economic Zone Sec. 8 w.e.f. 20-6-2006: A

unit in SEZ will also include a Developer of the Special Economic Zone.

The explanation ‘e’ added to sec. 8(3) includes developer to mean (i)

undertaking development, repairs, maintenance and improvement of the

Special Economic Zone, and (ii) who has been certified by the

Commissioner ;

The scope of dealers eligible for exemption is enhanced. Similarly New

explanation ‘f’ further enhances the scope of exemption. A SEZ unit now

includes an establishment situated within the Special Economic Zone.

This would promote and facilitate the sales amongst the SEZ units.

7. Sales to dealers specified in export trade policy Sec. 8 (3A) w.e.f.

20-6-2006: This amendment empowers the State Government by

general or special order, published in the Official Gazette, and subject to

such conditions, exceptions and restrictions as may be specified in the

said order, to exempt from payment of tax any class or classes of sales

of goods made by any registered dealer to any class of dealers specified

in the Export Trade Policy notified from time to time, by the Government

of India.

MBA SEMESTER 1 24


8. Sales to Canteen Stores Department Sec. 8 (3B) w.e.f. 20-6-2006:

This amendment empowers the State Government, by general or

special order, published in the Official Gazette, and subject to such

conditions, exceptions and restrictions, as may be specified in the said

order, to exempt fully or partly, from .payment of tax any class or classes

of sales of goods made by

a. Any registered dealer to the Canteen Stores Department or the Indian

b.The Canteen Stores Department or the Indian Naval Canteen Services to

the unit run canteens or members of the Armed forces,

c. The unit runs canteens to the members of the Armed forces.

Please refer to Notification VAT-1505/178/taxation-1 dt. 27th July, 2006

9. Sales to the State Government, the Central Government etc., Sec. 8

(5) w.e.f. 20-6-2006: Newly inserted sub-section 8(5) empowers the

State Government by general or special order, published in the Official

Gazette, and subject to such conditions and restrictions, if any, as may

be specified in the said order to exempt fully or partly, from payment of

tax, any sales or classes of sales of goods made by any registered

dealer to,—

a. The State Government,

b. The Central Government,

c. A generating company, as defined in the Electricity Act, 2003, for

use in generation of electricity,

d. A registered dealer, holding a licence for transmission under the

Electricity Act, 2003, for use in transmission of electricity,

MBA SEMESTER 1 25


e. A registered dealer, holding a licence for distribution of electricity under

the Electricity Act, 2003, for use in distribution of electricity,

f. the Mahanagar Telephone Nigam Limited,

g. the Bharat Sanchar Nigam Limited,

h. any telephone service provider, holding a licence granted under the

Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act,

1933, to establish, maintain and operate telephone services up to

subscribers terminal connection. Please refer to

NotificationVAT/1505/192/Taxation-1 dt. 28th July, 2006

10. Registration Sec. 16(6) Shifting of POB w.e.f. 20-6-2006: As a result

of this amendment now merely for shifting of place of business the

Registration granted u/s 16 will not be cancelled. The Explanation

appended to this sub-section is deleted as redundant.

11. Separate returns by different branches /units Sec. 20(2) w.e.f. 20-6-

2006: Despite the provision of one T I N NO for all branches of a dealer

in Maharashtra, looking to the practical problems of the dealers this sub-

section is substituted. Now the Commissioner may, subject to such

terms and conditions, as may be prescribed, permit any dealer to file

separate return:—

MBA SEMESTER 1 26


A. For all or any of the places of business of the dealer, whether or not

situated within the jurisdiction of the same registering authority, or

B. For different constituents of his business to such authority as he may

direct.

12. Revised returns Sec. 20(4) w.e.f. 20-6-2006: The time for filling

revised return is extended to eight months to facilitate filling of revised

returns as a result of audit.

13. Where to file a fresh return or a revised return- Sec. 20(5) w.e.f. 20-

6-2006: As per this new sub-section where a dealer is required to file a

fresh return or, as the case may be, a revised return, he shall file such

fresh or revised return with the authority prescribed and if any amount of

tax is required to be paid in accordance with such fresh or revised

return, then he shall pay such amount in the Government Treasury and

attach a self attested true copy of the receipted challan with the fresh or

revised return.

14.Limitation for Assessment Sec. 21 w.e.f. 20-6-2006: By this

amendment the Assessing Authority can now issue notice for

assessment within a period of six years from the year containing the

said period. This provision shall apply to any period ending before 31st

March, 2008.

15.Business Audit Sec. 22 w.e.f. 20-6-2006 : An amendment is made to

this section by which the Officers conducting business audit can visit any

MBA SEMESTER 1 27


day after the day fixed for Business Audit.

16. Cancellation of ex parte Assessment Sec. 23 (11) w.e.f. 20-6-2006 : By

this beneficial amendment a dealer who has been assessed ex parte

under sub-section (2), (3) or (4) can make an application in the

prescribed form to the Commissioner within thirty days of the date of

service of the assessment order, for cancellation of the assessment on

the ground that he had not been able to attend or remain present before

the Commissioner at the time of hearing when the assessment order

had been passed. The Commissioner shall, after verifying that the

contention of the applicant is correct and that the prescribed conditions

have been fulfilled, cancel, by order in writing, the said assessment

including any penalty or interest levied in relation to or in consequence

of the said assessment and shall make a fresh assessment in

accordance with the provisions of sub-section (2), (3) or (4), including

levy of interest or penalty, as the case may be. It is also provided that,

only one application for cancellation shall be entertained under this sub-

section in respect of any period of assessment.

17.Contravention of conditions of Exemption Sec. 29(5) w.e.f. 20-6-

2006: This new sub-section provides for levy of penalty on purchasers

eligible for exemption u/s 8 (3), (3A), (3B), or (5) for failure to comply

with the conditions or restrictions subject to which the exemption is

granted. The penalty is prescribed as equal to one and a half times the

tax which would have become payable on the sale if the said exemption

MBA SEMESTER 1 28


was not available on the said sale.

18.TDS Provisions Sec. 31 w.e.f. 20-6-2006: Few small but important

amendments are made to TDS provisions.

i. It is now specifically provided to exclude not only tax but also service tax

component for determining the amount subject to TDS .

ii. The certificate for no deduction of tax will be issued by the

Commissioner of Sales Tax only when the contract is not works

contract.

iii. Certificate referred to in ii above once issued can be amended or

modified by CST later on his own motion.

iv. Employers who are not notified will not be granted permission for TDS

v. The credit for TDS can be claimed by the contractor in the period in

which the certificate for payment is furnished to him by the person

deducting tax in accordance with the provisions of this section.

vi. Requirement of obtaining TDS number as also of filling annual TDS

return is done away with by deleting sub sections 8 and 10 of sec. 31.

19.Exemption to petroleum dealers Sec. 41 (4) w.e.f. 1-4-2005: As per

this amendment the State Government may, by notification in the Official

Gazette, provide for exemption from the payment of full or part of the tax

MBA SEMESTER 1 29


payable, Subject to such conditions as it may impose on the sales of

motor spirits and petroleum products made by an oil company to another

oil company and also on sales at retail outlets of motor spirits, other than

aviation turbine fuel and aviation gasoline.

As clarified by the Explanation.— for the purposes of this sub-section,

motor spirits and petroleum products shall mean such products as the

State Government may, notify from time to time, in the Official Gazette.

20.Composition under Sec. 42 w.e.f.20-6-2006: The effect of few

amendments made to sec. 42 are as follows:

i. The turnover of liquor/country liquor will be excluded to arrive at the

amount eligible for composition for hoteliers

ii. New composition scheme is now provided for vendors of various types

of liquor

iii. New works contract composition now allows composition as (a) equal to

five per cent of the total contract value of the works contract in the case

of a construction contract, and (b) eight per cent of the total contract

value of the works contract in any other case, after deducting from the

total contract value of the works contract, the amount payable towards

sub-contract involving goods to a registered sub-contractor.

iv. The explanation provides for following definitions:

a. “construction contract“ shall mean construction contract as may be

notified by the State Government in the Official Gazette, from time to

MBA SEMESTER 1 30


time, and

b. the amount payable towards sub-contract involving goods “ means the

aggregate value of the goods on which tax is paid and the quantum of

said tax paid by the sub-contractor or the sub-contract value on which

tax by way of composition is paid by the sub-contractor, as the case may

be.

v. A dealer who is liable to pay tax on sales effected by way of the transfer

of the right to use mandap or tarpaulin (whether or not for a specified

period), may, subject to such conditions and restrictions, as may be

prescribed, pay in lieu of the amount of tax payable by him a sum equal

to one and half per cent of the turnover of sales effected by him.

For the purposes of this sub-section, the transfer of the right to use mandap

includes the transfer of the right to use mandap, pandal, shamiana or the

decoration of such mandap, pandal or shamiana and the transfer of the

right to use furniture, fixtures, lights and light fittings, floor coverings,

utensils and other articles ordinarily used along with a mandap, pandal or

shamiana as per the Explanation.

21.Adjustment of refund Sec. 50 w.e.f. 20-6-2006: The refund under the

MVAT Act shall be available only as per order By Commissioner of

Sales Tax. If a registered dealer has filed any returns, fresh returns or

revised returns in respect of any period contained in any year and any

amount is refundable to the said dealer according to the return, fresh

return or revised return, then subject to rules, the dealer may adjust

such refund against the amount due as per any return, fresh return or

revised return for any subsequent period contained in the said year, filed

MBA SEMESTER 1 31


under this Act or the Central Sales Tax Act, 1956 or the Maharashtra

Tax on the Entry of Goods into Local Areas Act, 2002.

22.Grant of Refunds Sec. 51 w.e.f. 20-6-2006: The procedures and

conditions for grant of refund are drastically amended. Please refer to

the latest detailed circular by Commissioner of Sales Tax dt. 1-8-2006

23. Interest on delayed refund Sec 53 w.e.f. 20-6-2006: As per this

amendment if an amount required to be refunded by the Commissioner

to any person, by virtue of the provisions contained in section 51 or by

virtue of an order passed under any other provision of this Act, is not so

refunded to him within ninety days of the end of the respective period

provided in section 51 or, as the case may be, of the date of the said

order, the Commissioner shall pay such person simple interest at the

prescribed rate on the said amount from the date immediately following

the expiry of the period of ninety days to the date of the refund.

24.Electronic records Sec. 86(5) w.e.f. 1-4-2005: Under this sub section

the Commissioner can on receipt of application by any dealer permit him

to maintain the records of the bills or cash memorandum on such

electronic system as may be approved by the Commissioner. On such

permission being granted, the dealer shall stand exempted for the

purposes of sub-section (3) regarding keeping counterfoils or duplicates

of the said bills or cash memoranda and of signing the bill or cash

memorandum.

MBA SEMESTER 1 32


25.On going Works Contracts—Sec. 96 (g) w.e.f. 1-4-2005: Section 96

of the MVAT Act, is amended with effect from 1st April, 2005. The

contractors executing ongoing contracts in the VAT period are now

required to pay tax as per the rates prescribed under the repealed

Works Contract Act, 1989. In other words, if the contractor is paying 4%

composition under Repealed Act, he has to pay the same amount of tax

under the VAT Act. (Sec. 96(g)) and he will not get any setoff. This

amendment is made retrospective w.e.f. 1-4-2005.

MBA SEMESTER 1 33


CST

Introduction

Objects and Basic Scheme of the CST Act, 1956

The objects of the Act, as stated in preamble of the CST Act are -

To formulate principles for determining (a) when a sale or purchase takes

place in the course of inter-state trade or commerce (b) When a sale or

purchase takes place outside a State (c) When a sale or purchase takes place

in the course of imports into or export from India

To provide for levy, collection and distribution of taxes on sales of goods in

the course of inter-state trade or commerce

To declare certain goods to be of special importance in inter-State trade or

commerce and specify the restrictions and conditions to which State laws

imposing taxes on sale or purchase of such goods of special importance

(called as declared goods) shall be subject.

As explained later, * Entry 92A of List I (Union List) empowers Central

Government to impose tax on inter-state sales * Article 269(3) and Article

286(2) of Constitution authorises Parliament to formulate principles for

determining when the sale or purchase takes place outside a State or in the

course of imports and exports. * Article 286(3) of Constitution authorises

Parliament to place restrictions on tax on 'declared goods'.

CST Act imposes the tax on inter state sales and states the principles and

restrictions as per the powers conferred by Constitution.

MBA SEMESTER 1 34


Basic scheme of the CST Act - The basic scheme of the CST Act is as

follows.

SALES TAX REVENUE TO STATES - The CST Act provides for levy on Inter-

State sales and also defines what is ‘Inter-State Sale’. However, the concept

that revenue from sales tax should be collected by States has been retained.

Thus, though it is called Central Sales Tax Act, the tax collected under the Act

in each State is kept by that State only. This is provided in Article 269(1)(g) of

Constitution of India. - - CST in each State is administered by local sales tax

authorities of each State.

TAX COLLECTED IN THE STATE WHERE MOVEMENT OF GOODS

COMMENCES - The scheme of CST Act is that Central Sales Tax is payable

in the State from which movement of goods commences (i.e. from which

goods are sold). The tax collected is retained by the State in which it is

collected. CST Act is administered by Sales Tax authorities of each State.

Thus, the State Government Sales Tax officer who collects and assesses

local (State) sales tax also collects and assesses Central Sales Tax.

TAX ON INTER STATE SALE OF GOODS - CST is tax on inter State sale of

goods. Sale is Inter-State when (a) sale occasions movement of goods from

one State to another or (b) is effected by transfer of documents during their

movement from one State to another.

STATE SALES TAX LAW APPLICABLE IN MANY ASPECTS - CST Act

makes provisions for very few procedures and rules. In respect of provisions

like return, assessment, appeals etc., provisions of General Sales Tax law of

the State applies.

MBA SEMESTER 1 35


CST ACT DEFINES SOME CONCEPTS - Under the authority of Constitution,

the CST Act defines concepts of ‘Sale Outside the State’ and ‘sale during the

course of import/import’.

DECLARED GOODS - Some goods are declared as goods of special

importance and restrictions are placed on power of State Governments to levy

tax on such goods.

Inter-State and Intra-State Sale - Entry 92A of List I - Union List reads : ‘Taxes

on the sale and purchase of goods other than newspapers, where such sale

or purchase takes place in the course of Inter-state trade or commerce’. Entry

54 of list II - State List - reads : ‘Tax on sale or purchase of goods other than

newspapers except tax on Inter State sale or purchase’. Thus, sale within the

State (Intra-State sale) is within the authority of State Government, while sale

outside State (Inter-State sale) is within the authority of Central Government.

Sale where both buyer and seller are from same State is Intra-State sale e.g.

from * Mumbai to Pune or * Ahmedabad to Surat * Howrah to Kolkata *

Mysore to Bangalore etc. These are Intra-State sales. However, when buyer

and seller are in different States, it is Inter-state sales. e.g. : Chennai (Tamil

Nadu) to Trivandrum (Kerala) * Allahabad (UP) to Hyderabad (Andhra

Pradesh) * Bhubaneshwar (Orissa) to Daman (Union Territory) etc.

NEWSPAPER SPECIFICALLY EXCLUDED - It can be seen that

‘newspapers’ are specifically excluded from purview of both Union as well as

State list. The obvious reason is that newspapers have a very vital role to play

in a democratic society. Freedom of speech and free flow of information is the

backbone of democracy and hence newspapers have been excluded from tax.

[Otherwise, ‘newspaper’ are ‘goods’, but for the exclusion].

MBA SEMESTER 1 36


TAXABLE EVENT IN SALES TAX - In re Sea Customs Act - AIR 1963 STC

437= (1964) 3 SCR 827 (SC 9 member bench), it was held that in case of

sales tax, taxable event is the act of sale. It is not a tax directly on goods.

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. - Murli Manohar and Co. v. State of Haryana (1990) 4 CLA 304

(SC) = (1991) 80 STC 79 = 1990(2) SCALE 821 = (1991) 1 SCC 377 (SC 3

member bench). In this case, it was observed that they cannot conceive fourth

category of sale.

If sale or purchase to Marketing Agency is in same State, it will be an Intra-

State sale even if goods are despatched outside the state as per instructions

of the marketing agency. - ACC v. CST - AIR 1991 SC 1122.

Tax on Inter-State sale is levied by Union (i.e. Central) Government while tax

on Intra-State sale is levied by State Government of the State in which sale

takes place. No tax is levied on sales during import or export.

SALE WITHIN THE STATE IS ‘RESIDUARY SALE’ – As we will see later,

‘sale within State’ is residuary sale. Thus, first we have to decide if sale is

‘Inter State’. If not, we have to find if it is ‘Sale during export or import’. If not,

then the sale is ‘Intra State’. Thus, if a sale is Inter State of during export or

import, it cannot be ‘Sale within the State’.

MODE OF A SALES TRANSACTION - Initially, buyer places an order on

seller for supply of goods, called ‘Purchase Order’. After the goods ordered

are ready, the buyer may come to the business place (godown, factory or

warehouse) of seller and obtain delivery of goods. This will be ‘Sale within the

State’. Alternatively, buyer may ask seller to send the goods by transport. In

MBA SEMESTER 1 37


such cases, the seller will book the consignment by rail, road, ship or air as

per requirement of buyer to the destination where buyer requires the goods. In

such a case, generally, (a) if buyer and seller are in the same State, it is Intra-

State sale (b) if they are in different States, it is Inter-State sale (c) if buyer is

outside India, it is sale during export (d) if seller is outside India, it is sale

during import.

Recovery from customer is not essential for sales tax – Normally, sales tax is

treated as indirect tax as it can be and is usually recovered from buyer.

However, the liability to pay tax is on the dealer, whether or not he collects if

from buyer.

Background of CST

Sales Tax is one of the most important Indirect Tax for purpose of taxation by

State Governments. Revenue from CST goes to State from which movement

of goods commences. Total CST revenue in 98-99 was Rs 8,538 Crores.

Revenue of some major States was - Maharashtra - Rs 1,442 Crores.

Tamilnadu - Rs 934 Crores. West Bengal - Rs 799 Crores. Gujarat - Rs 787

Crores, Haryana - Rs 739 Crores. [ET, Bom 21.7.2000].

CST is proving to be a hindrance in introducing VAT. CST has been reduced

to 3% (from 4%) w.e.f. 1-4-2007. It is announced that it will be reduced by 1%

every year and made Nil by 1-4-2010.

CST RATES

Rate of Central Sales Tax

CST rate w.e.f. 1-4-2007 in case of sale to registered and unregistered dealer

- Position w.e.f. 1-4-2007 is as follows –

MBA SEMESTER 1 38


In case where local sales tax rate is 4%, CST applicable in case of sale to

unregistered dealer will be only 4% as against 10% as was applicable upto

31-3-2007. In case of sale to registered dealers, the CST rate will be 3%.

In case where local sales tax rate is 12.5%, CST applicable in case of sale

to unregistered dealer will be 12.5%. This position is same as was applicable

upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 3%.

In case where local sales tax rate is 1 to 3%, CST applicable in case of sale

to unregistered dealer will also be 1 to 3%, as against 10% as was applicable

upto 31-3-2007. The rate will be 1% even when sale to unregistered dealer is

by transfer of documents. In case of sale to registered dealers, the CST rate

will be 1 to 3% as applicable to the goods within the State.

In case where local sales tax is Nil, CST applicable in case of sale to

unregistered dealer will also be Nil. This position is same as was applicable

upto 31-3-2007. In case of sale to registered dealers, the CST rate will be Nil.

Sale to Government will be equivalent to sale to unregistered dealer w.e.f. 1-

4-2007

Welcome change – The change is really welcome. In case of goods where

State sales tax rate is 4%, if the buyer does not furnish C form, the selling

dealer will be liable to pay tax @ 4% instead of 3%. So far, in such cases, he

was required to pay CST @ 10%, which was indeed a very heavy penalty.

Thus, risks involved in not getting C form from buyer have been considerably

reduced.

In view of this, harassment in getting blank C form from department and

‘charges’ payable for getting blank C forms should come down. Of curse,

MBA SEMESTER 1 39


provision of submitting C form on quarterly basis continues. Thus, ‘expenses’

involved in getting blank C forms from department cannot be avoided.

Of course, the tax burden is heavy where local sales tax rate is 12.5%, since in that case, the selling

dealer will have to pay CST @ 12.5%, instead of @ 3%, if the buyer fails to furnish C form.

Sales tax rate for sale

within the State

CST rate in case of

sale to registered

dealers

CST rate in case of

sale to unregistered

dealers

NIL NIL NIL

1% 1% 1%

2% 2% 2%

3% 3% 3%

4% 3% 4%

8% 3% 8%

10% 3% 10%

12.5% 3% 12.5%

20% 3% 20%

Note – Usually, State Vat rates of 2%, 3%, 8% and 10% do not exist.

However, these rates are given only to explain the principle.

State sales tax to be inclusive of additional tax / surcharge / turnover tax -

Many State Governments have introduced ‘Additional Sales Tax’, turnover tax

MBA SEMESTER 1 40


or surcharge on tax. It has been held that this additional sales tax is also sales

tax for purposes of deciding the rate of duty.

Goods included in central sales tax

Sales tax liability is on ‘goods’. 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. Following should be noted.

Goods must be ‘movable’ - Goods includes all movable property. It includes *

steam - Nizam Sugar Factory Ltd. v. CST - (1957) 8 STC 61 (AP HC) *

Electrical energy - CST v. MP Electricity Board - (1970) 25 STC 188 (SC) *

animals and bird in captivity - K J Abraham v. Asst. STO - (1960) 11 STC 291

(Ker HC) * Goods include uprooted trees, second hand goods, rejected goods,

worn out goods etc.

NO TAX ON IMMOVABLE PROPERTY - Section 3(14) of General Clauses

Act define that ‘Immovable property’ includes land, benefits arising out of land

and things attached to the earth or permanently fastened to anything that is

attached to the earth. However, as per section 2(7) of Sale of Goods Act,

goods include standing crop, grass and things attached to and forming part of

the land, which is agreed to be severed before sale or under contract of sale.

No tax on Newspapers though they are ‘goods’ - Newspapers are in fact

‘goods’, but are specifically excluded in view of entry No. 92A of List I to

Seventh Schedule to Constitution of India (Union List) where newspapers are

specifically excluded from purview of tax on inter-State sales of goods. It may

also be noted that entry 54 of List II (State List) authorises States to levy tax

on sale of goods other than newspapers only. Weeklies and magazines like

MBA SEMESTER 1 41


‘Illustrated Weekly of India’ and ‘Eastern Economist’ have been held as

‘newspaper’. - A H Wheeler and Co. (P.) Ltd. v. State of Bihar - (1960) 11 STC

18 (Bihar Board).

Supreme Court in Printers (Mysore) Ltd. v. Asst. CTO - JT 1994 (1) SC 692 =

(1994) 93 STC 95 (SC) = (1994) 9 MTJ 444 (SC), has held that though

newspapers are not liable to CST, they can purchase their raw materials at

concessional rate on submission of C form.

Goods of intangible character are ‘goods’ - Goods of incorporal or intangible

character like patents, lottery ticket, advance licenses, copyright can be liable

to sales tax.

Can there be inter-state sale of intangible goods ? – Goods must move

physically from one State to another to constitute an inter-state sale. In case

of sale of advance license/DEPB, the license/pass book can physically move

from one State to another. However, in case of certain intangible goods like

patent, copyright and trade mark, there is no physical movement of goods

from one State to another. These goods cannot be said to be located at a

particular place. In view of this, it seems that sale is concluded at a place

where agreement of sale is executed, as property in ‘goods’ can be said to

have passed in that State.

Plant & machinery assembled at site is not ‘goods’ - Plant and Machinery or

structure assembled and erected at site cannot be treated as 'goods' for the

purpose of levy of sales tax, if it is not marketable and movable. Following

case law would be relevant, even if it is under Central Excise.

Recent amendments

Recent Changes – Following are recent change in CST Law.

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12th May 2000 - Following changes were made vide Finance Act, 2000,

effective from 12-5-2000.

PROVISION OF INTEREST ON DELAYED PAYMENT - Section 9(2) and

9(2A) were amended to provide for recovery of interest for delayed payment of

Central Sales Tax (CST). Section 9(2B) was inserted to provide that

provisions in general sales tax law of each State relating to due date of

payment of tax, rate of interest for delayed payment and assessment and

collection of interest, shall apply to assessment and recovery of interest on

Central Sales Tax also. As per section 120 of Finance Act, 2000, the

provisions were given full retrospective effect.

The word 'interest' was not present in section 9(2) earlier. In - India Carbon

Ltd. v. State of Assam 1997(5) SCALE 51 = (1997) 106 STC 460 (SC) =

1997(6) SCC 479 = 1997 AIR SCW 3091 = 26 CLA 152 = AIR 1997 SC 3054

= (1998) 8 CC (Reports) 276 (SC), it was held that that interest for delayed

payment cannot be levied on CST. (Since, there was no provision under CST

Act). The section 9(2) of CST was amended with retrospective effect to nullify

the effect of the judgment.

11th September 2001 – Provisions in respect of Central Sales Tax Appellate

Authority have been introduced by adding sections 19 to 26 w.e.f. 11-9-2001.

The Appellate Authority has been constituted on 3-12-2001. - - However, the

sections have not been made effective till April, 2003.

11th May 2002 - Substantial and far reaching changes have been made in

CST Act, vide Finance Act, 2002. Some of these are made to facilitate

introduction of VAT provisions in sales tax, while some are made to overcome

difficulties created by some Supreme Court Judgments. Major changes made

by Finance Act, 2002 are as follows -

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WIDENING OF DEFINITION OF SALE - Definition of ‘sale’ is amended by

including (i) Transfer other that by contract (compulsory transfer) (ii) Goods

involved in Works contract (iii) Transfer of right to use goods (like - leasing)

(iv) Transfer among members of unincorporated association (v) Supply of food

articles [Hire purchase was covered earlier also [New section 2(g)]. So far,

there was no CST for inter state transactions of works contract, leasing or sale

of food articles.

Since there was no CST on leasing transactions, dealers were avoiding sales

tax by showing transaction as ‘inter state sale’. Only lease agreement was

executed in one State while goods were delivered in another State. Now, even

if lease is held as inter state, CST will be payable.

F FORM MADE MANDATORY TO PROVE STOCK TRANSFER -

Submission of ‘F’ form to prove stock transfer made mandatory. If not

furnished, the transfer will be treated as occasioned as a result of sale. [So

far, stock transfer could be proved by other evidence also] [Amendment to

section 6A(1)]

CST RATE 3% OR LOCAL SALES TAX RATE WHICHEVER LOWER IF

UNDER C FORM - Section 8(1) is amended to provide that rate of CST to

registered dealer will be 3% or at the rate applicable for sale within the State,

whichever is lower. Section 8(2) has been amended to provide that if certain

goods are exempt generally from state sales tax, CST payable on such goods

will be Nil, even if sold to unregistered dealer.

STATE GOVERNMENT CANNOT WAIVE CONDITION OF C/D FORM -

Section 8(5) empowers State Government to reduce the sales tax rate

applicable in Inter State Sale, by issuing a notification. This section has been

amended to provide that such reduction can be given only after fulfilling

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conditions of section 8(4), i.e. on submission of C/D form. Section 8(5)(a) and

8(5)(b) are also amended to provide that the State Government can reduce

CST rates only for sale to registered dealers / Government. Thus, reduction in

CST rate made by State Government will apply only if sale is to registered

dealer / Government. The lower rate will not apply if sale is to unregistered

dealer (as he cannot provide C form).

Person liable to pay CST

Section 8(1) specifies that every dealer who in the course of inter State trade

or commerce sales the goods shall be liable to pay tax under the Act. Thus,

liability is on the dealer who 'sells' the goods.

Dealer - 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 (a) a local authority, a body corporate,

a company, any cooperative society, club, firm, Hindu undivided family or

other association of persons which carries on such business (b) a factor,

broker, commission agent, del credere agent, or any other mercantile agent,

by whatever name called, and 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 (c)

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.

There are two explanations to the definition of ‘Dealer’. Explanation 1 states

that a mercantile agent, agent handling goods, agent for collection of payment

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and every branch or officer in a State of a firm of Company which is outside

the State is also a ‘dealer’. Explanation 2 states that ‘Government’ is also a

dealer except in case of sale of old and discarded stores or waste.

Government as dealer - Explanation 2 to section 2(b) clarifies that

Government, which, whether or not in the course of business; buys, sells,

supplies or distributes; goods, directly or otherwise, for cash or for deferred

payment or for commission, remuneration or other valuable consideration

shall be a dealer.

The exception is sale, supply or distribution of un-serviceable or old stores or

old materials or waste products or obsolete or discarded machinery or parts or

accessories. This exception is made as all Government departments have to

make such sale of old goods. However, this exception is only to Government

and not for private enterprises. Public Sector Undertakings (PSU i.e.

Government Companies) are not ‘Government’ and hence are not exempted

under this clause.

GOVERNMENT CAN BE DEALER IF SPECIFICALLY INCLUDED IN THE

DEFINITION OF ‘DEALER’ – In State of Uttar Pradesh v. UOI 2003(130) STC

1 (SC judgment dated 4-2-2003), the definition of dealer was inclusive

definition and it read ‘Dealer includes Government which (whether in the

course of business or otherwise) undertakes buying, selling, supplying or

distribution of goods. - - In view of this definition, it was held that Department

of Telecommunications (DOT) which is supplying telephone is a ‘dealer’.

‘Carrying on business’ is not required. [in view of specific definition]

Ancillary, incidental and casual business is also covered - It has been held

that any activity which is incidental or ancillary to the main business also

constitutes business and thereby the person engaged in such business

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becomes a dealer - Member, Board of Revenue v. Controller of Stores AIR

1989 SC 1468 = (1989) 74 STC 5 (SC). In State of Orissa v. Orissa Road

Transport Co. Ltd. 1997 AIR SCW 3489 = 107 STC 204 = (1997) 5 SCALE

589 = AIR 1997 SC 3409 (SC 3 member), it was held that occasional sale of

disposable un-serviceable spare parts at yearly interval by a transport

company would make the organisation 'dealer'. [Decision on basis of definition

under Orissa Act, but relevant for CST].

Club as a dealer – A members’ club whether incorporated or unincorporated is

a ‘dealer’ and will require registration. – Cosmopolitan Club v. State of Tamil

Nadu 1999(115) STC 183 (TNTST) * All India Skin & Hides Tanners v. CTO

(1999( 115) STC 388 (TNTST). [Article 366(29A)(e) of Constitution of India

specifically states that supply of goods by unincorporated body to its members

will be ‘sale’].

Collection of tax only by registered dealer - A 'register dealer' means a dealer

who is registered under CST Act. [section 2(f)]. Section 9A specifies that only

a registered dealer can collect taxes in respect of sales made by him in Inter

State Trade. He can collect taxes only according to CST Act and rules.

Further, a person who is not a registered dealer cannot collect any amount

representing as CST.

C-form

Forms for Declarations

A dealer has to issue certain declarations in prescribed forms to

buyers/sellers. These forms are prescribed in Central Sales Tax (Registration

and Turnover) Rules, 1957. Out of these forms, forms C, E-I, E-II, F and H are

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printed and supplied by Sales Tax authorities and are supplied by them.

Dealer has to issue declarations in the forms printed and supplied by the

Sales Tax authorities only. These forms are in triplicate. [Form D was to be

issued by Government and can be printed/typed by the Government

department making purchases. Now form D has been abolished w.e.f. 1-4-

2007].

Declaration in Form C - As per section 8(1)(b) of CST Act, sales tax on Inter

State sale is 4% or sales tax rate for sale within the State whichever is lower,

if sale is to registered dealer and the goods are covered in the registration

certificate of the purchasing dealer. Otherwise the tax is higher - (10% or tax

leviable on sale of goods inside the State, whichever is higher). If the selling

dealer pays CST @ 4% or lower (if applicable), he has to produce proof to his

sales tax assessing authority that the purchasing dealer is eligible to get these

goods at concessional rate. Otherwise, the selling dealer will be asked to pay

balance tax payable plus penalty as applicable. Section 8(4)(a), therefore,

provides that concessional rate is applicable only if purchasing dealer submits

a declaration in prescribed form ‘C’.

AUTHORITY TO ISSUE BLANK C FORM - The blank C form has to be

obtained by purchasing dealer from Sales Tax authority in the State in which

goods are delivered, which is usually the place where purchasing dealer is

registered. However, in case on Inter State sale by transfer of documents, the

purchasing dealer may not be registered with the sales tax authorities in the

State where the goods are delivered. In such case, he can obtain blank C

form from sales tax authority where he is registered.

C Form is mandatory to avail concessional rate - Submission of C form is

mandatory and unless C form is submitted, concessional rate of sales tax will

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not apply. It has been held that this procedure is designed to prevent fraud

and collusion, and facilitate administrative efficiency. Hence it is mandatory.

Concession can be denied if the form is not submitted - Kedarnath Jute Mfg

Co. v. CTO - (1965) 3 SCR 626 = (1965) 16 STC 607 (SC) = AIR 1966 SC 12.

STATE GOVERNMENT CANNOT WAIVE THE CONDITION OF C/D FORM -

Section 8(5) has been amended w.e.f. 11th May 2002 to provide that State

Government can issue an exemption subject to fulfillment of requirements of

section 8(4). This sub-section requires declaration form registered

dealer/Government. Thus, State Government cannot waive condition of C/D

form.

Number of Transactions per ‘C’ certificate - One declaration in C form can

cover all transactions in one whole financial year, irrespective of total

amount/value of transactions during the year. [rule 12 amended w.e.f. 7-8-

1998].

ONE CERTIFICATE FOR EACH FINANCIAL YEAR - If a transaction covers

more than one financial year, separate C form is required for each financial

year. Provision of one 'C' form per financial year has been upheld in Laxmi

Agarbatti Factory v. UOI (1996) 102 STC 248 (MP HC DB).

Procedure in case of Loss of C form - If duly completed or blank C form is lost

when it was in custody of purchasing dealer or when the form was in transit to

selling dealer, the purchasing dealer will have to furnish ‘Indemnity Bond’ to

sales tax authority (from whom the blank forms were obtained) in prescribed

‘G’ form. If the duly completed C form is lost after it is received by selling

dealer, he has to submit indemnity bond to sales tax authority of his State.

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