UNIT-V

Central Sales Tax Act 1956 - Objectives of the CST Levy and Collection of CST Sales and Deemed
Sales - Subsequent sales - Registration - Compulsory Registration - Voluntary Registration - Security
from dealer-registration procedure.
The Central Sales Tax Act, 1956 is an Act of the Parliament to formulate the principles for determining
when sale or purchase of goods takes place in the course of inter-State trade or commerce. It provides
for levy and collection of tax on such inter-State sales of goods. It also specifies and declares certain
goods to be of special importance in Inter-State trade and commerce.

Objectives of the Central Sales Tax Act, 1956

The Central Sales Tax Act, 1956 has been enacted to:
1.To make provisions for levy, collection and distribution of tax on sale of goods other than
newspapers, where such sale takes place in the course of inter-state trade or commerce.
2. To formulate principles to determine when a purchase or sale of any goods shall be deemed to
have taken place:
(i) in the course of inter-state trade or commerce; or
(ii) outside a State; or
(iii) in the course of export of goods out of and import of goods into the territory of India.
3. To declare certain goods to be goods of special importance in inter-state trade or commerce.
4.To prescribe conditions and restrictions to levy and collection of tax on goods declared to be goods
of special importance in inter-state trade or commerce.

Charging section of CST

As per the Constitution, tax on Inter State sale/purchase can be levied only by Union Government. CST
Act has been enacted for this purpose. Section 6(1) of CST Act provides that subject to other provisions
of the CST Act, every dealer shall be liable to pay tax under this Act on all sale of goods (other than
electrical energy) effected by him in the course of Inter-State trade or Commerce. Section 6(1) is called
as Charging Section as it imposes levy on sale of goods on Inter-State sale.
Conditions for the Levy of CST
CST levy is based on the following conditions:
1)
2)
3)
4)
5)
6)
7)

There should be a Dealer (sec. 2(b))

He must be a Registered Dealer (Sec. 7)
The Dealer must carry on Business (sec. 2(aa))
There must be Sale (sec. 2(g))
The sale must be of Goods (Sec. 2(d))
The sale may be of Declared goods or otherwise (sec. 14 & 15)
The sale must be in the course of Inter State Trade or Commerce (sec. 3)

8) It should not be a Sale Inside a State (sec. 4(2))

9) The Sale should not take place in the course of Import or Export (sec. 5)
10) The buyer may or may not be Registered Dealer

Consequences if these conditions are satisfied:

1)
2)
3)
4)
5)
6)
7)

CST shall be levied

It shall be levied on Turnover (sec. 2(j))
It is levied at a Specified rate (sec. 8)
It shall be collected only by the Registered Dealer (Sec. 9A)
It shall be remitted to the state from which movement of goods commences
It shall be retained by the state in which it is collected (although it is the revenue of CG)
The registered dealer shall submit return and assessment shall be completed by the assessing
authority in the appropriate state.
Definitions

Appropriate State [Sec.-2(a)]

(i)

If all the places of business are situated in one state, that state

(ii)
If places of business are situated in different state, every state in which place of business is
situated.
Significance of Appropriate State:The definition of appropriate state assumes importance because of the following reasons:
1.
Administration and collection of CST is done by the appropriate state.
2.
CST is calculated with reference to LST of the appropriate state.
3.
Registration is required to be done with the appropriate state.
4.
Turnover is calculated with reference to law of appropriate state.
5.
Provisions of return, appeal are governed by the law of appropriate state.

Business [Sec.-2(aa)]:
Business includes(i)
any trade, commerce or manufacture, or any adventure or concern in the nature of trade,
commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is
carried on with a motive to make gain or profit and whether or not any gain or profit accrues from such
trade, commerce, manufacture, adventure or concern; and
(ii)

any transaction in connection with, or incidental or ancillary to, such trade, commerce,

manufacture, adventure or concern.

Place of Business - 2(dd)

It Includes:
a. In any case where a dealer carries on business through an agent (by whatever name called), the place
of business of such agent.
b. A warehouse, godown or other place where a dealer stores his goods and
c. A place where a dealer keeps his books of account.

Dealer [Section 2(b)]

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.
It includes 1 A local authority, a body corporate, a company, any cooperative society, other society, club, firm,
Hindu undivided family, association of persons which carries on such business.
2 A factor, broker, commission agent who carries on business of buying, selling, supplying or
distributing goods belonging to any principal
3 An auctioneer who carrier on the business of selling or auctioning goods belonging to any principal.
4 Government.
Registered dealer [Section 2 (f)]
This means a dealer who is registered under Section 7 of the Act.

SALE - 2(g)
Includes any transfer of property in goods by one person to another for cash or for deferred payment or
for any other valuable consideration. It also includes a transfer of goods on the hire-purchase or other
system of payment by installment but does not include a mortgage or hypothecation or pledge of goods.
Essential Elements of sale:
1. Two-parties Buyer and Seller
2. Transfer of property
3. Property should be in goods
4. Valuable consideration in Money/Moneys worth
5. It also includes a transfer of goods on the hire-purchase or other system of payment by
installment
6. It does not include a mortgage or hypothecation or pledge of goods.

Deemed sales:
It is there under the Article 366 (Entry 29A) of the constitution. Accordingly the following types of
transactions can be taxed:
1. Compulsory Transfer: Transfer of property in goods otherwise than in pursuance of a contract
(therefore CST is payable even if there is compulsory transfer).
2. Works Contract: Transfer of property in goods through works contract.
3. Transfer of property in goods in hire purchase/installment payment system.
4. Supply of goods by any unincorporated association/body of persons to the members (Even
though there are no two legal parties to sale).
5. Supply of food and drink in a hotel.
Subsequent Sales
No sales tax levied under CST Act, on the subsequent sales, if the following conditions satisfied by the
seller.
(a) First sale should be inter-state as per Section 3(a) or 3(b) of the CST Act.
(b) The subsequent sale should be made to registered dealer only.
(c) The subsequent sale is made by transfer of documents during the movement of goods from
one state to another.
(d) Dealer selling goods in subsequent sale has to issue a certificate to purchasing dealer in Form
E-II and the buyer has to issue the Form C, to the seller.
Goods [section 2(d)]
This includes all material articles or commodities and all kind of movable property excluding
newspapers, actionable claims, stocks, shares, and securities. If newspapers are sold as scrap then, it will
be charged to central sales tax if it is an inter- state sale.
Declared Goods [Section 2(C)]
It includes those goods which are considered to be of special importance in interstate trade or commerce
under section 14.
Some of these goods is
Cereals
Coal
Cotton
Crude Oil
Jute
Oilseeds
Pulses
Sugar

Inter-State Sale [Sec.-3]

A sale or purchase of goods shall be deemed to take place in the course of inter-state trade or commerce,
if the sale or purchase:
(a)

Occasion the movement of goods from one state to another; or

(b)

Is effected by a transfer of documents of title to the goods during there movement from one state
to another.

Sale/ Purchase which occasion the movement of goods from one state to another [Sec.-3(a)]
A sale or purchase which occasion the movement of goods from one state to another, is an inter-state
sale
Note:
a) There must be a completed sale.
b) There must be movement of goods from one state to another.
c) The movement must be because of such sale. i.e. the relevant contract of sale must be provided.
d) Sale includes agreement to sale in certain cases.
Sale by Transfer of Documents [Sec.-3(b)]
The following conditions must be satisfied before the sale or purchase can be treated as sale in the
course of inter-state trade or commerce u/s 3(b):
(a). There must be movement of goods from one state to another
(b). The property in the goods should pass by transfer of documents of title after commencement but
before its conclusion.
Explanation:
Movement of goods shall start when the goods are handed over to transporter and movement shall finish
when delivery of goods is taken at the destination from the transporter.
Analysis to Section 3
1.The distinction between sale u/s 3(a) and sale u/s 3(b) is that in the former the movement of goods is
under the contract of sale or purchase but in the latter the contract comes into existence after
commencement but before termination of the inter-state movement of goods.
2.The movement referred to in sec.-3(a) is real; whereas the movement referred to in sec.-3(b) is
notional. In the latter case, movement begins when the goods are handed over to the transporter for interstate movement and ends when the goods are taken delivery from the transporter. In other words, the
goods are said to be in the course of movement as long as they are with the carrier.

3.Documents of Title: A document of title has not been defined under the CST Act. However, it
generally includes the following:
(a) Railway Receipts (RR): In case of movement of goods by rail.
(b) Lorry Receipts (LR): In case of movement of goods by road.
(c) Airway Bill (AWB): In case of movement of goods by air.
(d) Bill of Landing (BL): In case of movement of goods by ship.
4.Transfer of document: The document of title may be in favour of buyer, agent of seller, banker or even
self. When the document is in favour of Agent/ Banker/ Self then the agent/ banker or if self (the dealer)
has to transfer the document in favour of the purchaser. Such transfer is normally by way of
endorsement on the document of title.
When is a sale or purchase of goods said to take place outside a state [Sec.-4]
1. Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in
accordance with sub-section (2) to take place inside a state, such sale or purchase shall be deemed to
have taken place outside all other states.
2. A sale or purchase of goods shall be deemed to take place inside a state if the goods are within the
state
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) 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 is prior or subsequent to such appropriation.
Explanation:
Where there is a single contract of sale or purchase of goods situated at more places than one, the
provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at
each of such places.
Inside state sale - Sec.4(2):
In the case of Specific or Ascertained goods- a sale is deemed to take place inside the State where such
goods are situated at the time when the contract of sale is made.
The criterion is where the goods are at the time of sale contract.
E.g.
A has 100 chairs in his shop at Coimbatore.
B wants to buy them. A agrees to sell.

These goods which are available with the seller at the time of contract for sales are called "Ascertained
goods" or specific goods. Since they exist in Tamil Nadu at the time A and B entered into the contract
the sale is deemed to take place inside Tamil Nadu.
In the case of Unascertained or Future goods -a sale is deemed to take place inside a State where such
goods are situated at the time of their appropriation to the contract of sale by the seller or by the buyer.

Exports and Imports

Export of goods out of India [Sec.-5(1)]
A sale or purchase of goods shall be deemed to take place in the course of export of goods outside India
if, such sale or purchase
(i)

the sale or purchase occasions such export

(ii)

the sale or purchase is effected by transfer of document of title to the goods after the goods have
crossed the custom frontier of India.

As per section 5 (3), last sale or purchase of any goods preceding the sale or purchase occasioning the
export of these goods shall also be deemed to be in the course of such export, if following conditions are
satisfied
(i) The last sale or purchase has been made after the purchaser of such goods has obtain the order
of export or agreement for export was entered into by him.
(ii) Such last sale or purchase has been made for the purpose of complying with such order of
export or agreement of export.
(iii) Form H has been submitted by the dealer to the prescribed authority. The form should be
signed by the exporter to whom the goods are sold.

Import of goods into India [Sec.-5(2)]

A sale or purchase of goods shall be deemed to take place in the course of import of the goods into the
territory of India only if:
(a)

Such sale or purchase occasions such import i.e. a direct import; or

(b)

Such sale or purchase is effected by a transfer of documents of title to the goods before they have

crossed the customs frontiers of India i.e. it is in the course of import.

Registration of Dealers Section-7

Procedure for obtaining registration
1. Application Form: - A dealer has to submit application in Form-A to the notified authority.

The form contains the following details:

(i) Name of the manager of business
(ii) Name and addresses of proprietor or partner of the business.
(iii) Date of establishment of business.
(iv) Date on which first inter-state sale was made.
(v) Name of the Principal place and other places of business in the appropriate state.
(vi) Particulars of any license held by the dealer.
2. Whom to apply: - to the concerned authority in the appropriate state
3. Who should sign the registration form: - The application form should be signed & verified by
dealer.
In case of
Individual
HUF
Firm
Company
AOP
Government

-------------------

Himself
Karta or Manager of family
One of its Partners
Director or Principal officer
Principal officer
Officer duly authorized by the Govt.

4. Time limit:
Compulsory Registration:

30 days from the date on which the dealer becomes liable

to pay tax under the Act.

Voluntary Registration:

At any time.

5. Fees to be paid: A fees of Rs.25 shall be payable in respect of every application for registration.
6. Disposal of application for registration:
The AA shall satisfy himself with the following:
(a)
Application if in order
(b)
Particulars in application are correct & complete.
(c)
Dealer appears to be a genuine dealer.
7. Security for registration
Power to require Security as a pre-condition for registration:
a) Notified authority as a pre-condition for issue of RC, require the dealer to furnish security
b) It shall be furnished in the prescribed manner + within the prescribed time.

Necessity
Proper realisation of CST
Proper custody + Use of forms (E-I, E-II,F-form, C-form)
Opportunity of being heard should be given before requiring security.

Power to require additional Security:

At any time which RC is in force, the notified authority may require the dealer to whom
RC was granted to furnish additional security for the aforesaid purpose.
It is binding on the dealers to whom RC has been issued.
Opportunity of being heard should be given before requiring additional security.
Until he furnishes the additional security, he cannot get the aforesaid forms.
Forfeiture of security:
If tax or penalty payable by dealer, Security will be forfeited after giving opportunity of being heard.
Duty to make up deficiency:
a) Due to forfeiture of security, if the security furnished by the dealer is rendered insufficient, he
shall make up the deficiency in the prescribed manner within the prescribed time.
b) Refund of excess security: The notified authority, on application of the dealer, may refund the
c) excess security (not required for the purpose of this Act)
9. Effective date of registration: Date of application for registration or the date of first ISS (Whichever is
earlier)
iv.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.

Contents of RC:
CST Registration number
Appropriate state
Principal place of Business
Other POB
Nature of Business
Goods in which he can deal
Purpose of purchase
Accounting year
Warehouses in the state of registration
Validity period
Date of registration
Sign of notified authority

10. Amendment of Certificate of Registration

(a)
on the request of dealer : or
(b)
by the AA on its own Motion.
Circumstances
(a)
Where there is change in the name of business.
(b)
Where there is change in the nature of dealers business.
(c)
Change in class or classes of goods.
(d)
For any other reason for which the certificate of registration granted to him,
requires amendment.
11. Cancellation of Certificate of Registration
The certificate of registration may be cancelled either
(a)
on the request of dealer; or
(b)
by the AA on its own motion.
Circumstances
(a)
If dealer has ceased to carry on business.
(b)
If dealer has ceased to exist.
(c)
If dealer fails to furnish security or additional.
Rates of Tax
1.

If the sale is made: -

(i)

to govt. or

(ii)

to RD of goods specified U/S 8(3)

Rate of tax shall be 2% or local sales tax rate whichever is less.

However, seller will have to submit form C/D obtained from purchaser within time.
2.

If a sale does not fall in (1) above and the goods sold are

(i)

declared goods, the rate of tax shall be double of State Rate

(ii)

non-declared goods 10% or state rate whichever is Higher

(iii)

If the sale is exempt from tax generally inside the appropriate state, the rate of tax under
CST shall be NIL.

Determination of Turnover(Sec. 8A)

Meaning of Turnover (sec. 2(j))

It means aggregate of sales price received and receivable by a dealer in respect of sale of
any goods in the course of inter-state trade during the year.

 It shall be determined in accordance with the provision of this act and rules made
there under.
Turnover is determined on the basis of sales price.
Sale Price (sec. 2(h))

It means the amount to a dealer as a consideration for a sale of any goods.

It excludes Cash discount as per normal trade practice.
It also excludes Freight, delivery and installation cost if separately charged.
It includes any sum charged for anything done by the dealer in respect of goods at
the time of or before delivery of goods to the buyer.

The following three deductions shall be made from the aggregate Sale price in determining the turnover:
(a)

CST included in the aggregate of Sale price provided it was separately charged:
If tax forms a part of aggregate sales price then amount of tax collected by a registered dealer
shall be deducted from his gross turnover. Tax is calculated by the following formula.

(b)

Goods returned within 6 months

(c)

Other deductions as may be prescribed.

Determination of turnover (Sec. 8A)

S.No.
1.
2.
3.
4.
5.

Particulars
Turnover(including CST)
Less: CST
(1) x Tax Rate/100+Tax Rate
Less: sales returns
Less: Other deductions (prescribed by Central Government)
Turnover for the purpose of this Act

Amount
xxx
xxx
xxx
xxx
xxx

Collection Of Tax: Section- 9 a

The central sales tax can be collected from the buyers only by the registered dealers on the inter-state
sale effected by them. According to rules prescribed under this Act., Dealers who are not liable to pay
tax under general sales tax law the period of filing the return in a financial year is

1.
2.
3.
4.

Quarter ending on 30 June

Quarter ending on 30 September
Quarter ending on 31 December
Quarter ending on 31 March