Central Sales Tax Act, 1956

Gist of recent amendments

Amendments made in October 2005

Form C to be submitted to department on quarterly basis, instead of yearly basis.
Collection of Form F every month but submission on quarterly basis. Submission of Form C and Form on quarterly basis and NOT at the time of assessment as was the earlier practice.

Insertion of Section 5(4) of CST Act, 1956 and amendment of Rule 12(10(a) of CST R&T Rules, 1957 to provide for exemption for Section 5(3) sale on the basis of Form H alone.

Amendments to CST Act vide Taxation Laws (Amendment) Act, 2007 - Effective April 1, 2007
Rate of Central Sales Tax (CST) for inter state sale to registered dealers reduced to 3% (against Form C) If local VAT rate or Sales Tax rate in the state of the selling dealer is less than 3%, then the local rate (2% or 1%) would apply. Inter State Sale without Form C (sale to unregistered dealer / registered dealers where Form C could not be issued) - Concept of minimum of 10% CST removed. Now the rate of CST would be equivalent to the Local VAT rate (4% or 12.5%)

Amendments to CST Act vide Taxation Laws (Amendment) Act, 2007, with effect from April 1, 2007 (Contd.)
Inter State Sale to Government / Government departments Government/ Govt. departments cannot any longer issue Form D for 4% (3%) CST.
Sale to Government is like sale to any other person who cannot issue Form C. Local VAT rate would apply. CST rate would be 4%/12.5%. Government / Government departments cannot issue Form D for effecting In-Transit Sale (E1 sale). No separate tax rate for sale of Declared Goods to unregistered dealer

Overview

CST phase out in due course 4-2-0 plan now becomes 3-2-1-0. Whether 2,1,0 will happen as planned? Whether GST will happen in Year 2010?

Overview CST Phase out?

CST phase-out to take 3 years from April 1, 2007 CST collection by states estimated to be over Rs. 25,000 Crores in Year 2007-08.

Cut by one percentage point from April 2007 would result in states losing about Rs. 6,250 crore
This loss needs to be compensated by the Centre. To offset shortfall, states are considering increase of VAT rate of 4% to 5%. Percentage increase of revenue of states from VAT drops to 22% in 2006-07 from 23% in 2005-06. (Courtesy Business line)

Overview CST Phase out?

Union Finance Ministry to compensate loss of States fully upon CST phase out. Mr Chidambaram says that Union Govt. and State Finance Ministers of VAT States have worked out a "Broad consensus'' on compensation and that the compensation package includes transfer of the entire tax revenue from certain services Union to transfer revenue from 77 services to states which are intraState in nature. (Of 77 services, 44 are new services to be introduced and 33 are existing services) (Business Line - January 4, 2007)

CST Phase out Implications

Compensation period ends with FY 2007-08. State Governments bound to react on dip in revenue State Governments may consider increase of VAT rate of 12.5% for certain items Kerala State Budget 2006-07 - New schedule of goods carrying 20 per cent tax introduced for Items such as Air-Conditioners, Dishwashers, Health drinks and Colas. Department may take all measures to collect more revenue or may seek to deny ITC / refund on frivolous grounds.

To avoid litigation, Record keeping would be crucial.