GST replaces CST (Cetral Sales Tax) - Brief Theory of CST II Taxation Law II BBA/CA/CS II ppt

What is Central Sales Tax?

Central Sales tax refers to the tax levied on sales generated during inter-state trade and commerce in a country. In essence it is the tax one has to pay on the sale of goods which are sold through inter-state trade. Central Sales Tax (CST) is an indirect, origin based tax on customers and is payable in the state where a particular product is sold. CST is charged only on inter-state transactions and any transaction within a state or import/export of goods does not fall under its purview.

Central State Tax in India:

India, is a union of states and the strength of our country lies in its ability to handle these states collectively, which is where Central Sales Tax comes into play, by eliminating any confusion regarding inter-trade tax. Central Sales Tax came into existence through an act of the parliament and was enacted in the year 1956 to regulate sale of commodities and taxes regulating such sales. Although CST is levied by the Central Government and falls under the Union List of the Seventh Schedule, it is administered by the state in which a particular sale originates.

A trader dealing in goods which involve inter-state trade is expected to pay both the state sales tax and the central sales tax on such transactions.

Central Sales Tax Act, 1956

Sales Tax in India falls under the ambit of Central Sales Tax Act, 1956, which extends to the whole of India and defines the rules and regulations guiding sales tax. This Act was introduced in the Sixth Constitutional Amendment and brought the taxes on sale/purchase of goods in inter-state trade under the purview of the legislative jurisdiction of Parliament. This act came into force in 1957 and forms the backbone for Central Sales Tax in India, containing various provisions for the same.

This Act mentions the definitions of inter-state trade, situations where CST is applicable, penalties involved, important goods for interstate trade, trade restrictions, appeals and any other information which might be relevant.

Objectives of Central Sales Tax Act:

Provide provisions for levying, collecting and distributing taxes collected via interstate sale of goods and products.The government introduced the Central Sales Tax Act in a bid to simplify and streamline tax collection in the country. Some of the main objectives of Central Sales Tax Act are mentioned below.

• Frame policies to determine when sale and purchase of goods occurs, with reference to interstate commerce.
• Classifying certain goods as being essential and important for trade and commerce.
• Establish which competent authority will settle interstate trade disputes.

Central Sales Tax Rate:

Central Sales Tax rates are determined by the government and have changed since the time the Act first came into force. The original Central Sales Tax rate was 1%, which was then increased periodically to 2% and finally became 4% from July 1975 onwards. Goods which are extremely important for inter-state travel are not taxed under certain provisions of the CST Act, ensuring that essential commodities do not become dearer.

In 2007, an amendment to central sales tax rates was accepted, which saw the Sales Tax coming down to 3% from the previously charged 4%.

June 2008 witnessed a further reduction in the tax rate, with the rate coming down to 2%. A major reason for the reduction in CST rates was the need to introduce Goods and Services Tax (GST), which would make CST inconsistent with GST.

The table below highlights the central sales tax rates for different scenarios.