( Expert )
04 February 2008
Source of Procedures under CST Act
Procedures are important for any taxation law. Often valuable tax concessions are lost or penalties are imposed only because prescribed procedures are not followed.
Procedures for CST Act are covered as follows :
1 Rules framed by Central Government
2 Rules framed by State Governments under CST Act
3 Rules as prescribed in State Sales Tax Laws of each State.
Central Sales Tax Act is a peculiar Act - though the tax is levied as Central Sales Tax, it is administered by respective State Governments. In Bharat Heavy Electricals v. UOI - AIR 1996 SC 1854 = (1996) 102 STC 373 (SC) = 1996(4) SCC 230 = JT 1996(4) SC 427, it was held that State Machinery acts as machinery of Central Government for administration of CST Act. In Khemka & Co. v. State of Maharashtra AIR 1975 SC 1549 = (1975) 3 SCR 753 = 1975(2) SCC 22, it was held that substantive laws of Central Act must be applied. State Act is applicable for procedures alone.
CST Act and Rules framed by Central Government make provisions for very few procedures. In respect of other procedures and provisions, provisions as applicable in the State in respect of the General Sales Tax Law of the State are also applicable in respect of Central Sales Tax in respect of dealers registered in that State. State Governments are also authorised to frame rules under CST Act.
Some Provisions of State Laws applicable to CST - Section 9(2) of CST Act provides that all provisions of 'General Sales Tax Law' of each State, except those provided in CST Act and Rules itself, in respect of the following shall also apply to persons liable under Central Sales Tax Act in that State :
Assessment, provisional assessment and reassessment
Advance payment of taxes
Registration of transferee and imposition of tax liability on transferee
Recovery of tax from third parties
Appeals, review, revision and references [except in case of appeals u/s 6A or 9]
Refunds, rebate, penalties and interest
Compounding of offences
Treatment of documents furnished by dealer as confidential.
Offences and penalties (except those covered in CST Act itself)
State authorised to administer and collect Tax - CST Act is administered by States. The State authorised to collect tax is authorised to administer the tax.
Registration under CST Act: CST Act makes provisions for registration of dealer. Registration brings many advantages e.g. the dealer can issue ‘C’ form and purchase goods at concessional rate.
Compulsory Registration under CST - Section 2(f) states that 'registered dealer' means a dealer who is registered under section 7 of CST Act. As per section 7(1), every dealer liable to pay Central Sales Tax has to register himself with sales tax authority. As per section 6(1) of CST Act, every dealer effecting sale in the course of Inter State trade or commerce is liable to pay CST. Thus, only those dealers who ‘effect’ inter state sales are required to register under CST Act. ‘Effect’ means ‘bring about, accomplish, cause to exist or occur’ [Concise Oxford Dictionary 1994 edition]. Thus, intermediaries like agents, transporters etc. who only facilitate sales are not required to be registered, as they do not ‘effect’ sales.
Central Government has authorised State Governments to prescribe State Sales Tax authorities authorised for the purpose of registration. Thus, registration under CST Act is done by State Sales Tax authorities who are authorised for the purpose.
Voluntary Registration - A dealer registered with State sales tax authorities may voluntarily apply for registration under CST Act even if he is not liable to pay Central Sales Tax [section 7(2) of CST Act]. He is entitled to apply for registration even if goods sold or purchased by him are exempt under State sales tax law. This application for registration can be made any time. This provision is mainly useful when the dealer makes purchases in Inter State but all his sales are within the State. Thus, he is not liable for payment of any CST. However, he can make purchases in Inter State at concessional rate only if he is registered. Hence, he can register even if he is not liable to pay any CST.
Application for registration - Application for registration should be made in prescribed form ‘A’ as per CST (Registration and Turnover) Rules; within 30 days from the date when dealer becomes liable to CST. Application fee of Rs. 25 is payable (by way of court fee stamps). Application has to be signed by (a) proprietor of business (b) one of the partners in case of business owned by partnership firm (c) Karta or Manager of HUF (d) director or principal officer of Company (e) principal officer in case of association of individuals or (f) officer authorised by Government in case of Government.
ADDITIONAL PLACES OF BUSINESS - If a dealer has places of business in different States, he has to obtain separate registration in each State. However, if he has more than one places of business within the same State, he has to get only one registration with additional places of business endorsed on the Certificate. Definition of 'place of business' has already been explained in earlier chapter.
Security from dealer under CST Act - As per section 7(2A) of CST Act, the Registering authority can ask for proper security from the applicant for (a) realisation of taxes due and (b) proper custody and use of forms (like C, E-I/E-II, F and H) which are supplied by Sales Tax authorities for use by the dealer [section 7(2A)]. Additional security can also be demanded from a dealer who is already registered [section 7(3A)]. Security cannot be demanded without granting opportunity of personal hearing. The security should not be more than estimated tax liability for the current year i.e. year in which security/additional security is demanded [section 7(3BB)]. Security may be in form of surety, execution of a bond, by deposit of Government securities or by way of cash deposit. Demanding security is not essential. Moreover, security demanded should be reasonable and for good and sufficient reasons.
The security can be forfeited, after giving personal hearing, if the CST due is not paid by dealer or the blank sales tax forms issued to him are misused [section 7(3D)]. After such forfeiture, additional security has to be furnished. If such additional security is not furnished, sales tax authority may not issue further blank sales tax forms.
The security can be refunded, partly or wholly, if, sales tax authorities are of opinion that such security is not required.
Order demanding security or additional security or not refunding security is appealable. Appeal should be filed within 30 days. The appellate authority can condone the delay in filing of appeal, if sufficient cause is shown [section 7(3H)]. There is no further appeal against the order of Appellate Authority and the order passed by Appellate Authority is final [section 7(3J) of CST Act].
Other documents required at time of registration - Other documents required at the time of registration vary from State to State. Normally, following are asked for - (a) Particulars of Directors/ partners (b) Copies of articles of association, memorandum in case of company and partnership deed if applicant is a firm (c) Copies of rent agreements (d) Nominations as Manager (e) List of places of business, godown (f) Details of machinery (g) Details of bankers (h) Photographs of directors / partners.
Certificate of Registration under CST - The registering authority will ensure that application is in conformity with provisions of CST Act. He can make necessary enquiries e.g. (a) particulars given are correct (b) Materials requested for registration are eligible for inclusion and the goods are in fact needed for the business. After he is satisfied and after obtaining required security, the dealer will be issued a Certificate of Registration in prescribed form ‘B’. A copy of the same will be issued for every additional place of business in the State. This certificate should be kept at principal place of business and a copy of the certificate should be kept at each additional place of business in the State.
AMENDMENT OF CERTIFICATE - The certificate can be amended e.g. change of name, change of business, change of class of goods in which he carries business, change/addition of place of business, warehouses etc. This amendment can be made on application from dealer or by sales tax authorities themselves after giving notice to dealer. In Orient Paper Mills v. CST - (1969) 23 STC 308 (MP HC), it was held that the amendment will be effective from date of application for amendment - quoted with approval in Larsen and Toubro Ltd. v. CCT - (1995) 97 STC 102 (Pat HC FB). [In view of SC judgments cited above in respect of effective date of registration, these decisions appear to be correct].
All items of purchase and sale must be included in Registration - The ‘Registration certificate’ is indeed very important. As per section 10(c), false representation when purchasing any goods that the class of goods are covered by the registration certificate, is an offence. As per section 10(a), furnishing a false certificate is an offence. Thus, while issuing ‘C’ form or other forms under the Act, it must be ensured that goods are covered in the Registration Certificate. This is particularly so because there is no provision to amend the Registration Certificate with retrospective effect.
Cancellation of CST Registration - Registration can be cancelled either on request of dealer or suo motu by sales tax authorities.
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 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 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 fulfilment 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.
Certificate in D Form - As per section 8(1)(a) of CST Act as existing upto 31-3-2007, sales tax on Inter State sale is 4% or general sales tax rate for sale within the State whichever is lower, if sale is to Government. Otherwise the tax was higher - (10% or tax leviable on sale of goods inside the State, whichever is higher). Section 8(4)(b), therefore, provided that concessional rate is applicable only if Government (which is purchasing goods) issues a certificate in prescribed form ‘D’. Now D form has been abolished and sale to Government will be treated as sale to unregistered dealer w.e.f. 1-4-2007.
Declarations in E-I and E-II form - As per section 6(2) of CST Act, first Inter State sale is taxable. Subsequent sale during movement of goods by transfer of documents is exempt from tax, if the subsequent sale is to Government or a registered dealer. This is subject to condition that such subsequent seller obtains declaration (a) from the selling dealer i.e. from registered dealer from whom goods were purchased. (b) from purchaser a declaration in C form or declaration in D form. The selling dealer has to make declaration in E-I form if it is a first sale and in E-II form if it is a subsequent sale. One example will clarify the requirements. Assume that W despatches goods from Karnataka to Orissa and raises invoice on X in Madhya Pradesh, W charges 4% CST and pays the same in Karnataka. During movement of goods, X sells goods to Y in West Bengal and Y ultimately sells goods to Z in Orissa. Z takes delivery of goods and the ‘movement of goods’ comes to end. Sale from X to Y and Y to Z is by transfer of documents. In this case, W will receive declaration in ‘C’ form from X and will issue declaration in ‘E-I’ form to X. Later, X will issue declaration in ‘E-II’ form to Y and receive declaration in C form from Y. Finally, Y will issue declaration in E-II form to Z and will receive declaration in ‘C’ form from Z, which will complete the chain. If the chain is broken, CST will be payable again.
Some provisions of C form applicable to E-I/E-II forms - Following provisions of C form are also applicable in respect of E-I/E-II form (a) One declaration for all transactions in one year (b) Separate declaration for each financial year (c) Indemnity bond if form is lost (d) Issue of duplicate form (e) Submission at any time before assessment (f) Like C form, the E-I/E-II forms are mandatory and sales tax concession is not available if the required form is not submitted.
Declaration in F Form - We have seen that when the goods are despatched to another State on consignment basis or to branch of dealer in another State, there is Inter State movement of goods but there is no sale and hence no CST is payable. This provision is often misused and goods are despatched in the garb of consignment or branch transfer though actually it may be a sale. Hence, section 6A(1) of CST Act provides that when a dealer claims that the Inter State movement of goods is not a sale, he has to prove the same. (In legal terminology, it is called that ‘burden of proof’ is on the dealer). For this purpose, he must produce a declaration in ‘F’ form received from Consignment Agent or Branch Office in another State.
As per section 6A(1) as amended w.e.f. 11-5-2002, submission of F form is mandatory to prove stock transfer. Otherwise, the transaction will be treated as ‘sale’ for all purposes of CST Act.
Goods can be sent to other State for further manufacture - Goods can be purchased at concessional rate if the goods are for use in the manufacture. Thus, after manufacture, the sale need not be in the same State. In Indian Aluminium Co. Ltd. v. STO - (1993) 90 STC 410 (Ori HC DB), the company was manufacturing Aluminium Ingots at Hirakud, Orissa. These were despatched to plants of the company in other States for further manufacture of Aluminium coils, sheets etc. Plants in other States were sending ‘F’ forms. The department accepted the forms without any objection.
One form F covering receipts during the month can be issued. If space in form F is not adequate, a separate list may be attached as annexure to form F giving details, provided that the annexure is firmly attached to the form. The blank form has to be obtained from sales tax authority in which the transferee is situated, i.e. State where goods were received. If the form is lost, indemnity bond has to be given and duplicate form clearly marked as ‘Duplicate’ can be issued.
Certificate in form H - Sale during course of export is exempt from CST. As per section 5(3) of CST Act, penultimate sale is also deemed to be in course of export and is exempt from CST. Dealer actually exporting the goods has proof of export like customs documents, bank certificate, airway bill/bill of lading, shipping bill etc. However, the penultimate seller does not have any direct evidence to prove that his sale is exempt from tax. In such cases, the actual exporter has to issue a certificate to the penultimate seller in form H. The blank ‘H’ forms are to be obtained from sales tax authority by the final exporter.
SEZ UNIT HAS TO SUBMIT I FORM - As per CST Rule 12(10), SEZ [Special Economic Zone] unit will supply I form. In such case, supplies to unit in SEZ made by dealer outside special economic zone will not be liable to CST.
Appeals to Appellate Authority: Assessment of Central Sales Tax is done by sales tax officer who also does assessment of local sales tax. Normally, appeal against assessing authority lies with State sales tax authorities (like Appellate Commissioner or Tribunal etc). However, in case of decision of assessing authority u/s 6A read with 9 of CST Act, the appeal will lie with ‘Central Sales Tax Appellate Authority’, if the issue relates to dispute concerning the sale of goods effected in inter-state sale. In other matters, the appeal will lie with State Appellate authorities as per local sales tax law.
These provisions have been made effective from 17-3-2005.
Section 6A states that if a dealer claims a particular transaction as stock transfer and not a sale, the burden of proof will be on him to prove that it was not a sale. Section 9 provides that sales tax will be collected in the State from which the movement of goods commenced, by State Government of that State. In case of subsequent sale by transfer of documents, the sales tax is exempt if it is a E-I – E-II transaction u/s 6(2). However, if such sale is to unregistered dealer, the transaction will not be supported by E-I E-II forms. In such case, fresh tax becomes payable in the State in which the buyer could have obtained the sales tax form.
Formation of Appellate Authority – A separate ‘Central Sales Tax Appellate Authority’ will be constituted by Central Government. The Authority will consist of Chairman, Officers of Legal Service of Central government of level of Additional Secretary and officer of State Government of rank of Secretary who is expert in sales tax matters / officer of Central Government of rank of Additional Secretary who is expert in sales tax matters. Central Government will provide administrative staff to the Authority. [section 19 of CST Act]. The authority will regulate its own procedures. [section 23 of CST Act].
Till such separate authority is formed, ‘Authority for Advance Ruling’ formed u/s 245-O of Income Tax Act will function as ‘Appellate Authority’, by making suitable changes in the present structure of the ‘Authority for Advance ruling’. After constitution of Appellate Authority’ u/s 19 of CST Act, the appeals will be transferred to that authority. [section 24]. The Authority for Advance Ruling has been constituted as CST Appellate Authority w.e.f. 17-3-2005.
Matters appealable to the authority – Appeals against the decision of assessing officer u/s 6A read with section 9 of CST Act will lie with ‘Central Sales Tax Appellate Authority’, if the issue relates to dispute concerning the sale of goods effected in inter-state sale. In such case, appeal will lie with the CST Appellate Authority and not with Appellate Authority of State Government. [section 20(1)]. Dealer whose claim u/s 6A or 9 is rejected by assessing authority will file appeal to CST Appellate Authority, if the dispute relates to sale of goods effected in inter-state sale. Appeal should be filed within 45 days from date on which order is served on him. Further extension of 15 days can be granted by Appellate Authority. [section 20(2)]. Appeal must be filed in quadruplicate and accompanied by a fee of Rs 5,000/-.
Procedure for hearing – On receipt of appeal, a copy of appeal will be forwarded to assessing authority as well as State Governments concerned. Appellate Authority will call upon assessing authority and State Government/s to furnish relevant records. The records will be returned to assessing authority/State Government as soon as possible. [section 21(1)]. Authority will hear the matter, examine the matter and either accept or reject the appeal. Before rejecting appeal, opportunity of hearing will be given to appellant or his authorised representative and also to State Government concerned. [section 21(3)]. Appeal should be normally decided within 6 months. [section 21(4)]. Copy of order will be sent to appellant and assessing authority. [section 21(5)].
Authority can order refund by one State Government – It may happen that sales tax was paid to one State Government while in fact, it was payable to another State Government. In such case, the Appellate Authority, which is an All India Authority, can order one State Government to order payment of taxes to another State Government. Section 26 provides that order of CST Appellate Authority will be binding on assessing authorities and other authorities under State sales tax laws. - - There is no provision for appeal against the order of CST Appellate Authority.
Offences under the Act : Central Sales Tax Act provides for penalties and punishments in respect of certain offences. In respect of offences not provided in the CST Act, provisions of General Sales Tax Law of the State where the dealer is carrying on business are applicable.
CST Act envisages three types of punishments (a) Imprisonment and fine which can only be imposed by Court of Law (b) Compounding of offences by Sales Tax authorities (c) Penalty in certain cases which can be imposed by Sales Tax authorities.
Section 10 of CST Act provides that punishment upto six months of simple imprisonment or with fine or both can be imposed for following offences under CST Act.
Knowingly giving declaration in form C, E-I, E-II, F or H which he knows, or has reason to believe, to be false
Not registering under CST Act when required to be registered
False representation by a registered dealer that the goods being purchased are covered under his Certificate of Registration for concessional rate
Falsely representing that he is a registered dealer, though he is not.
Misusing or using for different purpose the goods obtained under C form or H form prescribed for SEZ unit, at concessional rate
Having in possession C forms or H form prescribed for SEZ unit, which are not obtained as per provisions of Act.
Collecting any amount representing as Central Sales Tax by an unregistered dealer or by a registered dealer in contravention of provisions of Act.
Provisions regarding offences in ‘General Sales Tax Law’ (excepting those enumerated above) are applicable in respect of offences committed by dealers in that State.
Punishment by Court of law - Punishment of imprisonment and/or fine can be imposed only by Court of law. If the offence is a continuing offence, fine of Rs. 50 per day till offence continues can be imposed. The person has to be prosecuted in a criminal case. Such prosecution can be launched only with previous sanction of State Government or its authorised officer. The offences are cognizable and bailable.
Compounding of offences - Some offences can be compounded by Sales Tax Authorities. Compounding means the dealer agreeing to pay a fine and sales tax authorities agree to drop further action in respect of the offence. - - This is termed as ‘penalty in lieu of prosecution’ under CST Act.
PENALTY IN LIEU OF PROSECUTION - Section 10A of CST Act authorises imposition of penalty in lieu of punishment in respect of offences regarding (a) obtaining goods not included in registration certificate (b) purchasing goods representing that he is registered dealer, though he is not (c) using goods for purposes different than the purposes for which purchased. (Other offences can be compounded by Sales Tax authorities, if provision exists in State Sales Tax Law). The penalty can be upto one and half time the tax which would have been payable. The penalty can be imposed by Sales Tax Authority having jurisdiction over the dealer’s place of business. Once penalty is imposed, prosecution for same offence shall not be instituted. The penalty is collected by Union of India in the State in which the dealer is registered or if he is not registered - in which he should have got himself registered.
Offences cognizable and bailable - The offences under CST Act are cognizable and bailable. [section 11(2)]. However, Court can take cognizance of offence under CST Act only with previous sanction of State Government or its authorised officer. The offence can be tried only in court of presidency magistrate of a magistrate of first class or court above that. [section 11(1)]
Punishment for other offences - Besides above, State laws provide for other offences like late payment or non-payment of tax, false declaration of turnover, non-filing or late filing of returns etc. These provisions are also applicable in respect of dealers in that State who make inter State sale [section 9(2A) of CST Act].
No limitation for launching prosecution - As per Economic Offences (Inapplicability of Limitation) Act, 1974; there is no limitation for launching prosecution in respect of offenses under CST Act and any other offense that may be tried along with offense under Central Sales Tax Act, 1956.
Liability of company in liquidation - As per section 17(1), if a liquidator or receiver is appointed for a Company, he should inform sales tax authorities within 30 days of the appointment. The appropriate authority [assessing officer i.e. sales tax officer - section 16(a)] will inform him within three months the amount of tax due from company which is in liquidation. [section 17(2)]. Liquidator cannot sell assets of company before setting aside amount of due as informed by sales tax authorities - unless such transfer or sale is by order of Court. [section 17(3)]. Otherwise, liquidator is personally liable. [section 17(4)].
PRIORITY OF STATE DUES - Government dues most of the times have priority over other dues in case of liquidation. The priority is subject to provisions of Companies Act.
Liability of directors of Private limited Company in case of liquidation - Section 18 provides that if a private limited company is being wound up, liability of directors of such private limited company is personal if amount cannot be recovered in liquidation i.e. the tax due can be recovered from his personal property. He can save the liability only if he proves that non-payment of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to affairs of the company.
Recovery of CST – Provision of State Sales Tax laws apply for recovery of CST also. Many of State Sales Tax Laws provide that sales tax dues will have priority over any tax due and a charge is created. In the opinion of author, such a provision, even if contained in local sales tax law, cannot apply to CST. The reason is that only procedural provisions of local sales tax law can apply and not substantive provisions.