Declare goods (vat)

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Ram Avtar Singh

Nagari Sultanpur U.P.Delhi

15155 Points Joined March 2007

Goods of special importance

There are restrictions on imposition of sales tax on declared goods.

Article 286(3)(a) of Constitution of India authorises Parliament to declare some goods as of ‘special importance’ and to impose restrictions and conditions in regard to power of States in regard to levy, rates and other incidence of tax on such goods. Parliament can restrict powers of State Government to tax such ‘declared goods’. Section 2(c) of CST Act defines ‘Declared Goods’ as those declared under section 14 of CST Act as ‘goods of special importance in Inter State Trade or commerce. Section 14 of CST Act gives a list of such goods and section 15 specifies restrictions on power of States to tax such goods.

Goods of special importance - Section 14 gives list of ‘goods of special importance’ called ‘declared goods’. Important among them are :

	Cereals i.e. paddy, rice, wheat, bajra, jowar, barley etc.
	Coal and coke in all forms excluding charcoal
	Cotton in un-manufactured form but not cotton waste
	Cotton fabrics, cotton yarn
	Crude oil
	Hides and skins
	Iron and Steel i.e. pig iron, sponge iron, iron scrap, steel ingots, billets, steel bars, steel structurals, sheets, plates, discs, rings, tool steel, tubes, tin plates, steel wheels, wire rods; defectives of above etc.
	Jute
	Oil-seeds i.e. groundnut, til, cotton seed, linseed, castor, coconut, sunflower, mahua, kokum, sal etc.
	Pulses i.e. gram, tur, moong, masur, urad etc.
	Man-made fabrics - fabrics of man-made filament yarn i.e. artificial textile materials, polyester filament yarn, staple fibres, polyester staple fibre, tyre cord fabric, impregnated textile fabrics etc.
	Sugar and Khandsari Sugar
	Woven fabrics of wool
	Aviation Turbine Fuel sold to a turbo-prop aircraft

Un-manufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc. were 'declared goods' upto 31-3-2007. Now, they are not 'declared goods' w.e.f. 1-4-2007.

Restrictions on State taxation on declared goods

Section 15 of CST Act places following restrictions and conditions in regard to powers of State Governments to tax declared goods inside the State.

Tax on declared goods not to exceed 4% - Tax on declared goods within a State cannot exceed 4%. [section 15(a)].

As per provision in section 15(1) upto 11-5-2002, tax on declared goods could be imposed only at one stage. Now, this restriction has been removed w.e.f. 11th May 2002, as such restriction was against principles of VAT.

Normally, such tax was imposed by States at first stage for convenience and control. After that, subsequent sales within State were exempt from tax. Now, there is no such restriction on imposing local/Central sales tax on subsequent sale.

However, such tax will not be automatic. Each State will have to suitably amend their sales tax laws to impose the tax on re-sale.

Reimbursement of local tax if declared goods sold Inter-State - If any declared goods, on which Intra-State sales tax (i.e. State sales tax) is paid; is sold in Inter-State sale; then the tax levied on sale within the State should be reimbursed to the person making such Inter-State sale [section 15(b)]. However, (a) the Inter-State sale of goods must be in same form. (b) If Inter-State sale of the goods are exempt from tax, refund of tax paid on Intra-State sale is not available. (c) The word used is ‘reimbursement’. Thus, the tax on local sale must have been paid.

Goods must be sold in same form to obtain reimbursement - Declared goods purchased must be sold in same form i.e. identical goods must be sold. Identity of goods must not be lost e.g. (a) Mung, chana and urad converted into dal is same commodity. (b) Round timber logs are different from sized timber (c) Dried coconuts and watery coconuts are different commodities. (d) Condensed milk is different from ‘milk’. (e) Oil seeds and oil extracted from these seeds are different commodities. (f) Ice is different commodity than water. Thus, if goods sold after processing are different commodity, reimbursement of local sales tax is not available.

Some articles which are held as ‘declared goods’ - Some items which are held as ‘declared goods’ are as follows. Thus, sales tax cannot be levied at rates higher than 4%.

Cast Iron castings are ‘declared goods’ - In case of Pyare Lal Malhotra v. State of Tamilnadu (1976) 3 SCR 168 (SC) = (1976) 37 STC 319 (SC) = 1976 UPTC 282 = AIR 1976 SC 800 - reproduced in 1983 (13) ELT 1582 (SC) - a 4 member bench decision, Supreme Court held that when separate commercial commodity comes into existence, they become separately taxable goods. Central Government, vide its letter dated 28th Feb., 1977 had clarified that ‘Cast Iron’ includes ‘Cast Iron Castings’. One entry in section 14 reads ‘pig iron and cast iron including ingot moulds, bottom plates, iron scrap, cast iron scrap, runner scrap and iron skull scrap.’ In view of this entry and clarification of Central Government, manufacture of Cast Iron Castings from pig iron was not treated as ‘manufacture’ as both fall under same heading and no tax was levied. This circular has been upheld in Vasantham Foundry v. UOI - AIR 1995 SC 2400 = (1995) 99 STC 87 (SC) = 1995 AIR SCW 3556 = 94 ELT 32 = (1995) 5 SCC 289 - 3 member bench. In this case, it was held that cast iron castings in its basic rough form is ‘Cast Iron’ and hence is ‘declared goods’.

GI pipes are declared goods - Steel tubes are galvanised to make the pipe corrosion resistant. After galvanising, it is called ‘Galvanised iron pipe’. Since galvanising does not change the structure and function, making GI pipe from Steel tubes does not bring a new commodity into existence and hence GI pipes are ‘declared goods’ - Gujarat Steel Tubes Ltd. v. State of Kerala (1989) 2 CLA 100 (SC) = (1989) 74 STC 176 (SC) = (1989) 2 JT 474 (SC).

Corrugated sheets - Corrugated iron sheets even after corrugation are still ‘iron and steel’. – State of Gujarat v. Shah Veljibhai Motichand (1969) 23 STC 288 (Guj HC) – followed in Gujarat Small Industries Corp v. CST (1999) 116 STC 193 (Guj HC DB).

HR and CR steel strips - In Jindal (India) Ltd. v. Dy CCT (2000) 117 STC 426 (WBTT), it was held that both HR (Hot Rolled) Steel strips and CR (Cold Rolled) steel strips are one for purposes of ‘declared goods’ under CST Act. [The decision was in respect of dispute over incentive scheme].

Sewing thread is declared goods - In State of Tamilnadu v. R V Krishniah - (1994) 92 STC 262 (Mad HC DB), it was held that ‘sewing thread’ and ‘cotton yarn’ are ‘same commodities’ and hence is liable only to single point tax - similar decision of Orissa High Court - (1982) 51 STC 410 and 411 - contrary decisions in (1976) 37 STC 227 (Ker HC), (1976) 38 STC 11 (All HC) and (1981) 48 STC 460 (Ker HC).

Special provisions about paddy and pulses - Special provisions in respect of paddy and pulses are as follows.

Set off of tax on paddy - If paddy is taxed within State and rice (which is produced from paddy) is also taxed, tax paid on paddy should be given set off while levying tax on rice e.g. if tax of Rs. 1,000 is paid on paddy and tax payable on rice produced from the paddy come to Rs. 1,500, then tax of only Rs. 500 will be actually payable on rice [section 15(c)].

No tax on conversion of pulses - Each of the pulses whether whole or separated and whether with or without husk, shall be treated as a single commodity for purpose of levy of tax under State tax law i.e. if tax is paid on raw pulses, no further tax is payable after it is processed [section 15(d)].

Purchase of paddy and export of rice - If paddy is purchased on payment of sales tax and rice procured out of such paddy is exported, the paddy and rice will be treated as ‘same goods’ for purpose of section 5(3) of CST Act. [section 15(ca) of CST Act.] Thus, paddy can be purchased without payment of sales tax, if rice made from such paddy is exported. As per normal provisions, the procurement of paddy should be specifically for export purposes. In Veerumal Monga v. State of Haryana (2001) 123 STC 158 (P&H HC DB), rice miller purchased paddy and sold rice to the exporter. It was held that in such case, only sale of rice to exporter is penultimate sale and is exempt. However, purchase of paddy by millers will not be exempt. – same view in Monga Rice Mill v. State of Haryana 2002(125) STC 304 (P&H HC DB). Thus, to get benefit of this provision, the exporter should himself procure paddy and then get job work done to convert into rice. He should not purchase rice directly from miller.

Sales Tax rates applicable for sale of declared goods - State Governments cannot charge sales tax for sale within the State at the rate which is more than 4%. As per section 8(2) of CST Act, if declared goods are sold to unregistered dealer, the sales tax rate is equal to Vat rate as applicable within the State. [Till 31-3-2007, it was twice the rate applicable in case of local sales]. It may be remembered that State cannot levy tax on declared goods at rates over 4%.

Replies (2)

Ram Avtar Singh

Nagari Sultanpur U.P.Delhi

15155 Points Joined March 2007

CHAPTER IV - GOODS OF SPECIAL IMPORTANCE IN INTER-STATE TRADE OR COMMERCE

Certain goods to be of special importance In Inter-State trade or commerce.

14. It is hereby declared that the following goods are of special importance in inter-State trade or commerce:-

¹⁰[(i) Cereals, that is to say,-

(i) paddy (Oryza sativa L.);

(ii) rice (Oryza sativa L.);

(iii) wheat (Triticum vulgar, T. compactum, T. sphaerococcum, T. edurum, T aestivum L. T. dicoccum);

(iv) jowar or milo (Sorghum vulgare Pers);

(v) bajra (Pennisetum typhoideum L.);

(vi) maize (Zea maYs L.)

(vii) ragi (eleusine coracana Gaertn.);

(viii) kodon (paspalum scrobiculatum L.);

(ix) kutki (Panicum miliare L.) ;

(x) barley (Hordeum vulgare L.) ;]

¹¹[(ia)] coal, including coke in all its forms, but excluding charcoal:

Provided that during the period commencing on the 23rd day of February, 1967 and ending with the date of commencement of section 11 of the Central Sales Tax (Amendment) Act, 1972 (61 of 1972), this clause shall have effect subject to the modification that the words "but excluding charcoal" shall be omitted;

(ii) cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste;

¹²[(iia) cotton fabrics covered under heading Nos. 52.05, 52.06, 52.07, 52.08, 52.09, 52.10, 52.11, 52.12, 58.01, 58.02, 58.03, 58.04, 58.05, ¹³[58.06,] 59.01, 59.03, 59.05, 59.06 and 60.01 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 4 986);]

(iib) cotton yarn, but not including cotton yarn waste;

¹⁴[(iic) crude oil, that is to say, crude petroleum oils and crude oils obtained from bituminous minerals (such as shale, calcareous rock, sand), whatever their composition, whether obtained from normal or condensation oil-deposits or by the destructive distillation of bituminous minerals and whether or not subjected to all or any of the following processes:-

(1) decantation;

(2) de-salting ;

(3) dehydration

(4) stabilisation in order to normalise the vapour pressure;

(5) elimination of very light fractions with a view to returning them to the oil-deposits in order to improve the drainage and maintain the pressure;

(6) the addition of only those hydrocarbons previously recovered by physical methods during the course of the above mentioned processes;

(7) any other minor process (including addition of pour point depressants or flow improvers) which does not change the essential character of the substance;]

(iii) hides and skins, whether in a raw or dressed state;' (iv) iron and steel, that is to say,-

(i) pig iron and cast iron including ¹⁵lingot moulds, bottom plates], iron scrap, cast iron scrap, runner scrap and iron skull scrap;

(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);

(iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars;

(iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths) ;

(v) steel structurals (angles, joists, channels, tees, sheet piling sections, Z sections or any other rolled sections);

(vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition ;

(vii) Plates both plain and chequered in all qualities

(viii) discs, rings, forgings and steel castings ;

(ix) tool, alloy and special steels of any of the above categories;

(x) steel melting scrap in all forms including steel skull, turnings and borings;

(xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings ;

(xii) tin-plates, both hot dipped and electrolytic and tinfree plates;

(xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails--- heavy and light crane rails;

(xiv) wheels, tyres, axles and wheel sets;

(xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;

(xvi) defectives, rejects, cuttings or end pieces of any of the above categories;

(v) jute, that is to say, the fibre extracted-from plants belonging to the species Corchorus capsularies and Corchorus olitorius and the fibre known as mesta or bimli extracted from plants of the species Hibiscus cannabinus and Hibiscus sabdariffa-Var altissima and the fibre known as Sunn or Sunnhemp extracted from plants of the species Crotalaria juncea whether baled or otherwise;

(vi) Oilseeds, that is to say,-

(i) Groundnut or Peanut (Arachis hypogaea);

(ii) Sesamum or Til (Sesamum orientale);

(iii) Cotton seed (Gossypium Spp.);

(iv) Soyabean (Glycine seia);

(v) Rapeseed and Mustard

(1) Toria (Brassica campestris var toria);

(2) Rai (Brassica juncea);

(3) Jamba-Taramira (Eruca Sativa);

(4) Sarson, yellow, and brown (Brassica campestris var sarson)

(5) Banarsi Rai or True Mustard (Brassica nigra);

(vi) Linseed (Linum usitatissimum);

(vii) Castor (Ricinus communis);

(viii) Coconut (i.e., Copra excluding tender coconuts) (Coconucifera);

(ix) Sunflower (Helianthus annus) ;

(x) Nigar seed (Guizotia abyssinica)

(xi) Neem, vepa. (Azadirachta indica);

(xii) Mahua, illupai, Ippe (Madhuca indica M. Latifolia, Bassia, Latifolia and Madhuca longilolia syn. M. Longifolia);

(xiii) Karanja, Pongam, Honga (Pongamia pinnata syn. P. Glabra);

(xiv) Kusurn (Schleichera oleosa syn. S. Trijuga);

(xv) Punna, Undi (Calophyllum inophyllum);

(xvi) Kokum (Corcinia indica);

(xvii) Sal (Shorea robbusta);

(xviii) Tung (Aleurites fordii and A. montana);

(xix) Red palm (Elaeis guinensis);

(xx) Safflower (Carthanus tinclorius);

¹⁶[(via) pulses, that is to say,-

(i) gram or gulab gram (Cicerarietinum L.);

(ii) tur or arhar (Cajanus cajan);

(iii) moong or green gram (Phaseolus aureus);

(iv) masur or lentil (Lens esculenta Moench, Lens culinarie Medic);

(v) urad or black gram (Phaseolus mungo);

(vi) moth (Phaseolus aconitifolius Jacq);

(vii) lakh or Khesari (Lathvros rativus L.)

¹⁷[(vii) man-made fabrics covered under heading Nos. 54.08, 54.09, 54.10, 54.11, 54.12, 55.07, 55.08, 55.09, 55.10, 55.11, 55.12, 58.01, 58.02, 58.03, 58.04, 58.05, ¹⁸[58.06,]59.01, 59.02, 59.03, 59.05, 59.06 and 60.01 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(viii) sugar covered under sub-heading Nos. 1701.20, 1701.31, 1701.39 and 1702.11 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) ;

(ix) unmanufactured tobacco and tobacco refuse covered under sub-heading No. 2401.00, cigars and cheroots of tobacco covered under heading No. 24.02, cigarettes and cigarillos of tobacco covered under sub-heading Nos. 2403.11 and 2403.21, and other manufactured tobacco covered under sub-heading Nos. 2404.11, 2404.12, 2404.13, 2404.19, 2404.21, 2404.29, 2404.31, 2404.39, 2404.41 ¹⁹[, 2404.50 and 2404.60], of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(x) woven fabrics of wool covered under heading Nos. 51.06, 51.07, 58.01, 58.02, 58.03 and 58.05 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986).]

Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.

15. Every sales tax law of a State shall, insofar as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely :-

(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed ²⁰[four] per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage;

(b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of interState trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State;

²¹[(c)where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in sub-clause (i) of clause (i) of section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy;

^21a[(ca) where a tax on sale or purchase of paddy referred to in sub-clause (1) of clause (1) of section 14 is leviable under that law and the rice procured out of such paddy is exported out of India, then, for the purposes of subsection (3) of section 5, the paddy and rice shall be treated as a single commodity.]

(d) each of the pulses referred to in clause (via) of section 14, whether whole or separated, and whether with or without husk, shall be treated as a single commodity for the purposes of levy of tax under that law.]

HARDEEP

AUDITORS/FINANCIAL CONSULTANTS

61 Points Joined May 2008

Does this rule also applicable under Punjab VAT Act ...."If paddy is purchased on payment of sales tax and rice procured out of such paddy is exported, the paddy and rice will be treated as ‘same goods’ for purpose of section 5(3) of CST Act. [section 15(ca) of CST Act.] Thus, paddy can be purchased without payment of sales tax, if rice made from such paddy is exported"

What if paddy is purchased from 'Kacha Ahartiyas' in Local mandies and then rice manufactured out of this is exported out of India, should we have to pay VAT @ 4% on paddy at the time of purchase as given in Schedule H and as per provision of Punjab VAT Act?

and What if 50% procured rice out of such paddy is sold in Intra State or Inter state?

Please reply and thanks in advance.