SECTION I

MAHARASHTRA VALUE ADDED TAX

Background

Maharashtra is one of the 21 States which have introduced the Value Added Tax (VAT) system of taxation from 1st April 2005. With the introduction of VAT, the Sales Tax Department has moved to a globally recognized sales taxation system that has been adopted by more than 130 countries.

The design of Maharashtra State VAT is generally guided by the best international practices with regard to legal framework, as well as operating procedures. Another key factor in preparation of the design of State level VAT is the national consensus on certain issues. The consensus has been arrived at through the discussions in the Empowered Committee of State Finance Ministers on implementation of State level VAT.

On 1st April 2005, VAT replaced the single point sales tax. Single point sales tax had a number of disadvantages, primarily that of double taxation. VAT is a modern and progressive taxation system that avoids double taxation. In addition to offering the possibility of a set-off of tax paid on purchases, VAT has other advantages for both business and government. It eliminates cascading impact of double taxation and promotes economic efficiency. It is primarily a self-policing, self-assessment system with more trust put on dealers. It provides the potential for a stronger manufacturing base and more competitive export pricing. It is invoice based, and as a result it offers a better financial system with less scope for error. It has an improved control, mechanism resulting in better compliance. It widens the, tax base and promotes equity.

VAT in Maharashtra is levied under a legislation known as the Maharashtra Value Added Tax Act (MVAT Act), supported by Maharashtra Value Added Tax Rules (MVAT Rules). VAT is levied on sale of goods including intangible goods.

The meaning of goods for VAT purposes Goods means every kind of moveable property including goods of incorporeal and intangible nature but there are some exclusion, such as newspapers, actionable claims, money, shares and securities and lottery tickets. Businesses engaged in. the buying and selling of goods within the scope of the VAT law are referred to as dealers.

The meaning of 'sale' for VAT purposes

A transaction of sale can be a: Normal sale of goods; Sale of goods under hire-purchase system; Deemed sale of goods used I supplied in the course of execution of works contract; Deemed sale of goods given on lease.

The rate of tax applicable to the goods sold under various classes of sales is uniform. However, in respect of normal sales of goods and deemed sales of goods under works contract and specified deemed sale of goods given on lease, the Act provides for an optional method for discharging tax liability by way of composition. Being so, the tax liability has to be determined with reference to the option exercised by the dealer for discharging tax liability.

Businesses covered by VAT

The VAT system embraces all businesses in the production and supply chain, from manufacture through to retail. VAT is collected at each stage in the chain when value is added to goods. 1t applies to al1 businesses, including importers, exporters, manufacturers, distributors, wholesalers, retailers, works contractors and lessors.

Registration

Every dealer who becomes liable to pay tax under the provisions of MVAT , shall apply electronically for registration to the prescribed authority, in form 101, within 30 days from the date of such liability and a dealers annual turnover exceeds the below mentioned threshold, then it must register with the local office of the Sales Tax Department.

Category

Annual Turnover of Sales

Turnover of sales or purchase of taxable goods not less than

Fees payable on registration

Importer Others

1,00,000 5,00,000

10,000 10,000

100 100

If the dealers turnover is less than the above threshold, then they are not liable to collect and pay VAT. However, if a dealer wishes to avail the benefits of being a registered dealer, then they may apply for voluntary registration by paying a fee of Rs.5,000/ -.

Benefits of being a registered dealer

As a registered dealer, they are entitled to: collect VAT on the sales; claim set-off of tax (input tax credit) paid on purchases; Issue tax invoices and, be competitive.

Effective date of registration

The effective date of registration, that is, the date front which a dealer may charge VAT on sales; will depend on the date they first become liable to pay VAT. This date will be determined as follows:

a) New businesses: If a dealer is not registered because their annual turnover is less than the threshold; their liability to account for VAT starts from the date they cross the threshold.

b) Existing businesses: If a dealer took over an existing business that is registered for VAT, then they will be liable to pay tax on sales from the date they took over the business.

c) Voluntary registration: If a dealer is registered on a voluntary basis, then he will be liable to account for VAT from the date shown on the certificate of registration.

d) Late registration: If a dealers turnover has exceeded the appropriate threshold but they have applied late for registration, then he can charge VAT on his sales only after they are registered, i.e., from the date shown on the certificate of registration.

Further, having crossed the threshold, it is an offence to be engaged in business as a dealer without a certificate of registration

Cancellation of registration A dealer will be liable to pay VAT while their registration is effective. If however, their turnover falls below the threshold, he may choose to apply for cancellation of his registration. However, he should continue to collect and pay VAT in the normal way until his registration is formally cancelled. Alternatively, they may be allowed the registration to continue.

If a dealer: discontinue the business; dispose of or sell or transfer the business;

A dealer must inform the Sales Tax Department within 30 days of the event. In case of disposal or sale of business, their successor will need to apply for a fresh registration certificate.

For cancellation of registration a dealer should submit form 103 which is available with the local sales tax office. It can also be downloaded from the website

www.vat.maharashtra.gov.in If the Sales Tax Department cancels the dealers registration, they must return the Certificate of Registration

The cancellation of their certificate does not affect their liability to pay any tax, interest or penalties in respect of any period prior to the date of cancellation of their registration.

Rates of value added tax There are two main rates of VAT 4% and 12.5%. The goods are grouped into five schedules as under: Schedule A B C Rate of tax 0% 1% 4% Illustrative Items Vegetables, milk, eggs, bread Precious metals and precious stones and their jewellery Raw materials, notified industrial inputs, notified information technology products and a few essential items D 20% and above E 12.5% Other than items specified in schedules A, B, C & D. Liquor, petrol, diesel etc

Difference between tax free goods and exempt sales It is sometimes confusing to have goods that are tax free and sales that are exempt. Both result in no VAT being charged, so what is the difference?

Tax free goods do not attract tax at any stage of sale or in any type of transaction, whereas, exempted sales are certain types of transactions, viz., export sales which are exempt from tax.

Composition schemes Certain dealers may find it difficult to keep detailed records for claiming set-off. For such dealers, a simpler and optional method of accounting for VAT has been introduced. This method is the composition scheme. It may be noted that composition scheme is not meant to be a tax concession scheme but only a simplification of tax calculation and payment system.

Tax payable by dealers opting for composition in lieu of VAT The following classes of dealers are eligible for option to pay tax under composition: Resellers selling at retail, i.e., to consumers, Restaurants, eating houses, hotel (excluding hotels having gradation of 'Fou r Star and above), refreshment rooms, boarding establishments, clubs and caterers, Bakers, Dealers in second-hand passenger motor vehicles and Works contractors Dealers engaged in the business of providing mandap, pandal, shamiana.

Accordingly, if the dealer has opted for payment of tax liability under composition, the tax liability has to be determined in terms of the guidelines given in the relevant Notification in this regard. Apart from the terms and conditions governing each of the composition schemes, the Notification explains the methodology for computation of turnover liable to tax and the rate of composition payable.

A dealer can opt for the composition option at the beginning of the financial year and has to continue to be a composition dealer at least till the end of that financial year. If dealer wishes to switch, over to normal VAT, he can do so only at the beginning of the next financial year. However, a new dealer can opt for composition at the time of registration.

In respect of works contract, the contractor can choose to discharge tax liability under composition option. Moreover, such an option can be exercised by the contractor on contract to contract basis.

Calculating tax liability

In, order to calculate how much tax a dealer has to pay, he must, first determine his turnover of sales and turnover of purchases. The second stage is to ascertain the amount of tax due for payment.

Calculating turnover of sales and purchases The turnover of sales is the total of the amounts received or receivable (excluding VAT charged separately) in respect, of the sale of goods, less the amount refunded to a purchaser in respect of goods returned, within six months of the date of the sale.

Similarly, the turnover of purchases is the total of the amounts paid or payable (excluding VAT charged separately) in respect of the purchase of goods less (the amounts repaid to dealer in respect of goods they return, within six months of the date of purchase.

Credit notes and debit notes If the sale price, or the purchase price, of any goods is varied and either a credit note or a debit note is issued, then the credit note or the debit note, as the case may be, should Show separately, the tax and the price. Be accounted for in the period in which the appropriate entries are made in their books of accounts.

Sales and purchases not liable to tax under VAT

The VAT law specifically excludes from value added tax all imports, exports and inter-state transactions. These transactions are covered by the CST Act. Similarly, transactions that take place outside Maharashtra are not within the scope of MVAT Act.

Recovery, Offences and Penalties

Recovery of unpaid tax

VAT is a self-assessed tax. In order to operate effectively, the self-assessment system relies on the expectation that every dealer will deal with his tax matters promptly and honestly. But there will be occasions when a dealer does not pay the tax that is due. And so, there is a system designed to recover unpaid tax and to deter dealers from trying to avoid paying tax. The self-assessment return requires the dealer to pay the tax due at the time of submission of the return. If this dealer does not pay the tax that he has declared, or if only pays a part of the tax due, interest is payable in addition to the tax due.

Attachment of Bank Account

Where any tax, interest or penalties remain unpaid, the department may issue an attachment notice to the dealer's bank and to his debtors. If necessary, officials of the Sales Tax Department may call for the records from the defaulting dealer to examine and obtain the necessary details. Attachment proceedings The department may also recover the amounts due by attaching the defaulting dealer's moveable or immoveable property under the provisions of Maharashtra Land Revenue Code. If the department is still unable to recover the amounts of tax, interest and penalties plus any costs incurred in the attachment proceedings, it will initiate prosecution proceedings through police. The VAT law outlines a number of offences and the financial and other consequences that follow. In addition, interest will be charged on any tax paid late at the rate of 15% per year.

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Offences The principal offences, each of which has been referred to in the text of this guide, are as follows: If a person poses as a registered dealer when they not registered. files a false return. keeps false account of the value of goods bought or sold. produces false accounts, registers or documents or provides false information. issues any document (including bills, cash memoranda, vouchers or any other certificate or declaration) which the dealer knows or has reason to believe is false.

He may be liable for criminal proceedings including imposition of fine

In addition, dealer is committing an offence and if he fails to register when his turnover exceeds the, threshold. provides information about changes to his business. declares the name of the manager. provides to Sales Tax Department the PAN allotted to the business. files a return. get his accounts audited, when required. keeps proper accounts, when required to do so by the Sales Tax authorities because the existing records are inadequate. produce his accounts for inspection, when required issues a tax invoice, bill or cash memorandum.

In these circumstances, the dealer may be prosecuted and a fine may also be imposed.

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There are two other events that may also give rise to a penalty. If the dealer: transfers any assets of his business with the intention of not paying tax, or fails to respond to a notice requiring him to provide statistical information.

Dealer will be liable to a fine and may also face prosecution.

Financial penalties or fines

There are various financial penalties, each depending on the nature of the offence:

Tax related Some offences attract a maximum penalty in proportion to the amount of tax due. If the dealer: conceals or misclassifies any transaction or provides inaccurate information or claims a set off in excess of the amount due or, issues or produces a documents, including tax invoice, bill or cash memorandum, that results in a person or dealer not paying the correct amount of tax

The penalty is an amount equal to the tax due. If the dealer avoids paying the correct amount of tax as a result of issuing bogus, false tax invoices, the maximum penalty is an amount equal to half of the tax under assessed or Rs.100/-, whichever is higher.

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 Non Tax Related Penalties If the dealer fails to file a return, within the time allowed, the penalty is Rs.2,000/-. If dealer files the return late but before any penalty proceedings have started, the penalty will be reduced to Rs1,000/-. If the dealers return is not correct, complete and self-consistent, the penalty is Rs1,000/-, but this is without prejudice to any other penalties that may be imposed.

If, after the issue of summons, the dealer fails to attend any proceedings or to produce books of account, registers or documents, the Tribunal or the Sales Tax authorities may impose a fine, not exceeding Rs.5,000/-.

Most other offences attract a penalty of Rs.1,000/- although there is also a provision for some offences to attract a penalty of Rs.2,000/- plus a continuing daily penalty of Rs.100/-

Payment of Penalty or Fine As a result of proceedings, such as audit, investigation, assessment etc., Sales Tax Authority may issue a demand notice containing details of tax, interest and penalties, if any, that are imposed.

The dealer should pay the amount due within 30 days of the date of the order. Dealer should make the payment using Form 210 through the bank where he normally files his return.

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Filing a return and paying the tax

VAT is a self-assessment system and dealers are expected to make self assessment for a given tax period and declare their VAT liability by filing returns. The returns have to be filed in the prescribed form and by the specified dates. Further, they are also required to pay the tax due as per the return filed.

In Maharashtra, return form is return-cum-chalan. As such, filing of returns along-with payment of tax on or before the due date at the notified bank would be considered as sufficient compliance. However, where any amount of tax including interest or penalty is due as per a fresh or revised return, then they should first pay such amount in Government Treasury and file the return in the local office of Sales Tax Department along with a self attested copy of the chalan. If no payment is due or a refund is claimed as per the return, they are also required to file the return in the local office of the Sales Tax Department.

Time schedule for filing returns Periodicity of filing returns is as follows: Retailers who have opted for composition should file six-monthly returns. Newly registered dealers should file quarterly returns until the end of the year in which they first register. All package scheme dealers should file quarterly returns. All other dealers should file returns as given below :o Dealers whose tax liability in the previous year was less than Rs.1,00,000 (Rs.1lakh) or whose entitlement for refund was less than Rs.10,00,000 (Rs.10lakh) should file six-monthly returns. o Dealers whose tax liability in the previous year was more. than Rs.10,00,000(Rs.10lakh) or whose entitlement for refund was more than Rs.l,00,00,000(Rs1crore) should file monthly returns. o All other dealers should file quarterly returns.

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Filing and payment dates for return-cum-chalan are as follows: Return Frequency Monthly Quarterly Six Monthly Filing / Payment date 21 days from the end of the return period 21 days from the end of the return period 21 days from the end of the return period

Scrutiny of returns filed The return filed by the dealer should be correct, complete, and self-consistent in every respect. The Sales Tax Office will check the return to ensure that there are no obvious errors in consistencies or contradictions in calculations. If this check reveals discrepancies, then the dealers will be advised and invited to submit a fresh return. The department will issue this defect notice within four months of receiving their return. Then they should file their fresh return within 30 days of the notice. If they fail to do so, it will be deemed not to have filed the return within the time allowed, and will so liable to a penalty charge. At the same time, as the department issues the defect notice, dealers will be sent a 'show cause' notice, explaining that a penalty may be imposed.

Offences relating to filing of returns and payment of tax The following are the offences liable for interest / penalty / prosecution etc. Short- payment / non- payment of tax due Failure to file returns Delay in filing returns Knowingly furnishing false returns Filing of incorrect or incomplete or inconsistent returns

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Appeals
A dealer may appeal against an assessment order if they do not agree with the amount assessed. They may also appeal against an order for the charging of interest or the imposition of a penalty. They can also file an appeal against any other order passed in their case. Appeals cannot be filed against certain interlocutory proceedings or orders. Also, they cannot appeal against an unilateral assessment order passed as a consequence of non filing of returns. There are two appeal bodies; the first is the departmental appeal officers and the second is the Maharashtra Sales Tax Tribunal ('Tribunal').

Appeal bodies Normally, dealers appeal will be, in the first instance, to the departmental appellate authority. However, where the Commissioner, or a Joint or Additional Commissioner issues the order, its appeal is directly to the Tribunal. (The order will show the designation of the officer). If the dealer is not satisfied with the decision of the departmental appellate authority, then they may make a second appeal to the Tribunal.

The Tribunal The Tribunal consists of equal number of judicial and technical members. The latter are ordinarily, senior ex-officers of the Sales Tax Department.

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Filing an appeal Dealers appeal must be made, using Form 310, within 60 days of the date of service of the order against which they are appealing. They can get a copy of the form from the local sales tax office or can download it from the Sales Tax Department website

www.vat.maharashtra.gov.in A dealer must make sure that the form is fully and correctly completed. If there are any mistakes or omissions, then they will be advised and given an opportunity to correct them. If again they fail to do so, then their appeal will be rejected. Before making an appeal, dealer must pay a fee through a challan in Form 210. If the amount involved in their appeal is one lakh rupees or more, the fee is one tenth of a percent (0.1%) of the amount in dispute, subject to a maximum of Rs.1000/-. In all other cases, the fee is Rs.100/-.

Application to stay the order In case dealers prefer as an appeal against an order of demand, then they may apply for stay an order to the extent of any amount to be paid by the appellant pending disposal of their appeal. Dealer must make their said application on Form 311 which can be simultaneously filed along-with the appeal.

Appeal rejected If the dealers appeal is rejected on the ground of non-attendance, then they may apply, it again within 30 days for the restoration of the appeal citing sufficient reasons. The appellate authority will take appropriate decision.

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Appeal accepted If dealers appeal is admitted, then the appellate authority will give them a minimum of 10 days' notice of the date, place and time of the appeal hearing (unless they request an earlier hearing). The hearing may be adjourned or postponed upon the dealers request if deemed fit by the appellate authority.

The Appeal hearing At the appeal hearing, dealer and legal adviser if any together - will be given an opportunity to explain their reasons for making the appeal and to support their case by producing evidence. After considering their arguments and evidence, the appeal officer will confirm or modify the order under appeal. If the dealer is not satisfied with the appeal officer's decision, then they may file a second appeal within 60 days to be heard by the Tribunal.

Appeal to Tribunal Dealer should file their appeal to the Tribunal in Form 310, taking care to ensure that they provide all the information relevant to their appeal as required by the form. And they must pay the appropriate fee through a challan in Form 210. The proceedings before the Tribunal will be similar to those outlined above. Dealer may present their case and evidence before the Tribunal through their legal representative. After examining their arguments and evidence, the Tribunal will pass appropriate order confirming or modifying the order under appeal or remanding the case for fresh order to the lower authority with appropriate directions.

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SECTION II

CENTRAL SALES TAX (CST)

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Introduction CST (Central Sales Tax) ) is a form of indirect tax imposed only on goods sold from one state to another state, which particularly takes into account that the buyer and the seller needs to be in two different states. Sale of goods is considered to take place when the property in goods passes from the seller to the buyer. Also, there are events which do not appear to be a direct sale of goods but are still considered as deemed sales events under the CST legislations. They are: Transfer of property in the course of executing a contract involving provision of material and services (generally termed as a works contract); Lease or hire purchase transaction of moveable goods (generally termed as right to use); and Transfer of intangible goods, such as goodwill and intellectual property rights. The liability for payment of CST/VAT lies with the seller, however, the seller can charge the CST/VAT to the buyer along with the price of goods sold. The CST Act provides for levy on Inter-State sales and also defines what Inter-State Sale is. However, the concept that revenue from sales tax should be collected by States has been retained. Thus, though it is called Central Sales Tax Act, the tax collected under the Act in each State is kept by that State only. Thus, first we have to decide if sale is Inter State. If not, we have to find if it is Sale during export or import. If not, then the sale is Intra State. Thus, if a sale is Inter State of during export or import, it cannot be Sale within the State. This amendment also authorized Parliament to formulate principles for determining when a sale or purchase takes place in the course of inter-State trade or commerce or in the course of export or import or outside a State. Accordingly the Central Sales Tax (CST) Act, 1956 was enacted which came into force on 05.01.1957. Originally, the rate of CST was 1%, which was increased first to 2%, then to 3% and w.e.f. 1st July, 1975 to 4%. The CST Act, 1956 Act provides for declaration of certain goods to be of special importance in inter-State trade or commerce and lay down restrictions on the taxation of such items. The entire revenue accruing under levy of CST is collected and kept by the State in which the sale originates. The Act excludes taxation of imports and exports.
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Background of CST Sales Tax is one of the most important Indirect Tax for purpose of taxation by State Governments. Revenue from CST goes to State from which movement of goods commences. Total CST revenue in 98-99 was Rs 8,538 Crores. Revenue of some major States was Maharashtra - Rs 1,442 Crores. Tamilnadu - Rs 934 Crores. West Bengal - Rs 799 Crores. Gujarat - Rs 787 Crores, Haryana - Rs 739 Crores. [ET, Bom 21.7.2000]. CST is proving to be a hindrance in introducing VAT. CST has been reduced to 3% (from 4%) w.e.f. 1-4-2007. It is announced that it will be reduced by 1% every year and made Nil by 1-4-2010.

Rate of Central Sales Tax CST rate w.e.f. 1-4-2007 in case of sale to registered and unregistered dealer - Position w.e.f. 1-4-2007 is as follows In case where local sales tax rate is 12.5%, CST applicable in case of sale to unregistered dealer will be 12.5%. This position is same as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be 3%. In case where local sales tax rate is 1 to 3%, CST applicable in case of sale to unregistered dealer will also be 1 to 3%, as against 10% as was applicable upto 31-3-2007. The rate will be 1% even when sale to unregistered dealer is by transfer of documents. In case of sale to registered dealers, the CST rate will be 1 to 3% as applicable to the goods within the State. In case where local sales tax is Nil, CST applicable in case of sale to unregistered dealer will also be Nil. This position is same as was applicable upto 31-3-2007. In case of sale to registered dealers, the CST rate will be Nil. Sale to Government will be equivalent to sale to unregistered dealer w.e.f. 1-4-2007 Welcome change The change is really welcome. In case of goods where State sales tax rate is 4%, if the buyer does not furnish C form, the selling dealer will be liable to pay tax @ 4% instead of 3%. So far, in such cases, he was required to pay CST @ 10%, which was indeed a very heavy penalty.
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In view of this, harassment in getting blank C form from department and charges payable for getting blank C forms should come down. Of curse, provision of submitting C form on quarterly basis continues. Thus, expenses involved in getting blank C forms from department cannot be avoided. Of course, the tax burden is heavy where local sales tax rate is 12.5%, since in that case, the selling dealer will have to pay CST @ 12.5%, instead of @ 3%, if the buyer fails to furnish C form.

Sales tax rate for sale CST rate in case of within the State sale to registered dealers NIL 1% 2% 3% 4% 8% 10% 12.5% 20% NIL 1% 2% 3% 3% 3% 3% 3% 3%

CST rate in case of sale to unregistered dealers NIL 1% 2% 3% 4% 8% 10% 12.5% 20%

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OBJECTIVE
The primary concern in this lesson has been to enable the students understand: Concept of State, Dealer, Declared Goods Principles for determining where sale or purchase of goods takes place When sale or purchase in the course of import or export take place Determination of taxable turnover Registration of dealers How and when central sales tax is imposed

IMPORTANT FEATURES OF THE ACT

1. It extends to the whole of India. 2. Every dealer who makes an inter-state sale must be a registered dealer and a certificate of registration has to be displayed at all places of his business. There is no exemption limit of turnover for the levy of central sales tax. Under this act, the goods have been classified as: Declared goods or goods of special importance in inter-state trade or commerce and

3 4.

Other goods. The rates of tax on declared goods are lower as compared to the rate of tax on goods in the second category.

5. The tax is levied under this act by the Central Government but, it is Collected by that state government from where the goods were sold. The tax thus collected is given to the same state government which collected the tax. In case of union Territories the tax collected is deposited in the consolidated fund of India. 6. The rules regarding submission of returns, payment of tax, appeals etc. are not given in the act. For this purpose, the rules followed by a state in respect of its own sales tax law shall be followed for purpose of this act also.

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Person liable to pay CST Section 8(1) specifies that every dealer who in the course of inter State trade or commerce sales the goods shall be liable to pay tax under the Act. Thus, liability is on the dealer who 'sells' the goods. Dealer - Section 2(b) defines that dealer means any person who carries on (whether regularly or otherwise) the business of buying, selling, supplying or distribution of goods, directly or indirectly, for cash, or for deferred payment, or for valuable consideration, and includes (a) a local authority, a body corporate, a company, any cooperative society, club, firm, Hindu undivided family or other association of persons which carries on such business (b) a factor, broker, commission agent, del credere agent, or any other mercantile agent, by whatever name called, and whether the same description as herein before mentioned or not, who carries on the business of buying, selling, supplying or distribution, goods belonging to any principal whether disclosed or not and (c) an auctioneer who carries on the business of selling or auctioning goods belonging to any principal, whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the principal or a nominee of principal. There are two explanations to the definition of Dealer. Explanation 1 states that a mercantile agent, agent handling goods, agent for collection of payment and every branch or officer in a State of a firm of Company which is outside the State is also a dealer. Explanation 2 states that Government is also a dealer except in case of sale of old and discarded stores or waste. Government as dealer - Explanation 2 to section 2(b) clarifies that Government, which, whether or not in the course of business; buys, sells, supplies or distributes; goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration shall be a dealer. The exception is sale, supply or distribution of un-serviceable or old stores or old materials or waste products or obsolete or discarded machinery or parts or accessories. This exception is made as all Government departments have to make such sale of old goods. However, this exception is only to Government and not for private enterprises.

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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.

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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 fulfillment 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.

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IN THE COURSE OF INTER STATE TRADE

According to section 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: (i) Occasions the movement of goods from one state to another; or (ii) Is effected by a transfer of documents of title to goods during their movement from one state to another. Occasions movement of goods section 3 (a) This means there is a completed sale in pursuance of contract of sale or purchase where by goods move from one state to another. A sale can be treated as an inter- state sale if, all the following conditions are satisfied. 1. Transaction is a Completed sale. 2. The contract of sale contains a condition for the movement of goods from one state to another. 3. There should be physical movement of good from one state to Another 4. The sale concludes in the state where the goods are sent and that state is different from the state from where the goods actually moved. 5. It is not necessary that sale precedes the inter- state movement of goods, sale can be entered before or after the movement of goods. 6. It is immaterial in which state the ownership of goods passes from seller to buyer.

Sale by transfer of documents Section If sale or purchase of goods is effected by transfer of documents of title to the goods during their movement from one state to another then, such sale or purchase shall be deemed to take place in the course of inter- state trade. A Document of title to goods, bears internal evidence of ownership of goods by holder of document. Some of the examples are Lorry Receipt (LR) in case of transport by road; Railway receipt (RR) in case of transport by rail, bill of Lading (BL)in case of transport by sea, Airway bill (AWB) in case of transport by air.

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SALE OR PURCHASE OF GOODS OUTSIDE A STATE As per section 4 (1) when a sale or purchase is inside a state as per section 4 (2) such sale or purchase shall be deemed to have taken place outside all other States Sale inside a state as per section 4 (2) means 1. In case of specific goods or ascertained, if goods are within the state at the time of the contract of sale is made. 2. In case of unascertained or future goods, if goods are within the state, at the time of their appropriation to the contract.

SALE OR PURCHASE OF GOODS IN THE COURSE OF IMPORT AND EXPORT State Government cannot impose any tax on sale or purchase of goods in course of import and export. In order to make our exports competitive no central sales tax are imposed, and tax is also not imposed on imported goods because they are already subjected to custom duties. Export of Goods out of India Section 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) either occasions such export, or (ii) is effected by transfer of documents of title to the goods after the goods have crossed the customs 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) (ii) (iii) 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. Such last sale or purchase has been made for the purpose of Complying with such order of export or agreement of export. 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.

RATES OF TAX The rate of central sales tax is 4 % or local state rate whichever, is lower on the first point of inter-state sale if, the goods are sold to the government or to a registered dealer, and on the fulfilment of specified condition, subsequent sales during the movement of same goods will be exempted from tax. But, if any of the dealers in these subsequent sales is or an unregistered dealer then the last registered dealer will collect tax @ 10% from an unregistered dealer to whom goods have been sold.

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DETERMINATION OF TURNOVER As per section 8 (A), to determine turnover following amounts will be deducted Central sales tax Sale price of goods returned within six months Other items as the central government may notify

Central Sales Tax 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. Rate of tax x Aggregate of sales price

100+Rate of tax

If the turnover of a dealer is taxable at different rates, then above formula shall be applied separately in respect of each part of the turnover liable to a different rate of tax.

Returned Goods shall be deducted If goods are returned by the buyer within 6 months, its sales price will be deducted from aggregate sale price after submitting necessary evidence. Sale price of rejected goods will be deducted even after six months . Transaction exempt from sales tax Subsequent sale by transfer of documents; Sale of goods which are generally exempt or chargeable under the local sales tax provisions at lower rate; Exemption by virtue of a notification; Sale in course of import or export ; Sale to a registered dealer to manufacture or processing of goods in a special economic zone; and Sale to any official of foreign diplomatic mission in India or UN body.
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REGISTRATION OF DEALERS According to Section 7, registration of dealer can be done in any of the two ways1. Compulsory registration Every dealer who is liable to pay Central sales tax should make an application for registration under the Act. to appropriate authority in his state. If a dealer does not get himself registered, he would be subject to penalty under section 10 which is imprisonment which may extend to six months or fine or both and in case of continuing offence, a fine of Rs. 50 per day till the default continues.

2. Voluntary registration Under following circumstances any dealer can voluntarily apply for registration even though he is not liable to pay tax under central sales tax Act. 1. If he is registered under sales tax law of state but, is not liable to pay tax under central sales tax Act 2. If there is no sales tax Act in a state or any part of it, any dealer having a place of business in that state or part there of 3. If he deals in a tax-free goods in a state .The dealer can apply for registration at any time and ,if he does not apply for registration no penalty will be imposed upon him. Advantages of Registration A registered dealer has to pay actual sales Tax @ 4% only on goods purchased by him for manufacture or resale and, he buys the same against Form C. otherwise, he will be charged @ 10%. Subsequent sales in the course of movement of goods by transfer of documents of title to goods will be exempted from central sales-tax if, registered dealer effecting sales is able to produce Form E-I or E-II.

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PROCEDURE FOR REGISTRATION 1. The dealer must make an application to the concerned authority in the appropriate state, in Form A within 30 days of the day when he becomes liable to pay tax. 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. Single Place of business If a dealer has single place of business in the appropriate State and he is registered in that state, he shall apply to the sales tax authority of that state only for obtaining registration under central sales tax Act. 3. More than one place of business in different states. If a dealer has more than one place of Business in different states, he will get a separate certificate of registration with respect to each state. 4. Fees for Registration is Rupees twenty five to be paid in cash or court fee stamp. 5. The application has to be signed by, in case of o Sole proprietorship , the proprietor o Partnership firm, any one the partner o HUF, the karta o Company, the director

Grant of Certificate of Registration sec 7 (3) If the application is in order and assessing officer is fully satisfied with the facts contained therein, he will register the dealer under this Act and issue a certificate of Registration in Form B. If a dealer has more than one place of business then additional copies of certificate will be issued.

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CANCELLATION OF CERTIFICATE OF REGISTRATION

It may be cancelled either:1. At the request of the dealer. 2. By authority granting registration.

Cancellation at the Request of Dealer Dealer shall submit an application along with his certificate and copies thereof to the registering authority within six months before the end of the relevant year. The certificate will be cancelled if dealer is not liable to pay any tax under CST Act. Cancellation by the authority Certificate of registration will be cancelled under following situation. The dealer has discontinued the business. The dealer dies. Dealer fails to furnish security or additional security. Dealer has failed to pay tax or penalty under CST Act. Voluntarily registered dealer has ceased to be liable to pay tax under state tax law of that state. For any other sufficient reasons.

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SECTION II
MAHARASHTRA VALUE ADDED TAX

& CENTRAL SALES TAX (CST)

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INTRODUCTION CST (Central Sales Tax) ) is a form of indirect tax imposed only on goods sold from one state to another state, which particularly takes into account that the buyer and the seller needs to be in two different states. VAT (Value Added Tax) is a form of indirect tax imposed only on goods sold within a particular state, which essentially means that the buyer and the seller needs to be in the same state. Only when tangible goods and products are sold, VAT can be imposed. Both Sales tax and VAT are Consumption tax. To take an example, if a consumer consumes a goods worth Rs. 100 on which tax rate is 10%, the objective of both the system is to collect Rs 10 (i.e. 10% of Rs 100) to the Government. Both are Indirect Tax, meaning the consumer does not pay the tax to directly the government, but to the business from whom he has purchased the goods. The business remits it to the Government.

Vat and CST on same transaction The state in which the transaction would be taxable is the place where the place of the business of the seller is perceived to be located. CST is a origin based tax collected by exporting state where as VAT is a destination based tax collected by importing state both cannot go together. Hence VAT and CST cannot be applicable on transactions which are same.

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DIFFERENCE BETWEEN VAT AND CST

Under the CST Act, the tax is collected at one stage of purchase or sale of goods. Therefore, the burden of the full tax bond is borne by only one dealer, either the first or the last dealer. However, under the VAT system, the tax burden would be shared by all the dealers from first to last. Then, such tax would be passed upon the final consumers.

Under the CST Act, the tax is levied at a single point. Under the VAT system, the retailers are not subject to tax except for the retail tax. Under the CST Act, general and specific exemptions are granted on certain goods while VAT does not permit such exemptions. Under the CST law, concessional rates are provided on certain taxes. The VAT regime will do away with such concessions as it would provide the full credit on the tax that has been paid earlier.

Under VAT law, first, the dealer pays tax on the sale or purchase of goods. The subsequent dealer pays tax on the portion of the value added upon such goods. Thus, the tax burden is shared equally by the last dealer. To illustrate the whole procedure of VAT, an example is as follows: At the first point of sale, the value of goods is Rs.100. The tax on this is 12.5%. Therefore, the net VAT would be 12.5%. At the second change of sale, the sale value is Rs.120 and the tax thereon is 15%. The tax that is to be paid at every point is 15%. The input tax is 15%. The dealer will get a credit for first change in sale of 2.5%-- i.e. 15% -12.5%. Therefore, 2.5% will be the net rate. At the third change of sale, the sale value is Rs.150 and the tax on this is 18.75%. At the last stage, the tax paid is 18.75%. The Input Tax is 18.75%. Dealers get a credit for second change in sale? i.e. 18.75% -15% = 3.75%. Therefore, 3.75% would be the net VAT. This means that VAT is paid in the last point tax under the sale tax regime.

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WHATS THE BIGGEST ADVANTAGE

1. Simplification Under the CST Act, there are 8 types of tax rates- 1%, 2%, 4%, 8%, 10%, 12%, 20% and 25%. However, under the present VAT system, there would only be 2 types of taxes 4% on declared goods and 10-12% on RNR. This will eliminate any disputes that relate to rates of tax and classification of goods as this is the most usual cause of litigation. It also helps to determine the relevant stage of the tax. This is necessary as the CST Act stipulates that the tax levies at the first stage or the last stage differ. Consequently, the question of which stage of tax it falls under becomes another reason for litigation. Under the VAT system, tax would be levied at each stage of the goods of sale or purchase.

2. Adjustment of tax paid on purchased goods Under the present system, the tax paid on the manufactured goods would be adjusted against the tax payable on the manufactured goods. Such adjustment is conditional as such goods must either be manufactured or sold. VAT is free from such conditions.

3. Further such adjustment of the purchased goods would depend on the amount of tax that is payable. VAT would not have such restrictions. CST would not have the provisions on refund or carry over upon such goods except in case of export goods or goods, manufactured out of the country or sale to registered dealer. Similarly, on interstate sale on tax-paid goods, no refund would be admissible.

4. Fair and Equitable VAT & CST introduces the uniform tax rates across the state so that unfair advantages cannot be taken while levying the tax.

5. Procedure of simplification Procedures, relating to filing of returns, payment of tax, furnishing declaration and assessment are simplified under the VAT and CST system so as to minimize any interface between the tax payer and the tax collector.

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Rate of CST and VAT

Nature of Goods

Sale to Govt. on submission of D Form

Sale to registered Sale in any other case dealer for resale/use in manufacture on submission of C Form

Declared Goods

4% or State Sales Tax(or VAT), whichever is lower

4% or State Sales Tax(or VAT), whichever is lower

2 * VAT rate

Other Goods

4% or State Sales Tax(or VAT), whichever is lower

4% or State Sales Tax(or VAT), whichever is lower

10% or State Sales Tax(or VAT), whichever is lower

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BIBILOGROPHY

1. Value Added Tax By Sales Tax Department. 2. www.google.com 3. www.vat.maharashtra.gov.in 4. www.icai.org.in 5. www.cstindian.com 6. www.wikipedia.com 7. Blogs

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