Sales Tax C, E & F Forms Demystified

1. INTRODUCTION

There are certain type of forms which has been prescribed under central sales tax rules 1957, form c for making interstate purchase at lower rate, form F used to transfer goods from one branch to other in different state without making it as sale form E1 and E2 used when interstate sale or purchase which are effected by mere transfer of document of title (subsequent sale).

2. ANALYSIS

A) C FORM

It is issued by VAT department to the registered dealer who makes interstate purchases of those goods which are mentioned in his RC (registration certificate). While doing transaction purchasing dealer furnish this form to selling dealer in course of interstate purchase to get exemption/reduction in sales tax rate. It is defined under section 8(1) of CST act 1956.

*One C Form/One Quarter/Dealer

From above chart it is clear that firstly purchasing dealer will furnish form C to the selling dealer of Jharkhand to claim tax exemption or reduced rates of taxes (2%) thereafter selling dealer will submit these form to the department of VAT of Jharkhand.

One C form can be used for no of transactions for one quarter.

 B) F FORM

With this, goods can be transferred/delivered from one state to another without recognising it as a sale. For instance the head branch may transfer goods/stock from one state to another to its branch or agent without becoming liable for CST.

It is issued by the VAT department on the request of the purchasing dealer (branch) the purchasing dealer submits F form to the selling dealer to claim exemption from making it as CST sale. As per section 6(A) of CST act F from is mandatory to prove transaction as stock transfer.

one F Form/One Month/Dealer

Is F form required in case goods are returned? The answer is yes, decided by the hon’ble Supreme court in case of AMBIKA STEELS that the liability of furnishing F form would be still there even if stock or goods are required to be sent back.

Registration certificate {RC} should contain the name and address of branches to which stock is transferred against F FORM {branch transfer} to claim concessional/nil rate of tax. One F form has to be issued for each month.

C) E1 AND E2 FORM

As per section 6(2) of CST act first interstate sale will be taxable, subsequent sale during movement of good by way of transfer of document is exempt from tax. For making subsequent sale exempt Form E1 & E2 are used.

From above illustration it is clear that how goods/document of title move from one place to another. Actual delivery was received by Chandan in Jaipur however between Ashok; Bhanu there was only transfer of title. Only the first sale will be taxable, other subsequent sale will be exempt if dealers are registered.

In above example Ashok of Jharkhand will receive C form from Bhanu of Delhi & will issue declaration in E-I form to Bhanu of Delhi .Later on Bhanu of Delhi will issue declaration in Form E-II to Chandan of Jaipur against which Chandan will furnish C form to Bhanu (Delhi).

If above chain is broken then the exempt sale will get reversed and CST will be applied on these transaction.

Provisions of C form applicable to E1/E2 forms: Some provisions which are applicable to C forms are also applicable to E-I/E-II forms. For example one declaration for one quarter, indemnity bond if form is lost, issue of duplicate form, sales tax concession is not available if the forms are not submitted.

Latest case of Delhi High Court and Supreme court’s verdict in A&G Projects and Technologies Ltd case: The Supreme court in A & G Projects and Technologies Ltd v. State of Karnataka [2209] 19 VST 239; [2009] 2 SCC 326 explained the scheme of section 6(2) of CST Act and held that once the first inter-state sale has suffered CST then subsequent sales effected by transfer of documents during transit will be exempt provided conditions prescribed u/s 6(2) are satisfied. This has been done to remove the cascading effect. The observation of the Supreme court in the said case is provided as below

“Analysing Section 6(2), it is clear that sub-section (2) has been introduced in Section 6 in order to avoid cascading effect of multiple taxation. A subsequent sale falling under sub-section (2), which satisfies the conditions mentioned in the proviso thereto, is exempt from tax as the first sale has been subjected to tax under sub-section (1) of Section 6 of the CST ACT 1956. Thus, in order to attract Section 6(2), it is essential that the concerned sale must be a subsequent inter-State sale affected by transfer of documents of title to the goods during the movement of the goods from one State to another and it must be preceded by a prior inter-State sale. It is only then that Section 6(2) may be attracted in order to make such subsequent sale exempt from levy of sales tax. However, the proviso to sub-section (2) of Section 6 prescribes further conditions and it is only on fulfilment of those conditions that the subsequent sale stands exempted. If those conditions are not satisfied then, notwithstanding the fact that the sale is a subsequent sale, the exemption would not be admissible to such subsequent sales.This is the scheme of Section 6 of the CST ACT 1956.”

 In a recent case namely Mitsubishi Corp. Ind. Ltd. Vs Value Added Tax officer decided by Delhi High court wherein sighting the above observation of the Supreme court it was argued by the councel for the state that if the first Inter State sales is an exempted sale then the subsequent sales should not get the benefit of Section 6(2) of CST Act even if all the conditions u/s 6(2) are satisfied since the first sales had not suffered tax. The Delhi High Court in this regard observed as under:

“A reading of the said portion of the Supreme Court decision only indicates that where the first sale is taxed, the second sale would be exempted because of the object of avoiding the cascading effect. However, the Supreme Court decision cannot be understood to mean that where the first sale is exempted, the second sale must be taxed even though the conditions under Section 6(2) for exemption stand satisfied.”

Thus even if the first sales was exempted due to exemption on tax available in the state wherefrom the first sale is made the subsequent sales in other state will be exempted if the conditions u/s 6(2) of CST Act are satisfied

This article has been share by:

Name - CA. Yogesh Sharma

E-mail id : cayksharma1@gmail.com

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RURAL INVESTMENT TAX EXEMPTION by CMA Samir Biswal

 (A) GENERAL. Commencing on and after January 1, 2001, and before January 1, 2006, section

6378.1 of the Revenue and Taxation Code authorizes the Rural Investment Tax exemption (hereafter "Partial Exemption") which provides a partial exemption from sales or use taxes imposed on the gross receipts from the sale of, and the storage, use, or other consumption in this state, of tangible personal property as defined in subdivision (b)(6) by an eligible entity as defined in subdivision (b)(3).

For the period commencing on January 1, 2001, and ending on December 31, 2001, the Partial Exemption applies to the taxes imposed by sections 6051 and 6201 of the Revenue and Taxation Code (4.75%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

For the period commencing on January 1, 2002, and ending on June 30, 2004, the Partial Exemption applies to the taxes imposed by sections 6051, 6051.3, 6201, and 6201.3 of the Revenue and Taxation Code (5%), but does not apply to the taxes imposed pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

For the period commencing on July 1, 2004, the Partial Exemption applies to the taxes imposed by sections 6051, 6051.3, 6051.5, 6201, 6201.3, and 6201.5 of the Revenue and Taxation Code (5.25%), but does not apply to the taxes imposed or administered pursuant to sections 6051.2 and 6201.2 of the Revenue and Taxation Code, the Bradley-Burns Uniform Local Sales and Use Tax Law, the Transactions and Use Tax Law, or section 35 of article XIII of the California Constitution.

The California Infrastructure & Economic Development Bank (CIEDB) Board determines who is eligible to receive this Partial Exemption and monitors eligible entities for compliance with the requirements of the Partial Exemption. As the aggregate amount of this Partial Exemption is limited, the CIEDB Board determines the amount of this Partial Exemption available to each eligible entity.

(b) DEFINITIONS. For purposes of this regulation:

(1) "Board" refers to the Board of Equalization.

(2) "CIEDB Board" refers to the California Infrastructure & Economic Development Bank Board.

(3) "Eligible entity" means any entity that meets all of the following:

(A) The entity is deemed eligible for the Partial Exemption in writing by the CIEDB Board.

(B) The entity has been pre-qualified, and re-qualified as applicable, by the Board and registered to hold a California seller's permit or maintain a consumer use tax account.

(4) "Primarily" means used 50 percent or more of the time in a qualified county for the one-year period following the date of purchase of the property. Tangible personal property shall not be considered used for any period of time that the property is located outside a qualified county, regardless of how the property is used while outside the qualified county.

(5) "Qualified county" means a California county with an average annual unemployment rate of five percentage points or more above the statewide average for the most recent calendar year as determined by the State of California, Employment Development Department.

(6) "Tangible personal property" includes all of the following:

(A) Machinery and equipment within the meaning of subsection (a)(6) of Regulation 1521 of the Sales and Use Tax Regulations, including component parts and contrivances such as belts, shafts, moving parts, and operating structures. The terms also include conveyance systems and assembly lines without regard to the manner of affixation to real property.

(B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery including, without limitation, computers, data processing equipment, and computer software, including both operating programs and application programs, together with all repair and replacement parts with a useful life of one or more years therefor, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the taxpayer or another party. Repair and replacement parts with a useful life of more than one year may qualify for this Partial Exemption even where such items are expensed for income tax purposes under the special provisions of section 179 of the Internal Revenue Code (26 U.S.C. § 179).

(7) "Tangible personal property" does not include any of the following:

(A) Any tangible personal property that is used primarily in administration, general management, or marketing.

(B) Furniture, inventory, or equipment used to store products.

(C) Any property for which a credit is claimed under either Section 17053.49 or 23649 of the Revenue and Taxation Code.

(D) Materials or fixtures within the meaning of subsections (a)(4) and (a)(5), respectively, of Regulation 1521 of the Sales and Use Tax Regulations, including such items set forth in Appendices A and B of Regulation 1521.

(E) Fuels.

(F) Real property.

(c) PARTIAL EXEMPTION CERTIFICATES.

(1) OBTAINING AND MAINTAINING THE PARTIAL EXEMPTION CERTIFICATE. To obtain a Partial Exemption certificate, an entity must be pre-qualified by the Board, registered to hold a California seller's permit or maintain a consumer use tax account, and be deemed eligible for the Partial Exemption by the CIEDB Board. An entity shall include in its application a copy of its written notification from the CIEDB Board verifying the entity's eligibility and the amount allocated by the CIEDB Board for use by that eligible entity pursuant to the Partial Exemption. Partial Exemption certificates issued to eligible entities will contain a control number and expiration date for verifying the entity's status as an eligible entity. To maintain a Partial Exemption certificate it may be necessary to re-qualify with the Board periodically in accordance with Revenue and Taxation Code section 6378.1. A Partial Exemption certificate is not valid if it has not been issued by the Board or if it is accepted after the expiration date on the certificate. Eligible entities that have been pre-qualified or re-qualified, as applicable, may reproduce the issued certificates as needed for their qualifying purchases.

The Partial Exemption certificates issued by the Board will be in substantially the same format as they appear in Appendices A and B of this regulation. Eligible entities who purchase or lease tangible personal property from an in-state retailer or an out-of-state retailer obligated to collect the use tax must provide the retailer with a Partial Exemption certificate in order to claim the Partial Exemption. The Partial Exemption Use Tax Declaration must be completed by an eligible entity to claim a Partial Exemption from use tax on purchases of tangible personal property from an out-of-state retailer not obligated to collect the use tax.

For purposes of this regulation, it is presumed that a seller accepts a Partial Exemption certificate from a purchaser in good faith in the absence of evidence to the contrary.

(2) CLAIMING THE PARTIAL EXEMPTION.

(A) IN GENERAL. The Partial Exemption from sales or use tax authorized under this part shall not be allowed unless:

1. The eligible entity furnishes the retailer with a Partial Exemption certificate no later than 60 days after the date of purchase; and

2. The retailer timely files a sales and use tax return claiming the Partial Exemption and, together with that timely return, provides the Board with a copy of the Partial Exemption certificate.

(B) EXCLUSIONS. Except as provided in subdivision (c)(2)(C) below, retailers claiming the Partial Exemption in timely filed returns will not be required to furnish the Board with copies of Partial Exemption certificates for sales or leases of tangible personal property made by a retailer at any single physical location to a single eligible entity that do not exceed an aggregate total of $25,000 during a single calendar quarter. Regardless of the total quarterly sales per purchaser, however, when necessary for the efficient administration of the Sales and Use Tax Law, the Board may, on 30 days written notice, require a retailer to commence furnishing the Board with copies of all certificates on a quarterly basis pursuant to subdivision (c)(2)(A)2.

(C) RETENTION AND AVAILABILITY OF CERTIFICATES. A retailer must retain each Partial Exemption certificate received from an eligible entity for a period of not less than four years from the date on which the retailer claims a Partial Exemption based on the Partial Exemption certificate.

Within 45 days of the Board's request, retailers must furnish to the Board any and all Partial Exemption certificates, or copies thereof, received from eligible entities, including Partial Exemption certificates for aggregate sales or leases of $25,000 or less to a single eligible entity made at any single physical location of the retailer during a single calendar quarter.

(3) PARTIAL EXEMPTION USE TAX DECLARATION. A Partial Exemption from the use tax shall not be allowed unless the eligible entity:

(A) Timely files a sales and use tax return or consumer use tax return for the period in which the purchase occurs and timely pays any applicable tax in full that is excluded from this Partial Exemption as provided in subsection (a) of this regulation; and

(B) Attaches a completed Partial Exemption Use Tax Declaration (Appendix B) to the sales and use tax return or consumer use tax return that is timely filed with the Board.

(d) REFUND OF PARTIAL EXEMPTION.

(1) For the period commencing on January 1, 2001, and ending on June 30, 2002, an eligible entity may claim the Partial Exemption on qualified purchases from an in-state retailer or an out-of-state retailer obligated to collect the use tax by furnishing the retailer with a Partial Exemption certificate on or before September 30, 2002. The retailer must refund the tax or tax reimbursement directly to the purchaser or, at the purchaser's sole option, the purchaser may be credited with such amount. In the event that the retailer has already reported and paid the tax to the Board, the retailer must file a written claim for refund on or before October 31, 2002.

(2) An eligible entity who paid sales tax on a qualified sale or paid use tax on a qualified purchase and who failed to claim the Partial Exemption as provided by this regulation may file a claim for refund equal to the amount of the Partial Exemption that he or she could have claimed pursuant to this regulation. The procedure for such a claim shall be the same as for other claims for refund filed pursuant to Revenue and Taxation Code Section 6901. For transactions subject to use tax, an eligible entity filing a claim for refund of the Partial Exemption has the burden of establishing that he or she was entitled to claim the Partial Exemption with respect to the amount of refund claimed under this part. For transactions subject to sales tax, a person filing a claim for refund of the Partial Exemption has the burden of establishing that the purchaser of the qualified property otherwise met all the requirements of an eligible entity at the time of the purchase subject to the refund claimed under this part.

(e) IMPROPER USE OF PARTIAL EXEMPTION.

(1) CONVERSION OF PROPERTY TO A USE NOT QUALIFYING FOR THE PARTIAL EXEMPTION. Notwithstanding subdivision (a), this Partial Exemption shall not apply to any sale of, or the storage, use, or other consumption in this state of property that, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, is: (i) removed from a qualified county, (ii) converted from an exempt use under this regulation to some other use not qualifying for the Partial Exemption, or (iii) used in a manner not qualifying for the Partial Exemption under this regulation.

For purposes of this regulation, property is converted to a use not qualifying for the Partial Exemption if, without limitation, the property, or any interest in the property, or possession or control of the property, is either directly or indirectly sold, transferred, leased, or assigned to an entity who is not an eligible entity on the date the property is sold, transferred, leased, or assigned to such non-eligible entity. In the case of a corporation that, as an eligible entity, purchases tangible personal property under this Partial Exemption and then, within one year from the later of the date of purchase of the property or the date that the property was first placed into service by that corporation in an exempt use, either directly or indirectly transfers that property to its parent corporation that is not an eligible entity on the date of the transfer of property to the parent corporation, that property has been converted to a use not qualifying for the Partial Exemption.

Tangible personal property shall not be considered used in a qualifying manner for any period of time that the property is located outside a qualified county, regardless of how the property is used while outside such a county.

(2) PURCHASES BY INELIGIBLE ENTITIES. Notwithstanding subdivision (a), this Partial Exemption shall not apply if the CIEDB Board subsequently determines that a purchaser is not an eligible entity pursuant to Revenue and Taxation Code section 6378.1.

(3) PURCHASES EXCEEDING THE PARTIAL EXEMPTION ALLOTMENT. Notwithstanding subdivision (a), this Partial Exemption shall not apply to any sale of, or the storage, use, or other consumption in this state of tangible personal property purchased by an eligible entity that exceeds the amounts allocated by the CIEDB Board for use by that eligible entity pursuant to the partial exemption.

(f) PURCHASER'S LIABILITY FOR THE PAYMENT OF SALES TAX.

(1) If a purchaser timely submits a copy of a Partial Exemption certificate to the seller or Partial Exemption Use Tax Declaration to the Board, and then within one year from the later of the date of purchase of the property or the date that the property was first placed into service by the purchaser in an exempt use, the purchaser either (i) removes that property from a qualified county, (ii) converts the property from an exempt use under this regulation to some other use not qualifying for the Partial Exemption, or (iii) uses that property in a manner not qualifying for the Partial Exemption under this regulation, then, in that event, the purchaser shall be liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was so removed, converted, or used.

(2) A purchaser providing a Partial Exemption certificate accepted timely and in good faith by the seller or a Partial Exemption Use Tax Declaration to the Board for tangible personal property that does not qualify for the Partial Exemption is liable for payment of the sales tax, with applicable interest, to the same extent as if the purchaser were a retailer making a retail sale of the property at the time the property was purchased.

(g) LEASES TO QUALIFYING PERSONS.

(1) LEASES—IN GENERAL. Subject to all the limitations and conditions set forth in this regulation, this Partial Exemption may apply to rental receipts paid by an eligible entity with respect to a lease of tangible personal property to the eligible entity.

(2) LEASES—ACQUISITION SALE AND LEASEBACK. An eligible entity will be regarded as having paid sales tax reimbursement or use tax with respect to that eligible entity's purchase of property, within the meaning of those words as they are used in section 6010.65 of the Revenue and Taxation Code, if the eligible entity has paid all applicable taxes with respect to the acquisition of the property, notwithstanding the fact that the sale and purchase of the property may have been subject to the Partial Exemption from tax provided by this regulation.

(3) SUBSEQUENT LEASE OF PROPERTY ACQUIRED SUBJECT TO PARTIAL EXEMPTION. If an eligible entity has acquired property subject to the Partial Exemption provided by this regulation and has paid all applicable taxes at that acquisition, the property will be regarded as property as to which sales tax reimbursement or use tax has been paid, and the subsequent lease of that property will not be subject to tax measured by rental receipts.

(h) RECORDS. Adequate and complete records must be maintained by the eligible entity as evidence that the property purchased qualifies under the provisions of this regulation and that the property was used by the eligible entity. The eligible entity must also maintain detailed records to show the amount of the tax benefit derived from this Partial Exemption as each eligible entity will have an annual limit established by the CIEDB Board.

The Board shall, within one year after being notified by the CIEDB Board that an entity has not fulfilled the requirements of Revenue and Taxation Code section 6378.1, examine the books and records of the entity, and issue a determination of any liabilities due.

This Article is written by CMA Samir Biswal. He can be reached at cmasamirbiswal@gmail.com.

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What is a Deemed Sale

Under the State Sales Tax Laws, before the 46^th Amendment to the Constitution of India, the Sales Tax was applicable only on the sales covered under the sale of goods Act (Normal sale). The indivisible works contracts were not covered under the State Sales tax Acts since works contracts were not normal sales. The Supreme Court confirmed this legal status in its land mark judgment in the case of Gammon & Dunkerely (9 STC 353). Due to this legal status, the states were denied the levy of Sales Tax on the indivisible works contracts. Such contractors were outside the clutches of sales tax laws.

The then Finance Ministers of the States have requested the then Union Finance Minister to take necessary legal steps so as to levy Sales Tax on indivisible works contracts.

Finally, the 46^th amendment to the Constitution of India has been made on 2^nd February, 1983 to add a sub-article (29-4) as under.

(b) A tax on the transfer of property in goods (whether a goods or in some other form) involved in the execution of a works contract.

After the said 46^th Amendment to the Constitution, the States were empowered to levy Sales Tax / Works Contract Tax on such sales, called as “Deemed sales” involved in the execution of works contract. Due to the said amendment the concept of Deemed Sale’ was introduced. The important features of deemed sales are as under.

(A) It is not a normal sale as defined under sale of goods Act but a deemed sale of goods subject to sales tax by the States.

(B) In the `deemed sales’ the states can levy Sales tax only on `the transfer of property in goods”. In other words, the states can levy Sales Tax / VAT only on the Material Value’ of the works contract and not on the `labour portion’ of the works contract.

(C) If in a contract there is no transfer of property in goods from the contractor to the contractee, then No sales tax is applicable on such contracts, called as “Pure Labour Jobs”.

(D) under the deemed Sale, an artificial break up of indivisible works contract has to be made to arrive at the `material’ value and the `labour’ value of the contract.

Therefore, after the 46^th Amendment to the Constitution of India, the States are empowered to levy sales tax (now VAT) on such deemed sales but only on the `Material Value’ of the works contract. The High Courts and the Supreme Court have suggested methods on “How to arrive at a material value from the total Contract Price”. (Gannon Dunkerly’s SC Judgment 1993) (88 STC 204)

The Supreme Court has also allowed the States to come out with an alternative method to levy Sales Tax on Works contract, if to arrive at material value is difficult. The states have come out with an alternative method called as “Composition Tax” method to tax the indivisible works contract, which is a non-legal /alternative method. The small percentage like 1%, 2%, 4%, 8% as Composition Tax is levied but on the total contract price without any deduction which is available in the legal options under the State Sales Tax / VAT Acts. After, the said amendment to the Constitution certain States a namely Maharashtra & Delhi have come out with separate `Works Contract’ Acts. The other states incorporated the separate provision to levy Sales Tax on the deemed sales in the works contracts. Under the State Sales Tax Acts or separate Works Contract Acts, No contractor or contractee were entitled to claim any set off of Sales Tax paid to their vendors. There was a double taxation in the hands of Contractors in the Sales Tax Regime.


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This Article is written by CMA Samir Biswal. He can be reached at cmasamirbiswal@gmail.com

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WORK CONTRACT TAX BY CMA SAMIR BISWAL

Works Contract is an agreement between contractor and contractee to transfer the moveable goods as per section 2(1) (zt). This includes the activities of assembling, construction, building, altering, manufacturing, processing, fabrication, installation, fitting out, improvement, repair or commissioning of any moveable or immoveable property.

Contractee as per section 2(1) (j) is the person for whom or for whose benefit a works contract is executed and contractor as per section 2(1) (k) is the person who executes either himself or through a sub-contractor a works contract. A sub contractor does not come under the definition of Contractor. Sub contractor is mere agent of contractor since goods transferred directly to Contractee.

Registration of Contractor/Contractee Contractor is to get himself registered under the VAT Act either as a registered dealer under section 11 or lump sum dealer under section 9. A lump sum dealer is also to submit the details of each contract to the Assessing Authority within 30 days of the award of the contract as per Rule 49. A Registered dealer is eligible for the input tax credit as per section 8 whereas the lump sum dealer is not since as per section 2(1)(w) input tax means the amount of tax paid to the State in respect of goods sold to a VAT dealer. A lump sum is not a VAT dealer though he is registered under the Act. A register dealer is to pay the tax on the goods transferred in the contract as per the rate of tax on the goods transferred as per section 7 of the Act whereas the lump sum dealer is to pay the tax @ 4% on the value of the contract as per Rule 49(1).

Filing of Returns        A registered contractor is to file quarterly return on Form R-1 like other dealers as per Rule 16. A lump sum dealer is to file the return on Form R-6 as per Rule 49(4). A contractee is to file his return on Form R4A whether he is registered or not registered under the Act as per Rule 16(1). The return is to be filed by the next of the month after each quarter i.e. 31 July, 31 October, 31 January, and 30 April as per Rule 16(1). An annual return on Form R-2 is to be filed by every registered contractor by 30 November as per Rule 16(2) but in the case of lump sum contractor need not to file the Annual Return since R-2 is to be filed by the registered dealer who file the R-1 as mentioned in Rule 16(1).

Payment of Tax  A registered contractor whose tax liability does not exceed 1 lakh rupees in a year  is to deposit the tax along with return otherwise he is to deposit the tax monthly by 15th of each month for the previous month as per section 14(3). A lump sum contractor is to pay the tax within 30 days of the close of the quarter. A contractee is to deduct the tax @ 4% before making the payment to contractor as per Rule 33(1) and the same will be deposited by 15 of the next month for the previous month as per Rule 33(5) into the appropriate Government Treasury in challan in Form VAT C-1 separately for each payee.

TDS    A contractee is to deduct the TDS @ 4% from the bill amount of contractor as per Rule 33. TDS will not be deducted on the Tax amount included in the Bill. A contractor is also to deduct the tax from the payment made to subcontractor as per the clarification given by Haryana Government in the case of DLF Universal Ltd. DLF has taken up the case with the Haryana Tax Tribunal against this clarification and the decision is awaited. A provision to deduct the TDS from the payment made to subcontractor is ultra virus as per decision of Allahabad High Court reported in 97STC355. Collection of Taxes from both contractor and sub contractor would be vocative of article 14 as per AP High court decision in the case of M/s Larsen Toubro Limited and another V State of AP(148 STC 616AP).

Assessment    Assessment of registered dealer is to be completed within three years of the close of the year as per section 15(3). A notice is to be given for scrutiny assessment within one year of the last return filed. It means the notice for scrutiny assessment in the case of registered dealer is to be given by 30 November 2008 and in the case of lump sum dealer by 30 April 2013 for the year 2011-12.

Use of declaration Forms  A lump sum dealer/registered dealer is to use the declaration forms like VAT D-1, VAT D-3 and Central form C as per Rule 49(6). VAT D-3 from must be used for the movement of goods value exceeding 25000/- from any place in the State to any other place in or outside the State. In case of loss of any form, an indemnity bond in Form VAT-B3 will be given to the Assessing Authority for the sum as the authority determine.

Tax invoice  A registered dealer can issue the sale invoice/tax invoice but the lump sum dealer cannot issue the tax invoice as per Rule 46(5). Tax should not be charged on the invoice. Tax invoice is used between the two registered dealers under the VAT Act. 

Refund Contractor can also claim the refund if applicable. Tax collected from the sub contractor will also be the case of refund but this amount cannot be refunded till the assessment of sub contractor is finalized. These provisions under the Act make joint or severally liable to contractor and the sub-contractor. Burden to prove the turnover of sub-contractor cannot be shifted to contractor as per judgment of AP High Court reported in 105STC227 (AP) and 47STC204 (AP)

Judicial Guidelines

The Apex Court in drunkenly had brought a wide impact till the 46^th Constitutional amendment sales tax on indivisible works contracts could not be levied. The Supreme Court has upheld the validity of the 46^th Amendment and the works contract which was indivisible one is by a legal fiction altered into a contract which is divisible one for sale of goods and the other for supply of labour and services. The cost of consumables used in works contract property in which is not transferred in the course of execution of the works contract, is to be excluded from the taxable turnover as nothing is being transferred from contractor to contractee to be taxed as held in the case of Gannon Drunkenly and Co. Vs St. of Rajasthan(88STC 204SC).

This Article is written by CMA Samir Biswal. He can be reached at cmasamirbiswal@gmail.com

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Central Sales Tax Act by CMA Samir Biswal

CENTRAL SALES TAX ACT, 1956 PURPOSE/SCOPE (i) This Act is applicable to sales/purchases taking place in course of inter-state trade and commerce. (ii) The interstate nature of transaction is to be determined as defined in Section 3(a)/(b). If sale/purchase occasions movement of goods from one State to another State, it is an interstate sale. A sale, affected by transfer of documents of title to goods when goods are in inter-state movement, is also an inter-state sale. (iii) Section 4 of the CST Act determines suits of sale: i.e. State in which the sale takes place. Accordingly the suits is to be decided on the location of the goods at the time of sale. (iv) Section 5 defines the sale/purchase taking place in course of import/export and such transactions are immune from levy of any tax by State Government or Central Government. [(Sections 5(1), 5(2) and 5(3)]. The sale of goods to any exporter for the purpose of complying with the pre-existing order and covered by Section 5(3) is also exempt as deemed export. These sales are to be supported by Form H along with export order details and copy of bill of lading etc. as evidence of actual export. EXEMPTIONS (i) Section 6 is charging Section. As per Section 6(2) subsequent inter-state sale transaction taking place by transfer of documents of title to goods, when the goods are in course of movement, are exempt. For this purpose the claimant dealer has to obtain Form E-1 from his vendor (if such vendor is first seller otherwise, E-II) and Form ‘C’ from the buyer. (ii) Sale to notified foreign diplomat authorities is also exempt u/s. 6(3) against Form ‘J’. (iii) The inter-state sale to units situated in Special Economic Zone (SEZ) or developers of SEZ against Form ‘I’ are exempt as per Sections 8(6) read with Section 8(8). BRANCH/CONSIGNMENT TRANSFER Under Section 6A, branch/consignment transfer is allowed only if Form ‘F’ is produced, else it will be deemed to be a sale. Form ‘F’ is required to be obtained from transferee branch/agent. One Form ‘F’ can cover transfers affected in one calendar month. RATES OF TAX As per Section 8 of CST Act, the rates of taxes are to be decided as per rates under Local Act. The rates can be as under: (Prior to 1-4-2007) Local Rate of Tax Rate of Tax under C.S.T. Act Supported by Form ‘C’ or ‘D’ Without ‘C’ or ‘D’ Form Declared goods Local rate of tax Twice the local rate of tax If the goods are generally exempt under Local Act Exempt Exempt Less than 4% Local Rate of tax 10% 4% or more, up to 10% 4% 10% More than 10% 4% Local rate of tax (From 1-4-2007 to 31-5-2008) Local Rate of Tax Rate of Tax under C.S.T. Act Supported by ‘C’ Form  (Form D is abolished) Without ‘C’ Form Declared goods 3% 4% If the goods are generally exempt under Local Act Exempt Exempt 1% 1% (C form not required) 1% 4% 3% 4% 12.5% 3% 12.5% (From 1-6-2008 onwards) Local Rate of Tax  Rate of Tax under C.S.T. Act Supported by ‘C’ Form (Form D is abolished) Without ‘C’ Form Declared goods 2% 4% If the goods are generally exempt under Local Act Exempt Exempt 1% 1% (C form not required) 1% 4% 2% 4% 5% 2% 5% 12.5% 2% 12.5% REGISTRATION, FORM ‘C’ PURCHASES AND OTHER PROVISIONS There is no threshold limit for registration under CST Act and hence even on the basis of single transaction a dealer will be liable for registration under Section 7(1). The dealer can also obtain registration voluntarily along with registration under VAT Act as per Section 7(2) of CST Act. Application for registration should be in Form A. Registration certificate will be in Form B. As per Section 9(2), the interest/penalty/return/assessment provisions applicable under Local Act are also applicable to CST Act. In addition there are provisions for levy of penalty u/s. 10 like contravention of the conditions of declaration forms, wrong issue of form etc. Purchases to be effected against Form ‘C’ are subject to conditions. The compliance is to be checked before using Form ‘C’. In nutshell, it can be mentioned that Form ‘C’ can be used for effecting purchases which are meant for: A) Resale by him b) Use in manufacturing/processing of goods for sale c) Use in mining d) Use in generation/distribution of power e) Use in packing of goods for sale/resale F) Use in telecommunication network. One ‘C’ form can be issued for one quarter of a financial year. Similarly EI/EII can also be issued on quarterly basis. The Central Government has substituted second and third proviso to Rule 12(1) vides Notification No. 588(E) dated 16th September, 2005. According to these provisos, with effect from 1st October, 2005, Form C will have to be collected separately for each quarter of the year. Form D was required to be obtained transaction wise. However, Form D has been abolished with effect from 1st April, 2007. Central Government has also substituted sub rule (7) to rule 12 with effect from 1st October, 2005. Form C or certificate in Form E-I or E-II will have to be submitted to sales tax department within three months from the end of the quarter in which sale is effected. In case of Form F, it is to be obtained on monthly basis and it is to be submitted to the sales tax department within three months from the end of the month in which goods are transferred to the interstate branch or agent. In Maharashtra State, the Commissioner of Sales Tax has exempted the dealer from submission of Form C, D, F, H, E-I or E-II. Instead of that, dealers are required to submit the list of missing forms on quarterly basis as per the format specified in Trade Circular No. 28T of 2005 dated 24.10.2005. From 11-5-2002 the six deemed transactions of sale, including works contracts and leases are taxable under the CST Act if they are effected in the course of inter-state trade. Chapter VI-A provides for filing of appeals before Central Sales Tax Appellate Authority in case of disputes involving more than one state. In addition, there are other provisions for declared goods, liability in case of companies, offences and prosecution, etc.

 This article is compiled by CMA Samir Biswal. He can reached at cmasamirbiswal@gmail.com

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