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

Mobile ; 093347-66898

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Filing of information in block R.10 of CST return Form 1

Block R.10 of CST return Form 1 pertains to filing of the information for

receipt and pendency of central statutory forms/declarations in lieu of concessional sale/stock transfer for the preceding 4 years. The block has been inserted in the return through recent amendment in Central Sales Tax (Delhi) Rules, 2005. Second quarter return of the year 2013-14 was the first return to be filed after the amendment. 

2. On the request of Sales Tax Bar Association and dealers, the filing of the said block was de-linked from the return and a facility was created to file the information on pending statutory forms separately. The date of filing of the said block as well as return was also extended upto 31st  December, 2013.

3. Many dealers have availed of the facility and filed the above said information online. But, some dealers have still not been able to compile and file the information till date, although their returns have been otherwise submitted. Now, the third quarter return also becomes due from 1st
 January 2014, wherein the same information is to be filed upto date.

4. In view of the above, as a facility to the dealers who could not file the 
information in block R.10 of CST return Form 1, they are allowed to file the same as part of the third quarter return of the year 2013-14.

5. Further, in exercise of the powers conferred on me by Rule 49A of Delhi Value Added Tax Rules, 2005, I, Prashant Goyal, Commissioner, Value Added Tax hereby extend the date of filing of third quarter return of 2013-14 to 31st
 January, 2014. 

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

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INPUT TAX CREDIT

INPUT TAX CREDIT

Manufacturer will be entitled to credit of tax paid on inputs used by him in manufacture. A trader (dealer) will be entitled to get credit of tax on goods which he has purchased for re-sale

No credit is available in case of inter-state purchases. 
Credit will be available of tax paid on capital goods purchased within the State. Credit will be available only in respect of capital goods used in manufacture or processing. The credit will be spread over three financial years and not in first year itself. There will be a negative list of capital goods  . Some States allow credit at one go while some allow over a period of 12 months and so on. 
Credit will be available as soon as inputs are purchased. It is not necessary to wait till these are utilised or sold [para 2.3 of White Paper on State-Level VAT). 
No credit of CST paid : Credit of Central Sales Tax (CST) paid on inputs and capital goods purchased from other States will not be available

Non-availability of input credit in certain cases : 
Credit of tax paid on inputs will be denied in following situations - No credit if final product is exempt - Credit of tax paid on inputs is available only if tax is paid on final products. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to be reversed on pro-rata basis. 

If the final products are transferred to another State as stock transfer or branch transfer, input credit availed will have to be reversed on pro-rata basis, which is in excess of 4%. In other words, in case of goods sent on stock transfer/branch transfer out of State, 4% tax on inputs will become payable e.g. if tax paid on inputs is 12.5%, credit of 8.5% is available. If tax paid on inputs is 4%, no credit is available. Thus, the VAT as introduced is State VAT and not a national VAT. 

In following cases, the dealer is not entitled to input credit –

(a) Inputs used in exempted final products

(b) Final product not sold but given as free sample

(c) Inputs lost/damaged/stolen before use. If credit was availed, it will have to be reversed. 

Generally, in following cases, credit is not available –

 (a) Purchase of automobiles (except in case of purchase of automobiles by automobile dealers for re-sale)

(b) fuel.

There are variations between provisions of various States. 

Certain sales are ‘zero rated’ i.e. tax is not payable on final product in certain specified circumstances. In such cases, credit will be available on the inputs i.e. credit will not have to be reversed. Distinction between ‘zero rated sale’ and ‘exempt sale’ is that in case of ‘zero rated sale’, credit is available on tax paid on inputs, while in case of exempt goods, credit of tax paid on inputs is not available. 

Export sales are zero rated, i.e. though sales tax is not payable on export sales, credit will be available of tax paid on inputs. In respect of sale to EOU/SEZ, there will be either exemption of input tax or tax paid will be refunded to them within three months

SOME MORE CLARIFICATION

Where Inputs Are Partly Used For Making Taxable Goods (Or Inter-State Sales) And Partly For Making Exempt Goods, The Tax Credit Shall Be Reduced Proportionately. To Illustrate, X Purchased Machinery For Rs. 10 Lakh And Paid A Tax Of Rs. 1,25,000 On It And Used It In The Manufacture Of Taxable As Well As Exempted Goods. At That Time, He Estimated That The Share Of Taxable Goods Made By The Machinery Would Be 80 Per Cent. In This Case, His Input Tax Credit Will Be Restricted Only To 80 Per Cent Of Rs. 125,000 Or Rs. 1,00,000. 

There Is No Need For A `One To One Correlation Between Input Tax Credit And Output Tax. Quite A Number Of Small Businesses Are Under The Misconception That Input Tax Has To Be Adjusted Against Output Tax On A Bill To Bill Basis. 
The Operation Of The Input Tax Mechanism Is Simple. The Dealer Will Be Eligible To Take Credit For The Eligible Input Tax In A Tax Period As Specified On The Entire Purchases. He Will Charge VAT At The Prescribed Rate As Is Done In The Present System For Levy Of Sales Tax. The VAT Or Output Tax Payable Is Compiled On A Monthly Basis As Is Done Now. The Dealer Can Adjust The Input Tax Eligible On The Entire Purchase In The Tax Period Against The Output Tax Payable Irrespective Of Whether The Entire Goods Purchased Are Sold Or Not. For Example, If The Input Tax Credit In A Particular Month Is Rs. 1,000 And The Output Tax Payable Is Rs. 500, The Excess Input Tax Of Rs. 500 Can Be Carried Forward To The Next Tax Period. 
Assuming No Further Input Tax Credit In The Following Month And That The Output Tax Payable Is Rs. 700 The Dealer Will Pay Rs. 200 Along With The Monthly Return.

SHUBHI GOEL

Shubhigoel1989@gmail.com

*THIS ARTICLE IS COMPILED BY STUDENT OF ICAI 

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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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FORMS & PROCEDURES UNDER CST

PROCEDURE:

Every dealer who effects inter-state sale is required to register with State sales tax authorities who are empowered to grant registration under CST Act. Application should be in form ‘A’. Security has to be furnished. Certificate of registration will be in form ‘B’.

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 the same state – If a dealer has more than one place of business in the same state , he shall select one of these places as the principal place of business and , get only one certificate of registration.

4. 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.

5. Fees for Registration is Rupees twenty five to be paid in cash or court fee stamp.

6. The application has to be signed by, in case of –

• Sole proprietorship , the proprietor

• Partnership firm, any one the partner

• HUF, the karta

• Company, the director

• Government, authorized officer

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.

All items of purchase and sale must be included in CST Registration Certificate. Otherwise, these are not eligible for purchase at concessional rate.

FORMS

Form C, E-I/E-II, F, G, H, I and J have been prescribed to avail concessional rate of CST. Form C and E-I/E-II and F are required to be collected and submitted on quarterly basis. In case of forms H, I and J, no time limit has been prescribed. F form is to be obtained on monthly basis.

If C form is lost, indemnity bond in form G is to be given and then duplicate C form can be issued.

Prescribed forms under CST

Following are the forms prescribed under CST (Registration and Turnover) Rules, 1957.

Form	Description	Frequency
A	Application for registration	Once
B	Certificate of Registration	Once
C	Declaration by purchasing registered dealer to obtain goods at concessional rate	To be obtained for every quarter and submitted on quarterly basis
D	Form of certificate for making government purchases (D form cannot be issued in case of sale made to Government on or after 1-4-2007)	No question arises after 1-4-2007.
E-I/E-II	Certificates for sale in transit	To be obtained for every quarter and submitted on quarterly basis
F	Form by branch/consignment agent for goods received on stock transfer	Monthly, but to be submitted to authorities quarterly
G	Indemnity bond when C form lost	When required
H	Certificate of Export	Upto the time of assessment by first assessing authority.
I	Certificate by SEZ unit	Not specified in rules (but should be submitted before assessment).
J	Certificate to be issued by foreign diplomatic mission or consulate in India or the UN Agency	Upto the time of assessment by first assessing authority.

This article is compiled by Student of ICAI SHUBHI GOEL. She can be reached at Shubhigoel1989@gmail.com

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