C.V.O. Chartered & Cost Accountants' Association

Legal Updates

Sales Tax Update

Compiled by : Shri Bharat K. Gosar (C.A.)

Amendments to The Bombay Sales Tax Act, 1959:

The Governor of Maharashtra has promulgated an ordinance No.VII of 2002 dated 26th February, 2002, whereby amendments to the Bombay Sales Tax Act, 1959 are carried out. The said amendments are as follows:

(i) Section 8D has been deleted with retrospective effect from 14th November 2000.

(ii) Section 40A has been newly inserted, according to which an option is given to the dealer dealing in lottery tickets to opt for lump-sum payment in lieu of tax payable as per schedule entry in respect of sales of a passive lottery (i.e. lottery in which the lottery tickets of fixed value are pre-printed and sold). Such dealers can pay lump-sum amount of tax per draw on the basis of type of draw i. e. weekly draw, fortnightly draw, monthly draw or special bumper draw. Every first seller in the State of Maharashtra is required to pay tax ten days in advance of the draw. On such payment, subsequent seller of such lottery ticket will not be liable to pay tax.

(iii) A new entry No.C-II-151A is added with retrospective effect from 14th November, 2000 under which sales tax @ 13% is leviable on sale of lottery tickets. This rate is in operation upto 25th February, 2002. With effect from 26th February, 2002 the rate of sales tax is increased to 60%.

Trade Circulars Issued By The Commissionar Of Sales Tax:

1. Circular No.1T of 2002 dated 25th January, 2002. :

The Commissioner has proposed to grant administrative relief to the expellers of sunflower oil and Nigar seed oil in respect of sales tax actually paid on the purchases of oil seeds for the period from 1st September, 1990 to 31st March 1992, which are used in the manufacturing process and eligible for set off under rule 41F.

2. Circular No. 2T of 2002 of dated 2nd February, 2002. :

The Commissioner has explained the manner and periodicity of filing of returns by registered dealer whose tax liability has not exceeded Rs.5000/-, in consequence to amendments in rule 22 of the BST Rules.

3. Circular No. 3T of 2002 dated 7th February, 2002. :

It has been clarified that amendment in Rule 42L providing for a formula to restrict set-off in proportion to the ratio of actual sales price and maximum retail price (MRP) will not be applicable to the wholesale dealers dealing in Indian made Foreign Liquor (IMFL) and country liquor.

4. Circular No. 4T 2002 dated 8th February, 2002. :

One more clarificatory circular is issued for the dealers who have opted for the composition scheme under section 40 of the BST Act. In addition to the clarifications and directions, the Commissioner has extended the date of furnishing of fresh application in form 1A from 30th July 2001 to 28th February 2002 for those dealers who have not yet applied.

5. Circular No. 7T of 2002 dated 2nd March, 2002. :

The Commissioner has clarified about the payment of sales tax by dealers of Lottery tickets in view of Maharashtra Ordinance No. VII of 2002 dated 26th February 2002.

Propose Ammendments To The Central Sales Tax Act, 1956

The finance minister while presenting the Finance Bill, 2002 on 28th February 2002 has also proposed the amendments to the Central Sales Act, 1956 by Bill No. 6 of 2002. The proposed amendments have far reaching effects. The date of effect of the proposed amendments are not mentioned. Hence, it appears that the provisions are likely to come into effect from the date of publication of the Finance Act, 2002 in the Gazette.

Following are the proposed changes:

1. Amendment to the definition of "Sale".

Section 2(g) of the Central Sales Act provides for the definition of "sale" to mean transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration. It also includes transfer of goods on the hire purchase or instalments system. It is now proposed to bring other deemed sales as covered by Article 366 (29A) of the Constitution within the ambit of "sale". Now "sales" under the CST Act will also cover the following transactions:

i. A transfer of property in goods from one person to another for cash or for deferred payment or for any other valuable consideration.

ii. A transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration (eg. compulsory acquisition of goods).

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

iv. A delivery of goods on hire purchase or any system of payment by instalments.

v. A transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration. (eg. Lease transactions).

vi. A supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration. (eg. supply of goods by club to its members).

vii. A supply by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration.

However, it has been clarified that "sale" does not include mortgage, hypothecation, charge or pledge of goods.

The effect of the above amendments will be as under:

a. Tax under CST Act, will be payable on the transfer of goods involved in the execution of works contract, transfer of right to use the goods and other deemed sales as mentioned in (i) to (vii) above when such transfers are effected interstate. Right now no tax is payable on such interstate sales in view of the judgement of the Supreme Court in the case of Builders' Association of India (73 STC 370). However, after this amendment, the State, from which the goods have moved to other State, will have the right to levy CST on such deemed interstate sales.

b. Buyer can purchase goods on "Form C" in respect of the above types of deemed purchases setting at rest the controversies in this regard.

c. If there will be any deemed sale effected by transfer of documents of title to goods as covered by section 6(2), then such sale will be exempt from payment of CST on the production of declarations in Form C and EI/EII as the case may be.

2. Production of "Form F" Mandatory:

An amendment is proposed in section 6A, under which production of Form F along with the proof of dispatch of goods before the assessing authority will be mandatory to claim inter state stock transfer or branch transfer. In the recent past, the Courts have given verdict that production of Form F as contained in the Act is directive only and is not mandatory if other evidences are available. But now, it has been proposed that if a dealer fails to produce declaration in Form F, then the interstate movement of goods shall be deemed to have been occasioned as a result of contract of sale and CST at the applicable rate will be levied.

3. Changes in the rate of CST:

Section 8 of the CST Act is a charging section, which provides for the rate applicable on sale of goods with/without "Form C/D". Present and proposed rates of tax are as follows:

Sales of goods Present rate Proposed rate

i. Against Form C/D 4% or local rate 4% or local

whichever is rate

lower subject to

Section 8(2A),

ii. Without Form C/D

(a) Declared goods Twice the local Twice the local

rate rate

(b) Other than 10% or local 10% or local

declared goods. rate whichever rate whichever

is higher is higher

a. Section 8(2A) is proposed to be deleted. Consequently, in case of sale of goods other than declared goods without Form C/D, the benefit of concessional rate of tax applicable inside the appropriate state will not be available. For eg. In case of out of Maharashtra sale of stainless steel utensils covered by schedule Entry C-II-24, requirement of production of Form C was not necessary, in view of local schedule rate of tax being 4% at present. However, after deletion of section 8(2A), production of Form C will be compulsory, otherwise rate of CST payable will be 10%.

b. Where the rate of tax is generally exempt under the local sales tax Act of the appropriate state, than no CST will be payable and Form C will not be required.

c. Under section 8(5) of the CST Act, the state governments are given power to issue notifications granting whole or partial exemption from payment of CST without production of any Form C or D. It is now proposed to give the power to state governments to grant whole or partial exemption only on the condition that such interstate sales must be effected to the registered dealers or to Government Departments and that too only on the production of Form C/D. For eg. Interstate sale of readymade garments from the state of Maharashtra is subject to 4% CST from 1.1.1990 onwards because State Government by issuing notification has done away with the condition of production of form C. However, after the proposed amendment in section 8(5), sale of readymade garments from the state of Maharashtra will be subject 4% CST only on production of declaration in From C, otherwise 10% CST will be leviable.

4. Levy of VAT on declared goods:

Section 15 of the CST Act does not empower the State Governments to levy tax on goods declared under section 14, at more than one stage. To enable the State Governments to levy VAT on sale of such declared goods at more than one stage, section 15(a) is proposed to be amended by deleting the words "and such tax shall not be levied at more than one stage". However, the state government will not be able to charge tax at the rate more than 4%.

5. Scope of purchase of goods on Form C/D widened

It is proposed to widen the scope of section 8(3)(b) so as to permit issue of Form C/D for purchase of goods for use in telecommunication network.

 

C.V.O. CA's News & Views

Vol.5 No. 4 mar. - Apr. 2002