SEM VI Taxation – Unit V Class Notes

Table of Contents

Class Notes on Taxation – Unit V

Evolution and Scope of Levy of Central Sales Tax:

Historical Background: Central Sales Tax (CST) was introduced by the Central Government under the Central Sales Tax Act, 1956, to address the need for a uniform tax on inter-state sales and to ensure that states do not lose revenue on goods sold across state borders.
Scope: CST applies to sales of goods that occur in the course of inter-state trade or commerce. It is levied on the sale of goods that cross state boundaries and is collected by the selling state on behalf of the purchasing state.

Examples:

Inter-State Sale: A manufacturer in Maharashtra sells goods to a retailer in Gujarat. CST is levied on this sale, and the tax collected is transferred to the state of Maharashtra.

Inter-State Sale Outside a State and Sale in the Course of Import and Export:

Inter-State Sale Outside a State:
- Definition: A sale where the movement of goods is from one state to another, and the seller is situated in one state while the buyer is in another.
- Taxation: CST is levied on such sales, with the rate determined by the Central Sales Tax Act. The tax is collected by the seller and paid to the state where the sale is made.
Sale in the Course of Import and Export:
- Import Sale: Sales made during the import of goods into India are not subject to CST but are subject to customs duties.
- Export Sale: Sales made in the course of export out of India are exempt from CST to promote international trade.

Examples:

Import Sale: Goods imported from the US and sold within India are subject to customs duties, not CST.
Export Sale: Goods exported to the US are exempt from CST.

Basic Principles:

Principle of Origin: CST is levied on sales that have their origin within the state, but the tax is collected by the state from which the goods are dispatched.
Principle of Destination: The tax is intended to be collected by the state where the goods are consumed or used, which is ensured through the allocation of CST receipts between states.

Registration of Dealers and Determination of Taxable Turnover:

Registration:
- Requirement: Dealers engaged in inter-state trade must register with the relevant state authorities and obtain a CST registration certificate.
- Process: Dealers must submit an application, provide proof of business, and comply with regulatory requirements.
Taxable Turnover:
- Definition: Taxable turnover refers to the gross turnover of sales, minus any exempted sales and sales of goods that are not subject to CST.
- Calculation: The turnover is calculated based on sales invoices and returns filed by the dealer.

Examples:

Registration: A dealer in Karnataka selling goods to other states must register for CST and obtain a CST number.
Taxable Turnover: A dealer’s turnover from inter-state sales is calculated after deducting exempted transactions.

Main Features of Service Tax:

Introduction: Service Tax was introduced in India under the Finance Act, 1994, as a tax on services provided by service providers. It applies to a wide range of services provided within India.
Scope: Service Tax is levied on services provided by businesses or individuals, including services like telecommunications, banking, insurance, and hospitality.

Examples:

Service Tax on Telecom Services: A customer paying for mobile phone services is charged a service tax by the service provider.
Service Tax on Hotel Accommodation: Guests staying at a hotel are charged service tax on the accommodation charges.

Key Features:

Rate of Tax: Service tax rates are determined by the government and may vary based on the nature of the service.
Input Tax Credit: Businesses can claim credit for the service tax paid on inputs used to provide taxable services.
Assessment and Collection: Service providers are responsible for collecting the tax from customers and remitting it to the government.

Introduction to Value Added Tax:

Concept: VAT is a multi-stage tax on the value added to goods and services at each stage of production or distribution. It replaces the earlier system of sales tax with a more transparent and efficient tax mechanism.
Scope: VAT applies to the sale of goods and services within the state. It is levied at each stage of the supply chain, with credit given for tax paid on inputs.

Examples:

VAT on Goods: A manufacturer producing and selling goods will charge VAT on the sale price and can claim credit for VAT paid on raw materials.
VAT on Services: Service providers charge VAT on their services and can claim credit for VAT paid on services used in their operations.

Key Features:

Tax Credit Mechanism: VAT allows businesses to offset the tax paid on inputs against the tax payable on outputs, avoiding tax cascading.
State Legislation: VAT is administered by individual states in India, and each state has its VAT laws and rates.

Comparison with CST and Service Tax:

CST vs. VAT: CST is applicable to inter-state sales, while VAT applies to intra-state sales. VAT allows for input tax credit, while CST does not.
Service Tax vs. VAT: Service tax applies to services, whereas VAT applies to goods and services. Service tax does not have a credit mechanism like VAT.