Taxation - Sales Tax
Sales Tax|Value Added Tax (VAT)
Sales Tax is a tax, levied on the sale or purchase of goods. There are two kinds of Sales Tax i.e. Central Sales Tax, imposed by the Centre and Sales Tax, imposed by each state.
- When is Sales Tax payable?
- What is interstate sale?
- To whom is Sales Tax payable? By whom is it payable?
- What are the possible offences, which may be committed, that are liable to be penalized? What are the penalties for such offences?
- What is the liability of a Company in liquidation, with respect to payment of Central Sales Tax? What is the liability of the directors of a private company?
- What is the liability of the directors of a private company with respect to payment of Central Sales Tax?
- The power to levy Sales tax
- Main Principles in State Sales Tax Laws
- Transactions not amounting to inter-state sales
- Sales Tax ID number
- Exception in the sales taxes
- Which forms are to be filled?
When is Sales Tax payable?
Central Sales tax is generally payable on the sale of all goods by a dealer in the course of inter-state Trade or commerce or, outside a State or, in the course of import into or, export from India.
What is interstate sale?
According to S3, a sale or purchase shall be deemed to take place in the course of interstate trade or commerce in the following cases:
- when the sale or purchase occasions the movement of goods from one State to another;
- when the sale is effected by a transfer of documents of title to the goods during their movement from one State to another.
To make a sale as one in the course of interstate trade, there must be an obligation to transport the goods outside the state. The obligation may be of the seller or the buyer. It may arise by reason of statute or contract between the parties or from mutual understanding or agreement between them or, even from the nature of the transaction, which linked the sale to such transaction. There must be a contract between the seller and the buyer. According to the terms of the contract, the goods must be moved from one state to another. If there is no contract, then there is no inter-state sale.
There can be an interstate sale even if the buyer and the seller belong to the same state; even if the goods move from one state to another as a result of a contract of sale; or, the goods are sold while they are in transit by transfer of documents.
To whom is Sales Tax payable? By whom is it payable?
Sales tax is payable to the sales tax authority in the state from which the movement of goods commences. It is to be paid by every dealer on the sale of any goods effected by him in the course of inter-state trade or commerce, notwithstanding that no liability to tax on the sale of goods arises under the tax laws of the appropriate state.
What are the possible offences, which may be committed, that are liable to be penalized? What are the penalties for such offences?
The offences that may be committed and, the penalties, prescribed for can be summarised as under. Offences, under section10, are punishable with simple imprisonment (up to 6months) with or without fine.
- Giving false declaration in Form C, E-I, E-II, F or H, which he knows or has reason to believe it to be false.
- Not getting registered under the CST Act, when required to be registered or not complying with provisions relating to security.
- False representation by a registered dealer that the goods, purchased are covered under his certificate of registration for a concessional rate.
- Falsely representing that he is a registered dealer, though he is not.
- Misusing or using for different purpose, the goods, obtained under C form at a concessional rate.
- Having possession of form C, which is not obtained as per provisions of the CST Act.
- Collecting any amount, representing as sales tax, by an unregistered dealer or by a registered dealer in contravention of the provisions of the CST Act.
What is the liability of a Company in liquidation, with respect to payment of Central Sales Tax? What is the liability of the directors of a private company?
If a liquidator or receiver is appointed in the case of a company, he should inform the Sales Tax authorities within 30 days of his appointment. The Sales Tax Authority shall intimate him the amount of tax due from the company in liquidation within 3 months. The Sales Tax authorities are "preferential creditors' in a case of liquidation.
The Liquidator shall not dispose of assets of the company before setting aside the amount of dues as intimated by sales tax department. The liquidator may, however, part with such assets or properties in compliance with any order of a court or for the purpose of payment of the tax, payable by the company under the CST Act or, for making any payment to secured creditors whose debts are entitled under law to priority of payment over debts due to the government, on the date of liquidation or, for meeting such costs and expenses of the winding up of the company, as are in the opinion of the appropriate authority, reasonable.
What is the liability of the directors of a private company with respect to payment of Central Sales Tax?
If a private limited company is in liquidation and, any tax, assessed on the company, cannot be recovered, it becomes the personal liability of the directors, jointly and severally.
Directors can however avoid this liability; if they prove that the non-payment of tax was not on account of neglect, misfeasance or breach of duty on the part of the directors, in relation to affairs of the company.
The power to levy Sales tax
- No state can levy sales tax on any sale or purchase where such sale
or purchase takes place
- outside the state and
- in the course of import of goods into or export of goods outside India.
- Only the parliament can levy tax on inter-state sale or purchase of goods
Main Principles in State Sales Tax Laws
- A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money.
- The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods.
- In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point.
- Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assessee on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied).
- Generally , a quarter return of sales or purchases is insisted upon and the assessee is required to furnish the return in the prescribed form.
- At the time of assessment, the assessee has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer.
- The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal.
- Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in all the bill / cash memos.
Transactions not amounting to inter-state sales
Not all despatches of goods from one state to another result in inter state sales rather the movement must be on account of a covenant or incident of the contract of sales. There are some instances wherein the goods are moved out of the selling state and yet they are not considered inter state sales :-
- Intra-state sales
- Stock transfer from head office to branch & vice versa
- Import and Export sales or purchases
- Sale through commission agent / on account sales
- Delivery of Goods for executing works contract
Sales Tax ID number
A state sales tax ID number is basically a business version of your Social Security number under which you collect and pay tax for any service or product you sell that qualifies for taxation in your state. The state department of taxation provides sales tax ID numbers and it takes about a month to get one.
The rule of thumb for sales tax is that most services are exempt and most products are taxable except for food and drugs. However, states have been gradually adding to the list of services that are taxable for the last few years. Check with your state department of taxation to determine if the product or service you sell is taxable in your state.
Exception in the sales taxes
- Sales to resellers such as wholesalers and retailers that have a valid state resale certificate.
- Sales to tax-exempt institutions such as schools or charities
Which forms are to be filled?
- Form C;
- Form D;
- Form G;
- Forms E-I & E-II.