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Central Sales Tax Act, 1956 Gist of recent amendments

Central Sales Tax Act, 1956 Gist of recent amendments. Amendments made in October 2005. Form C to be submitted to department on quarterly basis, instead of yearly basis. Collection of Form F every month but submission on quarterly basis.

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Central Sales Tax Act, 1956 Gist of recent amendments

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  1. Central Sales Tax Act, 1956Gist ofrecentamendments

  2. Amendments made in October 2005 • Form C to be submitted to department on quarterly basis, instead of yearly basis. • Collection of Form F every month but submission on quarterly basis. • Submission of Form C and Form on quarterly basis and NOT at the time of assessment as was the earlier practice. • Insertion of Section 5(4) of CST Act, 1956 and amendment of Rule 12(10(a) of CST R&T Rules, 1957 to provide for exemption for Section 5(3) sale on the basis of Form H alone.

  3. Amendments to CST Act vide Taxation Laws (Amendment) Act, 2007 - Effective April 1, 2007 • Rate of Central Sales Tax (CST) for inter state sale to registered dealers reduced to 3% (against Form C) • If local VAT rate or Sales Tax rate in the state of the selling dealer is less than 3%, then the local rate (2% or 1%) would apply. • Inter State Sale without Form C (sale to unregistered dealer / registered dealers where Form C could not be issued) - Concept of minimum of 10% CST removed. • Now the rate of CST would be equivalent to the Local VAT rate (4% or 12.5%)

  4. Amendments to CST Act vide Taxation Laws (Amendment) Act, 2007, with effect from April 1, 2007 (Contd.) • Inter State Sale to Government / Government departments – Government/ Govt. departments cannot any longer issue Form D for 4% (3%) CST. • Sale to Government is like sale to any other person who cannot issue Form C. Local VAT rate would apply. CST rate would be 4%/12.5%. • Government / Government departments cannot issue Form D for effecting In-Transit Sale (E1 sale). • No separate tax rate for sale of Declared Goods to unregistered dealer

  5. Overview • CST phase out in due course • 4-2-0 plan now becomes 3-2-1-0. • Whether 2,1,0 will happen as planned? • Whether GST will happen in Year 2010?

  6. Overview – CST Phase out? • CST phase-out to take 3 years from April 1, 2007 • CST collection by states estimated to be over Rs. 25,000 Crores in Year 2007-08. • Cut by one percentage point from April 2007 would result in states losing about Rs. 6,250 crore • This loss needs to be compensated by the Centre. To offset shortfall, states are considering increase of VAT rate of 4% to 5%. • Percentage increase of revenue of states from VAT drops to 22% in 2006-07 from 23% in 2005-06. (Courtesy – Business line)

  7. Overview – CST Phase out? • Union Finance Ministry to compensate loss of States fully upon CST phase out. • Mr Chidambaram says that Union Govt. and State Finance Ministers of VAT States have worked out a "Broad consensus'' on compensation and that the compensation package includes transfer of the entire tax revenue from certain services • Union to transfer revenue from 77 services to states which are intra-State in nature. (Of 77 services, 44 are new services to be introduced and 33 are existing services) (Business Line - January 4, 2007)

  8. CST Phase out – Implications • Compensation period ends with FY 2007-08. • State Governments bound to react on dip in revenue • State Governments may consider increase of VAT rate of 12.5% for certain items • Kerala State Budget 2006-07 - New schedule of goods carrying 20 per cent tax introduced for Items such as Air-Conditioners, Dishwashers, Health drinks and Colas. • Department may take all measures to collect more revenue or may seek to deny ITC / refund on frivolous grounds.

  9. To avoid litigation, Record keeping would be crucial.

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