CST is the MP commercial tax imposed on any sales in inter-state trade within India. Basically, an indirect tax, CST, is passed on to the consumer and has to be paid in the state where the particular product gets sold. CST can be charged on an inter-state transaction only, and a transaction done within state limits or for the export or import of goods is beyond its purview. Moreover, sales to SEZs and foreign missions cannot attract any CST if the items are returned within a period of 180 days from the date of the sale.

CST was an inextricable part of the Indian tax structure and was first implemented in the 6th Constitutional Amendment. It became a principal revenue source for the Indian government and was considered highly critical to the country’s trade & commerce.

The Central Sales Tax Act, 1956

CST was imposed by the Government of India in 1957 and falls under the Seventh Schedule’s Union List. However, it is state-administered by the Department of commercial tax MP and is payable in the state where the particular sale happens. Hence, any trader selling goods involving inter-state trade must pay both central and state sales taxes on these transactions. Its provisions cover the following:

• What is inter-state trade?
• Situations that attract CST
• Penalties for non-payment of CST
• Critical goods for any interstate trade
• Restrictions on such trade
• Conditions for making appeals for fair justice, etc.

Rules of CST

The following rules govern traders involved in inter-state selling:

• A dealer must submit Form A, an application for registration as Section 7 of the CST Act stipulates. The application must carry the proprietor’s signature and be verified by the competent authority.
• Only one application is accepted, even though the applicant may have multiple business locations within the state.
• The registration certificate must be displayed at the head office, with copies at other business locations.
• If the registration certificate gets damaged, destroyed, or lost, the applicant must pay for the duplicate copy in court stamps.

CST’s Principal Objectives

The CST was introduced mainly to streamline and simplify the country’s tax collections, and its principal objectives included the following:

• Making provisions for the imposition, collection, and distribution of all taxes collected through interstate goods and services sales.
• Framing policies for ascertaining when purchases and sales of goods occur, particularly in interstate commerce.
• Classification of certain goods that are critical and essential for national commerce and trade.
• Establish a competent authority to settle or decide upon any interstate trade dispute.

CST Rate

The initial CST was 1% and was later increased to 2%, finally becoming 4% from 1975 onward. However, highly critical goods required for inter-state travel were not taxed to ensure that the prices of such essential commodities would not spiral. Later in the year 2007, the tax was reduced to 3% and 2% in 2008.

CST Exemptions

Exemptions from CST are applicable in the following cases:

• On separately charging outward freight
• If the insurance on goods moving out is chargeable to the buyer after dispatch.
• CST is not payable if the goods are returned to the supplier within 180 days of the sale.
• When the department of MP commercial tax of the state exempts a particular sale within its limits.
• All sales to any foreign mission and SEZ are CST-exempt.

Conclusion

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Frequently Asked Questions

1. What is the liability of sales tax under the CST Act?

The government imposes the CST on a seller, who eventually recovers it from the buyer. The tax is usually extracted from the buyer at the purchase point or while exchanging some specific products as a pre-defined percentage of the product's value.

2. What are the goods under CST Act?

The "declared goods" come within Section 14 of the CST Act and include all articles, commodities, materials, and all movable properties except actionable claims, newspapers, shares, stocks, and securities.