Sales Tax in India

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Sales tax is levied when goods are sold or bought within a country or a state. There are two major types of sales taxes – central sales tax, levied by the Union Government and sales taxes, which are charged by the state governments.

Central sales taxes are applied when a dealer sells goods during interstate commerce or trade. These taxes are also implemented when a product is sold outside a state or when it is exported or imported.

The basic rule of sales taxes is that majority of products are liable to be taxed with the exception of drugs and food. Most of the services are exempted from sales taxes. In recent times, however, the state governments have been adding to the list of services that can be subjected to sales taxes.

It is advisable for the dealers to check with the relevant state sales tax departments to get the complete list of products and services that can be subjected to the said tax.

Sales Tax: Concerned Authority and Taxpayers

Sales taxes are provided to the concerned authorities of the state which is source of the transfer of the goods in question. Every dealer who sells goods in a state during interstate commerce and trade is supposed to pay these taxes. The states cannot impose sales taxes in case the sale or purchase happens outside its limits of jurisdiction and if the goods are being exported or imported from and in India. In such cases, only the parliament has the authority to levy these taxes.

Sales State Tax Laws and its Rules and Regulations

The important principles applicable in case of state sales tax laws may be enumerated as below:
  • A good is regarded as sold/bought when the transfer involves money.
  • When the dealers are being assessed they need to provide all the documents and proofs of their tax payment so that the commercial or sales tax officer is satisfied.
  • In majority of the transactions, sales tax applies on the basis of a single point.
  • All the states have different procedures for appeals made by the assessees.
  • In some states the assessees are categorized into manufacturers, selling agents, and dealers, and they are required to obtain necessary certificates. Different rates apply to these entities.
  • All the dealers are supposed to make application registrations and procure it as well. The registration number needs to be provided for all cash or bill memos.

Sales Tax ID Numbers

The sales tax ID numbers are primarily business versions of the Social Security Numbers. The holders of these numbers can both pay and collect sales taxes on goods specified by the respective state governments. These numbers are normally provided within a month of application by the state departments of taxation.

Tax Exemptions

Exemptions from sales taxes are offered if the product or service has been sold to a reseller like a retailer or wholesaler who has an authentic state resale certificate. If assets are sold to tax-exempt organizations like charities or schools then exemptions provided as well.

Sales Tax in case a company is closing down

If a receiver or liquidator is employed for a company that is presently being shut down, the officer should provide information about his or her hiring to the concerned sales tax authorities within 30 days of his hiring.

In case of such companies, the preferential creditors are regarded as the sales tax authorities and they will inform the officer about the tax amount to be paid within a time period of 3 months.

The liquidator is not supposed to sell off any assets of the particular company before paying the remaining sales taxes. However, they can sell off the assets for the purpose of generating the money needed to pay the taxes that have to be paid as per the CST Act.

This procedure can also be followed if the company needs to pay off certain creditors before the government receives its tax dues. The liquidator or receiver, still, needs to consult the relevant authorities before taking such a step.

In case a company is liquidated without the recovery of the amount, the director or group of directors need to pay off the amount. Directors can still avoid paying this tax if they can prove the payment was due as a result of negligence, financial misappropriation or failure to perform the required duties.

Violation of Sales Tax and Punishment given thereafter

Following are major offences committed in the domain of sales tax:
  • Providing incorrect information in Forms C, F, E-I, H, and E-II.
  • Misappropriating goods that have been procured at a discounted rate as per Form C.
  • Not obtaining registration as per the CST Act or not adhering to the related security provisions.
  • Owning Form C without adhering to the CST Act regulations.
  • An incorrect statement from a registered dealer that the purchased goods have been covered as per an authentic certificate of registration for concessional rates obtained by the same.
  • If an unregistered dealer collects an amount as sales tax. This is also applicable in case a registered dealer does the same thing in violation of the CST Act.
  • Falsely projecting oneself as a registered dealer.
Last Updated on July 2, 2015

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