The period following the adoption of the Constitution up to 1955 could be described as a transitory phase for sales taxation. It was only with the Supreme Court judgment in 1955 and through the resultant. Constitutional amendment in 1956, that the States power to impose sales tax was clearly demarcated. Thus, the taxes on sale or purchase of goods in the course of inter-State trade or commerce were brought expressly within the purview of the legislative jurisdiction of Parliament.

As a result, the Central Sales Tax Act, 1956,enacted by the Sixth Constitutional Amendment which introduced Entry 92A in List I of the Seventh Schedule authorizing Parliament to levy tax on the sale or purchase of goods (other than newspapers) in the course of inter-State trade. The revenue from this tax was assigned to the States by amending Article 269 of the Constitution. Thus, sale within the State (Intra-State sale) is within the authority of State Government, while sale outside State (Inter-State sale) is within the authority of Central Government. Accordingly, the Central Sales Tax (CST) is levied on sale or purchase of goods in the course of inter-State trade and commerce. The power to levy the CST and revenue from this tax is, however, assigned to the State occasioning the movement of goods from one State to another (i.e., the exporting State)

In addition, section 15 of the Central Sales Tax Act laid down certain restrictions on the powers of the States in regard to the levy of inter – State sales tax on goods declared as of special importance within their respective territories.

In addition to the above, since 1975, the Union Government entered into an agreement with the States to abolish sales tax on textiles, sugar and tobacco including manufactured tobacco.

According to the agreement, the Union Government levies an additional Excise Duty in lieu of Sales tax (IDEALIST) on these 3 commodities. In recompense, the entire proceeds of the IDEALIST are assigned to the States. Thus, the Union Government entered into a tax-rental arrangement with the States who were given the Constitutional right to cancel the agreement and impose sales tax on these commodities, whenever they so desired. But the right of States to levy sales tax on these commodities was restricted by including these three items under the of “Good of Special Importance”,

Hence, the rate of sales tax on these commodities can’t exceed the rate of the Central Sales Tax which, at present, is four percent If the product is sold subsequently without being processed further, it is exempt from sales tax. Sales tax can be levied either by the Central or State Government, Central Sales tax department.

Categories: Central Sales Tax Act, Save Income Tax, Tax Federalism In India
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