Declared Goods – rate of tax

The Hon’ble Union Finance Minister has declared in the budget for the year 2007-08 that rate of CST will be reduced to 3% w.e.f. 1-4-2004. No doubt, the step is taken in the direction of Centre’s objective to phase out CST gradually by 2010. But in order to put the intentions in practice, the State as well as Central Govt. have to amend the laws accordingly.

In 2003, the Union Govt. amended section 8(1) of the C.S.T. Act, to be precise, from 14-5-2003 and inserted a provision by which rate of CST on interstate sale was reduced to 2% when supported with declarations in Form C/D. This amendment was to be made effective only upon a notification to be issued by the Central Govt. Till then, the rate of CST was to continue @ 4%. The intentions were clear enough to show that CST rate would be slashed to 2% from 4% directly without any intermediate step.

However, during the intervening period, the Centre has always declared through media reports that CST rate would be reduced gradually; i.e., step by step. In that case, there was no need to amend the section 8(1) in that manner which has the effect of restricting their own power to control rate of CST. The aforesaid announcement of the Hon’ble Finance Minister necessitates amendment in section 8(1) of the C.S.T. Act.

The next issue emerging out of the said budgetary declaration is the rate of tax, both under State law and C.S.T. Act, in respect of declared goods. The readers are aware that section 15 of the C.S.T. Act puts a cap on the rate of tax on declared goods which is at 4%. No State can levy local sales tax at more than 4% at one stage though taxing them at multiple stages has been made possible by amendment in C.S.T. Act in 2002.The said reduction in CST rate to @3% means that the sales of declared goods become liable to CST @3% when supported by C/D forms but liable to local (Under MVAT Act. 2002) sales tax @ 4%. The inter state sale of such declared goods not supported by C/D forms become liable to CST @8% being twice the rate applicable to the goods in the appropriate State. So is the case with other goods liable to VAT @4%. The only difference is that they are subjected to CST @10% in absence of C/D forms.

The State Govt. may take remedial steps by issuing a notification u/s. 8(5) to freeze the rate of CST to 4% or so in absence of C/D forms.

Provision of advance Ruling – Not implemented

Section 55 of the MVAT Act, 2002, relating to Advance Ruling by Tribunal has so far remained as a decorative piece of legislation. The State Govt. is required to issue a notification in this respect to prescribe the eligibility criteria, mode and manner of such ruling etc. The provision is important from the point of view of the dealers since they would know the sales tax implications of the transactions proposed to be undertaken by them. Most of the other States have already begun the process but progressive State of Maharashtra has not made any move so far. The questions of law such as rate of tax when there is an ambiguity, the nature of transaction such as sale in the course of import/export, sale or works contract etc. assume prime importance for a dealer to chalk out his future plans. The greatest advantage of the Advance Ruling System is that dealer gets his query replied before the transaction is effected and that too within a maximum period of four months as far as possible. The Govt. has to think seriously about gearing up the machinery of advance ruling as early as possible.

Pre-budget proposals

The State Govt. must have been flooded with pre-budget suggestions including those from STP Association as well. First and foremost policy decision needs to be taken is not to tinker with rates of tax anytime in the middle of the year. The classic examples are cereals and pulses and their flours etc. which are getting extensions of six months like a temporary employee. The changes are effected also through notifications every now and then, which only cause confusion in the minds of dealers. The confusion may lead to his collecting either at a lower rate or a higher rate unintentionally and landing up in severe trouble later on. It must be on the lines of Union Budget which is presented on a fixed date; i.e., 28th February and no changes in the rate of tax are made during one financial year. In order to inspire confidence in dealers, the rate of tax on various goods need to be stabilised over at least one year i.e. till next budget. The schedule entries are frequently changed to either exclude or include certain goods which again causes uncertainty. This practice needs to be stopped for ever. The Govt. may take some decision in the interest of its subject.

CST Return – New form

For last several days, the Govt. of Maharashtra website has been displaying new Form No. III (B) meant for CST returns. Some of the private printers authorised in this behalf have already printed and distributed these forms. However, rule 5 of the C.S.T. (Bombay) Rules, 1957 has not been amended so far to incorporate new Form III (B). The dealers are confused as to which form needs to be filed. The Govt. must take an action to amend the rule accordingly and prescribe the date of its implementation preferably keeping a comfortable gap of time to enable dealers to get acquainted with the new form.