TaxonsaleorpurchaseofgoodsDefinition

Article366(29A)definestaxonsaleorpurchaseofgoods,onceagaininclusivelyanditreadsasfollows:
"taxonthesaleorpurchaseofgoodsincludes
a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash,
deferredpaymentorothervaluableconsideration
a tax on the transfer of property in goods (whether as goods or in some other form) involved in the
executionofaworkscontract
ataxonthedeliveryofgoodsonhirepurchaseoranysystemofpaymentbyinstallments
ataxonthetransferoftherighttouseanygoodsforanypurpose(whetherornotforaspecifiedperiod)
forcash,deferredpaymentorothervaluableconsideration
ataxonthesupplyofgoodsbyanyunincorporatedassociationorbodyofpersonstoamemberthereof
forcash,deferredpaymentorothervaluableconsideration
ataxonthesupply,bywayoforaspartofanyserviceorinanyothermannerwhatsoever,ofgoods,
being food or any other article for human consumption or any drink (whether or not intoxicating) where
suchsupplyorservice,isforcash,deferredpaymentorothervaluableconsideration
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the
person making the transfer, delivery or supply and a purchase of those goods by the person to whom
suchtransfer,deliveryorsupplyismade".

TheTaxis
onSale(includingdeemedsales)or
PurchaseofthegoodsbyaDealer
atspecifiedRate
atthespecifiedpoint
quantifiedonthebasisofSale/Purchasepriceand/orTurnover.

SalesTax/Purchasetax/
VAT
CentralSalesTax

TaxonsaleorpurchasewithintheState.

WorksContractTax

Taxontransferofpropertyingoodsusedin
executionofaworkscontract.

LeaseTax

Taxontransferofrightstousegoodsor
lease.

Taxonsaleorpurchaseinthecourseof
interstatetrade.

Sale

Meaning:
Definedbysection2(g)ofCSTActasfollows:
"sale,withitsgrammaticalvariationsandcognateexpressions,meansanytransferofpropertyingoods
byonepersontoanotherforcashorfordeferredpaymentorforanyothervaluableconsideration,and
includes a transfer of goods on the hirepurchase or other system of payment by installments, but does
notincludeamortgageorhypothecationoforachargeorpledgeongoods".
Definedbysection4oftheSaleofGoodsAct,1930asfollows:
"Saleandagreementtosell,
a. A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. There may be a contract of sale between one part
ownerandanother.

b. Acontractofsalemaybeabsoluteorconditional.
c. Where under a contract of sale the property in the goods is transferred from the seller to the
buyer,thecontractiscalledasale,butwherethetransferofthepropertyinthegoodsistotake
placeatafuturetimeorsubjecttosomeconditionthereaftertobefulfilled,thecontractiscalled
anagreementtosell.
d. Anagreementtosellbecomesasalewhenthetimeelapsesortheconditionsarefulfilledsubject
towhichthepropertyinthegoodsistobetransferred".
The State Laws by and large follow the above definitions for defining the sale. Apart from
that,thedefinitionclauseintheStateLawsmayinclude:
a. Alldeemedsales
b. Certainpeculiarclarifications,like,transactionsofgovernmentetc.
c. CircumstancesinwhichsalecouldberegardedaswithintheStateandsoon.
Nature:
Saleasordinarilyunderstood
Deemedsale[asdefinedinArticle366(29A)oftheConstitution&StateLaws]
GeographicalClassification:
a. InsideaState(liabletotheStatesalestax).
b. InterState(liabletoCentralsalestax).
c. ImportintoIndia(Notliabletosalestax.Liabletocustomsduty.Saleinthecourseofimportnotliableto
taxseesection5oftheCSTActandStateLaw).
d. Export out of India (Not liable to sales tax. Penultimate sale also not liable to sales taxsee section 5 of
theCSTActandStateLaw).

Purchase
ThetermisnotdefinedbyCSTAct.
SomeoftheStatesdefinetheterm,alongwiththedefinitionofsale,soastobroadlymean"acquisitionof
propertyingoodsorpurchaseofthosegoodsbythepersontowhomsuchtransfer,delivery,orsupplyis
made".

Goods

Article366(12)goodsitisaninclusivedefinitionanditreads"includesallmaterials,commoditiesand
articles".
Section2(d)ofCSTActdefinesthesameas"includesallmaterials,articles,commoditiesandallotherkinds
ofmovablepropertybut,doesnotincludenewspapers,actionableclaims,stocks,shares,andsecurities".
StatesgenerallyfollowthedefinitionasgivenintheCSTAct.
However,Stateshave,inthedefinitionclause,includedsomeclarifications,like:
a. Whetherinthesameortheotherform
b. Ifmaterialsetc.areattachedtoorformpartofimmovablepropertyandagreedtobeseveredunderthe
salecontract,suchmaterialshallbedeemedtobethegoods
c. SomeStatesexcludeelectricity
d. SomeStatesdeemthegoodsusedintheexecutionofworkscontractasgoods,etc.
ItcanbesaidthatthereisnouniformityamongtheStatesindefiningtheterm.Accordingly,itwouldbe
advisabletorefertothedefinitionofeachState.

Dealer

Section2(b)oftheCSTActdefinesthetermasfollows:"dealermeansanypersonwhocarrieson(whether
regularlyorotherwise)thebusinessofbuying,selling,supplyingordistributinggoods,directlyorindirectly,for
cashorfordeferredpayment,orforcommission,remunerationorothervaluableconsideration,andincludes
i. a local authority, a body corporate, a company, any cooperative society or other society, club, firm,

Hinduundividedfamilyorotherassociationofpersonswhichcarriesonsuchbusiness
ii. afactor,broker,commissionagent,delcredereagent,oranyothermercantileagent,bywhatevername
called, and whether of the same description as hereinbefore mentioned or not, who carries on the
business of buying, selling, supplying or distributing goods belonging to any principal, whether disclosed
ornotand
iii. an auctioneer, who carries on the business of selling or auctioning goods belonging to any principal,
whether disclosed or not and whether the offer of the intending purchaser is accepted by him or by the
principaloranomineeoftheprincipal.
Explanation 1 Every person who acts as an agent, in any State, of a dealer residing outside the State and
buys,sells,supplies,ordistributesgoodsintheStateoractsonbehalfofsuchdealeras
i. amercantileagentasdefinedintheSaleofGoodsAct,1930(3of1930),or
ii. anagentforhandlingofgoodsordocumentsoftitlerelatingtogoods,or
iii. anagentforthecollectionorthepaymentofthesalepriceofgoodsorasaguarantorforsuchcollection
or payment, and every local branch or office in a State of a firm registered outside that State or a
companyorotherbodycorporate,theprincipalofficeorheadquarterswhereofisoutsidethatState,shall
bedeemedtobeadealerforthepurposesofthisAct.
Explanation 2 A Government which, whether or not in the course of business, buys, sells, supplies or
distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or
othervaluableconsideration,shall,exceptinrelationtoanysale,supplyordistributionofsurplus,unserviceable
oroldstoresormaterialsorwasteproductsorobsoleteordiscardedmachineryorpartsoraccessoriesthereof,
bedeemedtobeadealerforthepurposesofthisAct".
TheStateLawsfollowtheabovedefinition.
IntheStateLaws,withdevelopments,certainspecificorartificialcategoriesarealsoincluded.
It would be noticed that the dealer should be engaged in the business of buying, selling supplying or
distributingthegoods.
ItwouldbeadvisabletostudythedefinitionsofdealeroftheStateconcerned.
Theliabilitytotaxwouldarise,interalia,inthefollowingcasesorclassesofdealers:
a. Adealer,registeredunderStateLaworunderanypriorlaworifturnoverexceedsspecifiedquantum
b. AdealerregisteredunderCSTAct
c. Acasualdealer
d. AnonResidentdealer
e. Otherspecifiedcategory/class,ifany.

Business

a. Definedbythesection2(aa)ofCSTActasfollows:
"business"includes
i. any trade, commerce or manufacture, or any adventure or concern in the nature of trade,
commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or
concern is carried on with a motive to make gain or profit and whether or not any gain or profit
accruesfromsuchtrade,commerce,manufacture,adventureorconcernand
ii. any transaction in connection with, or incidental or ancillary to, such trade, commerce,
manufacture,adventureorconcern".
b. TheStateshavefollowedtheabovedefinition.
c. Attributesofthedefinitionandspecificinclusions:
Generally,inclusivedefinitionArtificialmeaningisgiven
Anyadventureinthenatureofthetrade,etc.
Anyincidentalorancillaryorconnectedtransactionwiththetrade,etc.
Anyincidentalorconnectedtransactionforcommencementorclosureorbusiness
Transactionofsaleorpurchaseofassetsrelatingtotrade,etc.
Anyothertransactionincludedindefinition.

SalePrice

CSTActdefinessaleprice[s.2(h)]asfollows:
"Salepricemeanstheamountpayabletoadealerasconsiderationforthesaleofanygoods,lessanysum
allowedascashdiscountaccordingtothepracticenormallyprevailinginthetrade,butinclusiveofanysum

chargedforanythingdonebythedealerinrespectofthegoodsatthetimeoforbeforethedeliverythereof
otherthanthecostoffreightordeliveryorthecostofinstallationincaseswheresuchcostisseparatelycharged
".

Turnover

CSTActdefinesturnover[s.2(j)]asfollows:
"TurnoverusedinrelationtoanydealerliabletotaxunderthisActmeanstheaggregateofthesaleprices
receivedandreceivablebyhiminrespectofsalesofanygoodsinthecourseofinterStatetradeorcommerce
madeduringanyprescribedperiodanddeterminedinaccordancewiththeprovisionsofthisActandtherules
madethereunder".
Statelawsfollowthedefinitionwithvariousinclusionsandexclusions.Broaddetailsarecontainedinthefollowing
paragraphs.
FortheLevy/calculationoflimitstherelevantconceptsasmayhavebeendefinedare:
a. Turnover
b. TotalTurnover
c. TaxableTurnover
Turnovermeansaggregatesalepriceorpurchasepriceofgoodssold/purchased.
Incaseofworkscontract,Turnovercouldbe:
1. Purchasepriceofgoodsused
2. Contractpricelessdeductionsforservicesandothercharges
3. Contractprice.
Saleprice/Purchasepricedefinedtomean:
1. considerationforgoods
2. chargesfordoingsomethingtogoodsat/beforedelivery
3. Adjustedfor:
Exclusionofinsurance,freight,installationcostascharged
Tradediscounts,returnsetc.
Suchotheritemsasmaybe/havebeenspecified.
TotalTurnovermeansaggregateturnoverofallgoodswhetherexemptorotherwise.
TaxableTurnoverturnoveronwhichtaxispayablecomputedasper:
a. Adjustmentsspecified
b. Adjustmentspermissible.
SpecifiedAdjustmentscouldinclude:
a. Returns
b. Discounts
c. Exemptitems
d. InterStatesales
e. Importsandexports
f. ResalesOthers.
PermissibleAdjustments:
a. Aspergenerallyacceptedpractices
b. AsmaybelaiddowninRulesetc.

ClassificationofGoods

Broadlyspeaking,thegoodscanbeclassifiedasfollows:

Classofgoods

Treatmentfortaxpurposes

Declaredgoods

Goodsofspecialimportanceasdeclaredundersection14
ofCSTAct.Rateoftaxcannotexceed4percentasper
CSTAct.

Goodsagreed
uponforuniform Rateoftaxshouldnotbelowerthanthefloorrate
floorrate
Taxfreegoodsor
GoodsexemptfromtaxinagivenState.
ExemptGoods
Rawmaterialsor Concessionalrateoftaxorsetoffallowedinrespectoftax
Industrialinputs paidonpurchasethereof.
Concessionalrateoftaxorsetoffallowedinrespectoftax
Capitalgoods
paidonpurchasethereof.
Goodspurchased
forresaleor
Concessionalrateoftaxorsetoffallowedinrespectoftax
manufactureas paidonpurchasesthereof.
specified
Packingmaterials
Usuallyliabletotaxatthesamerateasthegoodssold.
containinggoods
Whenpurchasedfromunregistereddealersorinthe
Goodsliableto
circumstancesinwhichnotaxispaidorpurchasesfrom
purchasetax
certainpersons(like,farmers)orundercertainother
provisonsofthelaw.
Goodsof
importanceto
theStates

Maynotbeliabletotaxormaybetaxedatconcessional
rateorpurchasetaxmaybeprovidedforthesame,etc.In
otherwords,somedifferenttreatmentmaybegiven.

Goodsliableto
Exemptfromtax,sincetheadditionalexcisedutyis
additionalexcise collectedinlieuofsalestaxbyCentralGovernmentand
duty
sharedbytheStates.
Treatedasgoodsliabletotaxthroughaspecificentry,in
Intangiblegoods someStates(like,Patent,Copyright,ImportEntitlements
etc.).InotherStates,thepositionisnotveryclear.
Unclassified
Thegoodsnotspecificallylisted.Theseareothergoodsor
goods
formpartofresidualentry.

ClassificationofGoodshavingregardtorate

BasedonRateoftax,thegoodsmaybeclassifiedinto:
Exemptgoods(notliabletotax)
Declaredgoods(liabletotax@notexceeding4%,asperCSTAct)
Industrialinputs/rawmaterials(liabletotaxataconcessionalrate)
Goodsspecificallylisted(liabletotaxatspecifiedbutdifferentrates)
Unclassifiedgoods(liabletotaxataspecifiedrate)

PurchaseTax(PT)
Atransactionofsalemaynotatrractthetax.Toillustrate:
asalebyanunregistereddealer
orasalebyanagriculturist.
Insuchcases,StateGovernmentmaylevytaxinthehandsofpurchaser(ifaregistereddealer)known

asPurchaseTax.PurchaseTaxmayalsobeleviedoncertainspecificpurchasesorfornonfulfillmentof
prescribedconditionsrelatingtopurchaseeffected.
ThePurchaseTaxisusuallyleviedatfirstpointofPurchase.
Theclassificationofgoodsandrateoftax,byandlarge,arethesameasapplicabletoasaleofgoods.In
addition,theremaybeaspecificlistofcommoditiesliabletoPurchaseTax.
ItisleviedonPurchasePrice.
OnresaleofsuchgoodsinthesameformtheremayormaynotbeanySalesTax.
Thelawmaypermitasetoffoftaxpaidonpurchases.
Theprovisionsoftherelevantlawneedtobeexaminedfortheliability,itsquantification,setoff,liability
toadditionalleviesandsoon.

ResaleTax(RT)

CertainStateslevyingtaxonfirstpointsalehaveintroducedataxonresaleofgoodscalledResaleTax.The
resaletaxispayableontheturnoverofsaleatsecondorsubsequentpointsoratapointotherthanwhichitis
liabletotax.Forthepurpose,themodeandmannerofarrivingatthevalueofturnoverliabletoresaletaxis
prescribed.Resaletaxispayableonthesalesofthecommodities,otherthanexcludedorexempted.

AdditionalLevies

Inadditiontotax,theStatesalsocollectadditionalleviescalled:
a. Turnovertax(TOT)
b. Additionaltax
c. Surcharge(SUR)
d. Cess
e. Byanyothername.
Suchlevymaybe:
onturnover
oronamountoftax
orunitbased
orlumpsum.
Levymaybeonlyifturnoverortaxexceedscertainspecifiedlimits.
Levycouldbe:
a. Atspecifiedrateor
b. Atspecifiedprogressiverate(havingregardtoturnover,aggregatetaxliabilityorthelike).
Itmaybeapplicableto:
a. Alltypesofsale/deemedsaleand/or
b. Specifiedtypesofsale/deemedsale(likesaleatapointotherthanspecified)and/or
c. Alltypesoftaxes(includingpurchasetax)and/or
d. Onlysometaxes(say,TaxesotherthanPurchasetax)and/or
e. Saleofallorselectedcommoditiesand/or
f. Onlyacityorarea,etc.

Pointoflevy

UndertheCSTActgenerallysinglepointtaxexists.Onsalesintransitbytransferofdocuments,taxmaybe
payableatmorethanonepoints.
TheStatescan,exceptinrespectofdeclaredgoods,levytaxatoneormorepoints.

Itcouldbeanyoneormoreof:
FirstPointand/or
LastPointand/or
MultiPointand/or
EveryPointand/or
VAT

FirstPoint

WhenearliestsuccessivedealersellsthegoodsforthefirsttimeintheState,thetaxisleviable.
Aresaleofgoodsinthesameformmaynotattractanytax.Toclaimresale,thedealersmayhavetofurnish
necessaryproofordeclaration.
ThetaxonFirstPointispayableonthesalepricechargedatthepointofFirstSale.
Accordingly,theprofitsoradditionalpricechargedatthepointofsubsequentsalesdonotsuffertax.
CertainStates,toprovideforFirstPointlevy,treatsalebyManufacturer(M)orImporter(I)ofthegoodsinthe
State,asfirstpointlevy.Accordingly,INSTAVATclassifiestaxonsalebyManufactureorImporterasfirstpoint
levy.
Toillustrate,say,thefirstsaleiseffectedatRs100.ThesecondsaleiseffectedatRs120.Thethirdsaleis
effectedatRs150.Therateoftaxissay10percent.
Inthiscase,thetaxwouldbeRs10(10%ofRs.100).
Thesubsequentsalewouldnotbeliabletotax.Accordingly,thepricedifference(ofRs20betweenthefirstsale
andthesecondsaleandthepricedifferenceofRs30betweenthesecondsaleandthethirdsale)wouldnot
sufferanytax.

LastPoint

Thismeansthelastsaleinthechainofsalesandfinallyforconsumptionwouldattracttax.Salesatearlierpoint
maynotbetaxed,subjecttofulfillmentofconditions.
ComparedtotheFirstPoint,intheLastpoint,thetaxispayableonthefinalprice,whichwouldincludethe
additionalpriceorprofitschargedbyintermediaries.
Toillustrate,say,thefirstsaleiseffectedatRs100.ThesecondsaleiseffectedatRs120.Thethirdsaleis
effectedatRs150.Therateoftaxissay10percent.
Inthiscase,thetaxwouldbeRs15(10%ofRs.150).
Accordingly,ascomparedtothefirstpoint,ahighertaxispayablebyRs5.

MultiPoint

Asaleistaxedatmorethanonepointbut,notnecessarilyateverypoint.Incaseofgoodsattractingmultipoint
tax,ifthereisonlyonesaleintheState,then,therateoftaxmaybetheaggregateoftherateoftaxapplicable
atdifferentpoints.
ThetaxonMultipointispayableonthesalepricechargedatthepointsliabletotax,whichwouldincludethe
additionalpriceorprofitschargedbyintermediaries.
Insuchacase,thetaxpaidattheearlierstagemaynotbeallowedassetoff.
Toillustrate,say,thefirstsaleiseffectedatRs100.ThesecondsaleiseffectedatRs120.Thethirdsaleis
effectedatRs150tothefinalconsumer.Therateoftaxissay10percentatfirstpointand2percentwhen
goodsarefinallysoldtotheconsumer.

Inthiscase,thetaxonfirstsalewouldbeRs10.Thesecondsalewouldnotattractanytax.Thefinalsaletothe
consumeratRs150wouldattracttaxattherateof2percent,thatis,Rs3.
Accordingly,theaggregatetaxwouldbeRs13.

EveryPoint

Oncertainluxuryandintoxicatingproducts,taxisleviedateverypoint.ItmaynotbeinthenatureofVAT.
Thetaxateverypointispayableonthesalepricechargedateachofthepoints,whichwouldincludethe
additionalpriceorprofitschargedbyintermediaries.
Insuchacase,thetaxpaidattheearlierstagemayormaynotbeallowedassetoff.
Toillustrate,say,thefirstsaleiseffectedatRs100.ThesecondsaleiseffectedatRs120.Thethirdsaleis
effectedatRs150.Therateoftaxissay10percent.
Inthiscase,onfirstsale,thetaxpayablewouldbeRs10.Onthesecondsale,thetaxpayablewouldbeRs12.
OnthethirdsalethetaxpayablewouldbeRs15.Thus,theaggregatetaxwouldbeRs37.

VAT

SomeoftheStatesdolevyVATinrespectofcertaincommodities.
IncaseofVAT,thetaxpaidonearlierpointisallowedasadeductionfromthetaxpayablebythedealerortax
maybepayableonlyonthedifferentialvalue.
Incaseofamanufacturer,VATpaidonmaterialspurchasedformanufactureofgoodsisallowedasadeduction
fromtheVATpayableonsale.Accordingly,ateachpoint,thetaxispayableonthedifferentialpricecharged
(includingprofits)byeachofthesuccessivedealers.
Toillustrate,say,thefirstsaleiseffectedatRs100.ThesecondsaleiseffectedatRs120.Thethirdsaleis
effectedatRs150.TherateofVATissay10percent.
Inthiscase,onfirstsale,VATofRs10wouldbepayable.Onsecondsale,VATofRs12wouldbepayablebut,
theseconddealerwouldbeallowedadeductionofRs10beingVATpaidonfirstsale.Thus,onsecondsale,
effectively,VATwouldbepayableondifferentialpriceofRs20.Onthirdsale,VATofRs15wouldbepayable
but,thethirddealerwouldbeallowedadeductionofRs12beingVATpaidonsecondsale.Thus,onthirdsale,
effectively,VATwouldbepayableondifferentialpriceofRs30.
Accordingly,theaggregatetaxwouldbeRs.15.

Setoff

Thelevyoftaxonpurchaseaswellassalecanhavecascadingeffectormultipliereffect.
Toreducetherigorofsuchtax,theStateLawmayprovideforsetofforreductionoftaxpaidonpurchaseoron
earlieroccasions.
Thesetoffpermittedcouldbefullorpartial.
Itmaybeavailableundervariouscircumstances,like,toamanufactureronpurchaseonpurchaseofcapital
goodsonpurchaseofpackingmaterialsonresaleonexportsandinterstatesaleandsoon.
Forconferringthesetoff,usuallytheStateLawprovidesfor:
a. Basicsetoffprovisionandbroadprinciplesforworkingthesame.
b. Circumstancesunderwhichsuchsetoffcanbeclaimedorcannotbeclaimed.
c. Detailedrulesforthemodeandmannerofcomputationofsuchsetoff.
d. Records,documents,declarationsandproofrequiredtobefurnished.
Tocomputecostoftax,itwouldbenecessarytoconsiderthesetoff,ifany,available.