CENVAT (Central Sales Taxes/VAT)

VAT is a sales tax collected by the government (of the state in which the final consumer is located) which is the government of destination state on consumer expenditure. Over 120 countries worldwide have introduced VAT over the past three decades and India is amongst the last few to introduce it. India already has a system of sales tax collection wherein the tax is collected at one point (first/last) from the transactions involving the sale of goods. VAT would, however, be collected in stages (instalments) from one stage to another. The mechanism of VAT is such that, for goods that are imported and consumed in a particular state, the first seller pays the first point tax, and the next seller pays tax only on the value-addition done leading to a total tax burden exactly equal to the last point tax.

In case of CST or VAT, the taxable event is sale of goods. If it is an inter -state sale, it is a taxable event in context of CST Act; if it is an intra-state sale, it is taxable event in context of that particular State in which the sale has taken place. A sale or purchase of goods is deemed to take place in the course of inter-state trade or commerce if the sale or purchase (a) occasions the movement of goods from one State to another or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Sale of goods is considered to take place when the property in goods passes from the seller to the buyer. Also, there are events which do not appear to be a direct sale of goods but are still considered as deemed sales events under the CST/VAT legislations. These are:

Transfer of property in the course of executing a contract involving provision of material and services (generally termed as a works contract); Lease or hire purchase transaction of moveable goods (generally termed as right to use); and Transfer of intangible goods, such as goodwill and intellectual property rights. The liability for payment of CST/VAT lies with the seller, however, the seller can charge the CST/VAT to the buyer along with the price of goods sold.

CST or VAT is levied on the price charged by the seller to the buyer for the sale of goods and any sum allowed as discount (e.g., trade discount or cash discount) is deducted for

calculation of the taxable amount. In some cases, the seller may charge extra for freight, delivery or installation. In such cases, generally, tax is not charged if the above costs are separately listed in the sale invoice. Related party transactions are not of much relevance under the VAT laws as VAT is charged on the consideration realised by the seller for the sale of goods. Import and export transactions are outside the scope of State VAT legislations and are covered under the central sales tax regime. No CST is chargeable on export of goods from India. Also inter-state procurement of goods meant for export as such is allowed without payment of CST after fulfilment of certain conditions specified under the Central Sales Tax Act. Also, CST is not chargeable on import of goods in India. But it is relevant to mention here that the additional customs duty element (presently 4%) in the import duty structure in India is towards additional customs duty in lieu of CST, VAT or other internal taxes. If imported goods are sold in India and the importer trader discharges CST and VAT liability on domestic sale of imported goods, the importer can claim a refund of additional customs duty paid as part of customs duty.