CENTRAL SALES TAX AMENDMENTS

Summary

N. C. Mehta, an eminent Chartered Accountant and authority on Sales Tax Laws, walks practitioners through the Finance Act, 2002 amendments to the Central Sales Tax Act, 1956, which extended the Centre’s sales-tax machinery to the ‘deemed sales’ brought into the constitutional definition by the 46th Amendment (clause 29A of article 366). The booklet explains how the levy now reaches indivisible works contracts, leases of goods, hire-purchase and instalment sales, supplies by clubs to members, and food served in hotels and restaurants, and traces the sequence of notifications under section 6(1) by which the Centre operationalised the charge from 11.5.2002.

The core of Mehta’s commentary is a sharp legal critique of a Maharashtra Commissioner’s Circular (No. 15T of 2002) that treats the amendments as displacing earlier Supreme Court doctrine on the situs of lease of goods (the 20th Century Finance Corporation case) and as importing C.S.T. sections 3, 4 and 5 ‘with equal force’ to the new deemed-sales transactions. Drawing on the Builders Association, Gannon Dunkerley, Tata Iron and Steel, Bimal Chandra Banerjee and Orissa Cement Titaghur Paper Mills rulings, he argues that the Centre’s intended levy on works contracts and leases has overlooked the legal architecture the Supreme Court has already laid down, and that subordinate rules or notifications cannot travel beyond the parent Act.

Mehta then runs through the operational mechanics: applicability of sections 3 and 5 to inter-State works contracts, determination of contract price (he doubts the Gannon Dunkerley apportionment is workable for individual deemed sales of incorporated materials), rates of tax under section 8(1) against and without C-D forms, the consequences of omitting section 8(2A), the appropriate State under section 9 when materials move from multiple despatch points, the curtailment of States’ exemption power under section 8(5) after the Land Acquisition Officer-cum-DSWO v. B. V. Reddy ruling, the new Form F regime under section 6A, the carve-out for Special Economic Zone dealers under section 8(6)–(8), and the amendment of section 15 on declared goods. He closes by noting that to fully equate ‘deemed purchase’ with deemed sale, the drafting of clause (29A) of article 366 — or section 2(g) of the Act — should have extended the cognate-expressions formula to ‘buy’ and ‘purchase’.

The pamphlet is framed by the Forum of Free Enterprise’s standard furniture — an A. D. Shroff aphorism on free enterprise at the front, a Eugene Black quotation at the back, and a closing note on the Forum’s mission — placing this technical tax exposition inside the Forum’s long-running public-education project around economic policy.

Key points

• Explains that the 46th Constitutional Amendment (clause 29A of article 366, effective 2.2.1983) created a category of ‘deemed sales’ covering works contracts, leases, hire-purchase, instalment sales, club supplies and food service, which the Finance Act 2002 then brought within the Central Sales Tax Act, 1956 via amendments to sections 2(g), 6 and 7–13.

• Critiques Maharashtra Sales Tax Commissioner’s Circular No. 15T of 2002 for treating the amendment as superseding the Supreme Court’s situs doctrine in 20th Century Finance Corporation v. State of Maharashtra and for asserting that C.S.T. sections 3, 4 and 5 apply ‘with equal force’ to the new deemed sales.

• Argues, citing Builders Association (73 STC 370), Gannon Dunkerley (88 STC 204) and Tata Iron and Steel (11 STC 655), that inter-State sale of materials incorporated in an indivisible works contract can satisfy clause (a) but not clause (b) of section 3, since transfer of property occurs only after inter-State movement ends at the site of work.

• Doubts that contract price for individual deemed sales of incorporated materials can be determined under the Gannon Dunkerley formula, and notes that Maharashtra’s purchase/procurement-price proxy has not worked well in practice.

• Walks through rates under section 8(1) for sales against and without C-D forms, the omission of section 8(2A), the appropriate-State rule under section 9 for despatches from multiple States, and the now-circumscribed State exemption power under section 8(5) following Land Acquisition Officer-cum-DSWO v. B. V. Reddy & Sons (2002 - 37 SCC 463).

• Explains the amended Form F regime under section 6A: failure to furnish Form F makes a stock-transfer deemed an inter-State sale, but Bimal Chandra Banerjee (81 ITR 105) and Orissa Cement Titaghur Paper Mills (60 STC 213) limit how far rules and notifications can go beyond statutory power.

• Sets out the new SEZ-dealer exemption built into section 8(6)–(8) of the Act for inter-State purchases of goods used in manufacture, processing, packaging and trading within a Special Economic Zone notified under the Central Excise Act, 1944.

• Concludes that to equate ‘deemed purchase’ with deemed sale, the cognate-expressions formula in section 2(g) should also extend to the words ‘buy’ and ‘purchase’, a drafting gap the 2002 amendments leave open.