Declared goods as per CST Act

Goods of special importance

There are restrictions on imposition of sales tax on declared goods.

Article 286(3)(a) of Constitution of India authorises Parliament to declare some goods as of ‘special importance’
and to impose restrictions and conditions in regard to power of States in regard to levy, rates and other incidence
of tax on such goods. Parliament can restrict powers of State Government to tax such ‘declared goods’. Section
2(c) of CST Act defines ‘Declared Goods’ as those declared under section 14 of CST Act as ‘goods of special
importance in Inter State Trade or commerce. Section 14 of CST Act gives a list of such goods and section 15
specifies restrictions on power of States to tax such goods.

ADDITIONAL EXCISE IN LIEU OF SALES TAX - Industries urged that central excise duty and sales tax
should be collected at one stage itself so that multiple taxation is avoided. Central Government and State
Governments agreed to replace sales tax on some commodities with excise duty. With this in view, Additional
Excise Duty was imposed on some goods under the Act ‘Additional Duty of Excise (Goods of Special
Importance) Act, 1957’. Additional excise duty is levied on textile fabrics, sugar and tobacco products under
this Act. These three items are also ‘Declared Goods’ under CST. This list could not be widened much later,
due to difference of opinions between State Governments and Central Government

Goods of special importance - Section 14 gives list of ‘goods of special importance’ called ‘declared goods’.
Important among them are :

Cereals i.e. paddy, rice, wheat, bajra, jowar, barley etc.

Coal and coke in all forms excluding charcoal
Cotton in un-manufactured form but not cotton waste
Cotton fabrics, cotton yarn
Crude oil
Hides and skins
Iron and Steel i.e. pig iron, sponge iron, iron scrap, steel ingots, billets, steel bars, steel
structurals, sheets, plates, discs, rings, tool steel, tubes, tin plates, steel wheels, wire rods;
defectives of above etc.
Jute
Oil-seeds i.e. groundnut, til, cotton seed, linseed, castor, coconut, sunflower, mahua, kokum, sal
etc.
Pulses i.e. gram, tur, moong, masur, urad etc.
Man-made fabrics - fabrics of man-made filament yarn i.e. artificial textile materials, polyester
filament yarn, staple fibres, polyester staple fibre, tyre cord fabric, impregnated textile fabrics etc.
Sugar and Khandsari Sugar
Woven fabrics of wool
Aviation Turbine Fuel sold to a turbo-prop aircraft

Un-manufactured tobacco, cigars, cigarettes, biris, chewing tobacco, snuff etc. were 'declared goods'
upto 31-3-2007. Now, they are not 'declared goods' w.e.f. 1-4-2007.

Restrictions on State taxation on declared goods

Section 15 of CST Act places following restrictions and conditions in regard to powers of State
Governments to tax declared goods inside the State.

Tax on declared goods not to exceed 4% - Tax on declared goods within a State cannot exceed
4%. [section 15(a)].
As per provision in section 15(1) upto 11-5-2002, tax on declared goods could be imposed only at one
stage. Now, this restriction has been removed w.e.f. 11th May 2002, as such restriction was against
principles of VAT.

Normally, such tax was imposed by States at first stage for convenience and control. After that,
subsequent sales within State were exempt from tax. Now, there is no such restriction on imposing
local/Central sales tax on subsequent sale.

However, such tax will not be automatic. Each State will have to suitably amend their sales tax laws to
impose the tax on re-sale.

Reimbursement of local tax if declared goods sold Inter-State - If any declared goods, on which
Intra-State sales tax (i.e. State sales tax) is paid; is sold in Inter-State sale; then the tax levied on sale
within the State should be reimbursed to the person making such Inter-State sale [section 15(b)].
However, (a) the Inter-State sale of goods must be in same form. (b) If Inter-State sale of the goods
are exempt from tax, refund of tax paid on Intra-State sale is not available. (c) The word used is
‘reimbursement’. Thus, the tax on local sale must have been paid.

Goods must be sold in same form to obtain reimbursement - Declared goods purchased must be
sold in same form i.e. identical goods must be sold. Identity of goods must not be lost e.g. (a) Mung,
chana and urad converted into dal is same commodity. (b) Round timber logs are different from sized
timber (c) Dried coconuts and watery coconuts are different commodities. (d) Condensed milk is
different from ‘milk’. (e) Oil seeds and oil extracted from these seeds are different commodities. (f) Ice
is different commodity than water. Thus, if goods sold after processing are different commodity,
reimbursement of local sales tax is not available.

Some articles which are held as ‘declared goods’ - Some items which are held as ‘declared
goods’ are as follows. Thus, sales tax cannot be levied at rates higher than 4%.

CAST IRON CASTINGS ARE ‘DECLARED GOODS’ - In case of Pyare Lal Malhotra v. State of
Tamilnadu (1976) 3 SCR 168 (SC) = (1976) 37 STC 319 (SC) = 1976 UPTC 282 = AIR 1976 SC 800
- reproduced in 1983 (13) ELT 1582 (SC) - a 4 member bench decision, Supreme Court held that
when separate commercial commodity comes into existence, they become separately taxable goods.
Central Government, vide its letter dated 28th Feb., 1977 had clarified that ‘Cast Iron’ includes ‘Cast
Iron Castings’. One entry in section 14 reads ‘pig iron and cast iron including ingot moulds, bottom
plates, iron scrap, cast iron scrap, runner scrap and iron skull scrap.’ In view of this entry and
clarification of Central Government, manufacture of Cast Iron Castings from pig iron was not treated
as ‘manufacture’ as both fall under same heading and no tax was levied. This circular has been
upheld in Vasantham Foundry v. UOI - AIR 1995 SC 2400 = (1995) 99 STC 87 (SC) = 1995 AIR SCW
3556 = 94 ELT 32 = (1995) 5 SCC 289 - 3 member bench. In this case, it was held that cast iron
castings in its basic rough form is ‘Cast Iron’ and hence is ‘declared goods’.

GI PIPES ARE DECLARED GOODS - Steel tubes are galvanised to make the pipe corrosion
resistant. After galvanising, it is called ‘Galvanised iron pipe’. Since galvanising does not change the
structure and function, making GI pipe from Steel tubes does not bring a new commodity into
existence and hence GI pipes are ‘declared goods’ - Gujarat Steel Tubes Ltd. v. State of Kerala
(1989) 2 CLA 100 (SC) = (1989) 74 STC 176 (SC) = (1989) 2 JT 474 (SC).

CORRUGATED SHEETS - Corrugated iron sheets even after corrugation are still ‘iron and steel’. –
State of Gujarat v. Shah Veljibhai Motichand (1969) 23 STC 288 (Guj HC) – followed in Gujarat Small
Industries Corp v. CST (1999) 116 STC 193 (Guj HC DB).

HR AND CR STEEL STRIPS - In Jindal (India) Ltd. v. Dy CCT (2000) 117 STC 426 (WBTT), it was
held that both HR (Hot Rolled) Steel strips and CR (Cold Rolled) steel strips are one for purposes of
‘declared goods’ under CST Act. [The decision was in respect of dispute over incentive scheme].

SEWING THREAD IS DECLARED GOODS - In State of Tamilnadu v. R V Krishniah - (1994) 92 STC

262 (Mad HC DB), it was held that ‘sewing thread’ and ‘cotton yarn’ are ‘same commodities’ and
hence is liable only to single point tax - similar decision of Orissa High Court - (1982) 51 STC 410 and
411 - contrary decisions in (1976) 37 STC 227 (Ker HC), (1976) 38 STC 11 (All HC) and (1981) 48
STC 460 (Ker HC).

Special provisions about paddy and pulses - Special provisions in respect of paddy and pulses are
as follows.

SET OFF OF TAX ON PADDY - If paddy is taxed within State and rice (which is produced from
paddy) is also taxed, tax paid on paddy should be given set off while levying tax on rice e.g. if tax of
Rs. 1,000 is paid on paddy and tax payable on rice produced from the paddy come to Rs. 1,500, then
tax of only Rs. 500 will be actually payable on rice [section 15(c)].

NO TAX ON CONVERSION OF PULSES - Each of the pulses whether whole or separated and
whether with or without husk, shall be treated as a single commodity for purpose of levy of tax under
State tax law i.e. if tax is paid on raw pulses, no further tax is payable after it is processed [section
15(d)].

PURCHASE OF PADDY AND EXPORT OF RICE - If paddy is purchased on payment of sales tax
and rice procured out of such paddy is exported, the paddy and rice will be treated as ‘same goods’
for purpose of section 5(3) of CST Act. [section 15(ca) of CST Act.] Thus, paddy can be purchased
without payment of sales tax, if rice made from such paddy is exported. As per normal provisions, the
procurement of paddy should be specifically for export purposes. In Veerumal Monga v. State of
Haryana (2001) 123 STC 158 (P&H HC DB), rice miller purchased paddy and sold rice to the
exporter. It was held that in such case, only sale of rice to exporter is penultimate sale and is exempt.
However, purchase of paddy by millers will not be exempt. – same view in Monga Rice Mill v. State of
Haryana 2002(125) STC 304 (P&H HC DB). Thus, to get benefit of this provision, the exporter should
himself procure paddy and then get job work done to convert into rice. He should not purchase rice
directly from miller.

Sales Tax rates applicable for sale of declared goods - State Governments cannot charge sales
tax for sale within the State at the rate which is more than 4%. As per section 8(2) of CST Act, if
declared goods are sold to unregistered dealer, the sales tax rate is equal to Vat rate as applicable
within the State. [Till 31-3-2007, it was twice the rate applicable in case of local sales]. It may be
remembered that State cannot levy tax on declared goods at rates over 4%.

Source : - www.etaxindia.org