Background

Section 8(1) [Rates of Tax on Sales in the course of Inter-State Trade or Commerce] of Central Sale Tax Act, 1956 (“CST Act”) provides that whenever goods are sold in the course of inter-state trade and commerce then CST is charged at the rate of 2% or at the rate applicable to sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State, whichever is lower.

Further, the purchaser (located in other state) is required provide Form C to seller in order to avail benefit of CST at the rate of 2% as per Section 8(4) of the CST Act, 1956 read with Rule 12 of Central Sales Tax (Registration and Turnover) Rules, 1957.

Furthermore, if the sellers have access of input tax credit available with him then the same can be utilized for payment of CST or can be claimed as refund.

Amendment

The Haryana Government vide Notification No. 22/ST-1/H.A. 6/2003/S.59/2015 dated September 07, 2015 has restricted the dealers to utilize the input tax credit only to the extent of output tax liability in  Interstate Sale of Goods. The amended S.No. 3(b) of Schedule E is as under:

Description of Goods	Circumstances and Restrictions	Extent of Admissibility of Input Tax Credit
All goods including those mentioned at serial number 1 and 2	(i) when the goods are sold as such in the course of inter-state trade or commerce; or (ii) when the goods are used in the manufacture of goods and manufactured goods are sold in the course of inter-state trade or commerce; (iii) when sold at a price lower than the purchase price	Input tax to the extent of the amount of tax actually paid on the purchase of such goods in the State under the Act or tax payable on sale of such goods under the Central Sales Tax Act, 1956, whichever is lower. To the extent of output tax liability, if any, on the sale of such goods.

We can understand this with the help of given example-

If a dealer who has purchased an input or capital good at a rate of 12.5% (assumed) under Haryana VAT and sell it in other state against Form C at 2% would have to lose the differential input tax credit of 10.5% since the same cannot be utilized for payment of output Haryana VAT or be claimed as refund. In other words, the input credit of 10.5% would be inadmissible. This restriction has also been imposed on the goods used in the manufacture of such goods in the State are sold in such inter-state trade or commerce. It is to be noted that the above restriction is also imposed in case goods are sold at a sale price lower than the cost.

This Notification will make an impact on the cost of goods; accordingly the Haryana buyers would be forced to sell their goods at higher price since the loss of credit is to be added in the cost of goods. Consequently, the buyers located outside Haryana have to pay more prices for procuring goods from the State of Haryana.

Click to access Notification%20regarding%20schedule%20E%2007.09.pdf

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