Will CST leave behind a legacy when GST comes into play?

The euphoria that GST will subsume a number of taxes is weaning away slowly. The industry is very particular In the opening up of the economy as one common market and the elimination of CST. The indication that the CST will be subsumed in GST is very much there, but the interstate levy of 1 per cent is what is haunting the industry. Whatever justification the government may come out with in support of the states’ revenue shortfall, it is not going to help the cause of the GST.


The CST, as per the constitution of India, is part and parcel of the legislative jurisdiction of the central government. However, the administration and collection of CST are with the state governments. That too is collected at the state of origin for interstate transfer of goods. This is against the principle of GST which targets the collection of the tax on the destination principle. The government is increasing the service tax rates gradually so as to bring it at par with the GST rate when it is implemented. Similarly, there is a talk going on to gradually phase out the CST.


The CST rate at present is 2 per cent where a form C is submitted and shoots up to 10 per cent in its absence. To avoid the CST the companies were moving goods to warehouses as a stock transfer. The logistics and warehousing perceptions started changing when the GST bill was tabled as people could see a free movement of goods across the country. However, the states raised a hue and cry for a major loss of revenue with the discontinuation of CST. The fact that 50% of the states have to agree to the passage of the bill put the pressure on the centre to heed to their demands. That is how the 1 per cent levy on the inter-state transfer of goods was thought of and introduced as a clause in the 122nd amendment of the Constitution.


Thus, the CST is definitely going to leave behind a legacy. The inter-state levy is applicable to the goods at the state of origin, very much like the CST. Also, like the CST, this one per cent tax levy is not going to be part of the GST credit chain and will act as an additional burden on the industry. To provide a dampener to the whole issue the stock transfers are going to be taxed too. Thus, it is clear that the inter-state barriers will remain for the time being. The shadow of the CST will continue to make the life of the people difficult even when GST comes into play.


The opposition had strongly opposed the inter-state tax levy and the panel report in Dec’15 came out in favour of doing away with it. However, this demand along with the other concessions to which the ruling party was willing to agree, based on the recommendations of the panel report was subject to the opposition passing the bill in the Rajya Sabha. The deal did not materialize.


As the Parliament is in session once again from April 25th to May 13th, it is an ideal time for the parties to debate on this additional levy issue. It is in the interest of the entire economy to have the CST reduced to 1 per cent and also have the additional tax levy of 1 per cent removed.

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