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The Sixth Amendment to the Constitution of India was undertaken with a view to enhance the Indian economy by bringing the taxes imposed on the sale and purchase of commodities in commercial activities of states under the direct control of the Parliament. The Amendment also imposed limitations on the powers of State in levying tax for special type of goods in the inter-state trade. The amendment also empowered the Central Government to clearly define the authority of the Centre and the state, when an inter-state trade or, import or export activities take place, by framing clear legal principles. The Parliament may by law determine the standards to be followed by the States in levying tax on the special kind of commodities in the inter-State commercial activities.a

For the purpose of implementing the provisions in the Sixth Amendment, the Central Government enacted the Central Sales Tax Act in 1956 which came into effect on January 5, 1957. The legislation was enacted on the basis of the recommendations made by the Taxation Enquiry Commission and advice from the State Governments. The application of the Act extends to the Indian Territory as a whole including the State of Jammu and Kashmir.

In the inter-State commerce, the sale or purchase shall be considered to have performed where such activities are carried on between States or the documents dealing with the title of the commodities are transferred between the States. The trade shall be considered to have performed during export or import of commodities out of or into the territories of India only where such trade happened during such export or import or; the documents dealing with the title of the commodities have crossed the frontiers of customs of India.

The Act makes it obligatory for all the dealers to pay the tax for all sale transactions except electrical energy in the inter-State commercial activities within thirty days of notification by the Central Government. Where any subsequent transactions have taken place during the course of inter-State trade either to the Government or any other authorized dealer, the dealer shall be exempted from tax for such transaction. If the dealer transfers goods to his place of business in another State or to his principal or agent, he shall claim exemption from tax. But the burden to prove that the goods are transferred for his personal purpose shall lie on the dealer. For this reason, he shall furnish a declaration to the assessing authority duly signed by the dealer and the principal or agent providing the details of the goods and necessary evidence regarding the dispatch of commodities.

Initially, the Central Sales Tax was at the rate of one percentage, but it was appreciated to four percent from July 1, 1975.  Where the dealer furnishes necessary forms or documents, the Government shall grant tax at concessional rates. If the dealers fail to submit forms or documents, the tax would be payable at the rate of penal interest. The Act further provides that certain categories of commodities are of special importance in the inter-State transactions and imposes limitation on taxation in the inter-State and intra-State commercial activities. The power to implement the provisions of the Act vests with the State and the revenue received from the sale of goods shall be maintained by the concerned States. The Act further confers power on the Central Government to formulate rules for the execution of the provisions of the legislation.

The Central Sales Tax Act was amended in 2007 by the Taxation Laws (Amendment) Act which came into effect on April 1, 2007. The fundamental purpose of the amendment was to reduce the sales tax for inter-State transaction from four percent to three percent. Moreover, the purchase of commodities at concessional rates in the Central Sales Tax by the Government has been withdrawn. From 1st June 2008, the rate of sales tax related to Value Added Tax and the State Sales Tax was depreciated from three percent to two percent.