Previous Year Question

This question relates to India’s indirect-tax system before the introduction of GST. GST was implemented on 1 July 2017, whereas the question was asked in 2014.

At that time, the retail sale of goods within a State was generally subject to Sales Tax or Value Added Tax—VAT.

Constitutional basis

Before GST, Entry 54 of the State List in the Seventh Schedule empowered State Legislatures to impose taxes on the sale or purchase of goods other than newspapers. Sales taking place in the course of Inter-State trade or commerce were excluded from this State power.

An ordinary retail purchase of toothpaste:

• Constituted a sale of goods within a State;

• Attracted the applicable State Sales Tax or VAT; and

• Was taxed and collected by the concerned State Government.

Therefore, option (d) is correct.

Difference from Central Sales Tax

When a sale took place from one State to another, Central Sales Tax—CST could apply.

In the case of CST:

• The taxing authority arose from Parliamentary legislation; but

• The tax was generally collected by the State from which the Inter-State sale originated.

The question, however, concerns an ordinary purchase of toothpaste from a retailer. It was therefore treated as an intra-State sale subject to State Sales Tax or VAT.

Position after GST

After 1 July 2017, most of the former Sales Tax and VAT system was subsumed into GST:

• An intra-State supply generally attracts CGST and SGST.

• An Inter-State supply generally attracts IGST.

• Certain products, including specified petroleum products and alcoholic liquor for human consumption, remain outside the ordinary GST framework.

Thus, under the system applicable in 2014, the tax was imposed and collected by the State Government.