CST is the Central Sales Tax for interstate sales of goods applicable through out India. The rate at which the sales tax is collected for interstate sales of goods is called as CST rate. It has been agreed by the Central Government and Empowered Committee of States to phase out the Central Sales Tax in stages. Now the Central Sales Tax is replaced by the VAT. The law on sales tax is provided in the Central Sales Tax Act. This act applies to the whole of India. Each state also has its own Sales Tax Act for sales made in that particular state. For example in Maharashtra the Bombay Sales Tax Act is in effect since 1959.
The reduction in the CST rate will be notified by the Central Government and will not be automatic. The Central Government will issue notifications for such reduction in Central Sales Tax under provision of Central Sales Tax Act. The changes have been made by the Taxation Laws Act. When we reduce the Central Sales Tax then many changes must also be made in the Central Sales Tax Act.
The CST rate was reduced from 4% to 3% with effect from 1st, April 2007. The rate was reduced by 1% in the year 2008. In 2008 the Central Sales Tax rate was 2%. The Ministry of Finance notified it on 30th May, 2008. The rate came into effect from 1st June, 2008. The inter state sales of goods in the year 2008 was done at 2% CST rate. The reduction is made to phase out Central Sales Tax by 31st March, 2010. So that Goods and Service Tax (GST) can be introduced. Thus the Central Government has proposed to reduce the Central Sales Tax by 1% every year and to make it nil by 31st March, 2010.