2025 (6) TMI 1162 - HC - VAT / Sales Tax

Liability to make payment of the Central Sales Tax in respect of the supply of caustic soda to the Hindustan Paper Corporation of India - Sales made by the petitioner to the respondent corporation qualify as subsequent sales in the course of inter-State trade or commerce under Section 6(2) of the Central Sales Tax Act 1956 or not - non-submission of declaration Form C and Form E-1 by the respondent corporation - HELD THAT - There are two types of inter- State sales which are charged to tax under the Central Sales Tax Act one coming under section 3(a) thereof that is sale occasioning movement of goods from one State to another and the other coming under section 3(b) of the Central Act being sales effected by transfer of documents of title to the goods during their movement from one State to another. The first category enjoys exemption under Section 6(1) and the second under section 6 (2). Section 6 (2) was introduced in section 6 in order to avoid the cascading effect of multiple taxation. A subsequent sale falling under section 6 (2) which satisfies the conditions mentioned in the proviso thereto is exempt from tax as the first sale has been subjected to tax under section 6(1). Hence in order to attract section 6 (2) it is essential that the concerned sale must be a subsequent inter-State sale effected by the transfer of documents of title to the goods during the movement of the goods from one State to another and it must be preceded by a prior inter-State sale. It is only then that section 6 (2) may be attracted in order to make the subsequent sale exempt from levy of central sales tax. However the proviso to section 6 (2) prescribes further conditions and it is only on fulfillment of those conditions that the subsequent sale stands exempted. If those conditions are not satisfied then notwithstanding the fact that the sale is a subsequent sale the exemption would not be admissible to such subsequent sales. A plain reading of the provisions of exemption as prescribed under Section 8 makes it clear that such exemption is to be issued by the State Government in public interest. In so far as the writ petitioner is concerned the denial of the benefit of reduced rate of taxation for the failure to furnish the C Forms cannot be construed to be of public interest in order for the State to invoke its powers under Section 8 of the CST Act 1956. Public interest will require any event which will confer any benefit to the people at large or atleast a particular community. Under this provisions of the statute the hardship suffered by the petitioner for non-supply of C Forms and thereby payment of taxes at higher rates cannot be termed to be a matter of public interest. Such submissions of the petitioner therefore cannot be accepted and the same are therefore rejected. The benefit under Section 6 (2) of the Act as sought to be claimed by the petitioner will accrue to a seller only when the dealer selling the goods furnishes to the prescribed authority in the prescribed manner declaration duly filled and signed by the registered dealer to whom the goods are sold. This form is described under Rule 12 of the CST Rules of 1957 to be Form C . The format in which the C Forms are to be issued by the purchaser and submitted to the prescribed authority are also appended to the Rules of 1957. The Form C is to be submitted in triplicate. These C Forms are to be procured from the prescribed authority by the dealer who purchases the goods in the course of inter-State Trade and Commerce and counter sign the same and thereafter furnish it to the seller who supplied the goods in the course of inter-State sale. The State authorities however are empowered not to grant the C Forms to the purchasing dealer if the State authorities are of the view that tax as assessed if found to be payable and outstanding from such a dealer. This is precisely the situation which has arisen in the facts of the present case. The respondent No. 4 inspite of notice being issued is not before the Court and meanwhile it is informed that the respondent No. 4 has been wound up in liquidation and the assets and liabilities have also been taken over by the State through its appropriate department. As such as on date there is no question of the respondent No. 4 issuing these C Forms in respect of the supplies and sales made by the petitioner - The C Forms are mandatorily are required to be issued by the prescribed authority namely the State respondents and which can also be refused to be issued by the State authorities if there are pending dues found to be outstanding towards payment of tax. This fact is equally admitted by the respondent No. 4 in their communications. The State respondents had also made an enquiry with the respondent No. 4 in respect of the claims made by the petitioner but which remained unresolved because of non-furnishing of any reply by the respondent No. 4. Under such circumstances whether the benefits due to the petitioner under Section 6 (2) of the Act of 1956 in respect of sales which are otherwise not disputed can be curtailed for non-furnishing of C Forms by the purchaser dealer where the sales effected by the petitioner are not disputed or denied by the purchasing dealer or by the assessing officer. The sales made by the petitioner to the respondent No. 4 has not been disputed either by the respondent authorities or by the respondent No. 4. Although the respondent No. 4 is not represented in the present proceedings the communication issued by the respondent No. 4 clearly reveals it s admission that the sales were indeed effected by the petitioner and which sales were in the course of inter-State Trade and Commerce - The fact remains that there is no dispute that the sales were made pursuant to the goods being procured from a dealer outside the State of Assam and for which the prescribed Forms namely Form E-1 was duly furnished. Whether in order for a sale to be covered under Section 6 (2) of the Act what are the parameters required to be fulfilled? - HELD THAT - A careful perusal of Section 6 (2) reveals that it begins with a non-obstantive clause that notwithstanding the provisions of Sub-Section 1 or Sub-Section 1(A) of Section 6 where a sale of any goods in the course of inter-State Trade or Commerce has either occasioned the movement of goods from one State to another or has been effected by transfer of the documents of title to such goods during the movement from one State to another any subsequent sale during such movement effected by transfer of documents of title to such goods to a registered dealer if the goods are of the description referred to in Sub-section 3 of Section 8 shall be exempt from tax under the said Act. Sub-section 3 of Section 8 specifies the classification of goods or classes of goods which are to be considered for liable for payment of tax under Section 8 (1) of the said Act. A perusal of the impugned assessment order reflects that the assessing officer did not question the claims of the petitioner that the goods supplied to respondent No. 4 were procured from outside the State. The claim of the petitioner that the returns reflected inter-State sale made by the petitioner during the concerned period was also never questioned by the assessing officer. This is clearly evident from a perusal of the impugned assessment order - The assessment order does not reflect that at any point in time there was any issue raised by the assessing officer questioning the very claim of the petitioner that the sales made to respondent No. 4 did not originate from purchases made in the course of inter-State Trade and commerce. There is no dispute raised by the respondent authorities that the goods which were ultimately supplied to the respondent No. 4 did not occasion movement from outside the State. Neither the assessing officer nor the respondents in their affidavits filed raised any dispute that the goods supplied by the petitioner to the respondent No. 4 were never procured from outside the State. Although the assessing officer did not raise any such dispute but the respondents in their affidavit filed before this Court had disputed the claim of the petitioner that it is not a sale covered under Section 3(b) as the petitioner was aware that goods were required to be supplied to respondent No. 4 and were therefore procured by the petitioner. In M/S Prism Cement Ltd 2013 (7) TMI 668 - BOMBAY HIGH COURT while considering the powers of the State Government to grant exemption to tax under Section 8 (5) pursuant to the amendments carried out in the Finance Act 2002 the Bombay High Court rejected the arguments of the Revenue that the amendments carried out by the Finance Act 2002 restricts the power of the State Government to grant total/partial exemption under Section 8 (5) of the Act of 1956 in respect of inter- State sales covered under Section 8 (1). The Bombay High Court held that even after the amendment of Section 8 (5) by the Finance Act 2002 the State Government in public interest may subject to fulfillment of the requirements of Section 8 (4) applicable to the transactions covered under Section 8 (1) grant total/partial exemption from tax payable on inter-State sales covered under Section 8 (1) as also under Section 8 (2) of the CST Act. Conclusion - The benefits claimed under Section 6 (2) must be given its full effect in respect of the transactions undertaken by the petitioner. The findings of the assessing officer treating Rs. 1065510.00 to be sales to others in the absence of valid C Forms are interfered with and set aside - The sales made by the petitioner to that extent shall be treated to be subsequent sales in the course of inter-State trade and commerce and full benefit thereon shall be granted to the petitioner as is available to the petitioner under Section 6 (2) of the Act of 1956. Petition allowed.

Summary

The core legal questions considered by the Court include: (1) Whether the sales made by the petitioner to the respondent corporation qualify as subsequent sales in the course of inter-State trade or commerce under Section 6(2) of the Central Sales Tax Act, 1956 (CST Act); (2) Whether the petitioner is entitled to exemption from Central Sales Tax on these sales despite non-submission of declaration Form 'C' by the respondent corporation; (3) Whether the failure to furnish Form 'C' by the purchaser, due to non-issuance by the Taxation Department on account of outstanding dues, can be attributed to the petitioner; (4) Whether the State Government can grant exemption to the petitioner from the requirement of furnishing Form 'C' under Section 8(5) of the CST Act in public interest; and (5) The legal effect of the respondent corporation's liquidation and subsequent takeover by the State Government on the petitioner's liability to pay tax.

Regarding the qualification of sales under Section 6(2) of the CST Act, the Court examined the legal framework defining inter-State sales under Section 3 of the CST Act, which distinguishes sales occasioning movement of goods from one State to another (Section 3(a)) and sales effected by transfer of documents of title during such movement (Section 3(b)). Section 6(2) provides exemption from tax on subsequent sales effected by transfer of documents of title during movement, subject to furnishing prescribed declarations including Form 'C' from the ultimate purchaser. The Court noted that the petitioner purchased caustic soda from a registered dealer outside Assam (supported by Form E-1) and sold the same to the respondent corporation by transfer of title during movement, constituting a subsequent inter-State sale within the meaning of Section 6(2). The assessing authority did not dispute the inter-State nature of the sales or the petitioner's purchase under E-1 transactions.

On the issue of non-submission of Form 'C', the Court analyzed the statutory requirement under Section 8(4) of the CST Act and Rule 12(1) of the CST Rules, 1957, which mandate furnishing Form 'C' to avail concessional tax rates. The petitioner failed to submit Form 'C' because the respondent corporation did not furnish it. The respondent corporation's failure was due to the Taxation Department's refusal to issue Form 'C' on account of the corporation's outstanding tax liabilities. The Court found that the petitioner had made repeated efforts to obtain Form 'C' and was unaware of the corporation's financial difficulties at the time of sale. The Court held that the petitioner's failure to submit Form 'C' was not due to any fault or negligence on its part but due to circumstances beyond its control.

The Court further considered whether the State Government could, in public interest, issue a notification under Section 8(5) of the CST Act exempting the petitioner from the requirement of furnishing Form 'C'. The petitioner argued that such exemption was warranted given the peculiar facts, including the respondent corporation's insolvency and takeover by the State. The respondents contended that the power under Section 8(5) could not be exercised to benefit a private individual and that amendments to the CST Act had restricted such exemptions. The Court observed that public interest requires a benefit to the community or a particular class and that hardship to a single dealer does not constitute public interest. Consequently, the Court rejected the petitioner's plea for exemption under Section 8(5) on grounds of public interest.

Regarding the effect of the respondent corporation's liquidation and State takeover, the Court noted that the corporation was in liquidation and its assets and liabilities had been assumed by the State Government. This fact rendered it impossible for the petitioner to obtain Form 'C' from the corporation. The Court emphasized that the petitioner's sales to the corporation were undisputed and that the corporation admitted the sales and the financial difficulties leading to non-issuance of Form 'C'. The Court found that the assessing authority did not dispute the inter-State nature of the sales or the petitioner's entitlement to exemption under Section 6(2), but denied the benefit solely on non-submission of Form 'C'.

The Court treated competing arguments by the respondents, who disputed the applicability of Section 6(2) on the basis that the petitioner had accepted the corporation's order before purchase and that the transaction was not a transfer of documents of title during movement. The respondents also argued that the petitioner failed to comply with mandatory provisions for submission of Form 'C'. The Court rejected these contentions, noting that the assessing officer's order did not challenge the inter-State nature of the sales or the petitioner's purchase under E-1 and that the burden to disprove the petitioner's claim lay on the revenue. The Court relied on precedent establishing that the burden to disprove a claim of inter-State sale is on the revenue and that the power of the State to impose tax must conform to Article 286 of the Constitution.

In applying the law to the facts, the Court concluded that the petitioner's sales qualified as subsequent inter-State sales under Section 6(2), supported by valid E-1 forms, and that the failure to furnish Form 'C' was attributable to the respondent corporation's financial distress and non-issuance by the Taxation Department. The Court held that denial of exemption on this ground was unjustified, as the petitioner was not at fault. The Court also clarified that the CST Act does not provide for denial of benefits where the purchaser fails to furnish Form 'C' due to reasons beyond the seller's control. The Court distinguished the petitioner's case from ordinary failures to produce Form 'C', emphasizing the unique circumstances of insolvency and State takeover.

The Court reviewed relevant precedents, including a decision of the Assam Board of Revenue which held that denial of inter-State sales benefits due to non-furnishing of Form 'C' by a purchaser not at fault was improper. The Court also considered a Bombay High Court ruling affirming the State Government's power to grant exemptions under Section 8(5) post-amendment, but found that the petitioner's case did not meet the public interest threshold required for such exemption.

Significant holdings include the following verbatim reasoning: "Where a benefit is found to accrue to a petitioner under the provisions of the statute, the same cannot be curtailed when the basis of making the claim is not called into question or is in dispute." The Court established the principle that the failure of a purchaser to furnish Form 'C' due to financial incapacity or non-issuance by authorities cannot be imputed to the seller to deny exemption under Section 6(2). The Court held that the petitioner is entitled to the full benefit of exemption under Section 6(2) for sales made to the respondent corporation, notwithstanding non-submission of Form 'C' caused by circumstances beyond the petitioner's control.

The Court set aside and quashed the impugned assessment orders to the extent they denied exemption under Section 6(2) due to non-furnishing of Form 'C'. The Court directed that sales made by the petitioner to the respondent corporation be treated as subsequent sales in the course of inter-State trade and commerce, with full benefit of exemption under Section 6(2). The Court declined to direct the State Government to issue a notification under Section 8(5) exempting the petitioner, holding that the hardship suffered did not amount to public interest justification.

In conclusion, the Court ruled that the petitioner's sales were inter-State sales qualifying for exemption under Section 6(2) of the CST Act, that the petitioner was not liable for failure to furnish Form 'C' where the purchaser corporation failed to supply it due to outstanding tax liabilities and liquidation, and that the impugned tax demands based on non-submission of Form 'C' were illegal and are set aside. The petitioner is entitled to the benefit of exemption under Section 6(2) for the relevant assessment years.