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Jain Manufacturing (India) Pvt. Ltd. Versus The Commissioner Value Added Tax & Anr.

2016 (6) TMI 304 - DELHI HIGH COURT

Cancellation of C-Form issued by the DT&T - Whether there exists a power in the Commissioner VAT, Delhi under the CST Act and the Rules thereunder to cancel a C-Form and further if such power exists then whether in the facts and circumstances of the present case such power was rightly exercised - Held that:- with their being a valid registration of the purchasing dealer on the date of the transaction and the C-Form having been validly issued on the date it was so issued, there could not have bee .....

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C Form by fraudulent means concealing the fact of cancellation of his CST registration. The issuance of a C Form in such instance would be void ab initio since it would not satisfy the requirement of Section 8(1) of the CST Act read with Section 7 (4) thereof. - If the selling dealer has after making a diligent enquiry confirmed that on the date of the sale the purchasing dealer held a valid CST registration, and is also issued a valid C Form then such selling dealer cannot later be told tha .....

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SUPREME COURT OF INDIA] the selling dealer in such instance will have to pay for his "recklessness". - Therefore, the order passed by the DT&T cancelling the C Form issued to the Petitioner in the present case with effect from 27th November 2015 is hereby set aside. The Petitioner will continue to treat the said C-Form issued to it as having been validly issued. The DT&T shall, not later than ten days from today, make the necessary corrections on its website to indicate the validation of th .....

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d in trading of duty entitlement pass book scrips. The Petitioner is registered under the Central Sales Tax Act, 1956 (CST Act) and has been given a Tax Identification Number (TIN) in the State of Uttar Pradesh. 2. The Petitioner is aggrieved by the action of the Commissioner, Value Added Tax (VAT) in the Department of Trade and Taxes (DT&T), New Delhi in, inter alia, cancelling the Form-C issued by the DT&T with regard to the purchases made from the Petitioner by Respondent N .....

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part from being registered under the Delhi Value Added Tax Act, 2004 (DVAT Act)] as of that date, and having purchased the goods from the Petitioner by way of inter-state sale, tax at the concessional rate of 2% was chargeable in the invoices and was accordingly included in the invoices raised by the Petitioner. The said two invoices accordingly mentioned the CST amounts as 15,067 and 4,994 respectively. The total sums of the 2 invoices were ₹ 7,68,441/- and ₹ 2,54,709/- respectively .....

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lid. The name and address of the purchasing dealer i.e. Respondent No. 2 has also been indicated. It also bears the TIN and name of the selling dealer i.e. the Petitioner. It contains the details of the two invoices dated 10th March, 2015 with the respective amounts. 5. The Petitioner later learnt that the above C-Form had been cancelled by the DT&T. In order to verify this, the Petitioner checked the website of the DT&T. The status of the C-Form issued to the Petitioner was s .....

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there was no power under the CST Act or in the Rules thereunder, viz., the Central Sales Tax Act (Registration & Turnover) Rules, 1957 or the Central Sales Tax (Delhi) Rules to cancel a C-Form issued by the DT&T. Submissions of counsel for the Petitioner 7. It is contended by Mr. Vinod Srivastava, learned counsel for the Petitioner, that in the present case the C-Form was cancelled only because the registration of Respondent No.2 under the CST Act was cancelled ret .....

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C-Form issued to the Petitioner since on the date of issuance of such C-Form Respondent No.2 was validly registered under the CST Act. 8. Mr. Srivastava placed reliance on the decisions in State of Maharashtra v. Suresh Trading Company (1998) 109 STC 439 (SC) and State of Orissa v. Santosh Kumar & Co. (1983) 054 STC 322 (Orissa) to contend that the retrospective cancellation of the CST registration of the purchasing dealer would not affect right of the selling dealer to use the C .....

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g for the DT&T, first submitted that this was a proxy litigation on behalf of the Respondent No. 2 who has himself not come forward to challenge the cancellation of his CST registration. It is submitted that the Petitioner, a dealer in Kanpur, has no locus whatsoever to question the cancellation of the CST registration of Respondent No.2. Secondly, it is submitted that under Section 74 of the DVAT Act, the Petitioner has an alternative remedy of approaching the Objection Hearing Authority. I .....

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nts took place to the account of the Petitioner was different from the name of the Proprietor of Keshav Corporation available with the DT&T. The address of the said Keshav Corporation in the bank account was also different from the address shown in the DT&T records viz., 334/1, Gali No. 3, Vishwas Nagar, Delhi-110032. In other words, the entity which paid the sums to the Petitioner against the invoices raised by the Petitioner may have been "Keshav Corporation" but it was not t .....

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p> 11. Referring to Section 8(1) (b) of the CST Act as well as Rule 12(1) of the Central Sales Tax (Registration & Turnover) Rules 1957, Mr Narayan submitted that the for issuance of C-Form the existence of valid CST registration of the purchasing dealer was a sine qua non. Reliance is also placed on the decision of the Supreme Court in Commissioner of Sales Tax, Delhi v. Shri Krishna Engg. Co. (2005) 2 SCC 692 to urge that there is no vested right in the purchasing dealer to insist is .....

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e authority which granted it. However, he again did not dispute that under Section 7 (4) (b) of the CST Act retrospective cancellation of a registration is not contemplated. Preliminary objections 13. As far as the plea of the Respondent No. 1 regarding this being a proxy litigation on behalf of the Respondent No.2, Mr Srivastava submits that the Petitioner is essentially concerned about the cancellation of the C-Form issued to it. The Petitioner was constrained to also cha .....

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expressing any view as far as the cancellation of the registration of Respondent No. 2 is concerned. 15. As regards the plea regarding the availability of an alternative remedy under Section 74 (1) (b) of the Act, it appears to the Court that the person directly affected the decision of the DT&T to cancel the C-Form is the Petitioner i.e. the selling dealer. The purchasing dealer cannot be said to be affected by that decision since the purchasing dealer has taken advantage of Sec .....

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:p> No power to cancel a C Form 16. The central issue in the present case is whether there exists a power in the Commissioner VAT, Delhi under the CST Act and the Rules thereunder to cancel a C-Form and further if such power exists then whether in the facts and circumstances of the present case such power was rightly exercised. 17. No provision in the CST Act has been brought to the notice of the Court which enables an authority issuing a C-Form to cancel the C-Form. .....

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g the C-Form, issue to the applicant such forms in such numbers and subject to such conditions and restrictions, as he may consider necessary. However, there is no specific provision even under the aforementioned Rules which enables the Commissioner to cancel the C-Form that has already been issued. 18. There is merit in the contention that one of the primary requirements for issuance of a C-Form is that the dealer to whom the C-Form is issued has to have a valid CST registration on t .....

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he C-Forms issued by the DT&T matched. The cancellation of the CST registration of Respondent No. 2 took place subsequently on 4th August 2015. Therefore , there was no means for the Petitioner as the selling dealer to suspect as of the date of sale or soon thereafter that the payments made to it RTGS was not by Respondent No.2 but by some other entity with the same name. It is not possible, therefore, to straightaway infer any collusion between the Petitioner and Respondent No. 2 or for tha .....

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mpany (supra), the facts were that between 1st January and 31st December 1967, the Respondents purchased goods from Sulekha Enterprises Corporation (SEC) who were registered dealers under the Bombay Sales Tax Act, 1959. On the date of such sale the registration of SEC was valid. The Respondents claimed deduction in the turnover of sales on that basis. This was disallowed by the Sales Tax Officer on the ground that the registration of SEC had been cancelled on 20th August 1967 with retrospective .....

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to act upon it. Whatever may be the effect of a retrospective cancellation upon the selling dealer, it can have no effect upon any person who has acted upon the strength of a registration certificate when the registration was current. The argument on behalf of the department that it was the duty of persons dealing with registered dealers to find out whether a state of facts exists which would justify the cancellation of registration must be rejected. To accept it would be to nullify the provisi .....

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tion in a manner that can be ascertained by men in business that a dealer's registration is cancelled (as has happened in this case) the benefit of input credit, under Section 9(1) cannot be denied. Furthermore, this Court notices that the cancellation of both selling dealers' registration occurred after the transactions with the appellant. The VAT authorities observed that the scanty amounts deposited by the selling dealers was incommensurate with the transactions recorded, and straight .....

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nder: Once a certificate of registration is issued to a person and he becomes a registered dealer, he is entitled to certain benefits under the Act. Certificates granted by the public officers have their value and people in the commercial field would in normal course accept such certificates to be genuine. The fact that registration has been granted, yet the person holding the certificate is a fictitious one seem to be contradictions in term. A certificate of registration c .....

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or negligence, these officers bring disrepute to the State and introduce uncertainty and lack of confidence into a true field of trust. It is high time that the State Government institutes appropriate enquiries, take such steps as are necessary to eliminate fictitious dealers from the field and also take strong action against persons connected with such matters so that there be no recurrence of it in future. 23. A reference in this regard is also made to the decision of the Supreme .....

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lling dealer is under no further obligation to see to the application of the goods for the purpose for which it was represented that the goods were intended to be used. If the purchasing dealer misapplies the goods he incurs a penalty under section 10. That penalty is incurred by the purchasing dealer and cannot be visited upon the selling dealer.... 24. The decision in Commissioner of Sales Tax, Delhi v. Shri Krishna Engg. (supra) relied on by learned counsel for the DT&T is dis .....

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hasing dealer on the date of the transaction and the C-Form having been validly issued on the date it was so issued, there could not have been a retrospective cancellation of the C-Form. At the risk of repetition, it must be observed that there is no statutory power that permits cancellation of a C-Form that has been validly issued, much less retrospectively. The only circumstance perhaps that could lead to the cancellation of a C Form is the failure by the issuing authority to notice the cancel .....

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Mr Narayan that there would be a practical difficulty in the DT&T seeking to inform every selling dealer in the country of the cancellation of registration of a purchasing dealer registered under the CST Act in Delhi and that the remedy of the selling dealers in such instance would be to proceed against the purchasing dealers. In the considered view of the Court, if the selling dealer has after making a diligent enquiry confirmed that on the date of the sale the purchasing dealer held a val .....

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