Introduction When the sales are in the course of inter-state trade, one of the facilities available is applicability of lower rate of tax, if the sales are effected to a registered dealer under the CST Act. However, such lower rate is available to the transaction, if the said sale is supported by C form as obtained by the seller from the buyer. One of the conditions of C form is that the buyer, issuing C form, should be registered dealer under the CST Act at the time of purchase.
There are instances where the registration of the buying dealer is cancelled with retrospective effect. Under such circumstances, there is also cancellation of C form which is issued earlier. The effect is that the selling dealer may get affected because of such cancellation. Its sale will be considered as without valid C form, which will invite higher rate of tax.
Recent judgment
Hon. Delhi High Court had an occasion to deal with such situation in case of Jain Manufacturing (India) Pvt. Ltd. vs The Commissioner Value Added Tax & Anr (W.P.(C)1358 of 2016 dt.1.6.2016. The facts, as narrated in the judgment, are as under:
“3. The Petitioner made an inter-state sale of goods to Respondent No.2 (Purchasing Dealer) by way of two invoices both dated 10th March, 2015. The first invoice was for a sum of Rs.7,53,373/- and the second for a sum of Rs.2,49,715/-. In terms of Section 8(1) (b) of the CST Act with Respondent No. 2 being a dealer registered under the CST Act in New Delhi [apart 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 Rs.7,68,441/- and Rs. 2,54,709/- respectively. The payments for these invoices were made by RTGS into the Petitioner’s bank account.
4. On 13th April 2015, Respondent No. 2 obtained C-Form from the DT&T in respect of the aforementioned two invoices. A copy of the said C-Form is enclosed with the petition as Annexure P-4. It shows that it was a system generated C-Form containing details of the purchasing dealer i.e. Respondent No.2 with its Registration Certificate Number and the amount up to which such registration is valid. 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 shown as cancelled on 27th November, 2015. The Petitioner also obtained a copy of an order passed by the Assistant Value Added Tax Officer (AVATO) in Form DVAT-11 on 4th August, 2015 cancelling the registration of Respondent No.2. A copy of the said cancellation order has been enclosed as Annexure P-6 to the petition. It was noticed that the cancellation was made retrospective from 26th February, 2014.
6. It is in these circumstances, the present petition has been filed contending that there was no power under the CST Act or in the Rules there under, 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.”
In the writ petition the petitioner made a submission that the C form had been cancelled because the registration of the buying dealer was cancelled retrospectively. It was argued that there is no power for retrospective cancellation of the Registration. It was further argued that as a selling dealer it is only required to ensure that on date of sale the buying dealer is holding valid registration certificate (RC) under CST Act. The retrospective cancellation cannot affect the selling dealer. The judgments in case of Suresh Trading Company (109 STC 439)(SC) and in case of Santosh kumar and Company (54 STC 322)(Ors) were cited.
On behalf of State, it was argued that the selling dealer was indulging in proxy litigation as the buying dealer, in whose case RC is cancelled, has not come forward. It was argued that the selling dealer, who is from Kanpur has no locus to contest the matter. It was also submitted that the transaction of sale was under cloud and it was suspected of being effected with collusion. It was further argued that there is no vested right in the purchasing dealer to insist issuance of C form in its favour. However, the State could not point out any provision under CST Act by which RC can be cancelled retrospectively.
After hearing both the sides Hon. High Court observed as under:
“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 there under 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. Rule 5(4) of the Central Sales Tax (Delhi) Rules, 2005 enables the authority which has to issue a C-Form to “withhold” the C-Form. The contingencies under which a C Form may be withheld are set out in Rule 5(4). For instance, Rule 5 (4) (v) envisages that some adverse material has been found by the Commissioner “suggesting any concealment of sale or purchase or furnishing inaccurate particulars in the returns.” The Commissioner could, in terms of the proviso to Rule 5(4), instead of withholding 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 the date that the C Form is issued. If the purchasing dealer does not possess a valid CST registration on the date of the transaction of sale, then the selling dealer cannot insist on being issued a C-Form. In the present case, on the date of the transaction i.e. 10th March, 2015 the purchasing dealer viz., Respondent No. 2 did posses a valid CST registration. The name of the purchasing dealer as shown in the invoices, and the name and address of the registered purchasing dealer as reflected in the 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 that matter the other entity of the same name spoken of by the DT&T.
19. In any event, from the point of view of the Petitioner, the requirement of section 8(1) of the CST stood fully satisfied. The purchasing dealer had a valid CST registration on the date of purchase of goods by the Respondent No. 2 from the Petitioner. The C-Form issued by the DT&T confirmed the registration of Respondent No.2 under the CST Act.”
The Hon. High Court has referred to various judgments in support of above holding. After above discussion Hon. High Court also discussed about the practical effect of the cancellation of C forms in following words:-
“26. It was submitted by 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 valid CST registration, and is also issued a valid C Form then such selling dealer cannot later be told that the C Form is invalid since the CST registration of the purchasing dealer has been retrospectively cancelled. Where, a selling dealer fails to make diligent enquiries and proceeds to sell goods to a purchasing dealer who does not, on the date of such sale, hold a valid CST registration then such selling dealer cannot later be seen to protest against the cancellation of the C-Form. As observed by the Supreme Court in Commissioner of Sales Tax, Delhi v. Shri Krishna Engg. (supra) the selling dealer in such instance will have to pay for his “recklessness”.
27.To answer the problem highlighted by Mr Narayan, the best course of action would be for an authority to cancel the CST registration prospectively and immediately place that information on its website. In such event, there would be no difficulty in the selling dealer being able to verify the validity of the CST registration of the purchasing dealer. However, where the cancellation of the registration and, consequently of the C-Form is sought to be done retrospectively, it would adversely affect the rights of bonafide sellers in other states who proceeded on the basis of the existence of valid CST registration of the purchasing dealer on the date of the inter-state sale. That outcome is not contemplated by the CST Act and the Rules there under.”
Conclusion
It is one of the much awaited judgments to protect the interest of genuine dealers. Now-a-days, under fiscal laws, there is a tendency to put more and more burden on the dealers and the authorities only exercise power of recoveries and that too from dealers who are otherwise regular and available. No attempt is made to nab the defaulters and fraudsters. Under such circumstances, the above judgment is path breaking. It is the department who should keep watch on defaulters and take necessary action against them for recovery and should not put burden on the genuine dealers.
