To avail reduced tax rate during inter-State purchase, furnishing of Form C is not conditioned by payment of self-assessed tax under VAT Act. in the case of Manan Autolink(P.) ltd. GUJARAT HIGH COURT

  

HIGH COURT OF GUJARAT

Manan Autolink (P.) Ltd.

v.

State of Gujarat*

AKIL KURESHI AND BIREN VAISHNAV, JJ.

special civil application no. 4518 of 2017

JULY  17, 2017 

Section  8 of the Central Sales Tax Act, 1956 - Inter-State Supply - Period 1-4-2015 to 31-3-2016 - Section 8 of CST act provides that for sales in nature of inter-state sales, first purchase by petitioner would invite reduced tax at rate of 2 per cent as long as petitioner could provide to sellers a declaration of inter-state sale in Form C - Circular dated 16-11-2009 prescribes that before purchasing of goods, dealer could generate Form C online only in case he has discharged his full liability of VAT - Whether since such a condition was not backed by any statutory provision, it would not be possible for State Government to provide such a mode of tax recovery making it a pre-condition for generation of Form C - Held, yes [Paras 12 to 15] [In favour of assessee]

FACTS

■		The petitioner was an authorized dealer of Maruti and Bajaj. It was registered under the Gujarat VAT act as well as the Central Sales Tax Act. As a registered dealer, the petitioner would make purchases of the vehicles from outside state and sell vehicles within the state. For the sales in the nature of inter-state sales, the first purchase by the petitioner would invite reduced tax at the rate of 2 per cent in terms of sub-section (1) of section 8 as long as the petitioner could provide to the sellers a declaration of inter-state sale in Form C. The petitioner's sale of the vehicles within the state would invite the value added tax under the VAT Act. In the present petition, the assessee challenged the action of the respondent authorities in refusing to issue Form C to the petitioner on its inter-state purchases of vehicles.
■		The department alleged that for the relevant period, the petitioner had collected VAT on its local sales from the customers but had not deposited the same with the government revenue as per the petitioner's self assessment of the tax liability. Accordingly, when the petitioner tried to generate the Form C on the department's portal, the system did not permit the petitioner to generate the same. According to the department, the manual filing of the declarations and authentication of such declarations by the state authorities of the C form was done away with since the year 2008. This was replaced by an online system as per which the dealer would be in a position to generate his own Form C as long as he fulfilled the conditions prescribed by the state authorities. According to the respondents, one of the conditions contained in circular dated 16-11-2009 was that the dealer should file his periodical quarterly returns and should have paid the self assessed tax as per such returns and generated a computerized receipt for the same. The department explained that since the petitioner did not fulfilled the essential condition of payment of self assessed tax, the online system of the department would not permit the petitioner to obtain C form declarations.

Trupesh C. Kathiriya, Adv.  for the Petitioner. Pranav Trivedi, Asstt. Govt. Pleader for the Respondent.

HELD

■		In terms of sub-section (1) of section 8, a dealer on its sale of goods in the course of inter-state trade or commerce would pay reduced rate of tax as long as, as provided in sub-section (4) of section 8, the purchasing dealer provides the C form obtained from the prescribed authority. In exercise of rule making powers contained in sub-section (4), the State Government has framed the Central Sales Tax (Gujarat) Rules, 1970. Rule 4A thereof pertains to maintenance of records of certificates and declarations under sub-section (2) of section 6 and clause (a) of sub-section (4) of section 8 and matters incidental thereto. Likewise, the Central Government has also framed the Central Sales Tax (Turnover & Registration) Rules, 1957. Rule 12 pertains to furnishing declarations and certificates. Sub-rule (1) provides that declarations and certificates referred to in sub-section (4) of section 8 shall be in Forms 'C and 'D' respectively. [Para 12]
■		None of these rules prescribe that before the purchasing dealer can generate a request for authentication of C form by the appropriate authority, the dealer must have discharged its full liability of the VAT. As noted in the VAT Act, detailed provisions have been made for assessment and collection of tax. In absence of a specific rule requiring depositing of full tax before obtaining C form authentication, such a requirement cannot be introduced by the State Government. Attention was drawn to sub-rule (3) and sub-rule (4) of section 13. As noted, sub-section (3) empowers the State Government to make rules not inconsistent with the provisions of the Act and the rules made under sub-section (1) of section 13 by the Central Government to carry out the purposes of the Act. Sub-section (4) provides that without prejudice to the powers under sub-section (3) if the Government of the State could make rules for all or any of the purposes contained in various clauses including clause (e) which pertains to the authority from whom, the conditions subject to which and fees subject to payment of which if any form of certificate prescribed inter alia under sub-section (4) can be obtained, and the manner in which such forms shall be kept in custody and records relating thereto maintained. [Para 13]
■		These rule making powers of the State Government undoubtedly are quite wide. Two of the main limitations of exercise of such powers appear to be that any rules so framed cannot be inconsistent with the provisions of the Act or the Rules made by the Central Government and that the same should be framed to carry out the purposes of the Act. Whether such rule making powers would include affecting collection of unpaid VAT by the purchasing dealer before the C form can be generated by him and he could request to the prescribed authority to authenticate the same is a question which need not be answer in the present writ petition. This is so because no rule has been brought to notice which provides for such a requirement or a pre-condition. Only source of such insistence by the State Government is a circular dated 16-11-2009. The circular lays down a procedure that the dealer would have to follow for obtaining C form. The circular was necessitated mainly for the reason that the department wanted to discontinue the practice of filing physical copies of the C forms to be authenticated by the prescribed authority. Henceforth, the department would permit the concerned dealers to generate such C forms online. While doing so, certain conditions have been prescribed in the said circular. One of the conditions being that the dealer should have paid all the taxes as per the self assessment in terms of the quarterly returns filed online. There is no independent source of this prescription outside the said circular. In other words, the State Government relies upon and refers only to the said circular to impose a condition for obtaining C form namely the dealer should have paid the self assessed tax as per the quarterly returns filed. If this is done and other conditions are also satisfied, the dealer could on his own generate C forms. There shall thereafter be no further need for certification or authentication of such C forms by any departmental authority. If this condition is not satisfied, the website of the department would not permit the dealer to generate the C forms. Thus, through a condition prescribed in the said circular, the State Government requires that a dealer must have discharged all his self assessed tax liabilities before C forms can be obtained in connection with any of his dealings. Essentially, this amounts to a mode of tax recovery. Even if it is self assessed tax, the prescription of the circular does not lose its essential character of one being in the nature of tax collection. Unless and until such a condition is backed by any statutory provision, it would not be possible for the State Government to provide such a mode of tax recovery making it a pre-condition for generation of C forms. As noted, had such a condition been introduced by framing statutory rules in exercise of powers under sub-sections (3) and (4) of section 13 the question would have been examined further. However, the circular in the form of executive instructions cannot take shape of a statute. What is envisaged in sub-sections (3) and (4) of section 13 is the power of delegated legislation vested in the State Government for carrying out the purposes of the CST Act. Such rule making power cannot be substituted by executive instructions. The circular in question is certainly not in exercise of the rule making powers exercised by the State Government. [Para 14]
■		Under the circumstances, it is held that the action of the respondents in not allowing the petitioner to generate C form solely on the ground that the petitioner had not paid the self assessed tax for the relevant period under the VAT Act is illegal. The respondents shall allow the petitioner to generate C form subject to other conditions being fulfilled. Petition is disposed of accordingly.[Para 15]

JUDGMENT

Akil Kureshi, J. - The petitioner is an authorized dealer of Maruti Suzuki India Limited and Bajaj Auto Limited. The petitioner is registered under The Gujarat Value Added Tax Act ('the VAT Act' for short) as well as The Central Sales Tax Act ('the CST Act' for short). In the present petition, the petitioner has challenged the action of the respondent authorities in refusing to issue C form to the petitioner on its inter-State purchases of vehicles.

2. Brief facts are as under:

2.1 As a registered dealer, the petitioner would make purchases of the vehicles from outside State and sell vehicles within the state. For the sales in the nature of inter-State sales, the first purchase by the petitioner would invite reduced tax at the rate of 2% in terms of sub-section (1) of Section 8 of the CST Act as long as the petitioner could provide to the sellers a declaration of inter-State sale in C form. The petitioner's sale of the vehicles within the State would invite the Value Added Tax under the VAT Act which we are informed presently is at the rate of 15%.

2.2 The petitioner's returns for the assessment years 2009- 10 to 2011-12 are in dispute. As per the latest position, the Value Added Tax Tribunal has set aside the order passed by the appellate authority and remanded the proceedings for fresh consideration by the State authority. We are, however, not directly concerned with these disputed tax dues of the petitioner. The dispute is with respect to the petitioner's undisputed tax dues and the mode of recovery thereof. The department alleges and the petitioner does not seriously dispute that for the period between 01.04.2015 and 31.03.2016, the petitioner had collected VAT on its local sales from the customers but had not deposited the same with the government revenue even as per the petitioner's own self assessment of the tax liability. In other words, according to the department, the petitioner has not discharged its self assessed tax liability for the said period which comes to more than Rs.6 crores.

2.3 Under such circumstances, when the petitioner tried to generate the C form on the department's portal, the system did not permit the petitioner to generate the same. According to the department, the manual filing of the declarations and authentication of such declarations by the State authorities of the C forms have been done away with since the year 2008. This has been replaced by an online system as per which the dealer would be in a position to generate his own C forms as long as he fulfills the conditions prescribed by the State authorities. According to the respondents, one of the conditions contained in circular dated 16.11.2009 is that the dealer should have filed his periodical quarterly returns and should have paid the self assessed tax as per such returns and generated a computerized receipt for the same. The department explains that since the petitioner had not fulfilled the essential condition of payment of self assessed tax, the online system of the department would not permit the petitioner to obtain C form declarations.

3. This in nutshell is the controversy. Counsel for the petitioner submitted that the petitioner ran into serious financial difficulties due to which the petitioner could not discharge its tax obligations. The petitioner would be in a position to pay up the taxes if installments are granted. Not granting C form declarations to the petitioner would put the petitioner's selling dealers to great hardships since such dealers would not be able to take the benefit of reduced tax of inter-State sale. This cannot be done for the inability of the petitioner to pay his taxes. Granting of C form declarations cannot be stalled on the ground of unpaid dues of a dealer, indirectly taking such measure by way of tax collection and recovery. The VAT Act contains detailed machinery through which the department can make recoveries. In any case, there is no authority in law to link the question of authenticating C form declarations of a dealer to discharge of his tax liabilities.

4. On the other hand, learned Assistant Government Pleader Shri. Trivedi opposed the petition contending that the circular of the Government dated 16.11.2009 is abundantly clear. The department switched over from manual filing of the returns and issuance of C forms to computerized system as per the circular. Since the petitioner had not discharged his tax liabilities he was not allowed to generate the C form. In his case, the liabilities are not disputed. They arise out of self assessment. Thus, the petitioner has collected the tax from the customers which he has not deposited in the government revenue.

5. Facts as noted are not in dispute. The petitioner having made local sales of the vehicles purchased from outside State, has not deposited the self assessed tax with the government authorities. On such ground, the department does not permit the petitioner to generate the C form. Since this is one of the requirements contained in the circular dated 16.11.2009, the short question is, Is it legally permissible?

6. Section 6 of the CST Act is a charging provision creating charge on sale of goods on inter-State sales. Sub-section (1) of Section 8 of the CST Act provides that every dealer who in course of inter-State trade or commerce sells to a registered dealer goods of the description referred to in sub-section (3) shall pay tax under the said Act at the rate of 2% of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower. Sub-section (4) of Section 8 provides that the provision of sub-section (1) shall not apply to any sale in course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority.

7. In terms of sub-section (1) of Section 8 of the CST Act, thus, reduced rate of tax would be levied from a selling dealer in case of inter-State sale, provided a declaration as provided in sub-section (4) of Section 8 is furnished. The declaration has to be obtained by the purchasing dealer which when provided to the selling dealer, reduced rate of tax in terms of sub-section 8 would apply.

8. Section 9 of the CST Act pertains to levy and collection of tax and penalties. As per sub-section (1) of Section 9, the tax payable by any dealer under the said Act on sale of goods in course of inter-State trade or commerce would be levied by the Government of India but shall be so collected by the State from which the movement of goods commenced. Sub-section (2) of Section 9 in turn provides that subject to the provisions of the Act and the rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of tax under the GST law of the appropriate State shall on behalf of the Government of India assess, reassess, collect and enforce payment of the tax, interest or penalty payable by the dealer. As per sub-section (2A) of Section 9 all provisions relating to offences, interest and penalties prevailing in each State shall with the necessary modifications apply in relation to the assessment, reassessment, collection and enforcement of tax under the CST Act also. Likewise, sub-section (2B) of Section 9 makes interest provisions for delayed payment of tax contained in the State laws applicable to in the CST Act.

9. Section 13 of the CST Act pertains to the rule making power. Under sub-section (1) of Section 13, the Central Government is authorized to make rules by notification in Official Gazette concerning subjects contained in different clauses (a) to (i). Any rule so framed by the Central Government has to be placed before each House of the Parliament as provided in sub-section (2) of Section 13. Sub- section (3) of Section 13 provides that the State Government may make rules not inconsistent with the provisions of the Act and the rules made under sub-section (1), to carry out the purposes of this Act. Sub-section (4) of Section 13 provides that, without prejudice to the powers conferred in sub-section 3, the State Government may make rules for all or any of the purposes contained in clauses a to g. Clause (e) which is relevant for our purpose reads as under:

"(e)

the authority from whom, the conditions subject to which and fees subject to payment of which any form of certificate prescribed under clause (a) of the first proviso to sub-section (2) of section 6 or of declaration prescribed under sub- section (1) of section 6A or sub-section (4) of section 8 may be obtained, the manner in which such forms shall be kept in custody and records relating thereto maintained and the manner in which any such form may be used and any such certificate or declaration may be furnished;"

10. In exercise of such powers, the State Government has framed rules called the Central Sales Tax (Registration and Turnover) Rules, 1957 (hereinafter to be referred to as 'the said rules of 1957'). Rule 12 of the said rules of 1957 pertains to furnishing of declarations and certificates. Sub-rule (1) thereof refers to declarations and certificates referred to in sub-section 4 of Section 8 and reads as under:

(1)

The declaration and the certificate referred to in sub-section (4) of section 8 shall be in Forms C and D respectively: [Provided that Form C in force before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) Rules, 1974, or before the commencement of the Central Sales Tax (Registration and Turnover) (Amendment) Rules, 1976, may also be used upto the [31st December, 1979] with suitable modifications:] [Provided further that a single declaration may cover all transactions of sale, which take place in a quarter of a financial year between the same two dealers: Provided also that where, in the case of any transaction of sale, the delivery of goods is spread over to different quarters in a financial year or of different financial years, it shall be necessary to furnish a separate declaration or certificate in respect of goods delivered in each quarter of a financial year.]

11. We may now refer to some of the provisions contained in the VAT Act. The Act contains detailed provisions for assessing and levying taxes. It also contains provisions for dispute resolutions with respect to the liability of dealers to pay taxes. Chapter 5 of the VAT Act pertains to returns, payment of tax, assessment, recovery of tax and refund. Section 42 pertains to payment and recovery of tax and interest on delayed payment. Sub-section (1) of Section 42 enjoins a duty on a dealer to pay tax with interest and penalty within 30 days the same becomes payable. Under sub-section (2) of section 42, the Commissioner has power to extend the time for payment and grant installments. Sub-section (5) of Section 42 provides that if the amount of tax and penalty is not paid within the specified time in sub-section (1) or extended time in sub-section (2), the dealer or person liable to make such payment shall be deemed to be in default in respect of such amount. Sub-section (7) of Section 42 envisages charging of interest on outstanding dues. Section 44 of the VAT Act pertains to special mode of recovery and empowers the Commissioner to make recoveries through garnishee orders. Section 45 empowers the Commissioner to provisionally attach the properties of a dealer for the purpose of protecting the interest of government revenue. Under Section 46, the tax can be recovered as arrears of land revenue. Section 47 provides that any transfer or charge created by a dealer to defraud the government revenue would be void. Section 48 provides that the tax would be the first charge on the property of the dealer. These provisions were noted to demonstrate that the VAT Act contains detailed provisions for assessment, reassessment and collection of tax, interest and penalties. In terms of Section 9 of the Central Sales Tax Act, such provisions would be applicable for assessment, reassessment and collection of tax, interest and penalties arising out of the said Act also.

12. We have noticed that in terms of sub-section (1) of Section 8 of the CST Act, a dealer on its sale of goods in the course of inter-State trade or commerce would pay reduced rate of tax as long as, as provided in sub-section (4) of Section 8, the purchasing dealer provides the C form obtained from the prescribed authority. In exercise of rule making powers contained in sub-section (4), the State Government has framed the Central Sales Tax (Gujarat) Rules, 1970. Rule 4A thereof pertains to maintenance of records of certificates and declarations under sub-section (2) of Section 6 and clause (a) of sub-section (4) of Section 8 and matters incidental thereto. Likewise, the Central Government has also framed the Central Sales Tax (Turnover & Registration) Rules, 1957. Rule 12 pertains to furnishing declarations and certificates. Sub-rule (1) provides that declarations and certificates referred to in sub-section (4) of Section 8 shall be in Forms 'C' and 'D' respectively.

13. None of these rules prescribe that before the purchasing dealer can generate a request for authentication of C form by the appropriate authority, the dealer must have discharged its full liability of the VAT. As noted in the VAT Act, detailed provisions have been made for assessment and collection of tax. In absence of a specific rule requiring depositing of full tax before obtaining C form authentication, such a requirement cannot be introduced by the State Government. Learned Assistant Government Pleader would, however, contend that Section 13 of the Central Sales Tax Act gives wide powers to the State Government of framing rules. Our attention was drawn to sub-rule (3) and sub-rule (4) thereof. As noted, sub-section (3) empowers the State Government to make rules not inconsistent with the provisions of the Act and the rules made under sub-section (1) of Section 13 by the Central Government to carry out the purposes of the Act. Sub-section (4) provides that without prejudice to the powers under sub-section (3) if the Government of the State could make rules for all or any of the purposes contained in various clauses including clause (e) which pertains to the authority from whom, the conditions subject to which and fees subject to payment of which if any form of certificate prescribed interalia under sub-section (4) of the CST Act can be obtained, and the manner in which such forms shall be kept in custody and records relating thereto maintained.

14. These rule making powers of the State Government undoubtedly are quite wide. Two of the main limitations of exercise of such powers appear to be that any rules so framed cannot be inconsistent with the provisions of the Act or the Rules made by the Central Government and that the same should be framed to carry out the purposes of the Act. Whether such rule making powers would include affecting collection of unpaid VAT by the purchasing dealer before the C form can be generated by him and he could request to the prescribed authority to authenticate the same is a question which we need not answer in the present writ petition. This is so because no rule has been brought to our notice which provides for such a requirement or a pre-condition. Only source of such insistence by the State Government is a circular dated 16.11.2009. The circular lays down a procedure that the dealer would have to follow for obtaining C form. The circular was necessitated mainly for the reason that the department wanted to discontinue the practice of filing physical copies of the C forms to be authenticated by the prescribed authority. Henceforth, the department would permit the concerned dealers to generate such C forms online. While doing so, certain conditions have been prescribed in the said circular. One of the conditions being that the dealer should have paid all the taxes as per the self assessment in terms of the quarterly returns filed online. There is no independent source of this prescription outside the said circular. In other words, the State Government relies upon and refers only to the said circular to impose a condition for obtaining C form namely the dealer should have paid the self assessed tax as per the quarterly returns filed. If this is done and other conditions are also satisfied, the dealer could on his own generate C forms. There shall thereafter be no further need for certification or authentication of such C forms by any departmental authority. If this condition is not satisfied, the website of the department would not permit the dealer to generate the C forms. Thus, through a condition prescribed in the said circular, the State Government requires that a dealer must have discharged all his self assessed tax liabilities before C forms can be obtained in connection with any of his dealings. Essentially, this amounts to a mode of tax recovery. Even if it is self assessed tax, the prescription of the circular does not lose its essential character of one being in the nature of tax collection. Unless and until such a condition is backed by any statutory provision, it would not be possible for the State Government to provide such a mode of tax recovery making it a pre-condition for generation of C forms. As noted, had such a condition been introduced by framing statutory rules in exercise of powers under sub-sections (3) and (4) of Section 13 of the CST Act, we would have examined the question further. However, the circular in the form of executive instructions cannot take shape of a statute. What is envisaged in sub-sections (3) and (4) of Section 13 is the power of delegated legislation vested in the State Government for carrying out the purposes of the CST Act. Such rule making power cannot be substituted by executive instructions. The circular in question is certainly not in exercise of the rule making powers exercised by the State Government.

15. Under the circumstances, we hold that the action of the respondents in not allowing the petitioner to generate C form solely on the ground that the petitioner had not paid the self assessed tax for the relevant period under the VAT Act is illegal. The respondents shall allow the petitioner to generate C form subject to other conditions being fulfilled. This may be done latest by 31.08.2017. Petition is disposed of accordingly.