2025 (10) TMI 64 - HC - VAT / Sales Tax

Reopening of tax assessment upheld; defective C-Forms justified denial of concessional CST and full 10% liability

State of Chhattisgarh Through Secretary, Department Of Revenue, Raipur, The Commercial Tax Officer Raipur, The Divisional Deputy Commissioner Of Commercial Tax Raipur, Chhattisgarh. Versus M/s Prakriti Industries Through Proprietor Prasoon Kumar, M/s Mohini Industries.

HC upheld reopening of assessment and dismissed the writ appeals, finding that defective C-Forms supplied to the respondent firm justified denial of ... Re-opening of assessment of the respondent-Firm and two C-Forms - defective C-Forms - liability to pay full tax and non-entitlement to get concession - HELD THAT:- It is not in dispute that C-Form was supplied to the respondent-Firm by the purchasing dealer and, on the strength of said C-Form, the appellant-Authorities has availed the concessional rate of tax in respect of CST @ 2% instead of 10% vide order 22.01.2008 firstly. However, later on, on the basis of audit objection, as revealed, the assessment of the respondent-Firm was reopened vide order dt. 25.03.2013 and, on account of defective C-Forms, the CST was ascertained to be payable by the respondent-Firm at full rate of 10%. Thus, no substantial defect with regard to validity of the form was found. There are no merit in these writ appeals and same are hereby dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether reassessment (reopening) under the VAT Act invoking Section 9(2) read with Section 28(1) after lapse of more than four years was validly exercised to deny concessional Central Sales Tax (CST) on the basis of allegedly defective C-Forms. 2. Whether the defects found in the submitted C-Forms - (a) incorrect year reference to 'The Central Sales Tax (Registration & Turnover) Rules, 1975' instead of '1957', and (b) imperfect legibility of writing - constitute substantial defects sufficient to forfeit the concessional CST rate and attract full-rate tax liability. 3. Whether the seller (assesseee) can be held liable to pay differential CST when the C-Form was supplied by the purchasing dealer and the only defects are typographical/legibility errors. 4. Whether the orders of the assessing and revisional authorities denying concession and demanding differential tax should be sustained in view of the nature of defects and the record before the Court. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reassessment/reopening under Section 9(2) read with Section 28(1) Legal framework: Reopening of assessment under the VAT Act permits reassessment where jurisdictional or material facts justify invocation of reassessment power; Section 9(2) read with Section 28(1) was the statutory basis for reopening here. Precedent Treatment: The judgment does not rely on or cite external precedents for the scope of reassessment; assessment reopening was examined on the factual sufficiency of the audit objection. Interpretation and reasoning: The Court accepted that reassessment was initiated after an audit objection but proceeded to test whether the audit-found defects were material enough to justify forfeiture of concession and reassessment consequences. The Court treated the validity of reopening as contingent on whether the defect relied upon was substantial - i.e., reopening cannot be used to negate concessions where defects are merely typographical or immaterial to the form's efficacy. Ratio vs. Obiter: Ratio - reassessment cannot be sustained to deny concession where the only grounds are non-substantial typographical/legibility defects in C-Forms. Obiter - none beyond factual application. Conclusions: Although statutory power to reopen was invoked, the Court found that the audit objections did not disclose a substantial defect to justify denial of the concessional rate; therefore, the exercise of reassessment insofar as it led to forfeiture of concession was not upheld. Issue 2 - Whether the identified C-Form defects are substantial Legal framework: Validity of C-Forms for concessional CST depends on their sufficiency to demonstrate inter-state sale and compliance with statutory/formal requisites; substantial defect doctrine distinguishes material deficiencies from immaterial/typographical errors. Precedent Treatment: No precedents were cited; the Court applied the established categorical distinction between substantial and non-substantial defects in documentation affecting tax concessions. Interpretation and reasoning: The only defects recorded on audit were (i) incorrect citation of the Rules year (1975 instead of 1957) and (ii) imperfect legibility. The Court characterized both defects as typographical/clerical and not impairing the form's substantive function. The Court reasoned that such errors do not vitiate the validity of the C-Form and do not demonstrate that the purchaser did not in fact undertake an eligible inter-state purchase or that the statutory prerequisites for concession were absent. Ratio vs. Obiter: Ratio - typographical errors and minor legibility defects in a C-Form are not substantial defects warranting denial of concessional CST and demand at full rate. Obiter - the Court noted the source of the C-Form being the purchasing dealer as relevant to assessing responsibility (see Issue 3). Conclusions: The defects found were not substantial; consequently, denial of the concessional rate on that basis was not justified and the orders demanding differential tax were rightly set aside by the writ court. Issue 3 - Liability of seller when C-Form supplied by the purchasing dealer Legal framework: Liability to pay differential tax hinges on the validity of document(s) relied upon for concession; allocation of responsibility can inform remedial steps and appropriate targets for enforcement. Precedent Treatment: No external authority considered; the Court relied on the factual position that the C-Form was supplied by the purchasing dealer. Interpretation and reasoning: The fact that the purchasing dealer supplied the C-Form was material to the Court's assessment of culpability and the appropriate enforcement direction. Given the minor nature of defects, the Court treated the seller's reliance on the form as reasonable and observed that the authorities retain the right to pursue action against the purchasing dealer if warranted. Ratio vs. Obiter: Ratio - where C-Forms are supplied by the purchaser and defects are non-substantial, the seller is not properly held liable to pay differential tax; remedial action, if any, can be directed against the purchaser. Obiter - the Court recognized the State's liberty to initiate action against the purchasing dealer. Conclusions: The seller was not liable to pay the differential CST on the basis of the typographical and legibility defects in C-Forms supplied by the purchasing dealer; the statutory authorities may, however, initiate proceedings against the purchasing dealer. Issue 4 - Sufficiency of record to sustain assessing and revisional orders Legal framework: Administrative orders demanding tax must rest on material findings that show the relevant form/document is invalid or substantially defective; courts will set aside orders unsupported by substantial defects on the record. Precedent Treatment: No precedents were invoked; the Court conducted a record-based review of the audit objection and orders. Interpretation and reasoning: The Court examined the record (returns, C-Forms, audit remarks) and concluded that the authorities' reliance on the noted defects did not amount to a finding of substantial invalidity. The Single Judge's setting aside of the assessment and revisional orders was therefore upheld as consonant with the record and legal principle distinguishing substantial from immaterial defects. Ratio vs. Obiter: Ratio - where the record shows only typographical/legibility errors in a C-Form, administrative orders demanding differential tax for forfeiture of concession are unsustainable and liable to be set aside. Obiter - none additional. Conclusions: The assessing and revisional orders demanding differential CST were set aside as they were premised on non-substantial defects; the Court dismissed the writ appeals and affirmed the Single Judge's relief, while noting the authorities' liberty to proceed against the purchasing dealer if appropriate.