Non Issuance of FORM C

[Gargi kumari]

If, under an agreement, the Purchasing Dealer has failed to issue FORM C to the Selling Dealer what remedies lie with the Selling Dealer under Law? And can the Selling Dealer seek directions for issuance of FORM C from the Purchasing Dealer? Please provide any case law on the same.

[Sadanand Bulbule]

If the purchasing dealer fails/refuses to issue FORM C, then it is a clear case of breach of purchase contract. So the vendor has to issue a debit note for the difference tax amount and initiate recovery proceedings as per law. However the department would saddle higher rate of tax and interest on the vendor in the absence of FORM C.

 Normally Court dos not direct the purchaser to issue FORM C. But it has to suffer higher rate of tax. Usually such situation arises when the purchaser does not account for the transaction or the authority might have refused to approve the downloading of FORM C to him for its own reasons. 

[YAGAY andSUN]

The non-issuance of Form C under the Central Sales Tax (CST) Act by the buyer to the seller carries significant legal consequences. To understand this scenario, it's important to first look at the requirements of the CST Act and the role of Form C in facilitating tax exemptions for inter-state sales.

Form C under CST Act:

Form C is issued by the buyer to the seller in an inter-state transaction when goods are sold from one state to another, and the transaction qualifies for tax exemption under the CST Act. Form C is used to declare that the goods being purchased are for resale, use in manufacturing, or for any other purpose eligible for tax exemption. If the buyer fails to issue Form C, the seller cannot claim the benefits of the concessional tax rate of 2% (or lower, as may be notified).

Legal Consequences of Non-Issuance of Form C:

1. Liability for Higher Tax: If Form C is not issued, the seller is liable to pay the full tax rate (i.e., the rate applicable in the seller's state) rather than the concessional rate of 2% on inter-state sales, which is a significant financial burden for the seller.
2. No Exemption under CST Act: Since Form C is required for claiming the concessional tax rate on inter-state sales, the failure to issue Form C means that the buyer does not fulfill the legal requirement for a valid tax exemption. The seller will then be required to charge the applicable VAT (Value Added Tax) rate instead.
3. Demand for Tax Adjustment: If the seller had already charged a concessional rate of 2% based on an assumed Form C issuance, and later it is found that Form C was not issued, the tax authorities may demand the seller to pay the difference between the concessional tax rate and the full applicable rate.
4. Penalty Provisions: Failure to issue Form C may result in penalties, both for the buyer and the seller. The tax authorities could impose fines or penalties on the buyer for not fulfilling their legal obligation to provide Form C. In some instances, the seller may be penalized if it is found that they did not make proper efforts to ensure the issuance of Form C.
5. Denial of Tax Credit: If the seller fails to obtain Form C from the buyer, the seller may not be able to claim any input tax credit for the tax paid on the goods purchased. This could lead to a loss of the credit that the seller might have otherwise used to offset their tax liability.

Seller's Rights:

1. Right to Demand Form C: The seller has the right to demand Form C from the buyer, as the CST Act requires the buyer to issue this form for inter-state sales transactions eligible for concessional tax treatment.
2. Right to Recover Full Tax: If the buyer fails to issue Form C, the seller has the right to recover the full applicable tax rate from the buyer. The seller can seek the difference between the concessional rate of tax and the actual tax rate.
3. Right to Approach the Tax Authorities: If there is a genuine reason for the non-issuance of Form C (for example, a delay in form submission), the seller has the right to approach the tax authorities and seek redress or provide justification. The seller may be able to convince the authorities to grant the concessional tax treatment in certain cases.
4. Right to File a Legal Claim: In case the buyer fails to issue Form C and does not pay the additional tax due, the seller may have the right to approach the courts for recovery of taxes or compensation for the tax burden caused by the buyer's failure.

Landmark Judgments and Full Citation:

Several landmark judgments have dealt with the issue of non-issuance of Form C and the legal consequences under the CST Act. Below are a few notable cases:

1. State of Haryana v. M/s. Chhajed Steel and Alloys Ltd. (2008) 16 VST 487 (SC):
   • In this case, the Supreme Court of India held that the non-issuance of Form C would not automatically result in the disqualification of the concessional rate of tax if there is a valid reason for the buyer's failure. However, the burden of proving that the transaction qualifies for concessional tax treatment remains on the seller.
2. M/s. S. K. Tin Factory v. Commissioner of Commercial Taxes (2003) 132 STC 1 (SC):
   • The Supreme Court clarified that the failure to submit Form C would result in the rejection of the concessional tax rate claim. In this case, the Court ruled that the seller could not claim the benefit of concessional sales tax in the absence of the required form.
3. Commissioner of Sales Tax v. M/s. Ravi Drugs and Pharmaceuticals (2000) 118 STC 7 (SC):
   • The Court ruled that in cases where Form C was not issued, the concessional rate could not be applied, and the seller was required to pay tax at the higher rate.
4. CST v. M/s. R. K. Agencies (2007) 8 VST 394 (Madras HC):
   • The Madras High Court held that if a buyer does not furnish Form C, the seller can recover the excess tax from the buyer, and the seller can still be liable for the full tax rate.
5. M/s. U. P. State Industrial Development Corporation Ltd. v. Union of India (1987) 68 STC 374 (SC):
   • The Supreme Court in this case emphasized the importance of issuing Form C for obtaining the concessional rate of tax and that failure to do so would invalidate the claim for a reduced tax rate under the CST Act.

Conclusion:

The non-issuance of Form C under the CST Act can lead to significant financial and legal consequences for both the buyer and the seller. The seller is generally liable for paying the higher tax rate if the buyer fails to provide Form C, and the seller also has rights to claim this additional tax from the buyer. Courts have emphasized the necessity of adhering to the requirements of the CST Act, and the failure to issue Form C leads to a denial of concessional tax benefits. In light of this, it is critical for businesses engaged in inter-state transactions to ensure the proper documentation is in place to avoid legal complications.

[Sadanand Bulbule]

2025 (3) TMI 61 - CALCUTTA HIGH COURT - M/S. N.P. TRADING COMPANY VERSUS DEPUTY SECRETARY, GOVERNMENT OF WEST BENGAL AND ORS.

Entitlement to concessional rate of tax - inter-state sale - Rejection of application filed by the writ petitioner on the ground that the tribunal cannot issue the direction sought for - HELD THAT:- It is required to be seen as to what remedy the petitioner is entitled to. Form-C declaration have been held to be documents when produce by the dealer, they will be entitled to benefit of the concessional rate of tax or reduced rate of tax. There are several decisions which have been pointed out and even if there is a defect in Form-C declaration issued in respect of an inter-State sale the same can be rectified and if there is a delay in issuance of Form-C declaration by the assessing officer of the purchasing dealer and if the Form-C declaration is issued belatedly, such declaration can be produced before the jurisdictional assessing officer of the selling dealer and the assessment for the relevant period can be revised.

In the instant case, the factual position is much better as the respondent/department does not dispute the fact that the transaction done by the writ petitioner with the 7th respondent is a case of inter- State sale. There may be cases where the purchasing dealer might have faced action by the department including that of cancellation of registration and there are decisions which have held that if the registration of the selling dealer is valid during the period when the inter-State sale took place, then the selling dealer would be entitled to the concessional rate of tax.

More or less an identical issue was decided by the Division Bench of this court in the case of Commissioner of Commercial Taxes and Another v. Tata Steel Limited and Others [2022 (11) TMI 1274 - CALCUTTA HIGH COURT] - It is informed the said decision though the appeal was filed against the said order before the Hon’ble Supreme Court, subsequently, the State Government accepted the decision and the concessional rate of tax was extended to the assessee therein, namely, Tata Steel Limited. Though this writ petition arises out of a challenge to an order passed by the learned tribunal yet this court is not denude of jurisdiction to do substantial justice in the instant matter in exercise of its powers under Article 226 of the Constitution of India, particularly when facts are not in dispute, that the transaction between the writ petitioner and the 7th respondent is a case of inter-State sale.

Conclusion - The petitioner was entitled to the concessional tax rate of 2% for the inter-State sale based on the admitted facts and the 6th respondent's acknowledgment.

The writ petition is disposed of by directing the 6th respondent to address a letter to the writ petitioner to the effect that the subject sale transaction is admittedly an inter-State sale, and Form-C declaration is not being able to be issued as the 7th respondent has not filed any application for issuance of Form-C declaration.

[KASTURI SETHI]

A lot of thanks to Sh.Sadananand Bulbule, Sir and .M/s.  YAGAY and SUN, Sirs for such a comprehensive reply. 

[YAGAY andSUN]

Thanks Kasturi Sir. 

AI Summary

Purchasing Dealer's Failure to Issue Form C Under CST Act Leads to Higher Tax and Legal Consequences for Seller. A purchasing dealer's failure to issue Form C under the Central Sales Tax (CST) Act results in significant legal and financial consequences for the selling dealer. Without Form C, the seller cannot claim concessional tax rates, leading to a higher tax burden. The seller may issue a debit note for the tax difference and initiate recovery proceedings. Courts typically do not compel purchasers to issue Form C, and sellers often face penalties or loss of tax credits. Sellers have rights to demand Form C, recover full tax, and seek legal redress if necessary. Landmark judgments emphasize adherence to CST Act requirements for tax benefits.