End of Litigation on Issuance of ‘C’ Forms – In the GST Regime

This article is also published in Taxmann, www.taxmann.com

‘C’ Form is a physical document used to issue by the Sales Tax Authorities to a purchasing dealer under section 8 of the CST Act, 1956, for procurement of goods at concessional rate of 2% of CST for manufacturing, intended to be used in the telecommunications network or mining or processing or generation/distribution of electricity and ‘C’ Form also used for the purpose of resale of goods.

Legal provision in pre-GST regime:

Section 8(1) of the Central Sales Tax Act, 1956 provides the rate of tax on the interstate sale to a registered dealer of goods which are mentioned under section 8(3) (b) of the CST Act. The rate on interstate sales of such goods is 2 % (Concessional Rate). Section 8(3) (b) and 8(3) (c) of the CST Act prescribed that goods as defined in Section 2(d) of the CST Act, can be sold at concessional rate of 2% CST if following conditions are fulfilled:

(1) goods of the class or classes specified in the Certificate of Registration of the registered dealer purchasing the goods,

(2) goods are intended for:

a. re-sale by him,

b. use by him in the manufacture or processing of goods for sale,

c. in the telecommunications network,

d. in mining,

e. in the generation or distribution of electricity,

f. in the generation or distribution of any other form of power,

g. being used for the packing of goods for sale.

Section 2(d) of the CST Act defined goods as “Goods” includes all materials, articles, commodities and all other kinds of movable property, but does not include newspapers, actionable claims, stocks, shares and Securities.

Therefore, in the pre-GST regime, any dealer who used to purchase goods from outside State is eligible to obtain Form-C from the Sales Tax Authorities under section 8 of the Act to procure goods against ‘C’ Form at concessional rate of 2% from the person who is selling goods. The said principle of procurement of goods (as defined under section 2 (d) of the CST Act) by a dealer against ‘C’ Form from the outside State, which is issued by the State VAT authorities across the country were being followed.

Legal provision in the post-GST regime:

With the implementation of GST w.e.f. 1’st July’2017, the definition of goods under clause (d) of Section 2 of the CST Act, 1956 has been amended by ‘The Taxation Laws (Amendment) Act, 2017 No. 18 of 2017 published on 5-05-2017, which provides to include only Non-GST goods with its scope. The amended definition of ‘goods’ under the CST Act is reproduced as under:

(d) “goods” means

(1) petroleum crude;

(2) high speed diesel;

(3) motor spirit (commonly known as petrol);

(4) natural gas;

(5) aviation turbine fuel; and

(6) alcoholic liquor for human consumption’

In view of the cited definition of goods under section 2(d) of the CST Act, 2017, the person dealing with purchase and sale of non-GST goods is required to take registration under the CST Act. Section 8 of the CST Act provides that concessional rate 2% would be available if goods are purchased by a registered dealer. Thus, registration under CST provision is an inevitable condition for claiming the benefit of the concessional rate of non-GST goods.

In the initial stage of implementation of GST, the State VAT authorities was started denying issuance of Form-C to the manufacturers of goods other than Non-GST goods (i.e. goods on which CST Act not applicable). With the denials of the State VAT authorities to issue ‘C’ Forms, the manufacturers had approached to the Hon’ble High Courts through writ petition across the country. Finally, the Hon’ble Supreme Court has decided the matter of issuance of ‘C’ Forms in the favour of manufacturers in the post GST regime. The important case laws on ‘C’ Forms are discussed as under:

Case Laws: The Hon’ble High Court of Punjab & Haryana in the case of Carpo power Ltd. v. State of Haryana 2018 (12) G.S.T.L. 248, held that “the respondents are liable to issue ‘C’ Forms in respect of the natural gas purchased by the petitioner from the Oil Companies in Gujarat and used in the generation or distribution of electricity at its power plants in Haryana. In the event of the petitioner having had to pay the oil companies any amount on account of the first respondent’s wrongful refusal to issue ‘C’ Forms the petitioner shall be entitled to refund and/or adjustment of the same from the concerned authorities who collected the excess tax through the oil companies or otherwise. The concerned authorities shall process such a claim within twelve weeks of the same being made by the petitioner in writing and the petitioner furnishing the requisite documents/form.” (Para-28). The Supreme Court has upheld the decision of the Punjab and Haryana High Court that Form- C should be made available to an assessee even after implementation of the goods and services tax (GST), 2019 (23) G.S.T.L. J172 (S.C.)].

The Hon’ble High Court of Chhattisgarh in the case of Shree Raipur Cement Plant v. State of Chhattisgarh [2018] 93 taxmann.com 409/68 GST 665, held that the petitioner is a registered dealer under the provisions of the CST Act, 1956 read with the Rules of 1957 and his registration certificate under the CST Act, 1956 read with the Rules of 1957 continues to be valid for the purpose of inter-State sale and purchase of high speed diesel despite the petitioner having been migrated to the GST regime with effect from 1-7-2017, as the definition of goods as defined in Section 2(d) of the CST Act, 1956 has been amended prior to coming into force of the CGST Act, 2017 from 1-7-2017 which includes high speed diesel. Further, under section 9(2) of the CGST Act, 2017, the GST Council has not made any recommendation for bringing high speed diesel within the ambit of the CGST Act, 2017 and therefore the Central Government has not notified high speed diesel to be within the ambit and sweep of the CGST Act, 2017. Thus, the petitioner’s registration certificate under the CST Act, 1956 is still valid for the goods defined in Section 2(d) of the CST Act, 1956, including high speed diesel, and the petitioner is entitled for issuance of C-Form for inter-State purchase/sale of high speed diesel against the said C-Form. Accordingly, the respondents shall be liable and are directed to issue C-Form to the petitioner in respect of high speed diesel to be purchased by the petitioner and used in the course of manufacture of cement and for that, it is further directed to rectify and remove the error on their official website and entertain the petitioner’s application submitted online on the official website seeking issuance of C Form to the petitioner for said goods. (Para-39)

The Hon’ble High Court of Madras in the case of Ramco Cements Ltd. v. CCT [2018] 99 taxmann.com 20, held that as long as the petitioners are having valid Registration Certificate and as long as Section 8(3)(b) of the CST Act as such is holding the field, the respondents are not entitled to deny the benefit derived out of such provision of law to the petitioners, provided they are using the goods so purchased for the purposes of the manufacture of processing of goods for sale, in the telecommunication network, in mining and in the generation or distribution of electricity or any other form of power. So, the respondents are directed to permit these petitioners to download ‘C’ forms, as has been done in the past for the purpose of purchasing petroleum products against the issuance of ‘C’ declaration forms. (Para-42 & Para 43).

The Hon’ble High Court of Orissa in the case N.K. Bhojani (P.) Ltd. v. CCT & GST [2019] 108 taxmann.com 25, held that taking into consideration, we are of the opinion that the circular dated 17th August, 2017, which is partially quashed by Punjab and Haryana High Court and has been approved by the Hon’ble Supreme Court. Other High Courts also have taken a similar view. In that view of the matter, it will not be appropriate to now enforce the circular dated 17-8-2017 and the Circular of 1st November, 2018 will prevail along with the judgments which are referred herein-above, the authorities are bound to implement all decisions referred to above and we are approving the ratio laid bound those decisions and we direct the State Government to follow and act in accordance with the ratio of those decisions.”(Para-5)

The Hon’ble High Court of Orissa has also decided the similar issue like earlier Order in the case of Tata Steel Ltd. v. State of Orissa [2020] 116 taxmann.com 456.

The Hon’ble High Court of Rajasthan in the case of Hindustan Zinc Ltd. v. State of Rajasthan 2018-VIL-233-RAJ. Similarly, in this case, petitioner being engaged in mining of Zinc was refused to issue Form C with respect to inter-State purchase of HSD for running of plant & machinery at mines of the petitioner. The Hon’ble Rajasthan High Court in terms of the decision of Carpo power Ltd. (supra) has pleased to hold that respondents are liable to issue C forms in respect of the HSD procured for mining purpose through inter-State trade.

The Hon’ble High Court of Gauhati in the case of Star Cement Meghalaya v. State of Assam [2019] 104 taxmann.com 193, held that the registration of the petitioners u/s 7(2) of the CST Act of 1956 could not have been withdrawn for an underlying reason that the manufactured good referred in Section 8(3) of the CST Act of 1956 would also have to be amongst the six retained goods, this Court is of the view that the question whether the finished goods would also have to be amongst the six retained goods for the purpose of applying the provisions of Section 8(3) of the Act, In the event, if the respondent authorities are of the view that the manufactured goods would also have to be amongst the six retained goods for availing the benefits of Section 8(3) of the CST Act of 1956, the appropriate remedy for implementing the same cannot be an withdrawal of the registration of the dealer u/s 7(2) of the Act by providing that in the circumstance, the dealer is no longer leviable under the AVAT Act of 2003. (Para 51 & Para-52)

Clarification by the Government:

In light of the decision of the Punjab and Haryana High Court which was the subject matter of S.L.P. to Appeal (C) No. 20572 of 2018 before the Hon’ble Supreme Court, which came to be dismissed on 13-8-2018 after which the Central Government has come out with the clarification by their letter dated 1-11-2018, the relevant extract of the clarification is reproduced as under:“

To

The Commissioner of Commercial Tax of All States/Union Territories.

Subject: – Regarding definition of goods in sub-section (3)(b) of Section 8 of the Central Sales Tax Act, 1956 and issuance of Form-C.

Sir/Madam,

I am directed to refer to OM dated 7-11-2017 (copy enclosed) regarding clarification of definition of goods in sub-section (3)(b) of Section 8 of the Central Sales Tax Act, 1956 and to say that Hon’ble Punjab and Haryana High Court has considered the issue of ‘C’ Forms in respect of Natural Gas purchased by the petitioner in one State and used in another State vide judgment dated 28-3-2018 in CWP No. 2943/2017 filed by Carpo Power Limited which has been upheld by Hon’ble Supreme Court vide its Order dated 13-8-2018 in SLP No. 20572/2018 in this matter.2.

This matter has been examined in Department of Revenue and it has been decided to forward copy of aforesaid judgment dated 28-3-2018 (copy enclosed) of Hon’ble High Court of Punjab and Haryana and Order dated 13-8-2018 (copy enclosed) of Hon’ble Supreme Court for compliance in the respective States.

Encl.: As above.

Yours faithfully Sd/-

Sd/-

(Mahendra Nath)

Under Secretary (Sales Tax Section-II)

Tele: 23092419

“In view of the cited clarification issued by the Government now the issue is no more existence in GST regime and as the law is now settled in terms of Section 8 of the CST Act, 1956 read with Section 2(d) of the CST Act, as amended by The Taxation Laws (Amendment) Act, 2017.

Recently, the Hon’ble High Court Madras in the case of Sri Siva Saravana Blue Metals. v. Assistant Commissioner (ST), [W.P. No. 14506 of 2020 and VMP. Nos.17994 & 17995 of 2020, dated 9-10-2020], held that “the Appellant State and the Revenue Authorities are directed not to restrict the use of ‘C’ Forms for the inter-State purchases of six commodities by the Respondent/Assessees and other registered Dealers at concessional rate of tax and they are further directed to permit Online downloading of such Declaration in ‘C’ Forms to such Dealers. The Circular letter of the Commissioner dated 31-5-2018 stands quashed and set aside along with the consequential Notices and Proceedings initiated against all the Assessees throughout the State of Tamil Nadu. The petitioner is entitled to the inclusion of ‘High Speed Diesel Oil’ as a commodity in the registration certificate. Let this exercise be carried out within a period of four (4) weeks from the date of uploading of this order. The request of the petitioner for issuance of ‘C’ Forms is allowed as a consequence thereof.”

Conclusion: Therefore, based on the Supreme Court decision, the State Tax Authorities of the Sates have issued circulars for registration under CST Act, even if the manufactures were registered under GST Act. Accordingly, Form ‘C’ can be issued to the registered dealers for non-GST goods i.e. goods listed in Section (d) of the CST Act, 1956 as amended by the Taxation Laws (Amendment) Act,2017. Thus, there is no restriction that the manufacture of goods other than non-GST goods will not be entitled for purchasing the non-GST goods against Form ‘C’. The litigation of issuance of ‘C’ Forms came to an end with the decision of the Supreme Court in the matter of Carpo Power Ltd.