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C Form Under GST Scenario [Updated Information]

 

 

As we all know that after the implementation of GST from 01.07.2017, it has subsumed a number of states and Central legislatures. Central Sales Tax Act 1956 (hereinafter, called CST ACT) was amongst those acts which got partially subsumed as there are still some goods that are under the purview of the CST act.

C form under CST Act can be issued by the purchaser of goods under section 8 of CST Act 1956 to purchase goods after levy of concessional rate of CST. The CST Act allows concessional sale @2% against C form.

We are quoting some of the sections of the CST act which were later amended by THE TAXATION LAWS (AMENDMENT) ACT, 2017, No 18 OF 2017, wide notification dated 5.5.2017.

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According to the CST act, some of the sections are as follows;

#1. “Section 8(1) allowed goods (as defined under section 2(d) of CST Act 1956) to be sold (applicable for interstate sale only) after levy of CST at a  concessional rate of 2% if such goods satisfied the following conditions as mentioned in section 8(3):-

#2. Conditions according to Section  8(3)(b) and 8(3)(c) :-

1) Goods should be of the class or classes specified in the Certificate of Registration of the registered dealer purchasing the goods

2) Goods are intended for-

  1. re-sale by him
  2. use by him in the manufacture or processing of goods for sale
  3. in the telecommunications network
  4. in mining
  5. in the generation or distribution of electricity
  6. in the generation or distribution of any other form of power
  7. being used for the packing of goods for sale

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#3. Section 2(d) 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”

#4. Section 2(c) of CST Act defines ‘Declared Goods’ as those declared under section 14 of CST Act as ‘goods of special importance in Inter-State Trade or commerce’. 

#5. Section 14 of the CST Act gives a list of such declared goods,

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Important among them are: 

  • Cereals i.e. paddy, rice, wheat, bajra, jowar, barley, etc.
  •  Coal and coke in all forms excluding charcoal 
  • Cotton in un-manufactured form but not cotton waste 
  • Cotton fabrics, cotton yarn 
  • Crude oil Hides and skins 
  • Iron and Steel i.e. pig iron, sponge iron,  iron scrap, steel ingots, billets, steel bars, steel structurals, sheets, plates, discs, rings, tool steel, tubes, tin plates, steel wheels, wire rods; defectives of above, etc. 
  • Jute Oil-seeds i.e. groundnut, til, cottonseed, linseed, castor, coconut, sunflower, mahua, kokum, sal, etc.

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  •  Pulses i.e. gram, tur, moong, masur, urad, etc. 
  • Man-made fabrics – fabrics of man-made filament yarn i.e. artificial textile materials, polyester filament yarn, staple fibers, polyester staple fiber, tire cord fabric, impregnated textile fabrics, etc. 
  • Sugar and Khandsari Sugar 
  • Woven fabrics of wool 
  • Aviation Turbine Fuel sold to a turboprop aircraft

C Form Under GST Scenario [Updated Information]

Article 286(3)(a) of the Constitution of India authorizes the  Parliament to declare some goods as of ‘special importance’ and to impose restrictions and conditions in regard to the power of States in regard to levy, rates, and other incidences of tax on such declared goods.

Section 15 of the CST Act places the following restrictions and conditions in regard to powers of State Governments to tax, ‘declared goods’ inside the State. 

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According to [section 15(a)] -Tax on declared goods within a State cannot exceed 4%.

After the passage of THE TAXATION LAWS (AMENDMENT) ACT, 2017, No 18 OF 2017- 

Following changes in the CST act 1956 have been made;

  1. Clause 2(c) has been omitted
  2. Section 14 has been omitted
  3. Section 15 has been omitted
  4. Section 2 (d) (definition of goods) has been amended as per the list below;

“Goods means—

(i) Petroleum crude;

(ii) High-speed diesel;

(iii) Motor spirit (commonly known as petrol);

(iv) Natural gas;

(v) aviation turbine fuel; and

(vi) Alcoholic liquor for human consumption.

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Explanations;

  1. It implies that the distinction of the ‘specific declared goods’{ sec2(c), sec (14) } and the ‘tax thereon’ { sec (15) } has been removed. 
  2. The above-mentioned goods are still under the purview of the CST act 1956. 
  3. All the other goods have been removed from the CST act and have been brought under the GST act, 2017.
  4.  According to the department –  C form is issuable under CST act only, therefore it can be issued only with respect to those goods which are mentioned in amended sec 2(d).
  5. There is no change in conditions given under sec 8(3)(b) and 8(3)(c) for the issue of C form.

Now the pertinent question that arises, whether under GST scenario C forms can be issued or not and whether concessional sale at 2% will continue or not?

Answer- 

(i) There is no provision of ‘C form’ in GST ( Goods and service tax ) act and hence no question of concessional tax rate arises on goods which are defined under GST act.

(ii) Though ‘C form’ can still be issued under CST ( Central sales tax ) act for goods mentioned under amended sec 2(d) and they should be purchased for the purposes mentioned under sec 8(3) of CST act. Therefore the concessional rate of tax would be applicable for only those goods which are mentioned in amended sec 2(d). C Form can be issued for NON-GST goods.

Examples;

Example 1) A Industries Ltd, a manufacturing company purchases various polyester films (as packing material) for selling cakes, muffins, biscuits manufactured by it. Can the Company procure polyester films against C form?

Ans: No, Though the purpose for purchasing the polyester films is mentioned u/s 8(3) of CST act but the goods bought are not in the list as per amended sec 2(d). Therefore they can not be bought under the concessional rate of tax.

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Example 2) B Industries Ltd, a company manufacturing glass,  purchases HSD i.e Diesel from IOCL (Indian Oil) to be used for the generation of power in the manufacturing plant. Can the company purchase Diesel (i.e HSD) on a CST basis against C form?

Ans: Yes, diesel is mentioned in amended sec 2 (d).  Also, this diesel is purchased for the generation of power in the manufacturing plant which satisfies the conditions mentioned in section 8(3) of the CST Act 1956. Hence the company is eligible to purchase HSD (diesel) against C form @ 2%.

Example 3) Bharat Petroleum (BPCL) purchases HSD (diesel) from Indian Oil (IOCL) on CST basis for resale. Whether BPCL can purchase diesel at a concessional rate of 2%.

Ans: Yes, HSD is well covered under the definition of Goods u/s 2(d), and since such purchase is made for resale which satisfies the requirement of section 8 as well.

Example 4) Kalyani Beverages Ltd, a company manufacturing alcoholic liquor for human consumption, purchases HSD i.e Diesel from IOCL (Indian Oil) to be used for the generation of power in the manufacturing plant. Can the company purchase Diesel (i.e HSD) on a CST basis against C form?

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Ans: Yes, If diesel is purchased for the generation of power in the manufacturing plant then it satisfies the requirement of section 2(d) as well as section 8 of the CST Act 1956 and is eligible for purchase under the concessional rate of tax by giving C form.

Example 5) ABC aviation Ltd purchases ATF (aviation turbine fuel) for using it as a fuel for the private plane of its director. Can it be purchased under C form?

Ans: No, although ATF is mentioned in the list u/s 2(d), but the purpose for purchase is not mentioned u/s 8(3). Therefore it is not applicable for purchase against C form.

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Office memorandum issued by the ministry of finance on 7.11.2017

The Ministry of Finance, Department of Revenue, State Tax Division, New Delhi has issued an Office Memorandum dated the 7th November 2017 to clarify the inter-State purchases against C Form for a period starting from 1st July 2017. The clarification is reproduced as under:-

“The undersigned is directed to say that opinion of Department of Legal Affairs, Ministry of Law was solicited on the issue “Whether the definition of “goods” the phrase “manufacture or processing of goods” in section 8(3)(b) of the Central Sales Tax Act would be as per the definition provided for under section 2(d) of the Central Sales Tax Act or that the word “goods” when it appears in the phrase ” manufacture or processing of goods” means any goods . “goods” which fall within GST as well as “goods” which do not come under the ambit of GST.

Department of Legal Affairs, Ministry of Law has confirmed that the term “Goods” has been specifically defined under the Central Sales Tax Act, 1956 and prima facie the term “Goods” referred to in section 8(3)(b) of the Central Sales Tax Act, 1956 will have the same meaning as defined and amended under Section 2(d) of the Central Sales Tax Act, 1956 vide Tax Laws Amendment Act, 2017. However, it does not affect the provisions of section 8(3)(b) of CST Act relating to telecommunication networks or mining or generation or distribution of electricity or any other form of power.”

After this office memorandum, a trade circular was issued in Maharashtra which clarified that C forms will only be issued for the 6 items enumerated in amended sec 2(d).

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Trade Circular No. 47T of 2017 dated 17th November 2017.

The department was of the view that the C form can only be issued against those six goods which are enumerated in the amended sec 2(d). Therefore Maharashtra state issued a Trade Circular No. 47T of 2017 dated 17th November 2017. The main operating part of the circular is as follows;

“Declarations in Form ‘C’ for the periods starting from 1st July 2017 shall be issued only if such goods are purchased for the purposes enumerated in the Office Memorandum issued by Ministry of Finance, Department of Revenue, State Tax Division, New Delhi dated 7th November 2017 such as:-

(i) resale of above six goods;

(ii) manufacturing of above six goods;

(iii) use of above six commodities in the telecommunication network or mining or generation or distribution of electricity or any other form of power.”

The said circular had to be withdrawn on 14.2.2019 as the definition of goods can not be narrowed down to these six commodities only. This withdrawal would enable the sales tax officers not to be constrained by the above impugned circular in interpreting sections 2(d) and 8(3) of the Central Sales Tax Act, 1956.

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Case Laws

#1. On the interpretation of the definition of goods u/s 2(d) and 8(3) of CST act 1956  after amendment on 5.5.2017 by THE TAXATION LAWS (AMENDMENT) ACT, 2017, No 18 OF 2017

A) Bombay Dyeing and Manufacturing Co. Ltd.   v/s The State of Maharashtra and others WRIT PETITION NO.2651 OF 2018    order dated June 13, 2019

Facts of the case

In this case, the petitioner was purchasing natural gas from Gujarat for the manufacture of polyester staple fiber. The petitioner was aggrieved by the nonissuance of the C forms by the sales tax department of Maharashtra after the issuance of that trade circular.

(i) In the above case the petitioner had prayed to the honorable court to instruct the Deputy commissioner of sales tax of the Maharashtra government to withdraw the Trade Circular No. 47T of 2017 dated 17th November 2017 and

(ii) To issue orders to the sales tax department to issue C forms with immediate effect.

Verdict – The Honorable court in its wisdom ordered that it would be appropriate that the Petitioner should make a representation to the Respondent for issuance of the C forms. 

The respondent has to compulsorily dispose of the representation on merits after hearing the Petitioner in accordance with law within two weeks from the date of the Petitioner filing its representation.

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B) Caparo Power Ltd vs the State Of Haryana And Ors on 28 March 2018 IN THE HIGH COURT OF PUNJAB AND HARYANA  AT CHANDIGARH

Facts of the case

In this case, also the petitioner was purchasing natural gas from Gujarat for the generation of electricity. The petitioner was aggrieved by the nonissuance of the C forms by the sales tax department of Haryana. The petitioner had challenged the department’s stance of not issuing the C form for purchasing natural gas at a concessional rate of tax even though it was purchased interstate, and used for the generation of electricity. The petitioner had sought a writ of mandamus directing the respondents to issue `C’ Forms under the Central Sales Tax Act, 1956 and the Central Sales Tax (Registration and Turnover) Rules, 1957.

Verdict – The writ petition was not only allowed but a favorable decision was given. It was held that the respondents were 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. 

The court went further and remarked that if the petitioner had to pay the oil companies any excess amount on account of the first respondent’s wrongful refusal to issue `C’ Forms then it would be made good by the respondents.

C Form Under GST Scenario [Updated Information]

C) Hindustan Zinc Limited Vs. The State of Rajasthan & Ors. Civil Writ Petition No. 5506/2018  at Jodhpur dt. 18th May 2018.

The honorable court had allowed the petition and given directions to the respondent to issue “C” forms in respect of High-Speed Diesel procured by the petitioner for mining purposes through interstate trade.

 

D) Asi Industries Limited vs Union Of India And Ors on 28 September 2018

HIGH COURT OF JUDICATURE FOR RAJASTHAN   BENCH AT JAIPUR S.B. Civil Writs No. 5475/2018

The writ petition had been filed by the petitioner challenging the action of the respondents in not issuing the “C” form after coming into force of the GST Act, 2017. The petitioner had further prayed for a direction against the respondents to issue the “C” form under Central Sales Tax, 1956.

The honorable court quoted the judgments given in the cases of ‘Caparo Power Ltd vs the State Of Haryana And Ors ‘ and ‘ Hindustan Zinc Limited Vs. The State of Rajasthan & Ors’. It was held that the respondents were liable to issue “C” Forms in respect of the High-Speed Diesel procured for mining purposes through interstate trade.

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E) Jaipur mineral development syndicate Vs The state of Rajasthan order dt 20.11.2018

The petitioner had sought immediate relief from the Commercial tax department of Rajasthan. It required a “C Form” for the purchase of high-speed diesel to be used for mining purposes through interstate sale. The writ petition was allowed and on the basis of supra judgments, the court held that the respondents were liable to issue “C” Forms in respect of the High-Speed Diesel procured for mining purposes through interstate trade.

Thus from the above judgments it has become clear that for the purchase of fuel for the generation of power or electricity, it is incumbent upon the department to issue C forms.

 

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F) The Printers (Mysore) Ltd. & Anr. Vs. Asstt. Commercial Tax Officer & Ors Civil Appeal No.1550 of 1985

(From the Judgment and order dated 10.8.84 of the Karnataka High Court in W.P.No.1848 of 1976) WITH C.A.2494/93, C.A.Nos.694,672/94.

 

Facts of the case

In this case, the petitioner was engaged in printing newspapers and for that purpose, it needed newsprint and other raw materials. The sales tax department refused to issue a C form for the interstate purchase of these items as according to them Newspapers were not goods as per sec2(d) and raw materials for manufacturing newspapers cannot be given the benefit of a concessional rate of tax through interstate trade.

 

Submission

Section 2(d) 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”

 

Conditions according to Section  8(3)(b) and 8(3)(c) :-

1) goods should be of the class or classes specified in the Certificate of Registration of the registered dealer purchasing the goods

2) goods are intended for-

  • re-sale by him
  • used by him in the manufacture or processing of goods for sale
  • use in the telecommunications network
  • in mining
  • in the generation or distribution of electricity
  • in the generation or distribution of any other form of power
  • being used for the packing of goods for sale

 

The department contended that the word ‘Goods’ used in the phrase  ‘manufacture or processing of goods is the same as in the definition of ‘goods’ in sec 2(d) which excludes newspapers.

Judgement

It was held that Newspapers were excluded from the definition of goods in sec 2(d) because it was intended that they should be free from CST. 

The word ‘goods’ used anywhere in the act cannot have the same meaning as per section 2(d). The word ‘goods’ in sec 2(d) has a different meaning than the word ‘goods’ in ‘ manufacture or processing of goods for sale. Therefore the department was instructed to issue C forms to the petitioner for purchasing raw material through interstate trade for publishing of newspapers.

The meaning of any word in any act is not absolute and is subject to reasonable interpretation according to the context, its usage, and facts.

 

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G) Commissioner of Commercial Taxes and Another Vs. The Ramco Cements Ltd

The aforesaid matter was taken to the court by the sales tax department. But the court took the view of the respondent.

The Madras HC in its judgment had remarked that “The definition of ‘goods’ has been amended under the provisions of CST Act to restrict it to six commodities specified in Section 2(d) of the Act. It does not mean that the entire scope of the operation of the CST Act has been amended. 

 

The rights of the purchasing dealers of the goods including the rights to purchase at a Concessional rate against Declaration in ‘C’ forms continues unabated under Section 8(3)(b) of the Act which has not been amended in 2017.”

 

Therefore the respondent was eligible for getting a C form for his interstate purchases of Non-Gst goods. The matter reached the Supreme court which again gave the verdict in favour of the respondent.

 

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The Supreme court ruled in favour of the purchaser

The Top Court examined the said issue and it upheld the decision of Madras High Court in this case wherein, the HC had held that such purchasers (purchase of non-GST goods) were entitled to retain their entitlements under the CST Act even after the coming of the goods and services tax. The Supreme Court concluded stating that “Considering the consistent view of nine High Courts, including dismissal of special leave petitions by different Bench of this Court, and being satisfied with the exposition on the matters in issue by the High Court of Madras vide impugned judgment and order being a possible view, we decline to interfere in these special leave petitions.”

 

#2. Case Law on the difficulty faced by the taxpayer to furnish return R1 due to inefficiency of the department

Hindusthan National Glass and Industries Ltd. Bahadurgarh Vs the State of Haryana and others

The petitioner is engaged in manufacturing glass containers. It procured natural gas from Gujarat for captive generation of electricity (to be used in the production process) and used in the production of glass. It was registered both in Haryana Vat and Central sales Tax. After the implementation of the GST act From 1.7.2017, the petitioner was unable to file its quarterly R1 return of CST act due to some technical glitches appearing on the portal. Hence it could not file its returns from July 17 to June 18. The sales tax department refused to issue a C form because of its non-filing of return. The petitioner wrote two letters respectively to respondents 3 and 2 for issuance of C forms but of no avail. The Excise and taxation commissioner of Haryana, Panchkula issued instructions to issue C forms for purchases made after 1.7.2017. But still, it could not get a C form and hence filed a writ petition.

Judgment

The court directed the respondents to take the decision on the letters sent by the petitioner on 27.7.18 and 29.9.18 on merits of the case in accordance with the law, within one month of the date of receipt of the copy of the order.

 

C Form Under GST Scenario [Updated Information]

Conclusion

In Law, the meaning of any word is not absolute. It is always relative. It is subject to reasonable restrictions and interpretations with respect to context, usage, and facts of the case  Thus we can see that the CST Act of 1956, has been restricted for a few goods but is still applicable. In the case of Non-GST goods, the purchaser has the right to obtain a C form for his interstate trade.

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