By TIOL News Service

AHMEDABAD, JULY 27, 2017: THE ISSUE BEFORE THE COURT IS - Whether it would be possible for the State Government to provide a mode of tax recovery making it a pre-condition for generation of C forms. NO is the verdict.

Facts of the case:

The petitioner is an authorized dealer of Maruti Suzuki India Limited and Bajaj Auto Limited. 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 VAT which was at the rate of 15%. The dispute was with respect to the petitioner’s undisputed tax dues and the mode of recovery thereof. The department alleged 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. 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 was 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 Revenue Department, one of the conditions contained in circular was 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 explained 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.

On appeal, the HC held that,

++ 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. Under the circumstances, we hold that the action of Department 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.

(See 2017-TIOL-1405-HC-AHM-VAT)