FEBRUARY 27, 2010

Amendments to CST Act, 1956 and possible delay in roll out of GST

By Joseph Prabakar

STOCK Transfer with Form F under CST Act 1956 has been a contentious issue ever since Section 6 A was introduced in the CST Act in year 1972. While a dealer would claim that the movement from one state to another is on account of Stock Transfer, the department would demand CST on the contention that it was an identified sale. This matter came to lime light in the decision of the Supreme Court in Ashok Leyland Vs State of Tamil Nadu reported in 1997 105 STC 152 where in the Apex Court held that an order passed by the assessing authority under Section 6A accepting Form F could be reopened by the authority at the time of the final assessment or even in reassessment under Section 16 of the Tamil Nadu Central Sales Tax Act 1959.

However, a Larger Bench of the Supreme Court, in Ashok Leyland Vs State of Tamil Nadu (2004) 1344 STC 473, = (2004-TIOL-09-SC-CT) had overruled the earlier decision and held that separate order accepting the correctness of Form F filed by an assessee is final and cannot be reopened unless that order was obtained by Fraud, Collusion, Misrepresentation or Suppression of material facts or furnishing false particulars. The Supreme Court further held that mere change of opinion of the assessing authority will not confer jurisdiction on that authority to reopen the proceedings.

After 28 years of existence, Section 6A is now proposed to be amended in order to come over the decision of the Supreme Court in the second Ashok Leyland Case . Sub-Section 2 of Section 6A is being amended to provide that the officer who accepts Form F for stock transfer should, in addition to verifying the particulars furnished in said Form, also satisfy himself that an interstate sale was not effected. Further, the acceptance of Form F would be subject to Sub-Section 3 which is proposed to be inserted in Section 6 A.

The new Sub-Section 3 states that re-assessment can be made if the assessing authority finds new facts or the assessment could be revised by a higher authority if the original assessment done was contrary to law. Thus, the dictum of the Supreme Court laid down in second Ashok Leyland case that Form F could be reopened only under limited circumstances, is now proposed to be done away with.

Another amendment in CST Act is insertion of Section 18 A. This Section states that in case of dispute arising from an order passed by the assessing officer involving the question of stock transfer, the appeal would lie directly to the highest appellate authority in the state. Normally, every state provides for appellate remedy at the first stage before the departmental officer of a rank below Commissioner and the second appellate remedy before Tribunal constituted for the said purpose. In certain states like West Bengal, Special Tribunals have been constituted under Article 323-B of the Constitution of India. Therefore, an order passed by assessing officer can be challenged before the first appellate authority irrespective of the amount involved or issue therein. Now, as per the proposed amendment, if a dispute involves a question on Stock Transfer, then the appeal would lie before the Tribunal.

In this context, it may be worth noting that generally, most states provide for pre-deposit of disputed tax ranging from 25% to 50% before the first appellate authority. The new Section 18A now proposes to dispense with the requirement of pre-deposit by the Tribunal before filing an appeal and provides for passing of an order of stay by the Tribunal, after fixing the amount of pre-deposit, if any.

Thus, in a dispute involving a question on Stock Transfer, a dealer could prefer an appeal to the Tribunal and the appeal could be preferred without the condition of pre-deposit. This would come as a major relief to the dealers since the amount of pre-deposit made at the first appellate authority would get locked up for years together before the issue is finally settled.

Section 18 A provides for appeal to be filed within a period of 60 days and does not fix any period for condonation of delay in filing of appeal, thereby giving discretionary power to the Tribunal to condone any period of delay. Further, Section 18A states that the appeal, to the extent possible, should be disposed off within a period of 6 months.

These proposals go to prove that meticulous work has been done in the past few months to bring about these amendments. In other words, the law making machinery seems to have spent substantial time drafting these amendments to the CST Act, 1956, when they were supposed to draft the GST model law. Hence, one is left to wonder that when GST is to be introduced in Year 2011 and when CST Act, 1956 is to be abolished simultaneously, what is the necessity to make such sweeping and elaborate amendments to CST Act 1956. May be, the Government is sure the GST may not, after all, come about in year 2011 or even in the near future.