SC allows Interstate Purchase of goods under CST Act for Manufacturing, Mining etc against ‘C’ Forms in GST Scenario also: But is nullified by Finance Act, 2021

SC allows Interstate Purchase of goods under the CST Act for Manufacturing, Mining etc against ‘C’ Forms in  GST Scenario also: But is nullified by Finance Act, 2021

Section 8 of the Central Sales Tax Act of 1956 (CST Act for brevity) prescribes the mechanism for concessional rate of tax. As per the said section, the dealer has to furnish a declaration form in respect of the inter-state purchase of the goods and the said goods are to be used as per the prescribed manner under Section 8(3)(b) of the said Act.

Section 8 provides for inter-state purchase of goods or class of goods as mentioned under the registration certificate of the dealer at a reduced rate of tax. Generally, the concessional rate of tax provided is 2 per cent, and to avail the same, the registered dealer purchasing the goods is required to furnish a declaration in Form – C. The very purpose behind the filing of C Forms is that there should not be suppression of any inter-state sales by a selling dealer and evasion of tax to the State from where the actual sales are affected. Before the advent of the Goods & Services Tax Acts, 2017 (GST Acts) in the country, interstate sales of all goods were governed by the provisions contained in the CST Act and as such all such goods were eligible for the concessional rate of tax against the production of Form – C. However, with the introduction of the GST Acts with effect from 1st July,2017, indirect taxes like CST, VAT, Service Tax etc were subsumed in the said Act.

However, even under the GST regime, six goods: High Speed Diesel, Aviation Turbine Fuel, Liquor for human consumption, Natural Gas, Petroleum Crude, and Petrol have been kept away from the ambit of these Acts. The CST Act of 1956 defines “Goods” under Section 2(d). Prior to the introduction of the GST Acts, Section 2(d) was amended vide The Taxation Laws (Amendment) Act, 2017. Following the amendment, the six goods listed above were kept within the purview of the definition of “goods” as defined under Section 2(d) of the CST Act of 1956 and all other goods were excluded from the amplitude of the said Act. In short, as of now, the CST Act governs the sale of the six goods listed above (as prescribed under the definition of “Goods” under Section 8(3)(b)), in the course of inter-state trade and commerce.

Against this backdrop the latest decision of the Hon’ble Supreme Court in the Commissioner of Commercial Taxes & Anr. Vs. the Ramco Cements Ltd as well as the amendment brought in section 8(3) (b) of the CST Act, 1956 are discussed.

Judgments of the various High Courts

In the Commissioner of Commercial Taxes & Anr. Vs. the Ramco Cements Ltd (a batch of Writ Appeals) the Hon’ble High Court of Madras has considered the question that the Assessee Company or whoever engaged in the manufacture of cement and other things, which were now covered by the GST Laws were not entitled to purchase such Diesel, etc. these six specified goods against the Declaration Form -‘C’ at the concessional rate on the inter-State purchases of such goods effected by them and it was declared that, the appellant state and the Revenue Authorities are 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 the revenue is further directed to permit online downloading of such Declaration in ‘C’ Forms to such dealers.

Meanwhile, apart from the above judgment, various high courts in the country have also delivered similar verdicts in identical issues. One such decision is by a Division bench of the Hon’ble High Court of Kerala in G.K Granites Limited Vs. State of Kerala dated: 17.12.2018 in OT Revision No. 85 and 90 of 2018 wherein the Hon’ble court ventured to answer two relevant questions that;

(i) whether the activity of quarrying carried on by a metal crusher unit can be termed “mining” as referred to in Section 8(2)(b) of the Central Sales Tax Act, 1956 and

(ii) whether after the introduction of the Goods and Services Tax enactments and the restrictive meaning of goods adopted under the CST Act, such a unit can be allowed to have continued; HSD (High Speed Diesel), in their certificate of registration under the CST Act, enabling them to claim concessional rate for the inter-State purchases made.

Having held that quarrying activity carried on by the petitioner would come within the term ‘mining’, definitely, the petitioner’s quarrying operation has to be considered to be one, to which Section 8(3)(b) is applicable and as such they are eligible for concessional rate of tax against Form -C.

Special Leave petitions before the Supreme Court.

All the above high court decisions had been challenged by the respective states before the apex court through special leave petitions but the apex court has dismissed all such petitions and declared that the dealers are eligible for concessional rate of tax in respect of the interstate purchase of said six goods against Form – C. The latest order of the Hon’ble apex court in the subject matter is in the Commissioner of Commercial Taxes & Anr. Vs. the Ramco Cements Ltd No(s).15785-15788/2020 dated: 24.03.2021.

Apex Court decision is nullified by Central Finance Act, 2021

While so, section 8(3)(b) of the CST Act has been amended through Finance Act,2021 and thereby the stake holders in the above series of litigation are baffled to see that their prolonged efforts did not serve any purpose. Thus, through Clause 150 of the Central Finance Act, 2021 the existing Section 8(3)(b) of the CST Act is substituted with:

“150. Amendment of Act 74 of 1956. In the Central Sales Tax Act, 1956, in section 8, in sub-section (3), for clause (b), the following clause shall be substituted, namely: –

(b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re-sale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing for sale of goods specified under clause (d) of section 2;”.

Conclusion

The effect of the amended Section 8(3)(b) shall be that the six goods mentioned in Section 2(d) of the CST Act can be bought against the C form at concessional rate of tax, if the said six goods are for resale of such goods as such or for use in the manufacturing or processing of the goods as mentioned in Section 2(d). Further, industries involved in mining, telecommunication and electricity generation have been clearly removed from availing benefit of the reduced tax rate on inter-state purchase of goods against the C form.

Thus, now it came to light that registered dealers across the country except of those involved in manufacture of High Speed Diesel(HSD), Aviation Turbine Fuel (ATF), Liquor for human consumption, Natural Gas, Petroleum Crude, Petrol are no more eligible for the concessional rate of tax against Form –C. For example, interstate purchase of HSD for use in the manufacture of cement is not eligible for concessional rate against Form –C henceforth. That apart, three major industrial segments viz. mining, telecommunication and power generation, will not be able to avail concessional rate of tax for their interstate purchases but have to pay tax at the prescribed GST rates. Ironically, it is very pertinent to note that since all these six goods are out of purview of the GST Acts, the recipients are also not eligible for input tax credit under the GST Acts.

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Author : Aji V. Dev, Advocate, High Court of Kerala at Aji V. Dev & Associates, Ernakulam, Kochi, available at ajivdev@yahoo.co.in/advajivdev@gmail.com/9447788404