CA K. Jitendra Babu
1. Section 8 of the CST Act stipulates the rate of tax in case of inter-state sale of goods covered by registration certificate of the purchasing dealer as 2%, subject to furnishing of declaration form issued by the purchasing dealer to the selling dealer. The selling dealer is required to submit the declaration form to the assessing authority, to get assessed at concessional rate of tax. The declaration required to be furnished is Form ‘C’ as per Rule 12(1) of the CST Rules, 1957.
2. The Purchasing dealer is entitled to procure at concessional rate of tax those categories of materials as prescribed in Section 8(3) of the CST Act as mentioned hereunder –
(i) Goods purchased by the dealer and meant for re-sale by him. This category covers the dealers who are basically traders and involved in buying and selling of goods;
(ii) Goods purchased by a manufacturer for use in the manufacture or processing of goods for sale;
(iii) Goods used in the telecommunication network;
(iv) Goods used in mining;
(v) Goods used in the generation or distribution of electricity or any form of power;
(vi) Packing materials used for packing of the goods for sale.
3. The pre-condition for availing the concessional rate of tax imposed on purchasing dealer is to get the goods included in his CST registration certificate before receiving the same on inter-state purchase.
4. The pre-condition of inclusion of materials in the CST registration certificate has been posing difficulties to purchasing dealers on account of various reasons mentioned hereunder:
(i)It is practically very difficult to keep track of thousands of the materials that are used in big process industries and include the same in the CST registration certificate before placing purchase order.
(ii) Even if the purchasing dealer is able to keep track of the materials to be included in the registration certificate, cost is involved for inclusion of every new material as he has to approach the sales tax department every time.
(iii) The department in general raises an objection that the materials which are sought to be included in the registration certificate are not related to manufacturing or processing or for the specified purpose, which may run into litigation and consumes lot of time and money. The purchasing dealer would be in a great fix whether he has to procure the materials at concessional rate of tax or not, during the period of litigation.
(iv) The department is not inclined to include the entry in general – say for ex., “all goods meant for use in cement manufacturing or processing”. Departmental authorities insist to apply for material in specific.
(v) Purchasing dealers are saddled with huge penalties in case they fail to include the materials in the registration certificate by mistake, even if the materials are used in the manufacturing or processing or for the specified purpose.
5. In this context, kind attention of the professional colleagues, trade and industry is invited to the recent decision of the Hon ‘ble High Court of Allahabad in the case of M/s.Hyundai Engineering & Constructio Co. Ltd. Vs. Commissioner of Trade Tax, UO [2014-VIL-386-ALH]. In this case, even though the dealer has included the materials as “Stores Materials, Consumables etc.”, the matter has reached the High Court level. The dealer has purchased “Hut Material” which was not specifically included in the registration certificate. The dealer has issued ‘C’ form under the impression that the entry “Stores Materials, Consumables etc., covers all the materials used in the construction since the word etc., was used.
5.1 Department has levied penalty for issue of ‘C’ form without inclusion of the materials in the registration certificate. The dealer has to carry out the litigation till the High Court level, as he could not get the penalty set aside before the lower authorities.
5.2 The High Court observed that penalty is not leviable on the dealer, since he was under the bonafide impression that the word “etc” covers the materials for which he has issued ‘C’ Forms and penal provision cannot be applied in this case, as it cannot be said that the dealer was within the full knowledge of the falsity of the representation made in the declaration in Form-C issued by him.
6. In this context, comparision is drawn between the Section 8(3) of the CST Act and the CENVAT Credit Rules. In case of CENVAT credit also, earlier there was a provision under erstwhile Rule 57(G) that assessee has to declare the goods on which he intends avail CENVAT credit, before availing CENVAT credit. Lot of litigation got generated on this provision also, as department used to reject CENVAT credit in case of those materials not declared with the department, even though the materials are used in the manufacturing or processing. Taking cognizance of the unnecessary litigation, Union Government was kind enough to remove this requirement. Now, there is no requirement of filing any declaration by the assessee with Central Excise department for claiming CENVAT on any of the materials. Department would verify the use of the materials and take action of recovery in case the materials do not fit into the definition of inputs or capital goods.
7. In line with CENVAT rules, inclusion of materials in the registration certificate of the dealer shall be dispensed with under CST Act, which will give much sought after relief to the dealers and reduce litigation. The existing Section 8(3) shall be amended to read as:
(3) The goods referred to in sub-section (1) –
(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 the purchasing dealer or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in the tele-communications network or in mining or in the generation or distribution of electricity or any other form of power;
(c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale;
(d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c).
8. All the professional colleagues, trade and industry are requested to forward representations from their end for the proposed amendment.
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