C form under GST scenario

We know that GST is going to be implemented from 01.07.2017 which will subsume a number of state and Central legislature among which Central Sales Tax Act 1956 (herein after called as CST ACT) will also get subsumed.

The main feature of CST Act is that it allows concessional sale @2% (as of now) against C form.

The main question that arises, whether under GST scenario concessional sale at 2% will continue or not?

Let’s examine the above question with respect to existing laws and amendments made in the recent past.

We know that C form under CST Act can be issued under section 8 of CST Act 1956.

Section 8(1) allows goods (as defined under section 2(d) of CST Act 1956) to be sold at concessional rate of 2% if such goods satisfies the condition as mentioned in section 8(3).

Section 8(3)(b) and 8(3)(c) provides that goods (as defined in section 2(d)) can be sold at concessional rate of 2% if following conditions are fulfilled:

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

2) goods are intended for

a. re-sale by him

b. use by him in the manufacture or processing of goods for sale

c. in the telecommunications network

d. in mining

e. in the generation or distribution of electricity

f. in the generation or distribution of any other form of power

g. being used for the packing of goods for sale

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;

Hence as of now whenever a person purchases any goods on inter state basis for resale, or use in manufacturing of goods for sale, or use in mining, use in telecommunication network, or use in generation or distribution of electricity or any other form of power, then the purchaser is able to purchase such goods at concessional rate of 2% against C form.

However recently THE TAXATION LAWS (AMENDMENT) ACT, 2017 No 18 OF 2017 was published on 05.05.2017, in which following changes has been made as far as CST Act 1956 is concerned: (Relevant notification is attached)

The definition of goods under section 2(d) has been amended as 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.

Beside it section 14 ‘Goods of Special Importance” has been omitted. Section 14 contained a number of goods among which entry II-d contained ATF (Aviation Turbine Fuel) for ATR (ATR are small aircrafts operated by schedule Airlines which have a maximum takeoff mass < 40,000 KG).

Section 15 which provided that a maximum of 5% rate of tax can be applied by a state in respect of declared goods u/s 14 is also omitted.

Let’s take below example to see whether C form can be issued under different scenario:

Example 1) Brittania Industries Ltd, a manufacturing company purchases cartons (as packing material) for selling biscuits manufactured by them. Whether company can procure cartons on CST basis against C form ?

Ans: As of now biscuit is covered under the definition of goods as defined under section 2(d). Beside it section 8 prescribed that C form can be issued for packing materials intended to be used for packing of goods for sale. Hence in the given case cartons can be procured on inter state sale basis @ 2% against C form.

However in view of the change in definition of Goods under CST Act (to be applicable from date yet to be notified) biscuit is no longer contained in definition of goods u/s 2(d) of CST Act 1956. Hence catons (i.e packing material) can not be purchased against C form @ 2% for sale of Biscuit.

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

Ans: As of now biscuit is covered under the definition of goods as defined under section 2(d). Beside it section 8 prescribed that C form can be issued for goods intended to be used in the generation or distribution of electricity or any other form of power. Hence in the given case Diesel can be procured on inter state sale basis @ 2% against C form by Brittania Industries Ltd.

However in view of the change in definition of Goods under CST Act (to be applicable from date yet to be notified) biscuit is no longer contained in definition of goods u/s 2(d) of CST Act 1956 and at the same time HSD (Diesel) is well covered under definition of goods.

If diesel is purchased for 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 Ideally the company is eligible to purchase HSD (diesel) against C form @ 2%.

However if diesel is purchased for use by him in the manufacture or processing of goods for sale, (and not for generation of power in the manufacturing plant) then such manufactured or processed good (i.e biscuit) does not meet the revised definition u/s 2(d) and hence the company would not be able to issue C form and it would have to purchase diesel at full rate of supplying state in case of inter state purchase.

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

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

Hence now as well as after the THE TAXATION LAWS (AMENDMENT) ACT, 2017 is brought into force, HPCL can purchase diesel (i.e HSD) on CST basis @2% against C form.

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

Ans: Under the existing as well as revised definition, Alcoholic liquor for human consumption is well covered under the definition of Goods u/s 2(d).

If diesel is purchased for 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 Ideally the company is eligible to purchase HSD (diesel) against C form @ 2%.

However if diesel is purchased for use by him in the manufacture or processing of goods for sale, (and not for generation of power in the manufacturing plant) then even such manufactured or processed good (i.e Alcoholic liquor for human consumption) meet the requirement of revised definition of goods u/s 2(d) and hence the company would be able to purchase diesel (i.e HSD) on CST basis @2% against C form.

Hence we can conclude that if HSD (i.e diesel) is purchased after THE TAXATION LAWS (AMENDMENT) ACT, 2017 is brought into force, then C form can be issued when HSD (diesel) is going to be used for following purposes only.

a. re-sale by him

b. use by him in the manufacture or processing of goods for sale (Here such manufactured or processed goods has to be either Petroleum crude or High speed diesel or Motor spirit (commonly known as petrol) or Natural gas or Aviation turbine fuel or Alcoholic liquor for human consumption)

c. in the telecommunications network

d. in mining

e. in the generation or distribution of electricity

f. in the generation or distribution of any other form of power

g. being used for the packing of goods for sale

IMPACT of omission of section 14 and 15 under CST Act 1956.

As mentioned earlier section 14 (i.e goods of special importance) is going to be omitted after THE TAXATION LAWS (AMENDMENT) ACT, 2017 is brought into force.

Section 15 provided that no state can levy a tax rate in excess of 5% in respect of declared goods u/s 14.

Section 14 entry II-d contained ATF (Aviation Turbine Fuel) for ATR (ATR are small aircrafts operated by schedule Airlines which have a maximum takeoff mass < 40,000 KG).

So as of now no state can levy rate of tax in excess of 5% for ATF for ATR, whereas ATF for normal aircraft attracts rate of tax of 25% (on average).

So with the omission of section 14 and 15 of CST Act, ATF for both ATR as well as normal aircraft will come at par and the ATF cost for ATR (i.e small aircraft) will increase.

It will have direct impact on airlines industry as their furl cost for ATR (i.e small aircraft) will increase unless and until respective states decreases the rate of ATF for ATR (after THE TAXATION LAWS (AMENDMENT) ACT, 2017 is brought into force)

Note : the above position stands on today (i.e 24.06.2017). If any further changes are made in CST Act or any other relevant Act then the above scenario may change. This article is for information only and before making any logistic plans or changes, the company should take independent view for the same.

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