CA K. Jitendra Babu

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 by the purchasing dealer to the selling dealer. The selling dealer is required to submit the declaration form to his 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 CSTT Rules, 1957.

2. The selling dealer has to obtain ‘C’ forms from the customer/purchasing dealer outside the State, within three months from the end of the quarter and submit to his assessing authority for allowing concessional rate of tax.

3.  It may so happen that the purchasing dealer could not issue ‘C’ Forms to the selling dealer for various reasons at his end. This is beyond the control of the selling dealer.

4.  In such a case, the selling dealer is not entitled to claim concessional rate of tax and he is required to pay differential tax on the sale transactions made by him at the concessional rate of tax. The differential tax would the difference between (i) the rate of VAT applicable on the materials sold in the State of selling dealer and (ii)  concessional rate of tax charged in the invoices. For ex., if the selling dealer has sold IT Products at concessional rate of tax @2% against ‘C’ Forms and could not furnish ‘C’ forms issued by the purchasing dealer, he is required to remit the differential tax of 3%, since rate of VAT applicable on IT Products is 5% in most of the States.

5. The selling dealer is also required to remit interest from the date of payment of tax at concessional rate till the date of payment of differential tax, since revenue is at loss, due to payment of tax at concessional rate of tax. Interest is compensatory in nature and required to be remitted by selling dealer to make good the loss to the revenue.

6.  As far as payment of differential tax and interest thereon, for non-submission of ‘C’ forms, there cannot be any issue from the selling dealers end.

7.  However, assessing authorities in some of the States are resorting to levy of penalty on the selling dealers, fro non-submission of ‘C’ Forms, in addition to demand for differential tax interest, alleging suppression of liability without any basis. The selling dealers are constrained to move the appellate authorities, for no fault on their part, to get the penalties set aside. They are also required to deposit part of the penalty levied, in case the State VAT Act mandates for pre-deposit of certain portion of disputed demand including interest as a pre-condition for filing appeals. The selling dealers are hard pressed in such cases.

8.  Here is a good news to the selling dealers, who are all saddled with illegal and huge penalties for non-submission of ‘C’ Forms.

9. Hon ‘ble High of Karnataka in the case of FOSROC CHEMICALS (INDIA) PVT LTD. Vs. THE STATE OF KARNATAK [2014-VIL-384-KAR] held that penalty cannot be levied on selling dealer as he is not at default. The Court held that “It is not a case of assessee trying to understate his liability to tax. His conduct in claiming concessional rate of tax in his return cannot be construed as a deliberate act in defiance of law or contumacious or dishonest or acted in conscious disregard of its obligations – When the purchaser is unable to produce the ‘C’ Form for any reason whatsoever, then the liability is cast on the assessee to pay tax under the KVAT Act. The said tax ought to have been paid on the date of sale and if there is a delay in payment of the said tax, by virtue of Section 36 of the Act which makes payment of interest automatic and mandatory, he is liable to pay tax and interest, thus he is compensating the revenue for the delay in payment of tax which should have been legitimately paid on the day he filed the returns. But, by no stretch of imagination it could be said that he had any intention of avoiding any payment of tax or his action is contrary to any law or that he is understating his liability to pay tax in the returns. Therefore, he cannot be saddled with the liability to pay penalty for no fault of his. Therefore, the order passed by the authorities levying penalty is unjustified and illegal. Accordingly, it is hereby set aside”.

Copy of the judgement is attached herewith.

10. All the professional colleagues, trade and industry are requested to take note of the above judgement, cite the same before their assessing authorities and avoid levy of illegal penalty. Assessing authorities are requested to take note of the judgement and not to resort to levy of penalty, which would force the dealers to approach appellate authorities resulting in financial hardship to them and burdening the appellate authorities.

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22 responses to “Non-submission of ‘C’ forms: Levy of penalty Not Legal”

  1. Sharadchandra Patel says:

    My case is for FY2007-2008.
    Firm is partnership firm registered in Maharashtra.
    Audit officer took C forms from our Tax practitioner but didn’t give acknowledgement.
    We got an order in 2017 to pay money . We went in appeal.
    Meanwhile officer retired.
    Appellate officer says whatever file we received it doesn’t contains C forms.There are no papers of nothings also !
    Now we have DUPLICATE of the C forms but appellate says as per law I can’t accept.
    Suppose some seller’s C forms are destroyed then he looses his fundamental right of natural justice?

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