Q.1 The dealer has
accepted a purchase order of Government in 2006-07. The supplies against above
purchase order are still being effected in current year 2007-08. The
Government has promised to issue D form based on which a tax rate at 4% is
being charged, though the rate of tax under Local Act on goods supplied is
12.5%. Whether the above taxing is correct as per law ?
Ans. The above taxing will not be correct in view of amended CST
Act,1956. The section 8 of CST Act is amended from 1.4.2007. There are some
important changes, which can be mentioned as under.
- The rate of tax against C form is
brought down from 4% to 3%. Therefore the sales against C forms will be
liable to tax @ 3%.
- The facility of issuing D form for
Government purchases has been discontinued. Therefore the sales to
Governments will be taxable at normal rates discussed in iii) below.
-
If there is no C form
then the rate, as applicable under local VAT law, will apply. In other words
the goods liable to tax @ 1%, 4% or 12.5% will also be liable to 1%, 4% and
12.5% under CST Act. It can be mentioned that if the local rate is below 3%
then the C form will not be necessary. If rate is above 3%
(i.e.4%/12.5%/20% etc.) then due to C form, rate will become 3%, else it
will be 4%/12.5% etc. respectively.
Thus form D facility stands withdrawn from 1-4-2007. The effect is that
now, after 1-4-2007, the Government Department will not be able to issue D
form, even though it has earlier agreed to. Therefore for the supplies made
after 1-4-2007, you will not be able to receive D form. The effect is that
as per local rate you will be liable to pay tax @ 12.5%. The recovery of
differential tax liability will be a matter of mutual agreement and terms of
contract but legally the liability will be at 12.5%.
Q.2 We in Mumbai are
effecting purchases from Tamil Nadu and have contracted to supply said goods
to State Government of West Bengal. The goods are directly dispatched form
Tamil Nadu to West Bengal. We collect EI form from Tamil Nadu and D form from
West Bengal Govt., by which we get exemption from tax u/s.6(2) of CST Act. We
have heard that after 1.4.2007 we will not be entitled to exemption and will
be liable to tax @ 12.5%. We request to clarify the position ?
Ans. The position depicted by you is correct. The condition for getting
exemption u/s.6(2) of CST Act is that you should obtain EI form from the
seller and C/D form from the buyer. After 1-4-2007 for D form is abolished.
If Government effecting purchase issues C form, then exemption can be
availed. However if the Government is not in position to issue C form then the
possibility of exempted sale u/s.6(2) is lost, there being no other
alternative. Therefore the change in above legal position is required to be
seen for effecting transaction from 1-4-2007 onward.
Q.3 Whether C form
declaration can be issued for Air Conditioner, if it is required in factory
for a particular manufacturing process.
Ans. The C form facility is to give concession to inter-state buyer.
However the issue of C form is coupled with conditions of use mentioned
there in, which can be referred to as permissible uses. One of the permissible
uses is to purchase the goods for use in manufacture of goods for sale.
Therefore raw materials as well as plant and machinery required for use in
manufacturing process can be purchased against C form. However the goods so
purchased should have nexus to the manufacturing process. A reference can be
made to judgment of Supreme Court in case of J. K. Cotton Spinning & Weaving
Mills Ltd. (16 STC 563)(SC) where in the Supreme Court has laid down the
guidelines for deciding the issue of use of goods in manufacturing of goods
for sale. Viewed from above angle the reply to above query depends upon facts.
Due to nature of manufacturing activity mentioned in query, it appears that
the air conditioner is must. In other words it appears that without air
conditioned plant the manufacturing process cannot be undertaken. If this is
the position then C form can be issued for Air Conditioner also which will
be at par with plant. We suggest to obtain opinion of technical consultant
about necessity of air conditioner in the manufacturing process.
Q.4 A unit is situated in SEZ. It wants to construct factory building.
Whether it can purchase building materials against I form. ?
Ans. The I form facility is given to SEZ units as per section 8(6) of
CST Act. The said section reads as under:
Notwithstanding anything contained in this section, no tax under this Act
shall be payable by any dealer in respect of sale of any goods made by such
dealer, in the course of inter-State trade or commerce to a registered dealer
for the purpose of setting up, operation, maintenance, manufacture, trading,
production, processing, assembling, repairing, reconditioning, re-engineering,
packaging or for use as packing material or for use as packing accessories in
an unit located in any special economic zone or for development, operation and
maintenance of special economic zone by the developer of the special economic
zone, if such registered dealer has been authorized to establish such unit or
to develop, operate and maintained such special economic zone by the authority
specified by the Central Government in this behalf.
Thus it can be seen that I form can be used for purchase of goods for
setting up of the unit. The scope is therefore wide and in my opinion it will
include the purchases for construction of unit in SEZ.