Query 1

Entitlement to issue ‘C’ form

The assessee is in the activity of manufacturing goods which are covered by GST Act. However, it has to use High Speed Diesel (HSD) in its manufacturing activity. Whether the assessee can issue ‘C’ form for purchase of HSD?

Whether he will be liable to penalty in future on ground that use of goods purchased in manufacture of goods not covered by CST Act?

Reply: The issue involved centres round the eligibility to issue ‘C’ form when the resultant goods are not covered by CST Act.

As per section 8 of CST Act, the assessee is entitled to purchase goods against ‘C’ form, if the said purchases are covered for specified use. The relevant provisions are in section 8 of CST Act.

As per said provision the purchases can be effected against ‘C’ form if such purchases are for use in manufacture of goods for sale.

The definition of ‘goods’ in CST Act is amended from 1-7-2017 so as to exclude all goods from scope of CST Act, except certain items which includes petroleum products. The situation is arising that the purchase will fall under CST Act but the goods which will be manufactured by use of such goods will fall outside scope of CST Act.

The two issues arise under above circumstances:-

(i) Whether ‘C’ form can be used when the goods manufactured do not fall under CST Act, but under GST Act and,

(ii) Whether any penalty can be attracted for wrong use?

Hon. Supreme Court has dealt with the said issue in case of Carpo Power Ltd. read along with Punjab & Haryana High Court judgment in case of Carpo Power Ltd. reported in (53 GSTR 24).

It is held that keeping into account the intention of legislature, the ‘C’ form can be allowed to be used though manufactured goods do not fall under CST but under GST Act.

Hon. Madras High Court had also an occasion to deal with said issue in case of Ramco Cements Ltd. v. C. C. T (64 GSTR 374)(Mad). Hon. High Court has elaborately dealt with issue and observed as under:

“13. Heard both sides and perused the materials placed before this Court.

14. These writ petitions are filed by individual writ petitioners, who are engaged in any one of the following activities, viz.,

    1. Mining of limestone and manufacturing of cement.

    2. Mining and manufacture of blue metal.

    3. Manufacture of steel structural such as heavy beams and channels.

    4. Manufacture of cotton yarn and textiles.

    5. Manufacture of fertilizers and pesticides

    6. Buying and selling of lubricants, sulphur furnace and high speed diesel oil and petrol.

    7. Production of broiler chicks, poultry feed and broiler chicken…

    8. Manufacture of steel valve casting products.

    9. Manufacture of ready mixed concrete products and sale of sand and jalli.

    10. Manufacture of cement including white cement and their substitutes and concrete mixture.

15. While such of those petitioners, who are engaged in mining activities by purchasing petroleum product like HSD for the use of such mining activity, the other petitioners, who are engaged in the other activities, as stated supra, are purchasing petroleum product like HSD for captive power generation of electricity for doing activity/manufacturing process.

16. All these writ petitioners are commonly aggrieved against the action of the respondents in denying permission to download and issue ‘C’ declaration forms for purchase of petroleum products at concessional rate of 2%, as has been permitted in the past and till the issuance of the impugned circular. These writ petitioners, by issuing such ‘C’ declaration forms, purchased petroleum products by interstate trade as contemplated and permitted under Section 8(3)(CST Act, 1956. All these writ petitioners are registered dealers with the respective office of the respondents and there is no dispute to the fact that they are holding a valid Certificate of Registration issued by the respondents under the CST Act, 1956. It is also not in dispute that the said Certificate of Registration entitles the petitioners to purchase petroleum products at concessional rate of tax against ‘C’ declaration forms for use of the said petroleum product in their manufacturing activities. It is also not the case of the respondents that the Certificate of Registration issued to the petitioners has either been cancelled or any proceedings are initiated to do so.

17. Section 8(3)(b) of the CST Act, 1956, which entitles the petitioners to issue ‘C’ declaration form and purchase petroleum products at concessional rate of tax, reads as follows:

    8. Rates of tax on sales in the course of inter-State trade or commerce – 1. Every dealer, who in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in sub-section (3) shall be liable to pay tax under this Act, which shall be two per cent, of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower;

    (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 resale by him 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;

18. Perusal of the above said provision of law would show that every dealer in the course of inter state trade or commerce, sells to a registered dealer goods of the description referred to in sub section (3), shall be liable to pay tax under the said Act, which shall be 2% of his turnover or at the rate applicable to sale or purchase of such goods inside the appropriate State under the sales tax of law of that State, whichever is lower. Sub Section (3)(b) further contemplates as to what are the “goods” referred to in sub section (1). It is specifically stated that the “goods” referred to in sub section (1) of Section 8 are goods of the class or classes specified in the Certificate of Registration of the registered dealer. It is further clarified therein that such purchase of goods by the registered dealer is for use by him in the manufacture or processing of goods for sale or in the telecommunication network or in mining or in the generation or distribution of electricity or any other form of power.

19. Thus, it is evident that a registered dealer, who is holding a valid Certificate of Registration, which is in force, if satisfies the requirement contemplated under sub clause (3)(b) of Section 8, is entitled to pay the concessional tax, as provided under sub clause (1) of Section 8.

20. There is no dispute to the fact that even after the introduction of GST, though several drastic amendments were made to CST Act, 1956, this particular provision of law viz., Section 8(3)(b) has not undergone any change. On the other hand, it is admitted by both sides that the said provision still holds the field.

21. It is seen that these petitioners were purchasing the petroleum products, all along, at concessional rate of tax by issuing ‘C’ declaration forms in view of such entitlement conferred to them under Section 8(3)(b), as stated supra. The trouble started only when the Commissioner of Commercial Taxes of the State of Tamilnadu issued a communication dated 31-05-2018 to all the Joint Commissioners of the State, wherein it was informed that for the purpose of getting the benefit of concessional rate of paying the tax, while purchasing petroleum products by way of interstate trade, the dealer must be a person, who should be dealing in those six goods defined under Section 2(d) of the CST Act, 1956, after the amendment came into force on 01-07-2017.

22. In other words, the crux of the contention of the respondents is that if a dealer having valid Certificate of Registration under the CST Act, 1956, seeks to purchase petroleum products from other State by availing concessional rate of tax against ‘C’ declaration forms, must be a dealer in dealing with only those six goods defined under Section 2(d) and not a dealer, just to utilise such petroleum products for the purpose of manufacturing or processing of goods for sale or telecommunication network or in mining or in the generation or distribution of electricity or any other form of power, as permitted under Section 8(3)(b) of the said Act. Thus, it is the clear case of the respondents that after the amendment, the CST is made applicable only for those six goods, as mentioned above and therefore, the benefits enjoyed out of the said provision has to be restricted only to the extent of those six goods. It is the further contention of the respondents that if the dealers purchase those six goods locally, they have to pay the tax at the rate of 28% and however, by way of interstate sale and by issuing ‘C’ Form, these petitioners are paying tax only at the rate of 2%. Therefore, it is contended that there is a huge leakage of revenue for the State.

23. Let me consider the above objection of the respondents. It is true that the definition of term goods as previously defined under section 2(d) of the Central Sales Act, 1956, has changed after the introduction of GST and by substitution by Act 18 of 2017 with effect from 01-07-2017. The definition of “goods” under section 2(d) prior to amendment was an inclusive definition, which reads as follows:

    “2. Definitions:- In this Act, unless the context otherwise requires,-

    …(d) “goods” includes all materials, articles, commodities and all other kinds of movable property, but does not include Newspapers, Actionable claims, Stocks, Shares and Securities;”

24. After amendment, the term goods is defined under Section 2(d) as follows:

    “2. Definitions:- In this Act, unless the context otherwise requires,-

    [(d) “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.]”

25. Therefore, it is evident that the inclusive definition of “goods” as stood prior to the amendment has now become exhaustive, after the amendment, confining only to the above six products.

    Therefore, the term goods wherever occurs in the Central Sales Tax Act, 1956, has to be construed in the light of the definition made under Section 2(d) after the amendment.

26. By keeping the above statutory position with regard to the definition of goods in mind, let me consider the objections raised by the respondents with regard to the purchase made by these petitioners in respect of petroleum products/HSD outside the State of Tamil Nadu as an inter state trade. I have already extracted Section 8(3)(b) supra. The crux of the contentions raised by the respondents to deny the benefit under Section 8(3)(b) to these petitioners is that the purchasing goods and manufacturing or selling goods of the petitioners are not one and the same. In other words, only when the goods purchased and the goods manufactured or sold, are one and the same and more particularly, only when such goods also falls under any one of the six items referred to under section 2(d), the petitioners are entitled to the benefit under section 8(3)(b).

27. I have given my careful consideration to the above said contentions and also perused the above said provision of law viz., Section 8(3)(b) with utmost care. In my considered view, the above contention of the respondents cannot be accepted as valid in law in view of the fact that Section 8(3)(b) stands unamended even as on today and holds the field. As per the said provision of law, the dealer, who purchases the goods in the course of inter state trade, is entitled to get the benefit of concessional rate of tax, if the purchased goods is used by the said dealer in anyone of the following activities:

    a) in the manufacture of processing of goods for sale;

    b) use in the telecommunication network;

    c) use in mining;

    d) use in the generation or distribution of electricity or any other form of power;

28. Therefore, it is very clear that though the “goods” as defined under Section 2(d), is purchased by the dealer by availing benefit of concessional rate of tax under Section 8(3)(b), it is not necessary that such dealer must be a person of manufacturing or processing only the same goods for sale to avail such benefit. On the other hand, if the said goods so purchased is put into use for the mining or for the telecommunication network or for the generation and captive consumption of electricity or distribution of the same or any other form of power as well, such of those dealers, who are engaged in those activities are also entitled to the benefit under Section 8(3)(b).

29. At this juncture, it is to be noted that though the definition of “goods” under Section 2(d) was amended as stated supra, the legislature thought fit not to amend Section 8(3)(b) in any manner. On the other hand, in their wisdom, left the said provision as it is, so as to enable the dealers, who come within the purview, ambit and scope of Section 8(3)(b) to enjoy the benefit derived out of the said provision continuously as they were enjoying even before the amendment of Section 2(d).

30. Even otherwise, if there is an ambiguity in a provision of law or two provisions under the same statute contradict each other, the benefit of interpretation out of such ambiguity or contradiction should always go in favour of the assessee, since tax laws need to be with absolute clarity, not to give any room for interpretation in more than one way. Therefore, even assuming that there is a contradiction between Section 2(d) and Section 8(3)(b) of the CST Act, in terms of the understanding of the definition of “goods” or context in which it has to be dealt with under Section 8(3)(b), I am of the firm view that the benefit that is being enjoyed by the dealer out of the unamended provision of Section 8(3)(b) should continue to flow till any change is made to the said provision.”

    In light of above the ‘C’ form can be used in given facts.

    In my opinion there cannot be question of levy of penalty for wrong use. Otherwise also penalty is discretionary. When there are judgments directing to issue ‘C’ form, even if it is held to be wrong use on merits in future, still it will not be liable to penalty as it is matter of interpretation and not deliberate wrong use. Therefore, no issue of penalty.