2021 (3) TMI 1338 - HC - VAT and Sales Tax

Taxability - Undenatured ethyl alcohol of any alcoholic strength (including neutral and extra neutral alcohol) when used in the production of alcoholic liquors for human consumption - C Forms - F Forms - HELD THAT - From the evaluation of various provisions of the CST Act, 1956, CST Rules, 1957, or the Goa Rules, 1973 it is clear that the subject of issuance of C and F Forms is squarely governed by the statutory provisions that prescribe not only the authorities competent to issue these forms but also the conditions subject to which such forms are to be issued. Admittedly, the OM dated 21.04.2021 is like an executive instruction. Such an executive instruction cannot interfere with the statutory provisions or introduce any additional conditions of furnishing the impugned undertaking, when in fact the statutory provisions do not provide or contemplate the issuance of any such undertaking. The Court after analyzing and listing the conditions prescribed by the CST Act, 1956, CST Rules, 1957, and the Jharkhand Rules, 2006 proceeded to formulate the conditions that a dealer is required to fulfill before he can insist upon the State issuing the C Form. The High Court then concluded that once these conditions are fulfilled, there is a corresponding duty on the State to issue the C Forms and further, the State authorities cannot refuse the C Forms at the whims and caprice of the officers of the State. The High Court held that sometimes, over-anxious officers of the State fall in the track (sic) of looking at the nature of the transactions or looking to the uses of C Forms by the registered dealers and held that this is not permissible at the stage of issuance of C Forms. - The Court analyzed the various provisions and concluded that under the provisions of Section 8(1) of the CST Act read with Rule 8(4), a registered dealer has a right to obtain a declaration form from the prescribed authority to avail concession in payment of tax on inter-State transactions. Neither Section 8 of the Act nor Rule 12 imposes any restriction on the supply of C declaration form by the notified authority to a dealer registered under the Act. Under the provisions of Section 10 of the CST Act only if a person misuses the C form he is liable to a penalty. It is only Rule 6 of the CST (O) Rules which imposes certain restrictions on the supply of the C declaration form. It is quite apparent that the State upon perceiving that the statutory provisions may not be sufficient to protect its interests at revenue collection has virtually attempted to add to or alter the statutory provisions enacted by the Central Government. Merely styling such acts as filling the vacuum in the legislation or supplementing the legislative vacuum is not sufficient to mask the true nature of the exercise - the presumption of constitutionality that attaches to legislation does not extend to an executive act or an executive instruction like the OM in the issue. The impugned direction and the impugned undertaking are declared ultra vires and the respondents are restraint from enforcing the same. As a consequence, it is directed that the respondents to consider petitioners' applications for issuance of C and F Forms in accord with the law but without insisting upon the petitioners furnishing the impugned undertaking - petition disposed off.

Issues Involved:
1. Legality of the undertaking required for the issuance of C and F Forms.
2. Authority of the State to impose conditions not specified in the CST Act, CST Rules, or Goa Rules.
3. Applicability of the GST regime to Extra Neutral Alcohol (ENA).
4. Prejudice and rights of petitioners in the context of statutory compliance.

Detailed Analysis:

1. Legality of the Undertaking Required for the Issuance of C and F Forms:
The petitioners challenged the requirement imposed by the respondents to furnish an undertaking for the payment of all taxes, interest, and penalties if the GST Council decides that ENA is covered under the GST Law, as a precondition for the issuance of C and F Forms under the CST Act and Rules. The petitioners argued that they have fulfilled all necessary conditions under the CST Act and that there is no provision in the CST Act, CST Rules, or Goa Rules that empowers the respondents to insist on such an undertaking. The court agreed with the petitioners, stating that the impugned direction and undertaking are ultra vires as they introduce an additional precondition not contemplated by the statutory provisions.

2. Authority of the State to Impose Conditions Not Specified in the CST Act, CST Rules, or Goa Rules:
The court emphasized that the issuance of C and F Forms is governed by the statutory provisions of the CST Act, CST Rules, and Goa Rules. The court noted that the OM dated 21.04.2021, which required the undertaking, is an executive instruction and cannot interfere with or introduce additional conditions to the statutory provisions. The court referenced several precedents, including Tata Steel Ltd. v. Jharkhand, Chowhan Machinery Mart v. State of Orissa, and Manan Auto Link Pvt. Ltd. v. State of Gujarat, which established that the State cannot impose additional conditions for the issuance of C Forms beyond those specified in the statutory framework.

3. Applicability of the GST Regime to Extra Neutral Alcohol (ENA):
The respondents argued that ENA is covered under the GST regime and not the CST Act. However, the court noted that the GST Council, of which the State of Goa is a part, has decided to maintain the status quo and apply the CST regime to ENA used for the manufacture of alcohol for human consumption. The court found that the State of Goa has accepted and acted upon this arrangement, as evidenced by the OM dated 21.04.2021. Therefore, the court declined to address the larger issue of whether ENA is covered under the GST regime, as it was not relevant to the specific challenge in these petitions.

4. Prejudice and Rights of Petitioners in the Context of Statutory Compliance:
The court rejected the respondents' argument that no prejudice would be caused to the petitioners by furnishing the undertaking. The court held that insisting on compliance with an ultra vires requirement constitutes prejudice. The court also noted that the petitioners might expose themselves to liabilities not contemplated by the existing statutory provisions by furnishing the undertaking. The court referenced several decisions, including Rexnord Electronics and Controls Ltd. v. Union of India, which highlighted the potential for independent contractual liability arising from such undertakings.

Conclusion:
The court declared the impugned direction and undertaking as ultra vires and restrained the respondents from enforcing them. The court directed the respondents to consider the petitioners' applications for the issuance of C and F Forms in accordance with the law, without insisting on the impugned undertaking. The applications were to be disposed of expeditiously, within six weeks from the date of the judgment. The rule was made absolute, and no order for costs was issued.

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