2016 (6) TMI 304 - HC - VAT and Sales Tax

Cancellation of C-Form issued by the DT T - Whether there exists a power in the Commissioner VAT, Delhi under the CST Act and the Rules thereunder to cancel a C-Form and further if such power exists then whether in the facts and circumstances of the present case such power was rightly exercised - Held that - with their being a valid registration of the purchasing dealer on the date of the transaction and the C-Form having been validly issued on the date it was so issued, there could not have been a retrospective cancellation of the C-Form. At the risk of repetition, it must be observed that there is no statutory power that permits cancellation of a C-Form that has been validly issued, much less retrospectively. The only circumstance perhaps that could lead to the cancellation of a C Form is the failure by the issuing authority to notice the cancellation of the purchasing dealer's CST registration previous to the date of the sale. That would be a case of a purchasing dealer obtaining a C Form by fraudulent means concealing the fact of cancellation of his CST registration. The issuance of a C Form in such instance would be void ab initio since it would not satisfy the requirement of Section 8(1) of the CST Act read with Section 7 (4) thereof. If the selling dealer has after making a diligent enquiry confirmed that on the date of the sale the purchasing dealer held a valid CST registration, and is also issued a valid C Form then such selling dealer cannot later be told that the C Form is invalid since the CST registration of the purchasing dealer has been retrospectively cancelled. Where, a selling dealer fails to make diligent enquiries and proceeds to sell goods to a purchasing dealer who does not, on the date of such sale, hold a valid CST registration then such selling dealer cannot later be seen to protest against the cancellation of the C-Form. As observed by the Supreme Court in Commissioner of Sales Tax, Delhi v. Shri Krishna Engg. Co. 2005 (1) TMI 389 - SUPREME COURT OF INDIA the selling dealer in such instance will have to pay for his recklessness . Therefore, the order passed by the DT T cancelling the C Form issued to the Petitioner in the present case with effect from 27th November 2015 is hereby set aside. The Petitioner will continue to treat the said C-Form issued to it as having been validly issued. The DT T shall, not later than ten days from today, make the necessary corrections on its website to indicate the validation of the above C-Form. - Petition disposed of

Issues Involved:
1. Cancellation of C-Form issued by the Department of Trade and Taxes (DT&T), New Delhi.
2. Retrospective cancellation of CST registration of the purchasing dealer.
3. Validity of the C-Form issued to the petitioner.
4. Availability of alternative remedies under Section 74(1)(b) of the DVAT Act.
5. Authority of the Commissioner VAT under the CST Act and the Rules to cancel a C-Form.

Detailed Analysis:

1. Cancellation of C-Form issued by the DT&T:
The petitioner, a company registered in Uttar Pradesh, engaged in trading duty entitlement pass book scrips, was aggrieved by the cancellation of a C-Form issued by the DT&T for purchases made by Respondent No.2. The petitioner argued that there was no power under the CST Act or the associated rules to cancel a C-Form once issued. The DT&T had cancelled the C-Form because the CST registration of Respondent No.2 was retrospectively cancelled from 26th February 2014.

2. Retrospective cancellation of CST registration of the purchasing dealer:
The petitioner's counsel contended that the retrospective cancellation of the CST registration of Respondent No.2 should not affect the validity of the C-Form issued to the petitioner since, on the date of issuance, Respondent No.2 was validly registered. The petitioner relied on precedents such as State of Maharashtra v. Suresh Trading Company and State of Orissa v. Santosh Kumar & Co., which supported the view that retrospective cancellation of CST registration does not affect the rights of the selling dealer who acted in good faith.

3. Validity of the C-Form issued to the petitioner:
The court found that there was no provision in the CST Act that allowed for the cancellation of a C-Form once issued. Rule 5(4) of the Central Sales Tax (Delhi) Rules, 2005, allows for withholding but not cancellation of a C-Form. The court noted that on the date of the transaction, the purchasing dealer held a valid CST registration, and the C-Form was validly issued. Therefore, the petitioner met the requirements of Section 8(1) of the CST Act.

4. Availability of alternative remedies under Section 74(1)(b) of the DVAT Act:
The respondents argued that the petitioner had an alternative remedy under Section 74(1)(b) of the DVAT Act to approach the Objection Hearing Authority. However, the court held that the petitioner, being directly affected by the cancellation of the C-Form, raised an important question of law regarding the absence of power under the CST Act to cancel a C-Form. Therefore, the court found it inappropriate to relegate the petitioner to the statutory remedy, deeming it not efficacious in this case.

5. Authority of the Commissioner VAT under the CST Act and the Rules to cancel a C-Form:
The central issue was whether the Commissioner VAT had the power to cancel a C-Form. The court concluded that no such power existed under the CST Act or the associated rules. The court emphasized that the selling dealer, having verified the valid CST registration of the purchasing dealer on the date of the transaction, cannot later be told that the C-Form is invalid due to retrospective cancellation. The court suggested that CST registration should be cancelled prospectively and the information should be made available on the website to avoid such issues.

Conclusion:
The court set aside the order of the DT&T cancelling the C-Form issued to the petitioner and directed the DT&T to make necessary corrections on its website to indicate the validation of the C-Form. The writ petition was disposed of with these terms.

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