2022 (9) TMI 1053 - HC - VAT and Sales Tax

Supplier company seeking security depositing against interstate sale - C-Forms - differential sales tax - Section 43 of the PVAT Act - HELD THAT - It is abundantly clear that IOCL is, by providing for this requirement, protecting itself against any unanticipated liability, including shortfall of C Forms in cases of defaulting dealers, to be made by a dealer either in cash or by way of security, whenever called upon by the Corporation, pending subsistence of the agreement. There is no doubt that a dealer can be called upon to furnish a Bank Guarantee in any exigency as contemplated by the Corporation, and the dealers would have no choice but to comply - the mandamus as sought for by the petitioners is not liable to be granted and the prayer is rejected. The dealers may, if they so desire, make representations to the Corporation setting out the track record of both, their history with the Corporation, as well as the tax authorities. Upon hearing the dealer concerned and considering the representation filed, the Corporation may, at its discretion, and on a case-to-case basis, waive the requirement of bank guarantee. Petition dismissed.

Summary

Issues:
1. Mandamus sought against respondents for bank guarantees.
2. Interstate sale of fuel by IOCL to dealers.
3. Withholding of statutory forms under PVAT Act.
4. Concessional rate of tax for dealers.
5. Previous judgments on withholding 'C' forms.
6. Requirement of bank guarantee by IOCL.
7. Prejudice caused to dealers by the condition.
8. Discretionary waiver of bank guarantee by IOCL.

Analysis:
1. The petitioners sought a Writ of Mandamus to prevent the respondents from directing dealers to furnish bank guarantees for anticipated demands of differential sales tax. The dealers, at the time of dealership with IOCL, enter agreements for the supply of fuel, constituting an interstate sale from Tamil Nadu to Pondicherry dealers.

2. Dealers are required to tax local sales and comply with PVAT Act. Section 43 allows withholding of forms and goods in case of default. IOCL claims concessional tax rates, subject to dealers furnishing Form-C. Default by a dealer could lead to IOCL bearing the tax differential.

3. Previous judgments highlighted the legal position on withholding 'C' forms and the limited recourse available to dealers in case of defaults by purchasers. The court emphasized the need for dealers to resort to civil suits for recovery in such instances.

4. The agreement between dealers and IOCL includes a clause for depositing sums as security, including for unforeseen liabilities like C Form shortfalls. The court noted that IOCL's requirement for bank guarantees aims to protect against potential liabilities.

5. The court held that mandamus to prevent the bank guarantee condition was not warranted. However, it acknowledged the prejudice caused to dealers and allowed them to make representations to IOCL for a discretionary waiver based on their track record and compliance history.

6. Ultimately, the court dismissed the Writ Petitions, granting dealers the liberty to seek waivers from the bank guarantee requirement on a case-to-case basis. The judgment aimed to balance the interests of both dealers and IOCL while upholding contractual obligations.