2025 (4) TMI 1062 - HC - VAT / Sales Tax

Recovery of amount on account of the defendant s failure to furnish Form-C for availing concessional Central Sales Tax (CST) rates - non-compliance with the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act 2015 - HELD THAT - The plaintiff had unequivocally denied receiving copies of Form-C in question. Thus the onus to prove that copies of Form-C had been provided to the plaintiff was required to be discharged by the defendant. The defendant had not produced any document on record to show that it had forwarded Form-C in question to the plaintiff. Although the defendant has now sought to produce the copies of Form-C in these proceedings by filing an application for producing additional evidence the defendants have not produced any letter or communication forwarding the said Form-C to the plaintiff. There is no reason for the plaintiff to have suffered an additional liability of tax in the event Form-C was provided by the defendant to the plaintiff as claimed. Producing Form-C at this stage is of little assistance to the plaintiff as the plaintiff has already entered into a settlement for payment of the differential tax for seeking waiver of the interest on the said sum as demanded by the concerned tax authorities. The plaintiff is entitled to receive the amount of Rs. 3, 88, 294/- along with remaining consideration as differential tax along with the balance consideration. Whether the suit is liable to be dismissed for non-compliance with the provision of Section 12A of the CC Act? - HELD THAT - Undisputedly the plaintiff had filed an application under Order XXXVIII Rule 5 of the CPC for seeking attachment of the amount claimed. In terms of the Agreement the defendant was required to deposit the remaining consideration of 5% in a fixed deposit which would be withdrawn by the plaintiff on expiry of the warranty period of three years. During this period the plaintiff was required to be secured by a bank guarantee. Admittedly the bank guarantee had been withdrawn. Thus it is understandable from the stand point of the plaintiff that it required to be urgently secured in respect of its claim - the suit could not be dismissed as barred by law on account of Section 12A of the CC Act. It is also relevant to note that the Supreme Court in M/s Patil Automation Private Limited and Ors. v. Rakheja Engineers Private Limited 2022 (8) TMI 1494 - SUPREME COURT had held that the provisions of Section 12A of the CC Act are mandatory. However it was clarified that the decision would be prospective. Conclusion - i) The plaintiff is entitled to recover Rs. 9, 54, 094/- along with interest including Rs. 3, 88, 294/- as differential tax paid due to non-furnishing of Form-C by the defendant. ii) The suit is not barred or liable to be dismissed for non-compliance with Section 12A of the CC Act. Appeal dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the plaintiff is entitled to recover the sum of Rs. 9,54,094/- along with interest from the defendant as claimed, including the additional amount of Rs. 3,88,294/- on account of the defendant's failure to furnish Form-C for availing concessional Central Sales Tax (CST) rates;

(b) Whether the suit is barred or liable to be dismissed for non-compliance with the mandatory pre-institution mediation requirement under Section 12A of the Commercial Courts Act, 2015 (CC Act);

(c) Ancillary issues including whether there was any cause of action, misjoinder of parties, or limitation bar to the suit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Entitlement to recovery of Rs. 9,54,094/- including differential tax due to non-furnishing of Form-C

Relevant legal framework and precedents: The contract between the parties was governed by the terms of the purchase order and applicable tax laws, notably the Central Sales Tax Act, 1956 and Karnataka Value Added Tax Act, 2003. Under these laws, the concessional CST rate of 2% applies if the purchaser furnishes Form-C to the seller, enabling the latter to claim concessional tax rates. Failure to furnish Form-C results in levy of differential tax at a higher rate.

Court's interpretation and reasoning: The Court examined the purchase order and invoice, which explicitly stated that the price was inclusive of CST and that Form-C would be provided by the defendant. The plaintiff raised an invoice reflecting CST at 2% against Form-C. The plaintiff produced evidence of a rectification order and tax assessment order showing liability to pay differential tax of Rs. 4,38,224/- due to non-furnishing of Form-C, with a specific amount of Rs. 3,88,294/- attributable to the defendant's transaction.

Key evidence and findings: The plaintiff's authorized representative (PW1) affirmed non-receipt of Form-C despite reminders. The defendant's Managing Director (DW1) claimed Form-C was furnished but failed to produce documentary evidence of forwarding the Form-C to the plaintiff. The defendant sought to file additional evidence of Form-C copies at a late stage but did not show any communication or proof of delivery to the plaintiff.

Application of law to facts: The Court held that the onus was on the defendant to prove that Form-C was furnished to the plaintiff, which was not discharged. The plaintiff had already paid the differential tax and obtained waiver of interest and penalty from tax authorities, substantiating its claim for reimbursement. The Court found no reason why the plaintiff should bear the additional tax liability if Form-C had indeed been furnished.

Treatment of competing arguments: The defendant's argument that the plaintiff had agreed to reduce prices or issue credit notes was rejected due to lack of documentary proof. The defendant's belated attempt to produce Form-C was considered insufficient as it did not demonstrate actual delivery to the plaintiff or prevent the plaintiff's tax liability.

Conclusion: The Court upheld the plaintiff's entitlement to recover the full amount of Rs. 9,54,094/-, including the differential tax of Rs. 3,88,294/- and interest, as decreed by the Commercial Court.

Issue (b): Whether the suit is liable to be dismissed for non-compliance with Section 12A of the Commercial Courts Act

Relevant legal framework and precedents: Section 12A of the CC Act mandates pre-institution mediation or settlement efforts in commercial disputes before filing suit. The Supreme Court has held this provision to be mandatory but prospective in effect.

Court's interpretation and reasoning: The Court noted that the plaintiff had filed an application for attachment of the claimed amount under Order XXXVIII Rule 5 CPC, citing urgency due to the expiry of the warranty period and withdrawal of the bank guarantee securing the plaintiff's claim. The Court found the urgency genuine and not a ruse to circumvent Section 12A.

Key evidence and findings: The plaintiff's need for urgent relief was supported by the facts that the bank guarantee had been withdrawn and the plaintiff was at risk of losing security for the claim. No evidence suggested that the plaintiff had deliberately avoided mediation.

Application of law to facts: Given the genuine urgency and the prospective operation of the Supreme Court's ruling on Section 12A, the Court held that dismissal of the suit on this ground was not warranted.

Treatment of competing arguments: The defendant's contention that the suit was barred for non-compliance was rejected as the plaintiff's position was justified and the law was prospective.

Conclusion: The suit was not barred or liable to be dismissed for non-compliance with Section 12A of the CC Act.

Ancillary issues: The Court found no merit in the defendant's claims regarding cause of action, misjoinder of parties, or limitation, as these were not pressed or substantiated with evidence.

3. SIGNIFICANT HOLDINGS

"The pleadings as well as the evidence placed on record clearly establishes that the plaintiff had supplied the equipment as agreed. There is no cavil that the defendant had agreed to receive the same."

"The purchase order unambiguously provided that the price of Rs. 1,13,16,000/- was inclusive of taxes. The terms and conditions also clearly provided that 'Taxes: CST Inclusive & Form-C will be provided'. The plaintiff had raised an invoice for the price inclusive of CST at 2% against Form-C."

"The plaintiff has, thus, clearly proved that it had paid an amount of Rs. 3,88,294/- on account of difference in tax resulting from non-furnishing of Form-C pertaining to the sale made to the defendant."

"The onus to prove that copies of Form-C had been provided to the plaintiff was required to be discharged by the defendant. The defendant had not produced any document on record to show that it had forwarded Form-C in question to the plaintiff."

"There is no reason for the plaintiff to have suffered an additional liability of tax in the event Form-C was provided by the defendant to the plaintiff as claimed."

"The suit could not be dismissed as barred by law on account of Section 12A of the Commercial Courts Act."

"The Supreme Court in M/s Patil Automation Private Limited and Ors. v. Rakheja Engineers Private Limited held that the provisions of Section 12A of the CC Act are mandatory. However, it was clarified that the decision would be prospective."

Core principles established include the mandatory nature of Section 12A of the CC Act with prospective effect, the burden of proof on the purchaser to establish furnishing of Form-C to avail concessional CST, and the entitlement of a supplier to recover differential tax paid due to purchaser's failure to provide Form-C.

Final determinations:

(i) The plaintiff is entitled to recover Rs. 9,54,094/- along with interest, including Rs. 3,88,294/- as differential tax paid due to non-furnishing of Form-C by the defendant.

(ii) The suit is not barred or liable to be dismissed for non-compliance with Section 12A of the CC Act.

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