Benefit of CST Exemption U/S 6(2) Cannot Be Denied for Non-Furnishing of 'C' Forms When Seller is Not at Fault: Gauhati High Court - 2025-07-09

Seller Can't Be Penalised for Buyer's Failure to Provide 'C' Forms, Especially When Buyer is State-Owned: Gauhati HC

GUWAHATI | June 6, 2025

In a significant ruling providing relief to businesses, the Gauhati High Court has held that the benefit of tax exemption for subsequent inter-state sales under Section 6(2) of the Central Sales Tax (CST) Act, 1956, cannot be denied to a seller merely for the non-submission of 'C' Forms, especially when the failure is attributable to the buyer and the tax authorities themselves.

Justice SoumitraSaikia , quashing the hefty tax demands imposed on M/S Bharat Trading Corporation, observed that a dealer cannot be deprived of a statutory benefit due to circumstances beyond their control. The court set aside assessment orders that had levied tax, interest, and penalties on the petitioner for multiple assessment years from 2013 to 2017.

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Background of the Case

The petitioner, M/S Bharat Trading Corporation, supplied caustic soda to the now-defunct Hindustan Paper Corporation Ltd. (HPC). The transactions were structured as "subsequent sales" in the course of inter-state trade. Under Section 6(2) of the CST Act, such sales are exempt from tax, provided the seller furnishes two key documents:

1. Form E-1: From the original seller from whom the goods were purchased inter-state.

2. Form C: From the ultimate buyer (HPC in this case) to whom the goods were sold.

While Bharat Trading duly procured and submitted the E-1 forms, it could not obtain the required 'C' Forms from HPC for a portion of the sales. Consequently, the Superintendent of Taxes treated these transactions as sales to an unregistered dealer and imposed a higher rate of tax, leading to significant financial liability for the petitioner.

The case took a unique turn as it was revealed that HPC was unable to provide the 'C' Forms because the Assam Taxation Department had refused to issue them, citing HPC's own large outstanding tax dues. To compound the issue, during the course of the dispute, HPC went into liquidation and its assets and liabilities were ultimately taken over by the Government of Assam.

Arguments in Court

Petitioner's Counsel, Dr. A. Saraf , argued:

* The petitioner was not at fault for the non-submission of the 'C' Forms. The failure was entirely on the part of HPC and the State Tax Department.

* The State of Assam, having taken over HPC, is now in the peculiar position of being the successor to the entity that defaulted on providing the forms, while its tax department is simultaneously penalizing the petitioner for that very default.

* The fundamental nature of the transaction as a subsequent inter-state sale under Section 6(2) was never disputed by the assessing officer in the assessment orders. The denial of exemption was purely on procedural grounds.

* The petitioner should be granted the exemption, or the State should be directed to issue a notification under Section 8(5) of the CST Act to waive the requirement.

State's Counsel, Mr. B. Choudhury, contended:

* Furnishing 'C' Forms is a mandatory statutory requirement to avail the concessional rate or exemption.

* The transaction did not qualify as a subsequent sale under Section 6(2) because the petitioner had a pre-existing order from HPC before purchasing the goods.

* The power to grant exemption under Section 8(5) is for matters of "public interest" and not to relieve the hardship of an individual dealer.

Court's Rationale and Decision

Justice Saikia meticulously analyzed the provisions of the CST Act and the unique facts of the case. The court made several key findings:

"The benefit under Section 6(2) of the Act as sought to be claimed by the petitioner will accrue to a seller only when the dealer selling the goods furnishes to the prescribed authority in the prescribed manner, declaration duly filled and signed by the registered dealer to whom the goods are sold."

However, the Court noted the extraordinary circumstances:

"This leads to a very peculiar situation whereby the petitioner is being deprived of the benefits prescribed under the provisions of the Act of 1956 without any fault that can be attributed to it."

The Court rejected the State's argument that the sale was not a valid subsequent sale, pointing out that the assessing officer's orders never questioned this fact. The orders only focused on the absence of 'C' Forms. Citing the Supreme Court's judgment in Mohinder Singh Gill & Anr. v. The Chief Election Commissioner , the Court emphasized that the validity of an assessment order must be judged by the reasons stated within it, and it cannot be improved upon by subsequent affidavits in court.

The High Court concluded that where the inter-state nature of the transaction and the subsequent sale are not in doubt, the substantive benefit of exemption cannot be denied on a procedural lapse for which the seller is not responsible.

"The benefit available to the petitioner under Section 6(2) cannot be curtailed in the peculiar facts and circumstances of the case, merely because the ‘C’ Forms were not furnished by the petitioner and which was a result of non-issuance of valid ‘C’ Forms by the respondent department to the respondent No. 4 because of outstanding tax liabilities on the part of respondent No. 4."

Ultimately, the Court allowed the writ petitions, setting aside the assessment orders to the extent that they denied the exemption on sales made to HPC. The Court directed that the petitioner be granted the full benefit of exemption under Section 6(2) of the CST Act, 1956.