No Forfeiture Proceedings under CST Act, 1956

STATEOF A.P Vs HINDUSTAN CABLES LTD [2013] 57 VST 284 (AP)

Facts of the case:

Assessee M/s. Hindustan Cables Limited, Cherlapally, was assessed to tax under Central Sales Tax Act, 1956.  The Assessing Authority noticed that, the assessee collected taxes in excess of the tax remitted to the Revenue and forfeited the CST. 

Assessee preferred the appeal before the Appellate Deputy Commissioner, which was rejected and further preferred appeal to the Tribunal. 

The Tribunal allowed the appeal on the ground that there was no substantive provision for forfeiture of sales tax under the CST Act and the provision under section 10 of the said Act for action by way of penalties against contravention of the provision of section 9A of the CST Act does not include forfeiture. 

State preferred an appeal before the High Court.

Analysis by the Hon’ble High Court:

Hon’ble high court applying the ratio of the Supreme Court in India Carbon Ltd, Vs State of Assam [1997] 106 STC 460 (SC) relying on the Constitution Bench judgement in J.K.Synthetics Ltd Vs Commercial Tax Officer [1997] 106 STC 1 (SC) following the majority view of the Constitution Bench held that there being no substantive provision in the CST Act for levy of interest on delayed payments of CST, orders by the Revenue authorities levying interest on delayed payment of CST (under provisions of section 35A of the Assam Sales Tax Act, 1947) are unsustainable and allowed appeals.  Majority held that charging or levying of interest on delayed payment of tax must be construed as a substantive law and not a procedural law.

Decision:

In view of the ratio flowing from the above judgements Court Held that; forfeiture being process requiring a substantive provision and in the absence of any provision in the CST Act authorizing forfeiture of excess tax collected by a dealer but not remitted to the Revenue, not forfeiture could be ordered by the Revenue by reference to the provisions of the State Sales Tax Act.

Comment:

Before we conclude it is has to be made clear as to what is substantive and procedural law.  Substantive law defines the rights and duties of the people, but procedural law lays down the rules with the help of which they are enforced.  In order to enforce substantive law, such provisions should be expressly prescribed in the Statute.  The basic differences between substantive and procedural law can be understood form the following comparison chart.

The principle laid down by the Hon’ble Andhra Pradesh High Court (supra) clarifies that the word ‘assessment’ does not include forfeiture.  In future it may create problem in initiating the rectification proceedings, being substantive law not prescribed under CST Act, 1956.

With due respect to the Hon’ble Court the judgement was concluded based on the argument that forfeiture is a substantive law and not procedural law.  From the point of exchequer it is relevant to mention that whether dealer can take an advantage in the form of substantive provision being not prescribed under CST Law.  It is important to note that Hon’ble Apex Court in the case of R.S.JOSHI, SALES TAX OFFICER, GUJARAT Vs AJIT MILLS LIMITED AND ANOTHER reported in [1977] 40 STC 497 (SC) came to the conclusion that ‘forfeiture’ is one form of penalty [para 2 of page 527].  Therefore if ‘forfeiture’ amounts penalty based on the provision of section 9(2) of the CST Act, 1956, which refers to the application of local law can be enforced for forfeiting such excess collection of taxes as provision of section 10(f) of the CST Act, deals with levy of penalty on dealers who collects any amount by way of tax in contravention of the provisions contained in Section 9-A. Section 9-A authorizes for collection of tax only by registered dealers except in accordance with this Act.