23 July 2018
Dear Sir Final product manufactured by Assessee is exempt from VAT & CST. Department argued that government is losing revenue if assessee applies for C Form. This is because at the time of purchase of material against C Form assessee pays 2% CST whereas after the same material uses in manufacture of Final product , assessee do not pay any tax since it is exempt. Had assessee purchases the same material from the state it would have paid 14.5% VAT. Thus there is loss of revenue of 12.5%. Hence , assessee cannot apply C Form. Is the view of the Department correct.
12 July 2024
The view of the Department regarding the applicability of C Form in your scenario appears to be based on their interpretation of revenue loss due to the differential tax rates (2% CST under C Form vs. 14.5% VAT if purchased within the state). Let's break down the key considerations:
### Understanding the Situation:
1. **Exemption from VAT & CST on Final Product**: - The final product manufactured by the assessee is exempt from VAT and CST. This means that no VAT or CST is levied on the sale of this final product.
2. **Purchase of Raw Materials Against C Form**: - Assessee purchases raw materials against C Form, which allows for a concessional rate of 2% CST instead of the higher local VAT rate (14.5% in this case).
3. **Revenue Loss Argument**: - The Department's argument is that if the assessee uses C Form to purchase raw materials at 2% CST and then manufactures an exempt final product, it results in a significant revenue loss for the government. - They argue that had the assessee purchased the same materials locally, they would have paid 14.5% VAT, resulting in higher revenue for the government.
### Analysis:
1. **Legal Provisions and Intent of C Form**: - C Form is intended to facilitate interstate trade by allowing a concessional rate of CST for purchases made against it. It is meant to promote commerce and reduce tax cascading. - The assessee is within their rights to avail of C Form benefits if the transactions meet the conditions prescribed under the CST Act.
2. **Exemption on Final Product**: - Exemption of the final product from VAT and CST does not automatically disqualify the assessee from applying C Form for raw material purchases. The exemption on the final product does not affect the applicability of C Form on inputs.
3. **Revenue Implications**: - While the Department's concern about potential revenue loss is valid from a revenue collection perspective, the applicability of C Form is governed by the CST Act and its rules. If the assessee complies with the conditions for issuing C Forms (such as interstate movement of goods for use in manufacturing), they are entitled to use C Forms for purchases.
### Conclusion:
- **Department's View vs. Legal Right**: The Department's view on revenue loss is a policy argument, but legally, if the assessee meets the conditions for C Form issuance under the CST Act, they can apply for and use C Forms for interstate purchases. - **Compliance**: It's crucial for the assessee to ensure that they comply with all legal requirements and conditions for using C Forms, including maintaining proper documentation and adhering to the purpose for which C Forms are issued.
Therefore, while the Department's concern about revenue loss is understandable, the legal right of the assessee to apply for and use C Form for interstate purchases, as long as they meet the prescribed conditions, stands valid under the CST Act.
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