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Appeals and Penalties

Appeals to Appellate Authority

Assessment of Central Sales Tax is done by sales tax officer who also does assessment of local sales tax. Normally, appeal against assessing authority lies with State sales tax authorities (like Appellate Commissioner or Tribunal etc). However, in case of decision of assessing authority u/s 6A read with 9 of CST Act, the appeal will lie with ‘Central Sales Tax Appellate Authority’, if the issue relates to dispute concerning the sale of goods effected in inter-state sale. In other matters, the appeal will lie with State Appellate authorities as per local sales tax law.

These provisions have been made effective from 17-3-2005.

Section 6A states that if a dealer claims a particular transaction as stock transfer and not a sale, the burden of proof will be on him to prove that it was not a sale. Section 9 provides that sales tax will be collected in the State from which the movement of goods commenced, by State Government of that State. In case of subsequent sale by transfer of documents, the sales tax is exempt if it is a E-I – E-II transaction u/s 6(2). However, if such sale is to unregistered dealer, the transaction will not be supported by E-I E-II forms. In such case, fresh tax becomes payable in the State in which the buyer could have obtained the sales tax form.

Formation of Appellate Authority – A separate ‘Central Sales Tax Appellate Authority’ will be constituted by Central Government. The Authority will consist of Chairman, Officers of Legal Service of Central government of level of Additional Secretary and officer of State Government of rank of Secretary who is expert in sales tax matters / officer of Central Government of rank of Additional Secretary who is expert in sales tax matters. Central Government will provide administrative staff to the Authority. [section 19 of CST Act]. The authority will regulate its own procedures. [section 23 of CST Act].

Till such separate authority is formed, ‘Authority for Advance Ruling’ formed u/s 245-O of Income Tax Act will function as ‘Appellate Authority’, by making suitable changes in the present structure of the ‘Authority for Advance ruling’. After constitution of Appellate Authority’ u/s 19 of CST Act, the appeals will be transferred to that authority. [section 24]. The Authority for Advance Ruling has been constituted as CST Appellate Authority w.e.f. 17-3-2005.

Matters appealable to the authority – Appeals against the decision of assessing officer u/s 6A read with section 9 of CST Act will lie with ‘Central Sales Tax Appellate Authority’, if the issue relates to dispute concerning the sale of goods effected in inter-state sale. In such case, appeal will lie with the CST Appellate Authority and not with Appellate Authority of State Government. [section 20(1)]. Dealer whose claim u/s 6A or 9 is rejected by assessing authority will file appeal to CST Appellate Authority, if the dispute relates to sale of goods effected in inter-state sale. Appeal should be filed within 45 days from date on which order is served on him. Further extension of 15 days can be granted by Appellate Authority. [section 20(2)]. Appeal must be filed in quadruplicate and accompanied by a fee of Rs 5,000/-.

Procedure for hearing – On receipt of appeal, a copy of appeal will be forwarded to assessing authority as well as State Governments concerned. Appellate Authority will call upon assessing authority and State Government/s to furnish relevant records. The records will be returned to assessing authority/State Government as soon as possible. [section 21(1)]. Authority will hear the matter, examine the matter and either accept or reject the appeal. Before rejecting appeal, opportunity of hearing will be given to appellant or his authorised representative and also to State Government concerned. [section 21(3)]. Appeal should be normally decided within 6 months. [section 21(4)]. Copy of order will be sent to appellant and assessing authority. [section 21(5)].

Authority can order refund by one State Government – It may happen that sales tax was paid to one State Government while in fact, it was payable to another State Government. In such case, the Appellate Authority, which is an All India Authority, can order one State Government to order payment of taxes to another State Government. Section 26 provides that order of CST Appellate Authority will be binding on assessing authorities and other authorities under State sales tax laws. – – There is no provision for appeal against the order of CST Appellate Authority.

Offences under the Act

Central Sales Tax Act provides for penalties and punishments in respect of certain offences. In respect of offences not provided in the CST Act, provisions of General Sales Tax Law of the State where the dealer is carrying on business are applicable.

CST Act envisages three types of punishments (a) Imprisonment and fine which can only be imposed by Court of Law (b) Compounding of offences by Sales Tax authorities (c) Penalty in certain cases which can be imposed by Sales Tax authorities.

Section 10 of CST Act provides that punishment upto six months of simple imprisonment or with fine or both can be imposed for following offences under CST Act.

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Knowingly giving declaration in form C, E-I, E-II, F or H which he knows, or has reason to believe, to be false

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Not registering under CST Act when required to be registered

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False representation by a registered dealer that the goods being purchased are covered under his Certificate of Registration for concessional rate

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Falsely representing that he is a registered dealer, though he is not.

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Misusing or using for different purpose the goods obtained under C form or H form prescribed for SEZ unit, at concessional rate

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Having in possession C forms or H form prescribed for SEZ unit, which are not obtained as per provisions of Act.

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Collecting any amount representing as Central Sales Tax by an unregistered dealer or by a registered dealer in contravention of provisions of Act.

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Provisions regarding offences in ‘General Sales Tax Law’ (excepting those enumerated above) are applicable in respect of offences committed by dealers in that State.

Punishment by Court of law Punishment of imprisonment and/or fine can be imposed only by Court of law. If the offence is a continuing offence, fine of Rs. 50 per day till offence continues can be imposed. The person has to be prosecuted in a criminal case. Such prosecution can be launched only with previous sanction of State Government or its authorised officer. The offences are cognizable and bailable.

Compounding of offencesSome offences can be compounded by Sales Tax Authorities. Compounding means the dealer agreeing to pay a fine and sales tax authorities agree to drop further action in respect of the offence. – – This is termed as ‘penalty in lieu of prosecution’ under CST Act.

Penalty in lieu of Prosecution Section 10A of CST Act authorises imposition of penalty in lieu of punishment in respect of offences regarding (a) obtaining goods not included in registration certificate (b) purchasing goods representing that he is registered dealer, though he is not (c) using goods for purposes different than the purposes for which purchased. (Other offences can be compounded by Sales Tax authorities, if provision exists in State Sales Tax Law). The penalty can be upto one and half time the tax which would have been payable. The penalty can be imposed by Sales Tax Authority having jurisdiction over the dealer’s place of business. Once penalty is imposed, prosecution for same offence shall not be instituted. The penalty is collected by Union of India in the State in which the dealer is registered or if he is not registered – in which he should have got himself registered.

Offences cognizable and bailableThe offences under CST Act are cognizable and bailable. [section 11(2)]. However, Court can take cognizance of offence under CST Act only with previous sanction of State Government or its authorised officer. The offence can be tried only in court of presidency magistrate of a magistrate of first class or court above that. [section 11(1)]

Punishment for other offences – Besides above, State laws provide for other offences like late payment or non-payment of tax, false declaration of turnover, non-filing or late filing of returns etc. These provisions are also applicable in respect of dealers in that State who make inter State sale [section 9(2A) of CST Act].

No limitation for launching prosecution – As per Economic Offences (Inapplicability of Limitation) Act, 1974; there is no limitation for launching prosecution in respect of offenses under CST Act and any other offense that may be tried along with offense under Central Sales Tax Act, 1956.

Other provisions

Liability of company in liquidation – As per section 17(1), if a liquidator or receiver is appointed for a Company, he should inform sales tax authorities within 30 days of the appointment. The appropriate authority [assessing officer i.e. sales tax officer – section 16(a)] will inform him within three months the amount of tax due from company which is in liquidation. [section 17(2)]. Liquidator cannot sell assets of company before setting aside amount of due as informed by sales tax authorities – unless such transfer or sale is by order of Court. [section 17(3)]. Otherwise, liquidator is personally liable. [section 17(4)].

Priority of State dues Government dues most of the times have priority over other dues in case of liquidation. The priority is subject to provisions of Companies Act.

Liability of directors of Private limited Company in case of liquidation – Section 18 provides that if a private limited company is being wound up, liability of directors of such private limited company is personal if amount cannot be recovered in liquidation i.e. the tax due can be recovered from his personal property. He can save the liability only if he proves that non-payment of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to affairs of the company.

Recovery of CST – Provision of State Sales Tax laws apply for recovery of CST also. Many of State Sales Tax Laws provide that sales tax dues will have priority over any tax due and a charge is created. In the opinion of author, such a provision, even if contained in local sales tax law, cannot apply to CST. The reason is that only procedural provisions of local sales tax law can apply and not substantive provisions.

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