In spite of amendments made in rule 12 of the CST [R and T]
Rules, 1957 in order to expedite production of declarations prescribed u/ss.
8[1], 6A, 5[3] etc. of the CST Act, the dealers still face tremendous
difficulties in procuring C/F/H/I Forms from other States. The result is that
VAT audit report u/s. 61 has to furnish such list of pending Forms. The
dealers are being visited by the business audit teams or their refund claims
are subjected to refund audit. The visits invariably boil down to a demand of
differential tax dues on account of pending Forms.
In this respect, the Commissioner of Sales Tax has issued
Trade Circular No. 3A of 2008 dtd. 22-1-2008. Although it is termed as trade
circular, it is a restricted circular for office use only. The first question
arises as to why a decision affecting a large number of dealers should be
circulated only within Govt. Officers? It should be made public by way of a
trade circular so that the dealers are aware of the consequences of
non-receipt of Forms. Let us examine which directives are issued under this
circular.
It is explained in para 2 of the said circular as follows:–
"During the course of audit in a particular case, if it is
found that the case cannot be concluded only on the ground, that some or all
of the statutory forms under the CST Act, 1956 have not been produced, then
notice for transaction assessment under CST Act, 1956 for the period under
audit should be issued. Transaction assessment under CST Act in respect of the
missing declarations certificates should be separately undertaken and
assessment order passed after due procedure. This would allow closure of audit
proceedings that are pending only on this issue. Same procedure is to be
applied for Business Audit in L.T.U. and for Refund Audit of the dealer."
The expression ‘transaction assessment’ has to be reckoned
from the provisions contained in section 23[5]. The said section begins with a
sentence "During the course of any proceedings u/s. 64 ……". It clearly means
that transaction assessment can be made only when search and seizure
proceedings are being undertaken. Business Audit u/s. 22 or refund audit which
purports to be part of business audit is by no stretch of imagination a search
and seizure proceeding. A separate section 64 deals with search and seizure
and powers, authorities u/s. 64 are entirely different and they cannot be
compared with the jurisdiction u/s. 22. Therefore, the transaction
assessment basically cannot be made as a result of findings in a
business/refund audit.
Secondly, it is also stipulated in the section that the
action under it can be taken only when "authority is satisfied that tax has
been sought to be evaded in respect of any period …….". Thus, evasion of tax
is the prime condition under this section relating to transaction assessment.
The tax demand arising out of non-receipt of declarations cannot be termed as
evasion of tax. This is a second reason which makes the impugned action bad in
law.
The authorities may try to rely upon sub-section [6] which
deals with the assessment in case of non-disclosure of transactions or payment
of tax at a lesser rate etc. However, this sub-section does not deal with
"transaction assessment" but rather suggests a complete assessment in certain
situations. If this sub-section is resorted to, then the authorities have to
assess the dealer in a regular way which means determining gross total sales,
total turnover of inter-State sales, various deductions such as goods returns,
credit notes, exports, sales in transit etc. It would not be as easy as
targeting only the turnover not supported by declarations. Therefore, it is
utmost necessary to review these directives issued under trade Circular No. 3A
of 2008 dtd. 22-1-2008.
Further, para No. 3 of the said circular speaks about the
action in case where report in Form No. 704 is filed. The said para reads as
under :-
"In respect of dealers wherein Form 704 has been received
and the audit report in such Form 704 indicates that some or all of the
statutory forms under the CST Act, 1956 have not been received then in such
cases the dealer should be asked to pay taxes and file revised returns and if
he fails to do so, transaction assessment under CST Act for the period to
which Form 704 relates should be initiated. While doing so, the officer should
invariably make a reference to the entry at the place of business and in the
inspection conducted by him."
The additional feature here is directing the dealer to file
revised return. If he resists, then the circular advises to proceed to assess
him in a similar manner; i.e., making transaction assessment. We have
discussed here how irregular it would be. Earlier in BST era, we used to get
three years for assessment and still, some of the forms remained to be
received. Now the shorter period of less than a year or so is undoubtedly
insufficient for receipt of all forms. The business audit notices mostly do
not mention the period which will be verified by the officers and makes it
open ended exercise covering the period from 1-4-2005 till date. The said
internal circular does not specify the time limit to resort to the impugned
actions and therefore, even current period also can be subjected to such
assessment. This entire approach seems disastrous.
The issue of levy of tax on the turnover due to pending
declarations has opened the can of worms and has been causing heart burns
among the dealers. The sentiments of the dealers in this respect must be
respected by the head of the department.
