Supreme Court Upholds Revenue in Central Sales Tax Exemption Dispute Over Mandatory Form C Requirement. Dealer's Claim for Subsequent Sale Exemption Under Section 6(2) Fails for Non-Furnishing of Declaration in Form C as Required by Rule 12(3)(ii) of Andhra Pradesh Rules.

Tax appeal before Supreme Court against High Court judgment upholding denial of exemption under Section 6(2) of Central Sales Tax Act, 1956 for subsequent inter-State sale of mohwa seeds.

Appellant firm sought exemption from Central Sales Tax on the turnover of mohwa seeds sold during inter-State movement by endorsement of railway receipt, challenging the requirement of Form C under Rule 12(3)(ii) as directory or ultra vires.

Deputy Commissioner withdrew exemption granted by Commercial Tax Officer because the assessee failed to furnish declaration in Form C for subsequent sale to registered dealer, as required by Rule 12(3)(ii) and Section 6(2) proviso.

Assessing Officer granted exemption; Deputy Commissioner withdrew it; Sales Tax Appellate Tribunal affirmed withdrawal; High Court upheld Tribunal's decision rejecting appellant's contentions on directory nature and vires of Rule 12(3)(ii).

Whether Rule 12(3)(ii) of the Central Sales Tax (Andhra Pradesh) Rules is directory or mandatory Whether if mandatory, the said rule is ultra vires the Central Sales Tax Act, 1956 Whether the State Government had power to frame Rule 12(3)(ii) requiring Form C declaration

Appellant contended that Rule 12(3)(ii) is merely directory and not mandatory, and if construed as mandatory it would be ultra vires the provisions of the Central Sales Tax Act, 1956. State authorities asserted that Rule 12(3)(ii) is mandatory and necessary to prove the subsequent sale to a registered dealer, as required for exemption under Section 6(2) of the Act.

Exemption under Section 6(2) of the Central Sales Tax Act, 1956 is conditional on proof of a subsequent sale to a registered dealer by transfer of documents of title; Rule 12(3)(ii) requiring production of Form C from purchasing registered dealer is not merely directory but mandatory and is within the State Government's rule-making power under Section 13 of the Act. Non-furnishing of Form C disentitles the assessee to exemption.

Rule 12(3)(ii) - For the purposes of claiming exemption from tax on his subsequent sale under sub- section (2) of Section 6, the purchasing dealer who effects a subsequent sale to another registered dealer by transfer of documents of title to the goods during their movement from one State to another, shall furnish to the appropriate assessing authority (i) the portion marked 'original' of the form E-1 received by him from the registered dealer from whom he purchased the goods, and (ii) the original of the declaration in form C received from the registered dealer to whom he sold the goods. It is the requirement of furnishing Form 'C' under rule 12(3)(ii) of the State rules which is the bone of contention in the present proceedings. Unless the subsequent sale to a registered dealer in the course of inter-State trade of commerce of goods of the description referred to in Section 8(3) is shown to have been effected by the transfer of documents of title to such goods, there could be no question of grant of exemption from payment of tax.

The Commercial Tax Officer, Vizianagaram assessed the appellant firm for assessment years 1971-72 and 1972-73 and granted exemption on mohwa seed turnover. The Deputy Commissioner withdrew the exemption on noticing that the purchases and sales were by transfer of railway receipts and no Form C was furnished. The Sales Tax Appellate Tribunal affirmed the withdrawal. The High Court of Andhra Pradesh by common judgment dated 14.8.1978 rejected the appellant's contentions. The Supreme Court heard the appeals by special leave.

• Central Sales Tax Act, 1956: 3(b), 5(3), 6(2), 8(1), 8(3), 8(4), 13
• Central Sales Tax (Andhra Pradesh) Rules: Rule 12(3)(ii)
• Central Sales Tax (Registration and Turnover) Rules, 1957: Rule 12(1), Rule 12(4)