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
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(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.
Knowingly giving declaration in form C, E-I, E-II, F or H which he knows, or has reason to
believe, to be false
Not registering under CST Act when required to be registered
False representation by a registered dealer that the goods being purchased are covered
under his Certificate of Registration for concessional rate
Falsely representing that he is a registered dealer, though he is not.
Misusing or using for different purpose the goods obtained under C form or H form
prescribed for SEZ unit, at concessional rate
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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Appeals and Penalties

Collecting any amount representing as Central Sales Tax by an unregistered dealer or by a

registered dealer in contravention of provisions of Act.
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 offences - Some 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 dealers 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 bailable - The 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
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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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