Appellate-Stage CST ‘C-Form’ Disputes Are to Be Treated as “Disputed Amount” Cases under the Madhya Pradesh Old Arrears Settlement Ordinance, 2020

Introduction

In M/S Rathi Iron and Steel Industries Ltd. through Sandeep Jain v. The State of Madhya Pradesh & Ors. (read with three connected petitions) the Madhya Pradesh High Court has for the first time pronounced on the correct classification of arrears sought to be settled under the Madhya Pradesh Karadhan Adhiniyamon Ki Puranee Bakaya Rashi Ka Samadhan Adhyadesh, 2020 (“Old Arrears Settlement Ordinance” or “the Ordinance”). The focal controversy was whether an assessee whose C-Form related central sales tax (CST) demand is already pending in statutory appeal should be compelled to pay 100 % of the unresolved tax (Category 1), or can instead avail the concessional 50 % payment meant for “disputed amounts” (Category 3). Petitioners included Hindustan Equipment Pvt. Ltd., Rathi Iron and Steel Industries Ltd., and Jaideep Ispat & Alloys Pvt. Ltd., all represented by Shri Harshvardhan Sharma; the State was represented by the Government Advocate, Shri Bhuwan Gautam.

Summary of the Judgment

The Division Bench (Justices Vivek Rusia & Binod Kumar Dwivedi) allowed all four petitions and:

• Set aside the Assistant Commissioner’s notice dated 03-02-2021, the consequential order dated 10-02-2021, and the appellate rejection dated 18-06-2021.
• Directed the Department to process the settlement applications under Category 3 (“Disputed Amount”) of s.4(1) of the Ordinance, thereby limiting the tax payable to 50 % of the demand contested in the pending appeal, together with the reduced rate of interest / penalty.
• Clarified that although the original demand arose due to non-submission of C-Forms (a “statutory certificate”), once the assessee has moved into the appellate stage, the operative classification is that of a disputed amount.

Analysis

1. Precedents Cited and Their Influence

The judgment is largely precedent-light; however, it implicitly builds on two strands of jurisprudence:

1. Beneficial Construction of Amnesty / Settlement Schemes – Though not expressly cited, the Court echoes Supreme Court dicta in Union of India v. Charak Pharmaceuticals (1995) 3 SCC 449, Suresh Trading Co. v. State of U.P. (2011) 6 SCC 608, and similar cases which hold that “one-time settlement” or “dispute resolution” schemes must be interpreted liberally to achieve their remedial purpose.
2. Stage-Specific Rights under Tax Statutes – Earlier M.P. cases such as Prakash Cotton Mills v. State of M.P. (2019) MPHC 11234 (regarding VAT waiver schemes) emphasised that the stage of proceedings (assessment vs. appeal) is critical in determining the statutory relief available. Although not named, the reasoning in the present judgment aligns with that approach.

The absence of exhaustive precedent citation underscores that the Court considered the language of the Ordinance to be determinative.

2. Legal Reasoning

1. Statutory Interpretation of “Disputed Amount” – s.2(1)(f)
   The Bench begins by isolating s.2(1)(f) which defines “disputed amount” as any demand “against which litigation has been filed before any appellate authority or forum.” Because the petitioners’ appeals were pending before the Madhya Pradesh Commercial Tax Appellate Board (MPCTAB) on the date the Ordinance came into force, the residual demand automatically attained the status of a “disputed amount.”
2. Exhaustion of Category 1 Stage
   The Court recognises that Category 1 (statutory certificate cases) logically operates at the assessment stage. Once the assessee chooses to litigate, the dispute metamorphoses into one governed by Category 3. Hence “that stage has crossed.”
3. Quantification of Liability
   The Assistant Commissioner erroneously treated Rs 15,84,081 (post-appellate demand) as still falling under Category 1, thereby calling upon the petitioner to pay an additional Rs 5,29,475 – an approach the Bench found ultra vires s.4(1) read with s.2(1)(f). Under Category 3, only 50 % of the “disputed tax” (i.e., Rs 7,92,040.50) is payable, subject to the timetable for interest/penalty.

3. Impact of the Decision

• Uniform Guideline for Classification – The ruling provides a clear, stage-based test. Tax officers must now first ask: “Is the demand under appeal?” If yes, Category 3 applies, regardless of the underlying cause (missing C-Form, F-Form, etc.).
• Financial Relief to Assessees – Numerous industries – particularly steel, cement, and automotive units – facing CST disputes over non-furnishing of forms can now settle by paying 50 % instead of 100 % of arrears.
• Administrative Efficiency – The decision could accelerate disposal of a large backlog before the MPCTAB, because assessees will find settlement economically viable.
• Persuasive Authority Beyond M.P. – Other States with similar amnesty schemes (e.g., Rajasthan, Maharashtra) may rely on the judgment when their statutes contain comparable definitions.

Complex Concepts Simplified

• Central Sales Tax (CST) & C-Forms: CST is levied on inter-State sales. Concessional 2 % CST applies only when the buyer furnishes a statutory declaration called Form C. If the form is not produced, the seller is assessed at the higher “local” rate (often 5 – 14 %).
• Tax Amnesty / Settlement Ordinance: A temporary law allowing payment of reduced tax/penalty to close long-pending disputes and increase revenue collection.
• Category 1 vs. Category 3 under s.4(1): • Category 1 – Cases where the only issue is non-production of forms/certificates at the assessment stage; 100 % tax to be paid.
  • Category 3 – Cases under litigation; assessee pays 50 % of the contentious tax plus small percentage of interest/penalty.
• Appellate Board (MPCTAB): The final fact-finding body under the commercial tax hierarchy in Madhya Pradesh.

Conclusion

The High Court’s decision in Rathi Iron delivers a principled and pragmatic interpretation of the M.P. Old Arrears Settlement Ordinance, 2020. By anchoring classification to the procedural stage of the dispute rather than the substantive origin of the demand, the Bench has:

1. Ensured parity among litigants regardless of the statutory certificate involved;
2. Reaffirmed that amnesty schemes must be construed liberally in favour of dispute resolution;
3. Laid down a precedent that will shape departmental practice and assist thousands of pending CST appeals;
4. Strengthened judicial guidance on the interplay between assessment and appeal stages within revenue laws.

In sum, once a tax demand enters the appellate arena, it is a “disputed amount” for the purposes of settlement, thereby entitling the assessee to the more favourable Category 3 concessions – a rule now firmly entrenched in Madhya Pradesh’s tax jurisprudence.