Sales Tax | Whether C-Form Acknowledges Liability To Extend Limitation Requires Evidence: Delhi High Court

The Delhi High Court has recently ruled that whether a C-Form issued under the Central Sales Tax Act, 1956 (CST Act), certifying a transaction between registered dealers, amounts to an acknowledgment of debt, must be examined on the facts and evidence.

The question cannot be decided at the threshold stage while considering an application to reject a plaint under Order VII Rule 11 of the Code of Civil Procedure (CPC).

The Division Bench of Justices Avneesh Jhingan and Shail Jain made the observation while allowing an appeal against the Commercial Court's order rejecting a recovery suit as time-barred.

Appellant had filed a suit seeking recovery of outstanding dues from Respondents.

The parties had a running business relationship involving supply of goods on credit. According to the plaint, after March 2016, payments of ₹1 lakh were made in November 2017 and ₹11 lakh each in June and September 2018. Appellant claimed that an amount of ₹13,18,281/- remained outstanding, along with interest.

Respondents moved an application under Order VII Rule 11 CPC, contending that the suit was barred by limitation. The Commercial Court accepted the limitation objection and rejected the suit.

Before the High Court, Appellant argued that the issue of limitation involved several disputed questions, including the effect of payments made in 2017 and 2018, the COVID-19 extension of limitation and the effect of a C-Form issued under the CST Act.

At the outset, the High Court observed that where limitation involves a mixed question of fact and law requiring appreciation of evidence, the issue cannot ordinarily be decided summarily under Order VII Rule 11 CPC.

Turning specifically to the CST Act issue, the Court observed that the nature of the account maintained between the parties and the effect of payments made during the relevant financial years required consideration and evidence.

It further noted that the issuance of the C-Form under the CST Act amounted to an admission of the transaction, while its effect vis-à-vis acknowledgment of liability was a question requiring consideration on the facts and evidence.

It thus held that the Commercial Court had exceeded its jurisdiction under Order VII Rule 11 CPC by determining the nature of the account and holding that the issuance of the C-Form was merely for taxation purposes and did not extend limitation under Section 18 of the Limitation Act.

“The C-form issued under the CST Act is to certify a transaction between the registered dealers and contains the particulars of the goods purchased. The effect of the C-form vis-à-vis Section 18 of 1963 Act dealing with the effect of acknowledgement in writing is a complicated question and could not have been decided under Order VII Rule 11 CPC.”

The Court rejected the respondents' contention that there was no evidence supporting acknowledgment of liability, observing that the stage of substantiating the pleadings had not yet been reached.

As such, the Court allowed the appeal and set aside the Commercial Court's order.

For Appellant: Advocates Dhananjay Gupta, Amit Ranjan Singh

For Respondent: Advocates Aanchal Basur & Mr. Abhay Kumar