issue of C form on rejected goods

You have to get C-Form from the dealer or pay the difference of tax. Since you have raised two bills both collecting CST, then you have to file C-Forms.

But I have already issued credit note of full amount Rs. 4 lakh to party. Still I have to collect C form.

ask party for debit note against your credit note, stating the facts, to save your accounts

you should take c for mas you have raised two bills against form c.

Firstly, you have to revise, your sales tax return of the period in which such goods was invoiced by you to the client and accordingly your sales tax liability regarding goods wasted of Rs.400000/- shall be reduced by the balance CST i.e. Sales Tax Rate in Delhi of such goods Less Cst @ 2% (Rs.8000/-) earlier paid by you.  As aforesaid by you that you have again billed (i.e. you have considered in your sales tax return) and sent goods against the goods wasted, you have compulsory deposit C form with Value Added Tax Department within statutory time allowed/extended time as per notification/circulars issued in this regard.  If you have not deposit  the same your have to pay tax out of your pocket or have to debit your customer.