2005 (1) TMI 389 - SC - VAT and Sales Tax

Whether the selling dealers can canvass that the department has no authority to refuse to issue sales tax forms to purchasing dealers or allow the deduction to the selling dealers and whether any of the provisions of rule 8 of the Rules empowers it to do so, if there is such a power? Held that - Department appeal allowed. In our opinion, the generality of the provision of section 71(1) should be given its full effect so as to enable the making of Rules for the full implementation of any provisions of the Act. The impugned rule also gives effect to section 43(5) of the Act which deals with appeals and contains the requirement of pre-deposit of tax and penalty. Other situations where the Commissioner has the discretion to cancel the dealers registration for failure to pay tax including penalty, furnishing a false declaration, etc., which must be borne in mind while considering the sweep of section 71(1) of the Act. Thus, the primary intendment of the Act is to levy and collect tax and every devise, including of stipulations pertaining to the dealer- friendly declaration forms are incorporated to implement the objective of the Act itself as pointed out by the High Court they cannot be conceived as ultra vires the statute

Issues Involved:
1. Validity of Rule 8(4)(c) under the Delhi Sales Tax Rules, 1975.
2. Interpretation of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975.
3. Authority of the Sales Tax Department to withhold ST-1 forms.
4. Consequences for selling dealers due to defaults by purchasing dealers.
5. Rule-making power of the Administrator under Section 71 of the Delhi Sales Tax Act, 1975.

Issue-wise Detailed Analysis:

1. Validity of Rule 8(4)(c) under the Delhi Sales Tax Rules, 1975:
The appellants challenged Rule 8(4)(c) on the grounds that it is ultra vires to Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975. They contended that the rule affects their statutory right to receive forms and is beyond the powers conferred under Section 71 of the Act. The Supreme Court, however, upheld the validity of Rule 8(4)(c), stating that the rule provides necessary safeguards and is within the rule-making power of the Administrator. The Court emphasized that the primary objective of the Act is to levy and collect tax, and Rule 8(4)(c) supports this objective by preventing tax evasion.

2. Interpretation of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975:
Section 4(2)(a)(v) allows for deductions from taxable turnover for sales to registered dealers, provided a true declaration in the prescribed form (ST-1) is furnished. The Court interpreted this section to mean that the selling dealer is responsible for collecting tax if the purchasing dealer fails to provide the ST-1 form. The Court held that the Act and the Rules do not prohibit the simultaneous furnishing of ST-1 forms, and selling dealers must ensure they receive these forms to claim deductions.

3. Authority of the Sales Tax Department to withhold ST-1 forms:
The appellants argued that the Sales Tax Department has no authority to refuse issuing ST-1 forms to purchasing dealers. The Court rejected this argument, stating that the Department can withhold forms if the purchasing dealer defaults in tax payment or other statutory obligations. The Court emphasized that the Department's refusal to issue forms is a measure to prevent tax evasion and ensure tax collection, aligning with the purpose of the Act.

4. Consequences for selling dealers due to defaults by purchasing dealers:
The appellants contended that they should not suffer consequences due to the defaults of purchasing dealers. The Court held that selling dealers must bear the risk if purchasing dealers fail to provide ST-1 forms. The Court noted that the selling dealers have a statutory duty to collect tax in the absence of these forms and can seek legal recourse against purchasing dealers for recovery. The Court emphasized that the State should not lose its revenue due to such defaults.

5. Rule-making power of the Administrator under Section 71 of the Delhi Sales Tax Act, 1975:
The appellants challenged the rule-making power of the Administrator, arguing that Rule 8(4)(c) exceeds the authority granted under Section 71. The Court upheld the Administrator's power to make rules for carrying out the purposes of the Act, including measures to prevent tax evasion. The Court found that Rule 8(4)(c) is within the scope of Section 71(1) and (2), which allows for rules regarding the issuance and withholding of declaration forms.

Conclusion:
The Supreme Court dismissed the appeals, confirming the validity of Rule 8(4)(c) and the authority of the Sales Tax Department to withhold ST-1 forms. The Court emphasized the responsibility of selling dealers to collect tax in the absence of ST-1 forms and upheld the rule-making power of the Administrator under Section 71. The judgment in Shri Krishna Engineering Co.'s case was overruled, and the Department's appeals were allowed.

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