2007 (8) TMI 681 - HC - VAT and Sales Tax

Vires of Rule 3A(2) of the Tripura Sales Tax Rules, 1976 challenged - whether mere transportation of goods from one place to another by carrying contractors can be said to be a deemed sale within the definition of clause 2(g)(ii) of the Act? - Held that - There is no transfer of any right to use property in any goods in a pure and simple carrying contract so as to bring the transaction within the purview of section 2(g)(ii) of the Act. In the result, this court directed to refund the amount deducted as sales tax at the rate of four per cent from the bills of the petitioner-contractor along with the statutory interest at the rate of six per cent per annum from the date of reduction of the amount. The provision of rule 3A(2) of the Rules is ultra vires of the Act. We have only to reiterate that transportation of foodgrains from Gauhati to Agartala or any other place in Tripura is not a deemed sale for the purpose of the Act, not because it is an inter-State sale to which State law does not apply, as held by the learned single judge, but because in a mere transportation of goods of another by a carrying contractor there is absolutely no transfer of any right to use goods, no matter whether such transportation is interState or intra-State. Consequently, no tax can be levied on such transactions.

Summary

Issues:
1. Challenge to the direction of realizing sales tax from carrying contractors' bills.
2. Legality of rule 3A(2) of the Tripura Sales Tax Rules, 1976.
3. Determination of whether transportation of goods constitutes a "deemed sale."
4. Applicability of tax on transportation of goods from one state to another.
5. Vires of rule 3(2) of the Rules and the charging provision under the Act.

Analysis:
1. The judgment dealt with appeals arising from a single judgment passed by a learned single judge regarding the direction to realize sales tax from carrying contractors' bills. The private appellants, engaged by the Food Corporation of India for transportation of foodgrains, challenged the direction based on the premise of transfer of right to use goods in such transactions. The vires of rule 3A(2) of the Rules, empowering such direction, was also challenged in writ petitions. The court was tasked with determining whether a transaction of mere transportation of goods involves a transfer of right to use goods constituting a "deemed sale" under the Tripura Sales Tax Act, 1976.

2. The learned single judge declared rule 3A(2) as ultra vires of the Act and held that transportation of foodgrains within the State qualifies as a "deemed sale" under the Act, subject to a four percent tax rate. The private appellants appealed this decision, questioning whether transportation by carrying contractors can be considered a "deemed sale" as defined in the Act. A Division Bench decision was cited, stating that no transfer of right to use property occurs in a simple carrying contract, leading to a refund of deducted sales tax and statutory interest.

3. The appeals by the State-appellants challenged the decisions of the learned single judge, arguing the ultra vires nature of rule 3A(2) and contending that transportation of goods between states does not constitute a "deemed sale." The court clarified that transportation of goods by carrying contractors does not involve a transfer of right to use goods, regardless of whether it is an inter-state or intra-state transaction, thus negating the imposition of tax on such transactions.

4. An additional challenge addressed the vires of rule 3(2) of the Rules in the context of delegated legislation under section 44 of the Act. The court reiterated that transportation of goods from one state to another does not amount to a "deemed sale" under the Act due to the absence of any transfer of right to use goods in such transactions. The judgment concluded by disposing of all appeals in light of the decisions and observations made.

In summary, the judgment clarified the non-applicability of sales tax on transportation of goods by carrying contractors, emphasizing the absence of a transfer of right to use goods in such transactions, thereby setting aside the earlier decision and ruling in favor of the appellants.