2016 (8) TMI 248 - HC - VAT and Sales Tax

Constitutional validity of Rule 11B(2)(c) of the Central Sales Tax (Kerala) Rules, 1957 - Interest sale sale - Reading of this provision would show that a purchasing dealer claiming the benefit of Section 6 (2) shall, in respect of such claim, furnish to the assessing authority a photocopy of the consignee copy of the lorry receipt, railway receipt, bill of lading bearing endorsement made by such dealer or cash receipt in favour of the purchaser taking delivery of the goods. Held that - by Section 13(3), power is conferred on the State Government to make rules to carry out the purposes of the Act and the only limitation therein is that such rules shall not be inconsistent with the provisions of the CST Act or the rules made by the Central Government under Section 13(1) thereof. The scope of such power is enlarged by section 13(4) which provide that in particular and without prejudice to the powers conferred as per 13(3), the State Government may make rules for all or any of the purposes enumerated therein. The purposes enumerated in clause (c) thereof include rules for furnishing of any other information relating to the business of a dealer as may be necessary for the purposes of the Act. According to us, such expansive power conferred on the rule making authority takes within its sweep, power to prescribe production of the documents that are mentioned in Rule 11B(2)(c) also for the purpose of availing of the exemption provided under section 6 of the CST Act. Even apart from that, the net result of Rule 11B(2) is that the dealer should produce documents, the details of some of which are already required to be specified in form E-I and E-II vide clause (4) thereof. In our view, these provisions of rule 11B(2)(c) do not, in any manner, run either inconsistent with the provisions of Section 6(2) nor can that rule be said to be framed in excess of the rule making power conferred under Sections 13(3) and 13(4) of the CST Act. Viewed in this manner, we are unable to sustain the judgment under appeal. Decided in favor of revenue.

Issues Involved:
1. Validity of Rule 11B(2)(c) of the Central Sales Tax (Kerala) Rules, 1957.
2. Rule-making power of the State Government under the Central Sales Tax Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of Rule 11B(2)(c) of the Central Sales Tax (Kerala) Rules, 1957:

The primary contention in the writ appeal was the learned single Judge's judgment declaring Rule 11B(2)(c) of the CST Kerala Rules invalid and ultra vires the CST Act and the Central Sales Tax (Registration and Turnover) Rules, 1957. The respondents (a company incorporated under the Companies Act and a dealer under the Kerala Value Added Tax Act, 2003 and the CST Act) had challenged the assessment orders for the years 2005-06 and 2006-07 and sought a declaration that Rule 11B(2)(c) was invalid.

The learned single Judge held that Rule 11B(2)(c) had the effect of "whittling down the exemption provided in section 6(2)" and "amending the statutory provision." This was deemed beyond the State Government's power under Section 11(3) of the CST Act. The judgment emphasized that once the documents prescribed under the first proviso to Section 6(2) were submitted, the exemption should operate fully, and the State could not diminish this effect by framing any rules.

2. Rule-making power of the State Government under the Central Sales Tax Act, 1956:

The appellants argued that the State Government was within its power under Section 13(3) and 13(4) of the CST Act to frame Rule 11B(2)(c). Section 13(3) allows the State Government to make rules not inconsistent with the Act and the rules made by the Central Government to carry out the purposes of the Act. Section 13(4)(c) specifically empowers the State Government to make rules for "the furnishing of any information relating to the stocks of goods of purchases, sales and deliveries of books by, any dealer or any other information relating to his business as may be necessary for the purposes of this Act."

The court noted that the Board of Revenue had issued circulars requiring the production of documents like lorry receipts, railway receipts, or bills of lading from the assessment year 1991-92 onwards. However, these circulars were declared non est in law in the judgment of P.A. George v. Assistant Commissioner of Sales Tax (Assessment) I, Special Circle, Alappuzha [(1998) 110 STC 25], as the Board lacked the authority to issue such directions.

To address this, the State Government inserted sub-clause (c) to Rule 11B(2) via SRO 848/99, requiring purchasing dealers claiming the benefit of Section 6(2) to furnish a photocopy of the consignee copy of the lorry receipt, railway receipt, bill of lading, or cash receipt.

The court concluded that the rule-making authority had the power to prescribe additional documents for availing the exemption under Section 6(2). The expansive power under Section 13(4)(c) includes the authority to require the production of such documents. The court held that Rule 11B(2)(c) did not run inconsistent with Section 6(2) and was within the rule-making power conferred under Sections 13(3) and 13(4) of the CST Act.

Conclusion:

The judgment under appeal was set aside, and the appeal was allowed, upholding the validity of Rule 11B(2)(c) of the CST Kerala Rules. The court found that the rule was within the State Government's rule-making power and did not amend or contradict the statutory provisions of the CST Act.

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