2019 (6) TMI 801 - HC - VAT and Sales Tax

Vires of Rule 17(20) of the Central Sales Tax (Rajasthan) Rules, 1957 - cancellation of C forms - Rajasthan VAT Act - Reduced rate of tax - HELD THAT - The CST Act came into force on 05.01.1957 and has throughout substantially retained Section 13 in its original form, which invests the States with the power to frame Rules. The Central Act did not confer any authority on the States to frame the Rules empowering them to cancel the declaration form/C-Form once issued. This has been taken to so mean by all other State except the State of Rajasthan, which perhaps is the only State providing so in sub-rule (20) in Rule 17 of the Rajasthan Rules on 14.07.2014, i.e., more than 61 years thereafter. This provision is apparently not only contrary to the provisions of Section 8(4) but also Section 13(1)(d), 13(3) and (4)(e). As would be seen from the Central Sales Tax Rules framed by different States, which have been produced by the petitioner for perusal of the court during the course of argument, no other State has any such provision in their Rules, like the one which is impugned in the present writ petition, i.e., Rule 17(20) of the Rajasthan Rules, conferring unto itself power for cancellation of validly issued declaration form/C-Form. The obligation of a registered dealer selling the goods to another registered dealer to avail the benefit of tax provided under Section 8(1) is only confined to furnish to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom he sells the goods. Such declaration should contain the prescribed particulars in the prescribed form and manner. Proviso to Section 8(4) stipulates that the selling dealer has to furnish such declaration within the prescribed time or within such further time as the authority may, for sufficient reason, extend. Rule 12 of the Central Rules provides a form of declaration, the particulars to be contained therein, the period within which it has to be furnished, consequence of loss of the declaration form, and the course to be adopted in that event. The State has no authority to frame a rule providing for cancellation of validly issued declaration form/form-C - Rule 17(20) of the Rajasthan Rules is declared ultra vires Section 8(4), 13(1)(d), 13(3) and 13(4)(e) of the CST Act. The communications dated 20.11.2017 and 30.11.2017 sent by the respondent no.3 to the VATO Ward-17, New Delhi, with regard to cancellation of C Form, are declared illegal and consequently quashed and set aside. The cancellation of C Forms made vide order dated 07.12.2017 is also quashed and set aside. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Validity of Rule 17(20) of the Central Sales Tax (Rajasthan) Rules, 1957.
2. Cancellation of 'C' forms issued to respondents no.4 and 5.
3. Retrospective cancellation of registration certificates.
4. Authority of the State to frame rules for cancellation of 'C' forms.
5. Maintainability of the writ petition.

Detailed Analysis:

1. Validity of Rule 17(20) of the Central Sales Tax (Rajasthan) Rules, 1957:
The petitioner challenged Rule 17(20) of the Rajasthan Rules, arguing it is ultra vires of Section 8(4), 13(1)(d), 13(3), and 13(4)(e) of the Central Sales Tax Act, 1956. The court observed that the Central Act did not confer any authority on the States to frame rules empowering them to cancel the declaration form/C-Form once issued. Rule 17(20) was introduced after 61 years from the Act's inception and was found to be inconsistent with the Act's provisions. The court held that the State has no authority to frame a rule providing for the cancellation of validly issued declaration forms.

2. Cancellation of 'C' forms issued to respondents no.4 and 5:
The petitioner argued that there is no provision under the Act for the cancellation of 'C' forms, and such cancellation is outside the scope of the State's rule-making power. The court cited precedents, including the Supreme Court's decision in Sales Tax Officer, Ponkunnam and Another Vs. K.I. Abraham, which held that the phrase "in the prescribed manner" does not include the time element, thus invalidating any rule prescribing a time limit for submission of forms. The court declared the cancellation of 'C' forms issued to respondents no.4 and 5 as illegal and set aside the cancellation order dated 07.12.2017.

3. Retrospective cancellation of registration certificates:
The petitioner's counsel argued that the retrospective cancellation of registration certificates of respondents no.4 and 5, effective from 01.05.2017, was invalid as per Section 16(4) of the Rajasthan Value Added Tax Act, 2003. The court agreed, referencing the Delhi High Court's decision in Jain Manufacturing, which held that retrospective cancellation under the Act is not envisaged. The court concluded that such cancellations should only take effect from the date of the order or when hosted on the department's website.

4. Authority of the State to frame rules for cancellation of 'C' forms:
The court examined the legislative competence of the State to frame rules for the cancellation of 'C' forms. It noted that Section 13(4)(e) of the CST Act allows the State to prescribe the authority, conditions, and fees for obtaining forms but does not extend to cancellation. The court concluded that Rule 17(20) exceeded the State's rule-making power and was therefore ultra vires.

5. Maintainability of the writ petition:
The respondents argued that the petitioner, not being a registered dealer in Rajasthan, lacked locus standi to challenge the rule. The court, however, held that since the vires of Rule 17(20) were challenged, the writ jurisdiction under Article 226/227 of the Constitution of India was appropriate. The court overruled the objection of alternative remedy, emphasizing the importance of the legal questions raised.

Conclusion:
The court allowed the writ petition, declaring Rule 17(20) of the Rajasthan Rules ultra vires and quashing the communications and cancellation orders related to 'C' forms. The petitioner was entitled to avail the benefit of rates of tax under Section 8 of the CST Act.