2023 (6) TMI 990 - SC - VAT and Sales Tax

Recovery of sales tax - transfer of the right to use any goods - Power of Revenue Dept. to direct deduction at Source for payment of Sales Tax from Bills of any person who transfers right to use any goods for any purpose - Rule 3A(2) is a valid piece of delegated Legislation or not. Whether Sub-rule (2) of the Rule 3A of the TST Rules can be declared ultra vires being contrary to the provisions of the TST Act , though there is express proviso in Section 3(1) for levy of 4% Sales Tax on any transfer of the right to use any goods for any purpose? HELD THAT - In exercise of the powers under Section 44 of the TST Act the State Government had enacted the TST Rules which were placed before the Legislative Assembly. On fair reading of Section 44 of the Act which is a rule making power it can be seen that the rule making power under Section 44 is inclusive and wide enough to cover the procedure for recovery including tax deduction at source. Section 3 of the TST Act can be said to be the charging Section and the liability to pay the tax shall be as per Section 3 of the TST Act. As per Section 3(1) of the TST Act every dealer in taxable goods shall pay a tax on his turnover at the rate specified in column (3) of the Schedule. As per the proviso to Section 3(1) as inserted by Tripura Sales Tax (Fourth Amendment) Act, 1987 w.e.f. 12.05.1987 the rate of tax on any transfer of the right to use any goods for any purpose (whether or not for a specified period) shall be 4%. The Sale is defined under Section 2(g) and it means any transfer of property, in goods for cash or deferred payment or other valuable considerations, and includes any transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration, and such delivery or transfer of any goods shall be deemed to be a sale of those goods by the person making the delivery or transfer and purchase of those goods by the person to whom such delivery or transfer is made. Thus, any transfer of right to use any goods including the vehicles shall be deemed to be a sale as defined under Section 2(g)(ii) - the submissions on behalf of the respondents suppliers/transferers that as there is no sale or transfer of the goods and that they are not registered with the TST Act and therefore, the liability to pay the tax at 4% does not arise cannot be accepted. As observed, the liability to pay the tax shall be on the transferer who transfers the right to use any goods as per proviso to Section 3(1) read with Section 2(b) and 2(g) of the TST Act. Whether Rule 3A(2) of the TST Rules and the memorandum issued by the Government to deduct the tax at 4% and the bills to be paid to the transferers can be said to be ultra vires to TST Act? - HELD THAT - It appears that the High Court has held the said provision as ultra vires by observing that there is no such provision for tax deduction at source under the TST Act and therefore, the Rule cannot go beyond the Act. The aforesaid view taken by the High Court is absolutely fallacious. Rule 3A(2) can be said to be a recovery machinery/mechanism. What Rule 3A(2) provides is only for a machinery/mechanism where the person buying the goods is required to deduct the tax at source and deposits the same with the Revenue. It does not in any manner change the chargeability of the tax or liability of the tax which is under Section 3(1) of the TST Act read with Section 2(b) 2(g) of the TST Act. The rules are framed in exercise of Rule-making power under Section 44 of the Act and in that view of the matter and as the liability to pay the tax on transfer of right to use the goods shall still be continued under proviso to Section 3(1), mere providing for mode of recovery and/or providing for machinery/mechanism to recover the tax to be paid by the transferer/supplier from the person buying the goods deducting the tax at source and depositing the same with the Revenue cannot be said to be ultra vires to TST Act and the Rules as observed and held by the High Court - the High Court has fallen in error in misinterpreting Rule 3A(2) of the TST Rules and has fallen in error in declaring Rule 3A(2) of the TST Rules ultra vires to TST Act and the High Court has materially erred in quashing and setting aside the memorandum issued by the State Government requiring the hirers namely the ONGC and the GAIL to deduct an amount equivalent to 4% out of the respective bills of the suppliers of the vehicles. The order passed by the learned Single Judge declaring Rule 3A(2) of the Tripura Sales Tax Rules, 1976 as ultra vires to the Tripura Sales Tax Act, 1976 and quashing and setting aside the memorandum of 1992 issued by the State Government requiring the hirers to deduct an amount of tax at 4% out of the respective bills of the suppliers of the vehicles are hereby quashed and set aside - appeal allowed.

Summary

Issues Involved:
1. Validity of Rule 3A(2) of the Tripura Sales Tax Rules, 1976.
2. Authority of the Revenue Department to direct deduction at source for payment of sales tax.
3. Applicability of Section 3AA of the Tripura Sales Tax Act, 1976.

Summary:

Issue 1: Validity of Rule 3A(2) of the Tripura Sales Tax Rules, 1976

The Supreme Court examined whether Rule 3A(2) of the TST Rules, which mandates a 4% tax deduction at source on the transfer of the right to use goods, is ultra vires to the TST Act. The Court noted that Section 3(1) of the TST Act is the charging section, and the definition of "sale" under Section 2(g)(ii) includes the transfer of the right to use goods. The Court held that Rule 3A(2) is a machinery provision for tax recovery and does not alter the tax liability or chargeability, which is established under Section 3(1) of the TST Act. Consequently, the Court concluded that Rule 3A(2) is not ultra vires to the TST Act and overturned the High Court's decision declaring it invalid.

Issue 2: Authority of the Revenue Department to Direct Deduction at Source for Payment of Sales Tax

The Court observed that the rule-making power under Section 44 of the TST Act is inclusive and broad enough to cover procedures for tax recovery, including deduction at source. It was determined that Rule 3A(2) provides a mechanism for tax deduction at source, which is a valid exercise of the delegated legislative power under Section 44. The Court emphasized that the rule does not change the tax liability but only prescribes a method for its collection, thereby upholding the authority of the Revenue Department to enforce such deductions.

Issue 3: Applicability of Section 3AA of the Tripura Sales Tax Act, 1976

The Supreme Court addressed the High Court's ruling that the suppliers were liable under Section 3AA of the TST Act. The Court clarified that the liability to pay tax on the transfer of the right to use goods is established under Section 3(1) and that Rule 3A(2) is a mechanism for its recovery. The Court found that the High Court erred in its interpretation and application of Section 3AA, as the rule does not impose a new tax liability but facilitates the collection of an existing one.

Conclusion:

The Supreme Court allowed the appeals, setting aside the High Court's judgment that declared Rule 3A(2) ultra vires and invalidated the 1992 memorandum. The Court upheld the validity of Rule 3A(2) as a legitimate recovery mechanism under the TST Act, confirming the authority of the Revenue Department to direct tax deductions at source.