Rule 3A(2) Of Tripura Sales Tax Rules 1976 Does Not Change Chargeability Of Tax Or Liability To Pay Tax- SC Upholds Validity Of Rule 3A(2)

The Supreme Court has upheld the validity of Rule 3A(2) of the Tripura Sales Tax Rules, 1976 (TST Rules) as the same not being ultra vires to Tripura Sales Tax Act, 1976 (TST Act). The Court held that Rule 3A(2) did not in any manner changed the chargeability of the tax or liability to pay the tax and the Tripura High Court had misinterpreted and erred in declaring Rule 3A(2) of the TST Rules ultra vires to TST Act.

The Bench of Justice MR Shah and Justice Krishna Murari observed that “...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. At the cost of repetition, it is observed and held that Rule 3A(2) does not in any manner change the chargeability of the tax or liability to pay the tax.”

ASG Madhavi Diwan appeared for the State and Advocate Ahanthem Henry appeared for respondent no.1 in all the matters, Advocate Somiram Sharma appeared for the ONGC, and Advocate Abhay Kumar appeared for the FCI.

Factual Background

The Revenue Department of the State of Tripura had issued a Government Memorandum of 1992 for deduction of 4% tax at source under Section 3A of the TST Act.

Tender notices were issued by the ONGC, Gas Authority of India Ltd., FCI for hiring vehicles. Work orders were issued in favour of the original writ petitioners. Agreements were entered into between the original writ petitioners and GAIL, ONGC, FCI etc.

As per the memorandum, the hirers were required to deduct an amount of tax at 4% out of the respective bills of the suppliers of the vehicles. Aggrieved of the deduction- the suppliers-original writ petitioners approached the Single Judge and challenged the vires of Rule 3A(2) of the TST Rules and for refund of the amount so deducted on the ground that there was no charging provision under the TST Act for levy of sales tax on transfer of the right to use goods.

The Single Judge declared Rule 3A(2) as ultra vires the TST Act and further held that the suppliers are liable to pay sales tax under Section 3AA of the TST Act. The order was challenged by the State and by the original writ petitioner, for directing to pay sales tax under Section 3AA of the TST Act, before the Division Bench of the High Court.

The Division Bench allowed the appeal of the original writ petitioner and upheld the order of Single Judge. Aggrieved of the same, the State preferred the appeal before the Apex Court.

The question of law to be considered was-

“Whether Sub-rule (2) of the Rule 3A of the TST Rules could be declared ultra vires being contrary to the provisions of the ‘TST Act’, though there was 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?”

The Apex Court noted that Section 44 of the TST Act provided rule making power under which procedure for recovery including tax deduction at source was also covered and using that power, memorandum was issued by the State.

Further, on combine reading of Section 3 read with Section 2(b) & 2(g) of the TST Act, the Court said that any transfer of the right to use any goods (including the vehicles) would be deemed to be a ‘sale’ and the transferor of the right to use any goods/vehicles could be said to be a ‘dealer’ and therefore, was liable to pay the tax at the rate of 4% on any transfer of the right to use any goods as per proviso to Section 3(1).

“Therefore, the liability to pay the tax at the rate of 4% on any transfer of right to use any goods shall be under Section 3(1)... 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.” the Apex Court observed.

The Apex Court, further noted that Rule 3A(2) provided for a recovery mechanism I.e., the person buying the goods was required to deduct the tax at source and depositing the tax so deducted with the Revenue. It did not in any manner changed the chargeability of the tax or liability of the tax which was under Section 3(1) of the TST Act read with Section 2(b) & 2(g) of the TST Act.

Consequently, the Apex Court allowed the appeal and held that “The impugned common judgment and order passed by the Division Bench of the High Court and that of the common judgment and 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.”

Cause Title- The State of Tripura & Anr v. Chandan Deb & Ors. 

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