Memorandum Issued By The Government To Deduct 4% TDS Is Not Ultra Vires To Tripura Sales Tax Act: Supreme Court

The Supreme Court has held that the liability to pay the tax shall be on the transferor 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 Tripura Sales Tax Act (TST Act).

The division bench of Justice M.R. Shah and Justice Krishna Murari has observed that 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 transferors cannot be said to be ultra vires to TST Act.

The Apex court has quashed the order passed by the Gauhati High Court in which it was held that what cannot be done under the provisions of the Act for want of charging section in the Act cannot be done indirectly by taking the help of Rules as the Rules cannot supersede the provisions of the Act. Therefore, sub-rule 2 of Rule 3A of the TST Rules is not ultra vires of the TST Act.

The Single Judge declared Rule 3A(2) as ultra vires the TST Act. However, the Single Judge held that the suppliers are liable to pay sales tax under Section 3AA of the TST Act.

The appellant/state challenged the judgment of the Single Judge. The original writ petitioners–suppliers also filed the writ appeals before the Division Bench aggrieved by that part of the judgment of the Single Judge where it was held that the original writ petitioners-suppliers are liable to pay sales tax under Section 3AA of the TST Act.

The two issues were raised.

Firstly, whether authority vests in the Revenue Dept. to direct deduction at Source for payment of Sales Tax from Bills of any person who transfers the right to use any goods for any purpose.

Yet another issue raised was whether Rule 3A(2) is a valid piece of delegated Legislation.

The Gauhati High Court has partly allowed the appeals preferred by the original writ petitioners. The High Court has quashed the part of the judgement and order passed by the Single Judge by which it was held that the original writ petitioners were liable under Section 3AA of the TST Act.

The writ petitions were resisted by the State contending that the transactions involved amounted to ‘Sale’ within the meaning of 2(g)(ii) of the TST Act. As per the second proviso of Section 3(i) of the TST, Tax at 4% of the valuable consideration, shall be payable on the transfer of the right to use any goods for any purpose. Hence, Rule 3A(2), prescribed merely a mode of recovery of sales tax which is otherwise due and payable, and thus Rule 3A(2) is valid.

The appellant contended that as such Rule 3A, which provides for the tax deduction at source, is a machinery provision with respect to tax leviable under the TST Act. Rule 3A(2) provides for the manner of depositing tax in a sale transaction and does not change the person liable to be taxed, i.e. the dealer under the TST Act or the tax liability in any manner.

The respondent suppliers stated that the Division Bench of the High Court in the judgment has also rightly held that the sales tax can be levied on the sale of taxable goods. The liability to pay the sales tax is of a registered dealer under the Act and any person cannot be made liable to pay sales tax as was done by the State Government under sub-rule 2 of Rule 3A of the TST Rules.

The Supreme Court held that in the 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 a fair reading of Section 44 which is a rule-making power, it can be seen that the rule-making power is inclusive and wide enough to cover the procedure for recovery including tax deduction at source.

The Apex Court noted that on a combined reading of Section 3 read with Section 2(b) & 2(g) of the TST Act any transfer of the right to use any goods (including the vehicles) shall be deemed to be a ‘sale’ and the transferor of the right to use any goods/vehicles can be said to be a dealer. Therefore, tax at the rate of 4% on any transfer of the right to use any goods as per proviso to Section 3(1) was payable. Therefore, the liability to pay the tax at the rate of 4% on any transfer of the right to use any goods shall be under Section 3(1).

The court held that 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 deposit 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 Sections 2(b) & 2(g) of the TST Act.

“Mere providing for a mode of recovery and/or providing for machinery/mechanism to recover the tax to be paid by the transferor/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 court said.

Case Title: The State Of Tripura Versus Chandan Deb

Citation: 2023 LiveLaw (SC) 280

Tripura Sales Tax Act- Memorandum issued by the Government to deduct the tax at 4% and the bills to be paid to the transferors cannot be said to be ultra vires to TST Act-Mere providing for a mode of recovery and/or providing for machinery/mechanism to recover the tax to be paid by the transferor/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

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