Summary
Suppliers who hired out vehicles to ONGC, GAIL and FCI in Tripura challenged Rule 3A(2) of the Tripura Sales Tax Rules, 1976 and a 1992 memorandum requiring hirers to deduct 4 per cent sales tax at source from their bills, contending that the Act had no charging provision for transfer of the right to use goods. The Gauhati High Court struck down the rule and, on appeal, negated even liability under Section 3AA. The Supreme Court allowed the State's appeals: under the second proviso to Section 3(1) read with the definitions of sale and dealer, a transfer of the right to use goods including vehicles is a deemed sale taxable at 4 per cent in the transferor's hands, and Rule 3A(2), framed under the wide rule-making power in Section 44, is merely a machinery provision for recovery by deduction at source that does not alter chargeability or liability.
Issues
- Whether Rule 3A(2) of the Tripura Sales Tax Rules, 1976, requiring deduction of 4 per cent tax at source from payments for transfer of the right to use goods, is ultra vires the Tripura Sales Tax Act, 1976 for want of a charging provision.
- Whether a person transferring the right to use vehicles on hire is a dealer liable to sales tax under the Act.
Provisions considered
- Section 3(1) and second proviso, read with Sections 2(b) and 2(g)(ii), Tripura Sales Tax Act, 1976Sale includes any transfer of the right to use goods for any purpose, deemed a sale by the person making the transfer; such a transferor is a dealer, and the proviso inserted in 1987 fixes the rate on such transfers at 4 per cent, so the charge and liability lie in Section 3(1) itself and the suppliers' plea that they were not registered dealers or had not sold goods fails. (¶¶ 8.1, 8.3)
- Section 44, Tripura Sales Tax Act, 1976The rule-making power is inclusive and wide enough to cover the procedure for recovery, including deduction of tax at source; the Rules were laid before the Legislative Assembly. (¶¶ 8.2, 9.1)
- Rule 3A(2), Tripura Sales Tax Rules, 1976Requires the person paying for a transfer of the right to use goods to deduct 4 per cent towards the tax payable; this is only a recovery machinery that does not change the chargeability or the liability under Section 3(1), so the High Court's view that it travelled beyond the Act is fallacious. (¶¶ 9, 9.1)
Held
- On a combined reading of Section 3 with Sections 2(b) and 2(g) of the Act, any transfer of the right to use goods including vehicles is deemed a sale, the transferor is a dealer, and the liability to pay tax at 4 per cent on such transfer arises under the proviso to Section 3(1); the suppliers' contention that no liability arises because there is no sale and they are not registered cannot be accepted. (¶ 8.3)
- Rule 3A(2) and the 1992 memorandum merely provide a mechanism by which the person buying the goods deducts tax at source and deposits it with the Revenue; since the liability continues under the proviso to Section 3(1), prescribing a mode of recovery through rules framed under Section 44 cannot be ultra vires the Act, and the High Court erred in striking down the rule and quashing the memorandum. (¶¶ 9, 9.1, 10)
Result
Appeals allowed; judgments of the Division Bench and the Single Judge of the Gauhati High Court declaring Rule 3A(2) of the Tripura Sales Tax Rules, 1976 ultra vires the Tripura Sales Tax Act, 1976 and quashing the 1992 memorandum requiring hirers to deduct 4 per cent tax from vehicle suppliers' bills set aside; necessary consequences to follow; no costs.