The Supreme Court of India upheld a 4% TDS deduction on sales tax in the transfer of the right to use vehicles as ‘deemed sale’.
The appellant-state challenged the judgment of the Single Judge and the original writ petitioners-suppliers also filed the writ appeals 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 Tripura Sales Tax Act.
Section 3A of the Tripura Sales Tax Act, 1976 provided for a tax on the transfer of property in goods involved in the execution of works contract. Section 3AA provided for the deduction of tax at the time of payment. Section 44 provided for the power to make Rules.
The Revenue Department of the State of Tripura issued a memorandum in the year 1992 for the deduction of 4% tax at source under Section 3A of the Tripura Sales Tax 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. respectively.
On the original writ petition filed by the assessee, the Single Judge declared Rule 3A(2) as ultra vires the Tripura Sales Tax Act. However, the Single Judge held that the suppliers are liable to pay sales tax under Section 3AA of the Tripura Sales Tax Act.
Ms Madhavi Diwan, counsel appearing on behalf of the State has vehemently submitted that in the facts and circumstances of the case and taking into consideration the relevant provisions of the Tripura Sales Tax Act, the High Court has committed a very serious error in declaring Rule 3A(2) of the Tripura Sales Tax Rules as ultra vires to Tripura Sales Tax Act.
It was submitted that as such Rule 3A, which provides for the tax deduction at source, is a machinery provision concerning tax leviable under the Tripura Sales Tax 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 Tripura Sales Tax Act or the tax liability in any manner.
It was further submitted that the transaction of hiring vehicles by ONGC, GAIL and FCI falls within the definition of Sale under Section 2(g) of the Tripura Sales Tax Act and is subject to tax and stated that Tripura Sales Tax Act provides for a deemed sale where there is a ‘transfer of right to use any goods for any purpose”.
The division bench of Justice M.R. Shah and Justice Krishna Murari has viewed that the liability to pay the tax on the transfer of the right to use the goods shall still be continued under proviso to Section 3(1), merely providing for a 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 Tripura Sales Tax Act and the Rules as observed and held by the High Court.
The Apex Court further observed that the High Court has fallen in error in misinterpreting Rule 3A(2) of the Tripura Sales Tax Rules and has fallen in error in declaring Rule 3A(2) of the Tripura Sales Tax Rules ultra vires to Tripura Sales Tax Act.
The Supreme Court quashed and set aside 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 Single Judge declaring Rule 3A(2) of the Tripura Sales Tax Rules, 1976 as ultra vires to the Tripura Sales Tax Act, 1976.
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