Delegated legislation cannot create transferee liability for prior sales tax arrears where the statute does not impose it.

Rule 21-A under the Madras General Sales Tax Act, 1939 was considered beyond the State Government's rule-making power because it sought to fasten the transferor's sales tax arrears on a transferee by legal fiction. The taxing scheme made a dealer liable only for his own turnover, and subordinate legislation could not enlarge the statutory definition of dealer or create a new taxable person. A private transfer deed also could not impose statutory tax liability on the transferee where the deed was silent on sales tax arrears. The result was that the attempted recovery from the transferee was unsustainable, and the liability had to arise from statute, not contract.

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Issues: (i) Whether Rule 21-A, framed under the Madras General Sales Tax Act, 1939, was within the rule-making power of the State Government and validly fastened on the transferee liability for arrears of sales tax due from the transferor. (ii) Whether, on the transfer deed, the transferee had assumed the transferor's sales tax arrears so as to authorise recovery from him.

Issue (i): Whether Rule 21-A, framed under the Madras General Sales Tax Act, 1939, was within the rule-making power of the State Government and validly fastened on the transferee liability for arrears of sales tax due from the transferor.

Analysis: The charging scheme of the Act imposed sales tax on a dealer in respect of his own turnover, and the definition of dealer could not be enlarged by subordinate legislation so as to treat a purchaser of the business as liable for the transferor's earlier turnover. The power to make rules for carrying out the purposes of the Act did not authorise the Government to alter the statutory definition by legal fiction. The reference to assessment in the rule-making provision could not be read as authority to determine the person liable to tax, and the later legislative amendment showed that such a liability required statutory enactment and not merely a rule.

Conclusion: Rule 21-A was ultra vires and invalid, and the attempted recovery from the transferee was not sustainable.

Issue (ii): Whether, on the transfer deed, the transferee had assumed the transferor's sales tax arrears so as to authorise recovery from him.

Analysis: The transfer deed was silent on sales tax liability. Even if the deed could be construed as covering general liabilities, a private arrangement between transferor and transferee could not create a statutory liability in favour of the State or impose the accompanying obligations, penalties, and modes of recovery under the taxing statute. Tax liability and its incidents had to arise from the statute itself and not merely from inter vivos contractual terms.

Conclusion: The transfer deed did not authorise the department to recover the arrears from the transferee.

Final Conclusion: The transferee could not be treated as liable for the transferor's pre-transfer sales tax arrears, and the demand against him was unsustainable.

Ratio Decidendi: A taxing statute cannot be enlarged by delegated legislation to create a new class of taxable person by legal fiction; liability to tax and its incidents must flow from the statute itself.

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