Deemed sale tax on vehicle hiring upheld, but deduction at source rule and memorandum struck down as ultra vires.

The second proviso to section 3(1) of the Tripura Sales Tax Act, 1976 was treated as a valid charging provision for tax on consideration received or receivable for transfer of the right to use goods, including vehicles, consistent with deemed sale under Article 366(29A)(d). The Court held that the Legislature had constitutional competence to impose sales tax on such transactions, so the underlying liability remained. However, rule 3A(2) of the Tripura Sales Tax Rules, 1976 was held ultra vires because the Act did not authorise a deduction-at-source mechanism for this category of tax, and the impugned memorandum based on that rule was quashed. Return-based assessment and recovery under the Act remained available.

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Issues: (i) whether the second proviso to section 3(1) of the Tripura Sales Tax Act, 1976 validly created liability to sales tax on consideration received or receivable for transfer of the right to use goods, including vehicles; (ii) whether rule 3A(2) of the Tripura Sales Tax Rules, 1976, requiring deduction of tax at source from such payments, was within the rule-making power and valid; and (iii) whether the impugned memorandum directing deduction at source could be sustained.

Issue (i): whether the second proviso to section 3(1) of the Tripura Sales Tax Act, 1976 validly created liability to sales tax on consideration received or receivable for transfer of the right to use goods, including vehicles.

Analysis: The statutory definition of sale was read with the constitutional concept of deemed sale under Article 366(29A)(d) of the Constitution of India. The transfer of the right to use goods for valuable consideration was treated as a taxable transaction distinct from ordinary sale of goods, and the second proviso to section 3(1) was construed as the charging provision for that category of deemed sale. The Court held that the Legislature had constitutional competence to levy tax on the consideration received for such transfer.

Conclusion: The second proviso to section 3(1) is valid, and the petitioners remain liable to pay sales tax at 4 per cent on consideration received or receivable for hiring of their vehicles.

Issue (ii): whether rule 3A(2) of the Tripura Sales Tax Rules, 1976, requiring deduction of tax at source from such payments, was within the rule-making power and valid.

Analysis: Although section 44 of the Tripura Sales Tax Act, 1976 conferred power to make rules for carrying out the purposes of the Act, the Court held that the Legislature had not authorised delegation of the essential legislative function of deciding the mode by which tax on this deemed-sale transaction would be collected at source. The Act contained an express deduction-at-source mechanism for works contracts under section 3AA, but no similar legislative mandate existed for transfer of the right to use goods. The rule was therefore held to travel beyond the Act and to be ultra vires.

Conclusion: Rule 3A(2) is ultra vires and is struck down.

Issue (iii): whether the impugned memorandum directing deduction at source could be sustained.

Analysis: Once the rule authorising deduction at source was held invalid, the administrative direction based on that rule could not survive. The Court therefore set aside the memorandum requiring the hirers to deduct 4 per cent from the petitioners' bills, while clarifying that the underlying tax liability continued and return-based assessment and recovery under the Act remained available.

Conclusion: The memorandum is quashed.

Final Conclusion: The petitioners succeeded only to the extent that compulsory deduction at source was invalidated, but their substantive liability to sales tax on the transfer of the right to use vehicles was upheld, and the matter was left to be worked out under the Act through the ordinary return and recovery process.

Ratio Decidendi: A delegated rule cannot create a deduction-at-source mechanism for a taxable transaction where the Act does not authorise such a mode of collection, even though the underlying transaction itself is validly taxable under the charging provision.

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