1998 (11) TMI 648 - HC - VAT and Sales Tax

Delhi Sales Tax Rule Declared Ultra Vires, Petitioners' Rights Upheld

Shri Krishna Engg. Co. Versus Commissioner of Sales Tax, Delhi and others (and other cases)

The court declared a specific clause in the Delhi Sales Tax Rules, 1975, as ultra vires the authority of the Lt. Governor, as it exceeded the delegated ... - Issues Involved:1. Excess of rule-making power of the Lt. Governor.2. Unreasonable restriction on the petitioner's fundamental right to trade.3. Non-laying of the amended rule before Parliament as mandated by section 72 of the Act.Issue-wise Detailed Analysis:1. Excess of Rule-Making Power of the Lt. Governor:The petitioners challenged the amendment in the Delhi Sales Tax Rules, 1975, arguing it was beyond the delegated legislative authority of the Lt. Governor. The court examined Section 71 of the Delhi Sales Tax Act, 1975, which confers rule-making power on the Administrator to carry out the purposes of the Act. The court noted that the Act itself does not provide for withholding the issuance of forms if the applicant-dealer is a defaulter. The rule-making power does not specifically confer the authority to prescribe conditions under which issuance of forms may be withheld. The court cited several precedents, including Bharat Barrel & Drum Mfg. Co. Private Ltd. v. Employees' State Insurance Corporation and Commissioner of Income-tax v. Taj Mahal Hotel, to support the principle that rules cannot take away what is conferred by the Act or whittle down its effect. The court concluded that the impugned rule transgresses the limit of what is necessary for carrying out the purpose of the Act and is therefore ultra vires the authority.2. Unreasonable Restriction on the Petitioner's Fundamental Right to Trade:The petitioners argued that the amended rule imposes an unreasonable restriction on their fundamental right to trade, violating Article 19(1)(g) of the Constitution. The court noted that the Act confers a substantive right on dealers to have the amount of turnover made to registered dealers for the purpose of resale excluded from their taxable turnover. Denying the issuance of the requisite declaration form takes away this substantive right, which the Act itself does not provide for. The court emphasized that the mechanism of passing on the burden of tax is essential to avoid multiple taxation and is conducive to the development of trade and commerce. The rule-making authority cannot obstruct or prohibit this right, regardless of the laudable object of ensuring timely tax recovery.3. Non-Laying of the Amended Rule Before Parliament:The petitioners contended that the amended rule had not been laid before Parliament as required by Section 72 of the Act, rendering it unenforceable. The respondents argued that the provision for laying the rule before Parliament is directory, not mandatory, and non-compliance does not nullify the rule. However, the court did not find it necessary to delve into this contention, as it had already struck down the rule on the first ground.Judgment:The court declared sub-clause (ii) inserted in clause (c) of sub-rule (4) of rule 8 of the Delhi Sales Tax Rules, 1975, by notification dated February 11, 1997, as ultra vires the authority of the Lt. Governor of NCT of Delhi and struck it down. The petitions were allowed, and no order as to costs was made.Conclusion:The court found the impugned amendment to be beyond the rule-making power of the Lt. Governor, as it imposed conditions not contemplated by the Act, thereby taking away substantive rights conferred by the Act on dealers. The petitions were allowed, and the amendment was struck down.