Works contract TDS cannot be fixed at a flat rate on gross bills when tax depends on actual taxable goods involved.

Under the Tripura Sales Tax Act and Rules, deduction at source in a works contract must track the tax actually payable on the contractor's taxable turnover. Tax is attracted only on the transfer of property in goods involved in the contract, and the prescribed deduction mechanism may not be applied as a flat rate on the gross bill without examining whether the materials are taxable or whether any taxable transfer occurred. A uniform four per cent deduction from every bill was therefore inconsistent with the statutory scheme and beyond the authority conferred by the Act and Rules; the memoranda directing such deduction were quashed.

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Issues: Whether the sales tax authorities could direct deduction at source at a flat rate of four per cent from every bill raised for execution of a works contract under the Tripura Sales Tax Act and the Tripura Sales Tax Rules, 1976, without regard to the actual taxability and value of the goods involved.

Analysis: Section 3A deems only the transfer of property in goods involved in the execution of a works contract to be a sale, and tax is payable only on the value of taxable goods at the rates specified in the Schedule. Section 3AA authorises deduction at source only of such amount as may be prescribed. Rule 3A, read with the definition of "prescribed" in section 2(e), requires deduction to approximate the tax actually payable on the contractor's taxable turnover and permits provisional computation where necessary. A flat deduction of four per cent from the gross bill, irrespective of whether all materials used are taxable or whether any transfer of property in goods has occurred, exceeds the statutory scheme and is contrary to the proviso to section 3A and the rule-making framework.

Conclusion: The memoranda directing flat-rate deduction at source were beyond the scope of the Act and the Rules and were rightly quashed; the challenge to the quashing failed.

Ratio Decidendi: Where a statute permits deduction at source only in the manner prescribed by the rules and tax is chargeable only on taxable goods actually involved in the works contract, the authority cannot impose a uniform deduction on the gross bill that is disconnected from the contractor's real tax liability.

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