VAT deduction at source must track taxable turnover, not impose flat-rate collection beyond actual tax liability.

Deduction of VAT at source from contract bills was treated as valid only when linked to the contractor's taxable turnover and actual tax liability. The statutory mechanism under the Tripura Value Added Tax Act, 2004 and the Rules could not authorise a flat-rate deduction de hors liability to tax, as collection cannot extend to amounts not liable to tax. Final assessment, interest, penalty and recovery were left to the assessing authorities, while the underlying taxability of the transportation transaction remained open for assessment proceedings.

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Issues: Whether the provision requiring deduction of VAT at a flat rate from contract bills could operate without reference to the contractor's tax liability and whether such deduction had to be confined to the taxable turnover.

Analysis: The statutory deduction mechanism under the Tripura Value Added Tax Act, 2004 and the Rules framed thereunder was examined in the light of settled constitutional law that the State cannot provide for collection of tax on amounts not liable to tax. The Court relied on the principle that deduction at source is intended only as an aid to collection of tax referable to taxable turnover and cannot be made de hors the liability to pay tax. The impugned rule was therefore read as requiring the deductor to consider the contractor's taxable turnover, while leaving final assessment, interest, penalty and recovery to the statutory authorities. Questions regarding the underlying taxability of the transportation transaction were not decided at this stage, as they remained for assessment proceedings.

Conclusion: Deduction at source could not be made at a flat rate without regard to the assessee's tax liability, and the deduction had to be limited to the amount referable to taxable turnover; the petitioner was entitled to the corresponding relief and direction.

Ratio Decidendi: A tax deduction at source provision is valid only to the extent it is linked to taxable turnover and cannot authorise collection unrelated to the assessee's actual tax liability.

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