State Rules Cannot Overrule Central Rules Under CST Act

Last Updated on April 20, 2025 by Shianjany Pradhan

The Supreme Court upheld the Rajasthan High Court’s decision, which struck down Rule 17(20) of the Rajasthan CST Rules, 1957, as ultra vires the Central Sales Tax Act, 1956.

The Court noted that the State Government cannot exceed its delegated authority by authorizing the cancellation of Form C, a provision not permitted under the Central Rules.

The case involved the State of Rajasthan challenging the High Court’s ruling, which declared Rule 17(20) invalid.

This rule allowed the cancellation of Form C if it was obtained through fraud or misrepresentation. However, the Central Rules, specifically the Registration and Turnover Rules of 1957, allow the use of Form C but do not provide for its cancellation.

The Court emphasized that the Central Rules do not authorize the cancellation of Form C, and therefore, the State cannot introduce such a provision, even in cases of fraud or legal violations. It clarified that while the State can frame its own rules, they must not conflict with the Central Rules.

The case arose after the respondent sold goods using Form C to two firms, later found to be bogus. The state tax authorities canceled the forms, leading to a higher tax liability for the respondent. The Rajasthan High Court struck down the state rule, which the State then challenged in the Supreme Court.

The Supreme Court affirmed the High Court’s decision, stating that only the Central Government can prescribe the conditions for Form C. Since the Central Rules do not allow for cancellation, the State’s rule was inconsistent with the central framework, and the appeal was dismissed.

Case Title: STATE OF RAJASTHAN & ORS. v. COMBINED TRADERS