State Rule Allowing Cancellation of Form C Found Inconsistent with Central Rules; Appeal Dismissed

A bench of Justices Abhay S. Oka and Ujjal Bhuyan heard the State of Rajasthan’s appeal against a Rajasthan High Court judgment which had declared sub‑rule (20) of Rule 17 of the Central Sales Tax (Rajasthan) Rules, 1957 ultra vires provisions of the Central Sales Tax Act, 1956 (CST Act). The challenge arose from cancellation of Form C declarations issued to two purchasers and the State’s power to frame rules permitting such cancellation.

The Court dismissed the appeal and upheld the High Court’s conclusion that the State lacked power to enact a provision cancelling validly issued declaration forms where the Central Government had prescribed the form and its conditions. The judges held that the rule‑making power granted to the Central Government under Section 13(1)(d) to prescribe the form and particulars of declarations was a specific power which the State could not override through rules under Section 13(3). The Court observed that the Central Registration Rules prescribed Form C and did not provide for cancellation of that declaration, and that state rules inconsistent with those central rules could not stand. The Court, in its reasoning, observed: “A specific rule-making power under clause (d) of sub-section (1) of Section 13 has been exercised by the Central Government by framing the Central Registration Rules laying down the form of declaration (Form C) required to be furnished in terms of sub-section (4) of Section 8. ... Therefore, if the State Government exercises the rule-making power under sub-section (3) of Section 13 by making rules providing for cancellation of a declaration in Form C as provided in Central Registration Rules, the State Rules will be inconsistent with the Central Registration Rules framed by the Central Government in exercise of power under Section 13(1)(d) of the CST Act. The State Government cannot frame rules in exercise of power under Section 13(3) which will be inconsistent with the rules framed by the Central Government in exercise of Section 13(1) of the CST Act.”

Background The dispute arose after the respondent‑trader furnished quarterly Form C declarations for sales to two entities, M/s H.G. International and M/s Saraswati Enterprises, for the first quarter of 2017‑18. Revenue officers inspected the purchasers’ premises and concluded the businesses were bogus. The State’s commercial tax officer cancelled the Form Cs and the purchasers’ registration certificates on 7 December 2017, invoking sub‑rule (20) of Rule 17 of the Rajasthan Rules (introduced on 14 July 2014). The respondent had earlier pursued a refund before the Delhi authorities and secured a Delhi High Court direction for refund with interest.

The respondent filed a writ petition in the Rajasthan High Court challenging (i) the vires of sub‑rule (20) of Rule 17 of the Rajasthan Rules and (ii) the cancellation orders and related communications of November–December 2017. The High Court held that the State “had no rule‑making power to frame a rule providing for the cancellation of validly issued declarations/forms” and found the provision inconsistent with Sections 8(4), 13(1)(d), 13(3) and 13(4)(e) of the CST Act.

On appeal, the State argued that Section 13(3) authorised the State to make rules to carry out the purposes of the CST Act and to check evasion. The respondent contended that clause (d) of Section 13(1) vested the Central Government with authority to prescribe the form and particulars of declarations and that neither the CST Act nor the Central Rules empowered cancellation of Form C. The Court noted that “the Central Registration Rules do not vest power in any authority to cancel the declaration in Form C” and that the State rule was inconsistent with rules made by the Central Government under Section 13(1)(d). The Court relied on settled precedents that State rules must not be inconsistent with central rules under Section 13 and affirmed the High Court’s order. The appeal was dismissed and there was no order as to costs.

Case Details: Case No.: 2025 INSC 496 (Civil Appeal No. 1208 of 2025) Case Title: State of Rajasthan & Ors. v. Combined Traders Appearances: For the Petitioner(s): Senior counsel for the State of Rajasthan (not named in report) For the Respondent(s): Counsel for Combined Traders (not named in report)