1993 (3) TMI 320 - HC - VAT and Sales Tax

Summary

Issues:
1. Challenge to demand for surcharge under the Kerala Surcharge on Taxes Act, 1957, on the amount paid for compounding under section 7(14) of the Kerala General Sales Tax Act, 1963.
2. Challenge to demand for turnover tax from the petitioners who are abkari contractors.

Detailed Analysis:
1. The petitioners, abkari contractors holding licenses for arrack shops in Kerala, challenged the demand for surcharge and turnover tax by the respondents despite opting for compounding under section 7(14) of the Kerala General Sales Tax Act, 1963. The petitioners contended that since they had already compounded the tax payable at a lump sum, they should not be required to pay any further amount as surcharge or turnover tax. Additionally, they argued that the amount paid for compounding did not constitute sales tax and hence surcharge should not be levied on that amount. The court found no merit in these contentions.

2. Section 7(14) of the Act allows dealers to compound the tax payable by paying 20% of the rental amount under the Abkari Act, with a deduction for the tax paid on arrack purchases. This provision provides an alternative method of tax payment in place of the general levy under section 5(1)(v). The court clarified that the compounding provision does not discharge all tax liabilities imposed by the State under its legislative powers. Surcharge, turnover tax, and additional tax are separate levies payable under different enactments, and opting for compounding under section 7(14) does not exempt dealers from these additional payments.

3. The court rejected the argument that the amount paid for compounding does not constitute sales tax and therefore should not be subject to surcharge. It emphasized that the amount paid under section 7(14) is essentially sales tax, albeit calculated through a different method. The court highlighted that the compounding fee is directly related to the purchases and sales made by the licensees, making it a form of sales tax. Denying the petitioners' contentions, the court upheld the demand for surcharge and turnover tax, stating that the compounding provision does not absolve dealers from these additional tax liabilities.

In conclusion, the court dismissed the original petitions challenging the demand for surcharge and turnover tax on the amount paid for compounding under section 7(14) of the Kerala General Sales Tax Act, 1963. The judgment clarified that opting for compounding does not exempt dealers from other tax obligations and that the amount paid under the compounding provision is considered as sales tax, making it subject to surcharge and turnover tax.