2003 (9) TMI 732 - HC - VAT and Sales Tax

Issues Involved:
1. Whether surcharge under the Kerala Surcharge on Taxes Act, 1957, can be levied when the sales tax payable under the Kerala General Sales Tax Act, 1963, is exempted by virtue of notifications issued under section 10 of the Act.
2. Whether surcharge should be taken into account for the purpose of granting exemption under the notification issued under section 10 of the Act.

Issue-Wise Detailed Analysis:

1. Levy of Surcharge When Sales Tax is Exempted:
The primary issue is whether surcharge under the Kerala Surcharge on Taxes Act, 1957, can be levied when the sales tax payable under the Kerala General Sales Tax Act, 1963, is exempted. The assessee argued that since no tax was payable on the sales turnover due to the exemption granted under section 10 of the Act, it should not be liable for surcharge. The assessing authority, however, included surcharge in the computation of tax, which was upheld by the appellate authorities.

The court referred to section 5 of the Act, which is the charging provision for the levy of tax, and section 3 of the Kerala Surcharge on Taxes Act, which mandates that the tax payable under the KGST Act shall be increased by a surcharge. The court noted that the exemption notification under section 10 of the Act does not exempt the goods but the tax payable, thus necessitating the computation of tax, including surcharge, before considering the exemption.

The court cited the decision in K.P. Paper Products [1989] 74 STC 16, where it was held that the liability to pay surcharge arises only when there is a liability to pay tax. When the turnover is exempted from sales tax, there is no liability to pay surcharge, as the levy presupposes the liability to pay sales tax.

2. Surcharge Consideration for Granting Exemption:
The second issue is whether surcharge should be taken into account for granting exemption under the notification issued under section 10 of the Act. The court examined the relevant provisions and notifications, particularly S.R.O. No. 1729 of 1993, which provided exemptions for new industrial units under small-scale industries. The notification granted exemptions for both sales tax and surcharge, subject to certain conditions, including the limitation to 100% of the fixed capital investment.

The court observed that the notification contemplates an assessment under the Act, including the computation of surcharge. The exemption is granted only after the tax, including surcharge, is computed. The court reiterated that the exemption is not a blanket one but conditional, and the assessing authority must compute the tax payable under the KGST Act, including surcharge, before applying the exemption.

The court referred to the decision in Ashok Service Centre v. State of Orissa [1983] 53 STC 1, where it was held that a dealer not liable to pay tax under the principal Act is not liable to pay additional tax. However, the court distinguished this case based on the specific wording of the notification S.R.O. No. 1729 of 1993, which explicitly includes surcharge in the exemption.

Conclusion:
The court concluded that the procedure adopted by the assessing authority in computing the tax, including surcharge, before applying the exemption was correct. The exemption granted under the notification is conditional and limited to 100% of the fixed capital investment. The court dismissed the revisions, affirming the Tribunal's conclusion that surcharge should be included in the computation of tax before considering the exemption.

Petitions dismissed.

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