2010 (7) TMI 934 - HC - VAT and Sales Tax

Whether the Notification No. F.D. 65 CSL 2001 dated July 10 2001 exempt the payment of cess under section 6D of the Act? Held that - From the material on record that the observations of the authorities are not proper. They have over looked the express words contained in section 6D in particular opening words and also the concept of word cess . Cess is payable and is dependent on payment of tax. If tax is exempted cess automatically stands exempted. Therefore the impugned orders cannot be sustained. Hence, the revision petition is allowed and the impugned orders are hereby set aside and the assessee is entitled for exemption from payment of cess under section 6D of the Act.

Summary

Issues Involved:
1. Whether the Notification No. F.D. 65 CSL 2001 dated July 10, 2001, exempts the payment of cess under section 6D of the Karnataka Sales Tax Act, 1957.

Issue-wise Detailed Analysis:

1. Exemption Notification and Tax Payable:
The petitioner, a registered dealer under the Karnataka Sales Tax Act, 1957, claimed exemption on a turnover of high-speed diesel (HSD) sold to fishermen, citing Notification No. FD 65 CSL 2001. The notification exempted the tax payable under section 5 of the Act but did not explicitly mention an exemption from the cess levied under section 6D. The authorities interpreted this to mean that while tax under section 5 was exempted, the cess under section 6D was not, leading to the assessment order levying the cess.

2. Interpretation of Section 6D and Cess:
The petitioner argued that cess under section 6D is payable only if tax is payable under sections 5, 5B, 5C, and 6. Since the notification exempted tax under section 5, it implied that the cess under section 6D should also be exempted. The authorities, however, held that the absence of explicit words exempting the cess in the notification meant the cess was still payable.

3. Government's Stance and Strict Interpretation:
The Government Advocate contended that the notification should be strictly construed, and courts cannot add words to extend the benefit of exemption. This stance was supported by precedents which held that exemption notifications must be interpreted strictly and cannot be broadened by judicial interpretation.

4. Nature and Purpose of Cess:
The court examined the nature of cess, citing the Supreme Court's explanation in Shinde Brothers v. Deputy Commissioner, Raichur, which defined cess as an additional tax levied for specific administrative expenses. The court noted that the cess under section 6D was intended for equity investment in specific infrastructure projects, which did not directly benefit the fishermen who were the intended beneficiaries of the tax exemption.

5. Legislative Intent and Purposeful Interpretation:
The court emphasized the legislative intent behind the exemption notification, which was to benefit small-scale fishermen living below the poverty line. It held that the cess, being an increment to the tax under section 5, should also be exempted when the tax itself is exempted. The court reasoned that a purposeful interpretation was necessary to achieve the social and welfare objectives of the notification.

6. Precedents and Legal Principles:
The court referred to the Division Bench judgment in Commercial Tax Officer, IV Circle, Davangere v. Hallur Halappa and Company, which underscored that exemption notifications must be read as they stand and cannot be expanded by adding words. However, the court distinguished this case by emphasizing that the cess under section 6D is dependent on the tax under section 5, and if the tax is exempted, the cess should also be exempted.

7. Conclusion and Order:
The court concluded that the authorities had misinterpreted the notification and section 6D. It held that cess is payable only if the tax is payable, and since the tax was exempted by the notification, the cess was also exempted. The court set aside the impugned orders and allowed the revision petition, granting the assessee exemption from payment of cess under section 6D of the Act.