2018 (7) TMI 146 - HC - VAT and Sales Tax

Levy of Turnover tax - sale of Bread - Composition Scheme - Whether the Gujarat Value Added Tax Tribunal was justified in holding that lump sum tax is payable under the Gujarat Value Added Tax Act, 2003 on the turnover of sales of bread ? - Held that - Ordinarily a dealer engaged in the manufacturing activity would not be entitled to composition of tax provided under sub-section 1 of Section 14, unless the manufacturing activity in question has been specified for exclusion from such treatment by the Government by an order in writing. As per sub-section 3 of Section 14, a dealer who is permitted to pay lump sum tax is not entitled to certain benefits, such as to claim tax credit in respect of tax payable by him on his purchases or charge any tax on his sales invoice in respect of the sales on which lump sum tax is payable. In case of the dealers, who want to pay lump sum tax in lieu of normal tax, the rate of tax prescribed was one-half per cent. This one-half per cent was to be computed as per notification dated 31st March 2006 on the total turnover of the dealer, which was quickly corrected to taxable turnover by a later notification dated 29th April 2006. The Government, by virtue of the said notification dated 31st March 2006, do not intended to compute the lump sum tax of a manufacturer of bakery items on the basis of his total turnover. The very purpose of the composition scheme would be in jeopardy if the payable tax by a dealer is substituted by percentage of his taxable and non-taxable turnover.

Summary

Issues Involved:
1. Whether the Gujarat Value Added Tax Tribunal was justified in holding that lump sum tax is payable under the Value Added Tax Act, 2003 on the turnover of sales of "bread"?

Issue-wise Detailed Analysis:

1. Definition and Interpretation of Turnover:
The appellant, a proprietary concern engaged in manufacturing and selling bakery items, contested the Tribunal's decision that lump sum tax should be calculated on the total turnover of sales, including exempt items. The appellant argued that the term "turnover" in the notification should be interpreted as "taxable turnover" to avoid taxing exempt goods. The Tribunal, however, differentiated between "turnover of sales," "taxable turnover," and "total turnover" as defined in Sections 2(33), 2(30), and 2(34) of the VAT Act, respectively.

2. Statutory Provisions and Notifications:
Section 14 of the Gujarat Value Added Tax Act, 2003, allows the Commissioner to permit dealers to pay a lump sum tax in lieu of tax payable under the Act. The Government issued a notification on 31st March 2006, specifying manufacturing activities, including bakery items, eligible for lump sum tax at 2% of the "turnover of sales." The appellant was granted permission under this scheme but disputed the basis of turnover calculation.

3. Tribunal's Rationale:
The Tribunal upheld the Department's stance that lump sum tax should be on the total turnover, not just taxable turnover. It emphasized that the term "turnover of sales" in the notification aligns with its definition in Section 2(33) of the Act, implying all sales, including exempt ones.

4. Appellant's Contentions:
The appellant's counsel argued that interpreting "turnover" as "total turnover" contradicts the scheme's purpose, which is to simplify tax computation. This interpretation would unfairly tax exempt goods and create discrimination among bakery manufacturers based on the proportion of exempt products in their sales. The counsel cited various Supreme Court judgments to support a purposive interpretation of tax statutes.

5. Respondent's Counterarguments:
The AGP contended that the Tribunal correctly interpreted the notification and statutory provisions. The lump sum tax scheme is optional, and the term "turnover of sales" has a specific definition under Section 2(33). The method of computing lump sum tax on total turnover does not equate to taxing exempt goods but is a mode of tax calculation.

6. Court's Analysis:
The Court examined relevant statutory provisions, including definitions of "tax," "taxable goods," "taxable turnover," "turnover of sales," and "total turnover." It noted that "turnover of sales" serves as the base for defining both "taxable turnover" and "total turnover." The Court highlighted that the composition scheme's purpose would be defeated if lump sum tax were based on total turnover, including exempt items.

7. Notification Amendments:
The Court referred to a parallel notification issued on 31st March 2006, which initially prescribed lump sum tax on "total turnover" but was amended on 29th April 2006 to "taxable turnover." This change indicated the Government's intent to exclude exempt sales from lump sum tax computation.

8. Purposive Interpretation:
The Court adopted a purposive interpretation, emphasizing that the scheme aims to simplify tax computation and should not result in taxing exempt goods. The Supreme Court's judgment in State of Kerala & Ors. vs. A.P Mammikutty supported this approach, advocating for legislative intent and practical application of tax statutes.

Conclusion:
The Court concluded that the Tribunal erred in its interpretation. The lump sum tax should be computed on the taxable turnover, not the total turnover, to align with the scheme's purpose and statutory provisions. The Tribunal's judgment was reversed, and the appeal was disposed of accordingly.