Sales tax exemption and surcharge limits: additional tax may be computed, but surcharge cannot be levied without underlying liability.

A sales tax exemption under a notification covered the tax payable on specified turnover, so the goods were not outside assessment altogether; tax had first to be computed under the charging provisions and then reduced under the concession. Additional sales tax, as an increment on sales tax, could be included in the notional computation for exemption purposes. Surcharge, however, was not independently leviable where sales tax liability was fully exempt for the year, because it depended on an underlying tax liability. For working out the ceiling on cumulative tax concession, the assessing authority could aggregate sales tax, additional sales tax and surcharge only for the limited purpose of computation.

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Issues: (i) whether additional sales tax and surcharge were leviable on turnover exempted under the notification issued under section 10 of the Kerala General Sales Tax Act, 1963; (ii) whether the assessing authority could compute sales tax, additional sales tax and surcharge for the purpose of working out the exemption and cumulative tax concession under the notification.

Issue (i): whether additional sales tax and surcharge were leviable on turnover exempted under the notification issued under section 10 of the Kerala General Sales Tax Act, 1963

Analysis: The exemption granted by the notification was an exemption from the tax payable on the turnover of sales of the specified goods, but the goods themselves were not exempted from the statutory scheme of assessment. Tax had therefore to be computed under the charging provisions and then deducted in terms of the exemption. Additional sales tax, being an increment on the tax payable under the principal sales tax enactment, followed the same liability. Surcharge, being an enhancement of tax and not a levy independent of the liability to pay sales tax, could not be demanded when the turnover was fully exempt from sales tax.

Conclusion: Additional sales tax could be taken into account in the computation, but a separate surcharge demand was not sustainable where the assessee was fully exempt from payment of sales tax for that year.

Issue (ii): whether the assessing authority could compute sales tax, additional sales tax and surcharge for the purpose of working out the exemption and cumulative tax concession under the notification

Analysis: The phrase "tax concession" in the notification was wide enough to include the benefit that would otherwise arise on account of sales tax, additional sales tax and surcharge. For determining whether the cumulative concession had crossed the prescribed ceiling, the authority was entitled to assess the aggregate liability under all three heads, even though the actual enforceability of surcharge depended on the existence of sales tax liability.

Conclusion: The assessing authority could compute sales tax, additional sales tax and surcharge for the limited purpose of granting exemption and determining the cumulative concession.

Final Conclusion: The revisions succeeded, the Tribunal's order was modified, and the assessments were to be recomputed in accordance with the above principles, with no separate demand for surcharge where full sales tax exemption applied.

Ratio Decidendi: Where a statutory notification exempts the tax payable on specified turnover, additional sales tax may form part of the notional computation for granting the exemption, but surcharge cannot be levied independently unless there is an underlying liability to pay sales tax.

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