2016 (11) TMI 31 - SC - VAT and Sales Tax

Surcharge on Sales Tax Calculated on Gross Amount; High Court Judgment Set Aside

The Supreme Court held that the surcharge under Section 5A of the Orissa Sales Tax Act should be calculated on the gross amount of sales tax before ... Surcharge as an additional tax - Computation of surcharge - Reduction in tax liability / set-off of entry tax - Illustration in subordinate rules cannot curtail or expand statute - Rules made to fill gaps and clarify statutory provisionsComputation of surcharge - Surcharge as an additional tax - Reduction in tax liability / set-off of entry tax - Illustration in subordinate rules cannot curtail or expand statute - Whether surcharge under Section 5A of the Orissa Sales Tax Act is to be computed on the gross amount of sales tax payable or on the net amount after deducting entry tax paid under the Orissa Entry Tax Act - HELD THAT: - Section 5A of the Orissa Sales Tax Act creates an independent charge to pay surcharge at a specified percentage of the tax payable under that Act; the Orissa Entry Tax Act (Section 4) provides for reduction in liability under the Sales Tax Act to the extent of entry tax paid, and Rule 18 of the Entry Tax Rules sets out the modality of set-off and includes an illustrative computation. An illustration in subordinate rules cannot expand or curtail the statutory scheme. Rules fill gaps and clarify provisions but do not override or alter the charging provision in the principal Act. Reading Sections 5 and 5A of the Sales Tax Act with Section 4 of the Entry Tax Act and Rule 18 harmoniously shows no inconsistency: surcharge is leviable on the amount of tax payable under the Sales Tax Act as charged by Section 5A, and hence must be computed before deduction of entry tax. Consequently, the illustration and departmental clarifications that reduced the surcharge base are inconsistent with the statutory charging provision and cannot be applied to diminish the surcharge liability imposed by Section 5A. [Paras 18, 20, 21, 22, 23]Surcharge under Section 5A is to be levied on the gross amount of tax payable under the OST Act before deducting entry tax; the High Court's contrary order is set aside.Final Conclusion: All appeals allowed; the High Court judgment dated 05.01.2007 is set aside and the matter is decided that surcharge under Section 5A of the OST Act is payable on the gross tax before deduction of entry tax; parties shall bear their own costs. Issues Involved:1. Legality of the High Court's judgment and order dated 05.01.2007.2. Computation of surcharge under Section 5A of the Orissa Sales Tax Act, 1947 (OST Act).3. Applicability of the Orissa Entry Tax Act, 1999 (OET Act) in the computation of surcharge.4. Interpretation of Rule 18 of the Odisha Entry Tax Rules, 1999.5. Clarification issued by the Finance Department, Government of Orissa, regarding surcharge calculation.Detailed Analysis:1. Legality of the High Court's Judgment and Order Dated 05.01.2007:The appeals challenge the High Court's common judgment and order dated 05.01.2007, which allowed the petitions filed by the respondents. The Supreme Court considered whether the High Court's interpretation of the surcharge computation under the OST Act, in conjunction with the OET Act and its Rules, was legally valid.2. Computation of Surcharge under Section 5A of the OST Act:Section 5A of the OST Act mandates that every dealer whose gross turnover exceeds rupees ten lakhs shall pay a surcharge at the rate of ten percent of the total amount of tax payable. The central question was whether this surcharge should be computed on the gross sales tax amount or the net sales tax amount after deducting the entry tax paid under the OET Act.3. Applicability of the OET Act in the Computation of Surcharge:Section 4 of the OET Act provides for the reduction of the liability of a dealer under the Sales Tax Act to the extent of entry tax paid. However, the appellants argued that this reduction pertains only to the entry tax and does not affect the computation of surcharge under the OST Act. The Supreme Court agreed, stating that the provisions of the OET Act do not alter the mode of computation prescribed in Section 5A of the OST Act.4. Interpretation of Rule 18 of the Odisha Entry Tax Rules, 1999:Rule 18 of the Rules provides an illustration for set-off of entry tax against sales tax. The respondents argued that the illustration supports their interpretation that surcharge should be calculated on the net amount after deducting the entry tax. However, the Supreme Court held that illustrations cannot modify the language of the statute and do not curtail or expand its ambit. The Court cited previous judgments to reinforce this principle.5. Clarification Issued by the Finance Department, Government of Orissa:The Finance Department's letter dated 20.11.2001 clarified that surcharge under the OST Act should be calculated on the payable amount of tax due on the taxable turnover, not on the reduced sales tax amount after setting off the entry tax. The Supreme Court upheld this clarification, stating that surcharge is an additional tax and should be computed on the gross sales tax amount.Conclusion:The Supreme Court concluded that the surcharge under Section 5A of the OST Act should be computed on the gross amount of sales tax before deducting the entry tax paid under the OET Act. The impugned judgment and order dated 05.01.2007 by the High Court were set aside. The appeals were allowed, but each party was ordered to bear its own costs.