By TIOL News Service

AHMEDABAD, DEC 29, 2015: THE issue is - Whether assessee is liable to additional tax under section 4 of the Gujarat Sales Tax Act, 1969 on the sales which are exempted by Entry pursuant to notification under section 49(2) of the said Act. NO is the verdict.

Facts of the case

The appellants in these appeals and the respondents in the writ petitions are dealers who at the relevant time were enjoying the benefit of exemption from payment of general sales tax, sales tax or, as the case may be, purchase tax under the relevant notification issued by the State Government in exercise of powers under sub-section (2) of section 49 of the Act. Under the incentive schemes framed under section 49(2) of the Act, exemption was granted to a particular limit calculated in terms of the Scheme. The Scheme also lays down the method for computing the entitlement limit of tax exemption. For the purposes of such computation, the amount of tax leviable under the relevant provisions of the Act is required to be calculated and the same is adjusted against the exemption limit. The assessing authority adjusted the additional tax against the exemption limit. In the writ petitions, the dealers had computed the additional tax and adjusted the same against the ceiling of exemption, however, according to the respondent authorities, additional tax not being a tax as envisaged under section 2(32) of the Act is not exempt under the Scheme and hence, could not be adjusted against the exemption limit and, therefore, the amount of additional tax was required to be paid in cash. Accordingly, recovery of additional tax adjusted against the exemption limit was sought to be made together with interest thereon.

Subsequently, the State Government issued a notification dated 3rd March, 2001 amending the aggregation clause in the main exemption notification issued under section 49(2) of the Act whereby the amount of additional tax under section 4A of the Act was permitted to be adjusted against the limit of exemption. It was the case of the tax authorities that prior to the issuance of such notification, the dealers were liable to pay the additional tax in cash and from the date of the notification, viz., 3rd March, 2001, the additional tax could be adjusted against the limit of exemption. Gujarat Value Added Tax Tribunal by a common order held that sub-section (1) of section 4A of the Act requires every dealer liable to pay tax under sections 3, 3A and 4 to pay additional tax. The dealers who are covered under sub-section (2) of section 49 of the Act are also dealers who are liable to pay tax under sections 3, 3A or 4 of the Act and hence, are liable to pay additional tax. The Tribunal also held that the amount of additional tax could be adjusted against the ceiling limit from the date of the notification viz. 3rd March, 2001, however, for the period prior thereto, such amount was payable in cash. Tribunal, in the orders from which the writ petitions arise, held that the assessees are liable to pay additional tax under section 4A of the Act computed on the basis of the assessee's liability to pay tax under the provisions of sections 3, 3A and 4 of the Act, however, insofar as the adjustment of such amount against the exemption limit is concerned, the Tribunal deviated from the previous view taken by it in the case of M/s. D.K. Trivedi and Sons and allied matters wherein it was held that though the assessees were entitled to exemption under section 49(2) of the Act, they were still liable to pay the additional tax in cash, and held that the assessees were entitled to adjust the amount of additional tax against the ceiling limit of tax exemption granted under section 49(2) of the Act. Against the orders passed by the Tribunal holding the dealers liable to pay additional tax under section 4A of the Act, the dealers are in appeal and against the order of the Tribunal holding that the dealers are entitled to adjust the additional tax against the ceiling limit of exemption even prior to the notification dated 3rd March, 2001, the State of Gujarat has filed writ petitions.

Having heard the parties, the Court held that,

+ insofar as the liability to pay tax under sections 3, 3A or under section 4 of the Act on the sale or purchase of goods is concerned, exemption operates after the levy and does not negate the liability to tax. Exemption can operate only when there has been a valid levy, for if there was no levy at all, there would be nothing to exempt. Despite an exemption, the liability to pay tax remains unaffected, only the subsequent requirement of payment of tax to fulfil the liability is done away with. When there is an exemption, the liability to pay tax remains, but the requirement to pay tax to fulfil such liability is done away with;

++ the liability to pay tax under sections 3, 3A and 4 of the Act would continue despite the fact that the sale or purchase of goods are wholly exempt from payment of sales tax, general sales tax or, as the case may be purchase tax. Accordingly, additional tax would be leviable on a dealer who is liable to pay tax under sections 3, 3A and 4 of the Act, irrespective of the fact that the sale or purchase of goods is wholly exempt from payment of tax under those provisions. However, as noticed earlier, section 4A of the Act is in two parts. The second part of section 4A says that such additional tax shall be levied at the rate of ten paise in the rupee on the sales tax, general sales tax or, as the case may be, purchase tax payable by such dealer. Therefore, the sales tax, general sales tax or purchase tax payable by such dealer form the basis for computing the additional tax to be levied and collected from a dealer as the additional tax is at the rate of 10% thereof. It follows as a necessary corollary that if no sales tax, general sales tax or purchase tax is payable, there can be no additional tax thereon;

++ in view of the exemption enjoyed by the dealer under section 49(2) of the Act, there is no obligation to pay any sales tax, general sales tax or, as the case may be, purchase tax. At the cost of repetition, it may be stated that when no tax is payable, additional tax at the rate of ten paise in the rupee on sales tax, general sales tax or, as the case may be, purchase tax would be nil. Therefore, while it could be said that having regard to the first part of section 4A of the Act, additional tax is leviable, considering the second part of the section, such additional tax would be nil as the tax payable by the dealer on sale or purchase of goods which are wholly exempt from payment of sales tax, general sales tax or, as the case may be, purchase tax would be nil;

++ when the dealer, in view of the exemption enjoyed by him under section 49(2) of the Act, cannot recover the additional tax on such sale or purchase, except at the risk of incurring liability under section 50 of the Act to pay tax to the extent it was exempted under section 49 from the payment of tax, it could never have been the intention of the legislature to collect tax in relation to the sale or purchase of goods which are otherwise wholly exempt from payment, more so, in cash;

++ while it cannot be said that additional tax is not leviable on the sale or purchase of goods which are wholly exempt from payment of sales tax, general sales tax or, as the case may be, purchase tax, however, such additional tax can only be calculated at the rate of ten paise in the rupee on the sales tax, general sales tax or, as the case may be, purchase tax actually payable by the dealer. For the purpose of computation of additional tax, the authorities cannot fall back upon the fictional basis of computation of sales tax, general sales tax or, as the case may be, purchase tax adopted for the purpose of computing the entitlement limit of tax exemption. If the actual tax payable is nil, which would be the case where the sale or purchase of goods is totally exempted, the additional tax at the rate of ten paise in the rupee would also be nil. The authorities under the Act, therefore, cannot recover additional tax under section 4A of the Act in relation to sale or purchase of goods which are wholly exempt from payment of tax under section 49(2) of the Act by resorting to any fictional basis. It follows as a natural corollary that when the additional tax payable is nil, the question of payment of such tax either in cash or by way of adjustment against the exemption limit would not arise. Under the circumstances, till the date of amendment of the exemption notification, viz., 3rd March, 2001, whereby the aggregation clause came to be amended, the question of payment of additional tax, either in cash or by way of adjustment against the exemption limit would not arise. The Tribunal was, therefore, not justified in holding that additional tax was payable under section 4A of the Act by the dealers even for the period prior to 3rd March, 2001, either in cash or by way of adjustment. To that extent, the impugned orders passed by the Tribunal, cannot be sustained;

++ the revisional powers under section 67 of the Act can be exercised by the Commissioner on his own motion within a period of three years from the date of the order passed by the officer appointed under section 27 to assist him. The assessing authority had passed the order on 27th October, 2004, whereas the notice under section 67 came to be issued by the Joint Sales Tax Commissioner on 22nd January, 2008, which is clearly beyond a period of three years from the date of the order passed by the assessing authority. Clearly therefore, the exercise of revisional powers was barred by limitation. Similarly, in Special Civil Application No.83/2014, the assessing authority passed the order on 31st January, 2005, giving benefit of adjustment against the exemption limit to the respondent dealer and the notice under section 67 of the Act came to be issued on 29th May, 2008. Clearly therefore, the notice under section 67 of the Act was beyond a period of three years from the date of the order passed by the assessing authority. Under the circumstances, the exercise of revisional powers by the Commissioner was clearly barred by limitation;

++ appellant is not liable to additional tax under section 4A of the Gujarat Sales Tax Act, 1969 on the sales which are exempted by Entry pursuant to notification under section 49(2) of the said Act. It is further held that the Gujarat Value Added Tax Tribunal has exceeded its jurisdiction in holding that the appellant was required to deposit additional tax in cash, when such aspect was not even the controversy before it in the appeal of the appellant.

(See 2015-TIOL-2915-HC-AHM-CT)