In a recent decision, the two-judge bench of the Supreme Court, while upholding the validity of letter dated 20.11.2001, issued by the Orissa Government, has categorically held that the surcharge under section 5A of the Orissa Sales Tax Act can be levied before deducting the amount of entry tax paid by a dealer. In the opinion of the two-judge bench, a combined reading of the provisions of the OST act and the Orissa Entry Tax Act permits such levy.
In the instant case, the respondent-assessee is registered dealers under the Orissa sales Tax Act and is engaged in the business of Motor vehicles. They have been paying entry tax for the inter-state purchase of the vehicles u/s 3(3) of the Orissa Entry tax act, 1999. They were also paying surcharge on the balance amount after deduction of the entry tax paid on the motor vehicles.The Finance Department, Government of Orissa, issued a letter stating that the surcharge under the OST Act shall be calculated on the payable amount of tax due on the taxable turnover (Section 5 & 5A) instead of on the reduced Sales Tax amount after setting off of entry tax. Accordingly, the Sales Tax Department passed an order against the assessee imposing surcharge on the gross sales tax payable. The assessee-Company impugned both the letter and the order before the High Court. The division bench allowed the appeal. Aggrieved with the order, the Revenue approached the Apex Court through a Special leave Appeal.
The revenue submitted before the Court that there is nothing in the provisions of the OET Act or the Rules made thereunder which would alter the mode of computation prescribed in Section 5A of the OST Act. Section 4 of the OET Act provides for reduction of the liability of a dealer under the Sales Tax Act to the extent of entry tax paid under the OET Act, which only appertains to reduction of entry tax. It has nothing to do with the computation of the surcharge under the OST Act. In any event, in terms of Section 4 of the OET Act, reduction of entry tax paid by the dealers is from the liability under the Sales Tax Act. In substance, it means that the total liability under the Sales Tax Act having been determined would then be reduced by the extent of entry tax paid.
The Court emphasized that, section 5A of the OST Act creates a charge and imposes liability on every dealer under the OST Act to pay surcharge @ 10% on the amount of tax payable by him under the OST Act. Section 4(1) of the OET Act, in the same way, prescribes for reduction of the tax amount payable by the dealer to the extent of entry tax already paid for the same article for which sales tax is payable. “The Section, does not specifically contemplate anything, which would indicate that the provisions of the OET Act or the Rules have to be taken into consideration while assessing the sales tax or surcharge. In essence, the provisions made in the Rules lay down the modality of ‘set off’. It is important to mention here that OST Act was enacted in the year 1947 whereas OET Act was enacted in 1999. The provision of set off has been made in the OET Act and the Rules framed thereunder and not in the OST Act. The heading of Section 4 of the OET Act gives a broad idea regarding the provision of set off by way of “reduction in tax liability”. Sub-Sections 1 and 2 of Section 4 of the OET Act provide for reduction of liability under the OST Act.” The Court said.
“It is well settled that the objective of framing rules is to fill up the gaps in a statutory enactment so as to make the statutory provisions operative. Rules also clarify the provisions of an Act under which the same are framed. Section 4 of the OST Act is a charging Section attracting liability to pay Sales Tax “on sales and purchases effected”. Section 5 of the OST Act provides for rate of Sales Tax. Section 5A of the OST Act levies surcharge on the dealer which is nothing but an additional tax. Therefore, on a plain reading of the provisions under the OST Act as well as under the OET Act, a dealer is not entitled for reduction of the amount of entry tax from the amount of tax payable before the levy of surcharge under Section 5A of the OST Act. A harmonious reading of Rule 18 of the Rules as well as Sections 4, 5, 5-A of the OST Act reveals no conflict or inconsistency. The Rules are to be construed to have been made for furtherance of the cause for which the Statute is enacted and not for the purpose of bringing inconsistencies.”
While quashing the High Court order, the Court said “on a conjoint reading of Section 5 of the OST Act, Section 4 of the OET Act and Rule 18 of the Rules, we are of the considered opinion that the amount of surcharge under Section 5A of the OST Act is to be levied before deducting the amount of entry tax paid by a dealer.”
Read the full text of the Judgment below.
