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2010 DIGILAW 595 (KER)

INDIAN OIL CORPORATION LTD. v. STATE OF KERALA

2010-08-03

C.N.RAMACHANDRAN NAIR, P.S.GOPINATHAN

body2010
JUDGMENT C. N. Ramachandran Nair :- Question raised in the revision is whether the Tribunal was justified in holding that the turnover on inter-State sale of high speed diesel and bitumen not covered by C forms attracts rate of tax including turnover tax payable under section 5(2C) of the Kerala General Sales Tax Act, 1963 (hereinafter called "the Act") and the surcharge payable under the Surcharge on Taxes Act. We have heard Sri Jose Joseph, advocate appearing for the petitioner and Sri Mohammed Rafiq, Government Pleader appearing for the respondent. The petitioner is a public sector oil company engaged in local sale as well as inter-State sale of petroleum products. During the year 1998-99, part of the turnover of inter-State sale of HSD and bitumen made by the petitioner was not covered by C forms. Consequently under section 8(2)(b) of the Central Sales Tax Act, 1956, the petitioner was liable to pay tax at 10 per cent or at such higher rate payable for local sale of the goods. According to the petitioner, the Schedule rate of tax reduced by notification issued by the Government for HSD was 15 per cent and for bitumen, 12.5 per cent. However, when assessment was completed, the assessing officer held that rate of tax applicable on inter-State sale not covered by C form is not only the rate payable for the goods under the entry provided in the First Schedule to the Act as reduced by notification, but will also take in "turnover tax" at four per cent payable under section 5(2C) of the Act and 10 per cent of the tax payable under the Surcharge Act which applies for local sales. Consequently inter-State sale of HSD not covered by C form was taxed at 20.5 per cent (15 per cent reduced Schedule rate + four per cent TOT + 1.5 per cent towards surcharge on tax). Similarly inter-State sales turnover of bitumen not covered by C form were subject to tax at 17.75 per cent (12.5 per cent reduced Schedule rate + four per cent TOT + 1.25 per cent surcharge). The contest against assessments was unsuccessful before both the appellate authorities including the Tribunal and hence this revision is filed by the company under section 41 of the Act. For easy reference section 8(2) of the CST Act is extracted hereunder : 8. The contest against assessments was unsuccessful before both the appellate authorities including the Tribunal and hence this revision is filed by the company under section 41 of the Act. For easy reference section 8(2) of the CST Act is extracted hereunder : 8. Rates of tax on sales in the course of inter-State trade or commerce. - (1) ... (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1), - "(a) in the case of declared goods, shall be calculated at twice the rate applicable to the sale or purchase of such goods inside the appropriate State; (b) in the case of goods other than declared goods, shall be calculated at the rate of ten per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher; and (c) in the case of goods, the sale or, as the case may be, the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally shall be nil, and for the purpose of making any such calculation under clause (a) or clause (b), any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law." The Tribunal has decided the issue against the petitioner following decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Aysha Hosiery Factory (P.) Ltd. reported in [1992] 85 STC 106 (SC). However, counsel for the petitioner contended that the decision relates to additional sales tax payable under the Kerala Additional Sales Tax Act which is not the same as the tax payable under the Surcharge on Taxes Act and the turnover tax payable under section 5(2C). However, counsel for the petitioner contended that the decision relates to additional sales tax payable under the Kerala Additional Sales Tax Act which is not the same as the tax payable under the Surcharge on Taxes Act and the turnover tax payable under section 5(2C). The Government Pleader on the other hand besides relying on the above decision of the Supreme Court, referred to the decision of this court in Das Agencies v. State of Kerala reported in [1988] 69 STC 44 (Ker), the decision of the Madras High Court in Engine Valves Limited v. Union of India reported in [1993] 90 STC 84 (Mad) and that of the Supreme Court in S. Kodar v. State of Kerala reported in [1974] 34 STC 73 (SC) and contended that turnover tax payable under section 5(2C) of the Act and surcharge payable under the Surcharge on Taxes Act also are in substance sales tax and by virtue of the fiction introduced under section 8(2)(b) of the CST Act, all these taxes will go to form the rate of tax payable under section 8(2)(b) of the CST Act. In other words, according to him, rate of tax on the inter-State sales turnover of goods not covered by C form will attract the rate of tax which is the cumulative tax payable under the various charging sections under the sales tax law in the State. According to him, even though surcharge is a tax payable under separate statute, it is still sales tax on purchase or sale of goods and in view of the decision of the Supreme Court above-referred declaring that the legislation has it's source in entry 54 of List II of the Seventh Schedule to the Constitution, all such taxes will go to form the rate of tax for the goods referred to in section 8(2)(b) of the CST Act. Section 8(2)(a) and 8(2)(b) of the CST Act are certainly charging sections and those are exceptions to section 8(1) which refers to sale made to State Government and sale made to registered dealers against declaration furnished in form C. It is pertinent to note that section 8(2)(a) and 8(2)(b) refers to only rate of tax and not sales tax payable under various charging sections of the sales tax laws of the State. The various Schedules of the Sales Tax Act prescribes the rate of tax on a commodity and the Government is vested with power to modify the rates. Prima facie we find force in the contention of counsel for the petitioner that the rate of tax payable under section 8(2)(b) is only the rate payable on the sale or purchase of the commodity inside the appropriate State which is made applicable for turnover on inter-State sales not covered by C forms. If the Parliament intended to incorporate the entire sales tax liability payable under various provisions of the local sales tax laws of the State in respect of inter-State sales not covered by C form, we feel they would have used the term "tax payable under the local law of the State" and not "the rate of tax payable for the commodity involved in the purchase or sale within the State". The Supreme Court and various High Courts have held that surcharge, additional sales tax and turnover tax are nothing but tax on sale or purchase of goods within the meaning of entry 54 of List II of the Seventh Schedule to the Constitution and the State has legislative competence. In fact, it is also held in K.M. Mohamed Abdul Khader Firm v. State of Tamil Nadu reported in [1985] 58 STC 12 (SC) that varying rates payable by dealers depending on their turnover is also not discriminatory. The decision of the Madras High Court in Engine Valves case [1993] 90 STC 84 (Mad) above-referred is on additional sales tax payable on inter-State sales not covered by C form which is a levy similar to the surcharge payable under the Kerala Act. So far no decision of the Supreme Court is brought to our notice reversing the judgment of the Madras High Court. Therefore, following the decision of the Madras High Court in Engine Valves case [1993] 90 STC 84 (Mad) and the decision in Aysha Hosiery case [1992] 85 STC 106 (SC) above-referred, we hold that surcharge forms part of the rate of tax for the purpose of section 8(2)(b) of the CST Act. Of course the application of surcharge will lead to a situation where different dealers on inter-State sale of same commodity without being covered by C form will be subject to different rate of tax under section 8(2)(b). Of course the application of surcharge will lead to a situation where different dealers on inter-State sale of same commodity without being covered by C form will be subject to different rate of tax under section 8(2)(b). This is because surcharge is payable at five per cent, if turnover is below Rs. 10 lakhs and at 10 per cent, if the turnover is above Rs. 10 lakhs. The consequence will be that while the petitioner with turnover above Rs. 10 lakhs making inter-State sale of HSD not covered by C form will be liable to pay 20.5 per cent, another dealer with turnover less than Rs. 10 lakhs making inter-State sale of HSD not covered by C form will be liable to pay only 19.75 per cent. It is not known whether section 8(2)(b) of the CST Act, which makes only one distinction, i.e., inter-State sale not covered by C form and inter-State sale covered by C form, visualises different rate of tax on the inter-State sale of the same commodity when different dealers with different turnover sells the very same commodity. In any case following the decisions above-referred, we hold that the Tribunal was justified in treating surcharge as part of the rate of tax within the meaning of section 8(2)(b) of the CST Act on inter-State sale not covered by C form. Counsel for the petitioner submitted that turnover tax covered by section 5(2C) is an independent levy and it applies only to oil companies defined in the Explanation under serial number 108 of the First Schedule to the KGST Act, which are only public sector oil companies. According to him, this being a special levy does not constitute rate of tax within the meaning of section 8(2)(b) of the CST Act. Section 5(2C) of the Act as it stood at the relevant time is extracted hereunder for easy reference : "5. Levy of tax on sale or purchase of goods. - ... According to him, this being a special levy does not constitute rate of tax within the meaning of section 8(2)(b) of the CST Act. Section 5(2C) of the Act as it stood at the relevant time is extracted hereunder for easy reference : "5. Levy of tax on sale or purchase of goods. - ... (2C)(i) Notwithstanding anything contained in this Act or the Rules made thereunder every dealer shall pay turnover tax on the turnover of goods as specified hereunder, namely, - (a) by an oil company defined in the Explanation under serial number 108 of the First Schedule to this Act whose total turnover in a year exceeds rupees fifty lakhs at the rate of three per cent on the turnover from the 1st day of April, 1991 till 31st day of July, 1991 and thereafter at the rate of four per cent on the turnover." The Government Pleader contended that by virtue of the decision of this court above-referred, turnover tax is also sales tax and when it is a percentage of the turnover under the charging section, it also constitutes rate of tax. Here again, we find that turnover tax under section 5(2)(c) is payable only by oil companies which are covered by the definition clause and when same items are sold by another person, there is no liability for turnover tax at all. So much so, turnover tax is a separate levy, though falling under the head "sales tax". Since it is not a uniform rate applicable for any particular product and for all dealers, it is possible to contend that turnover tax cannot be treated as forming part of rate of tax referred to in section 8(2)(b) of the CST Act. However, since the Supreme Court has in the decisions above-referred given a liberal construction of section 8(2)(b) of the CST Act covering all sales tax liabilities, whether levied under different statutes or not, as forming rate of tax of the commodity, we do not find any merit in the contention of the petitioner. Consequently we uphold the order of the Tribunal declaring turnover tax payable under section 5(2C) of the KGST Act also as forming part of rate of tax within the meaning of section 8(2)(b) of the CST Act. The revision case is, therefore, dismissed.