2007 (1) TMI 641 - HC - VAT and Sales Tax

Computation of Surcharge u/s 5-A of the Orissa Sales Tax Act 1947 ( the OST Act ) - modality contravenes the provisions of the Orissa Entry Tax Act ( the OET Act) and Orissa Entry Tax Rules ( the OET Rules ) - HELD THAT - 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. (A) Subordinate legislation has been fictionally called the delegation of power to fill up the details. In Khambhalia Municipality v. State of Gujarat 1967 (2) TMI 111 - SUPREME COURT it was pointed out that the legislature may after laying down the legislative policy confer discretion on an administrative agency as to the execution of the policy and leave it to the agency to work out the details within the framework of the policy. Sub-rule (1) of Rule 18 of the O.E.T. Rules in consonance with the heading of Section 4 of O.E.T. Act lays down that a motor vehicle importer s tax liability under the Sales Tax Act shall be reduced to the extent of Entry Tax paid. The illustration appended to Sub-rule (1) of Rule 18 of the O.E.T. Rules specifically indicates that Sales Tax payable by a dealer is Sales Tax due less the amount of Entry Tax paid. The inconsistency or ambiguity if any between the language of Section 4 of the O.E.T. Act and Sub-rule (1) of Rule 18 of the O.E.T. Rules gets removed by the language in c which provided that the Sales Tax payable on the sale of goods shall be reduced to the extent of Entry Tax paid in the manner illustrated under Sub-rule (1). Thus it is clear that the O.E.T. Act and O.E.T. Rules provide for set off of Entry Tax paid from the amount of Sales Tax payable by a dealer. In such view of the matter the controversy in the present applications is confined to the question as to what constitutes Sales Tax payable under the O.S.T. Act. Therefore on a plain reading of the provisions under the O.S.T. Act and the O.E.T. Act set off has to be made by way of reduction of the Sales Tax payable to the extent of Entry Tax paid. There is no scope for the Revenue to urge that surcharge paid u/s 5-A of the O.S.T. Act has also to be taken into account in computing the dealer s tax liability under the O.S.T. Act. Such a conclusion is apparent from the provision of Section 5-A of the O.S.T. Act as it stood during the periods of assessments under the reference in the present applications. Thus from a harmonious reading of the relevant provisions of the O.S.T. Act O.E.T. Act and O.E.T. Rules it is evident that tax payable as contemplated u/s 5-A of the O.S.T. Act means tax payable after set off of Entry Tax from the Sales Tax assessed on a dealer. The modality adopted by the taxing authorities in computing surcharge on the gross tax assessed instead of tax payable after reduction to the extent of Entry Tax paid is not in accordance with the provisions under the O.S.T. Act O.E.T. Act and O.E.T. Rules. The letter of clarification issued by the Government is misconceived and has no legal sanctity. In the result therefore the writ petitions are allowed; the impugned letter and the extra tax demand made on the Petitioners on the basis of such letter of clarification are quashed.

Summary

Issues Involved:
1. Legality of the methodology adopted by the Sales Tax Officers for computing surcharge under Section 5-A of the Orissa Sales Tax Act (OST Act).
2. Whether the provisions of the Orissa Entry Tax Act (OET Act) and Orissa Entry Tax Rules (OET Rules) should influence the computation of surcharge under the OST Act.
3. Validity of the Government of Orissa's letter dated 20th November 2001 regarding the computation of surcharge.

Detailed Analysis:

1. Legality of the Methodology Adopted by the Sales Tax Officers:
The petitioners challenged the methodology adopted by the Sales Tax Officers for computing surcharge under Section 5-A of the OST Act. They argued that the officers computed the surcharge on the gross tax payable before reducing the entry tax amount, which contravenes the provisions of the OET Act and OET Rules. The petitioners contended that this resulted in an extra tax demand.

2. Influence of OET Act and OET Rules on OST Act:
The petitioners, who are registered dealers in motor vehicles, claimed set-off of the entry tax amount already paid against the sales tax and surcharge payable under Section 4(1) of the OET Act and Rule 18 of the OET Rules. They argued that the surcharge should be computed on the net sales tax payable after the deduction of the entry tax amount. The petitioners cited Rule 18 of the OET Rules and a clarification letter dated 31.5.2001 issued by the Commissioner of Commercial Tax, which supported their interpretation.

The opposite parties, representing the Revenue, contended that the OST Act and Rules are the primary legislation for the assessment and realization of sales tax and surcharge. They argued that the provisions of the OET Act and Rules, which provide for the reduction of tax liability, do not govern the assessment of surcharge. According to them, the surcharge under Section 5-A of the OST Act should be computed before any reduction of the entry tax amount as contemplated under Section 4 of the OET Act.

3. Validity of the Government of Orissa's Letter Dated 20th November 2001:
The petitioners challenged the Government of Orissa's letter dated 20th November 2001, which directed that surcharge under the OST Act should be computed on the gross tax payable before any reduction of the entry tax amount. They argued that this letter was contrary to the Rule and the illustration given in Rule 18 of the OET Rules and the clarification letter issued by the Commissioner of Commercial Tax. The petitioners asserted that an executive instruction cannot supersede a rule framed through legislation.

Judgment:
The court examined the relevant provisions of the OST Act, OET Act, and OET Rules. It noted that Section 5-A of the OST Act imposes a surcharge on the tax payable under the OST Act. Section 4 of the OET Act provides for the reduction of tax liability to the extent of entry tax already paid. Rule 18 of the OET Rules, along with its illustration, supports the petitioners' contention that the surcharge should be computed on the net sales tax payable after the deduction of the entry tax amount.

The court held that a harmonious reading of the relevant provisions reveals no conflict or inconsistency. The letter of clarification dated 31.5.2001 issued by the Commissioner of Sales Taxes was found to be in consonance with the harmonious construction of the provisions under the OST Act, OET Act, and OET Rules.

The court concluded that the methodology adopted by the taxing authorities in computing surcharge on the gross tax assessed, instead of the tax payable after reduction to the extent of entry tax paid, was not in accordance with the provisions under the OST Act, OET Act, and OET Rules. The Government's letter dated 20.11.2001 was found to be misconceived and without legal sanctity.

Conclusion:
The writ petitions were allowed, and the impugned letter dated 20.11.2001 and the extra tax demand made on the petitioners based on such letter were quashed. The court held that the surcharge under Section 5-A of the OST Act should be computed on the net tax payable after the set-off of the entry tax amount.