Ajay Kumar Mittal, J.@mdashThis appeal has been preferred by the appellant-assessee under section 68 of the Punjab Value Added Tax Act, 2005 (in short, "the Punjab VAT Act") against the order dated July 11, 2008, annexure A7 passed by the Punjab Value Added Tax Tribunal, Chandigarh (for brevity, "the Tribunal"), proposing to raise the following substantial questions of law for determination of this court:
"(i) Having regard to the facts and circumstances of the case and on true and correct interpretation, is surcharge exigible under section 5(1C) of the Punjab General Sales Tax Act, 1948 upon an industrial unit holding exemption from payment of tax in accordance with the provisions of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 when section 30AA under which surcharge was imposed was omitted with effect from December 7, 2002 and there was no specific provision left for the imposition of surcharge upon the exemption holders?
(ii) On the facts and circumstances of the case, whether sales made by an exempted unit were deductible from gross turnover to determine taxable turnover liable to surcharge?
(iii) In the facts and circumstances of the case, whether sales of three wheelers amounting to Rs. 6,90,181 could be subjected to surcharge despite prohibition contained in second proviso, when no surcharge was levied on such sales made during 2004-05, for sheer non-mention of the name of the commodity on which higher rate of tax, i.e., 12 per cent was assessed?
(iv) In the facts and circumstances of the case, whether penalty imposed under section 23 of the Punjab General Sales Tax Act, 1948 could be sustained on bald narration that an opportunity of hearing was granted when neither show-cause notice was served upon the assessee nor opportunity of hearing was given as per order sheet containing the proceedings of the case?"
A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant is a public limited company registered under the Companies Act, 1956. During 2003-04, the appellant was engaged in the manufacture of tractors for sale. Besides tractors, the company also produced and sold three wheelers valuing Rs. 6,90,181 in the subsequent year. The company was registered under the Punjab General Sales Tax Act, 1948 (in short, "the PGST Act") and also under the Central Sales Tax Act, 1956 (in short, "the GST Act"). It was also holding exemption certificate under the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 (in short, "the 1991 Rules"). The appellant deposited Rs. 8 lacs as surcharge from its own funds. It being exemption holder neither collected any tax nor surcharge from its customers. The assessing authority framed assessment and determined tax payable at Rs. 8,06,433 and found Rs. 7,17,344 as refundable. He further imposed penalty of Rs. 5,000 under section 23 of the PGST Act and after reducing the same from refundable amount of Rs. 7,17,344, allowed refund of Rs. 7,12,344. The Assessing Authority while determining taxable turnover in the assessment order dated March 16, 2007, annexure A5 deducted Rs. 70,68,16,401 as exempted sales of tractors made within the State of Punjab and no tax was assessed on this turnover but while computing the quantum of monetary exemption availed of by the appellant during the year, he illegally included surcharge of Rs. 28,27,266 and reduced the available monetary exemption by Rs. 3,10,99,922. Aggrieved by the order, the assessee filed appeal before the Deputy Excise and Taxation Commissioner (Appeals) (DETC (Appeals)). Vide order dated September 6, 2007, annexure A6, the DETC (Appeals) held that tax under section 5 and surcharge under section 5(1C) of the PGST Act is to be assessed irrespective of the exempted units and the amount so calculated shall be reduced from the exemption amount granted to the units. The appellate authority also upheld the penalty of Rs. 5,000 imposed under section 23 of the PGST Act. Still not satisfied, the appellant filed second appeal before the Tribunal. Vide order dated July 11, 2008, annexure A7, the Tribunal dismissed the appeal holding that even when the appellant is an exempted unit as per entitlement certificate, still every year tax has to be calculated on the taxable turnover and then it has to be exempted within the exemption entitlement. The surcharge is leviable on tax payable and this shall also be added to the amount of tax for which exemption entitlement is there since section 30AAof the PGST Act added on November 7, 2001 had been omitted with effect from December 7, 2002. The Tribunal sustained imposition of surcharge in respect of sales of three wheelers amounting to Rs. 6,90,181 and iron scrap valuing Rs. 91,251 and penalty of Rs. 5,000 imposed under section 23 of the PGST Act. Hence the present appeal by the assessee.
2. We have heard learned counsel for the parties and perused the record.
3. Learned counsel for the appellant submitted that the goods produced by the appellant being exempt from payment of sales tax for a period of 10 years, no surcharge could be levied which would reduce the exemption entitlement of the assessee. According to the learned counsel, in view of rule 4A of the 1991 Rules, surcharge is on taxable turnover and not on the gross turnover. Reference was made to section 5(2) of the PGST Act which defines "taxable turnover". Reference was also made to rule 29 of the Punjab General Sales Tax Rules, 1949 (in short, "the 1949 Rules"). It was urged that the Assessing Officer-the first appellate authority and also the Tribunal had erred in determining surcharge for purposes of calculating tax payable and reducing it from the exemption limit which was allowed to the assessee. It was also submitted that no surcharge was leviable on sales of three-wheelers amounting to Rs. 6,90,181 in view of second proviso to section 5(1C) of the PGST Act. The imposition of penalty under section 23 of the PGST Act was also challenged. Support was drawn from following judgments:
(i)
(ii)
(iii)
(iv)
4. On the other hand, learned counsel for the State besides supporting the order passed by the Tribunal submitted that the surcharge was to be calculated on the net sales made by the assessee and had been rightly reduced from the exemption limit which was allowed to the assessee.
5. After hearing learned counsel for the parties, we do not find any merit in the appeal.
6. Question Nos. (i) and (ii) relate to whether surcharge was to be calculated on the taxable turnover and thereafter the total amount of tax and surcharge reduced from the exemption entitlement of the assessee.
7. It would be apposite to refer to certain relevant provisions.
(i) Section 5(1C) of the PGST Act provides for levy and collection of surcharge on the taxable turnover of a dealer which is to be calculated at the rate of ten per centum of tax payable by him under the Act. It reads thus:
Section 5(1C) of PGST Act
"Notwithstanding anything contained in this Act, there shall be levied and collected on the taxable turnover of a dealer, a surcharge, which shall be calculated at the rate of ten per centum of the tax payable by him under this Act:
Provided that the aggregate of the tax and the surcharge payable under this Act, shall not exceed in respect of goods declared to be of special importance in inter-State trade or commerce by section 14 of the Central Sales Tax Act, 1956, the rate fixed by section 15 of that Act:
Provided further that no surcharge shall be levied on any type of motor vehicles including their chassis and bodies, motor cycles, motor cycle combinations, motor scooters, mopeds, two wheelers, three wheelers and other roadworthy contraptions excluding tractors and harvest combines."
(ii) Section 5(2) defines "taxable turnover" to mean:
"5(2). In this Act the expression, ''taxable turnover'' means that part of a dealer''s gross turnover during any period which remain after detecting therefrom,--
(a) his turnover during that period on--
(i) the sales of goods declared tax-free under section 6;
(ii) sales to a registered dealer of goods other than sales of goods liable to tax at the first stage under sub-section (1A), declared by him in a prescribed form as being intended for resale in the State of Punjab or sale in the course of inter-State trade or commerce or sale in the course of export of goods out of territory of India, or of goods specified in his certificate of registration for use by him in the manufacture in Punjab or any goods, other than goods declared tax-free under section 6, for sale in Punjab, or sale in the course of inter-State trade or commerce, or sale in the course of export of goods out of the territory of India and on sales to a registered dealer of containers or other materials for the packing of such goods:
Provided that in case of such sales other than those made on commission basis by a commission agent to the registered dealer, a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing prescribed particulars on a prescribed form obtained from the prescribed authority is furnished by the dealer who sells the goods:
Provided further that in the case of a dealer whose gross turnover does not exceed five lac rupees in a year or a sum as may be notified by the State Government from time to time in this behalf, and whose amount of tax is assessed under sub-section (1) of section 11 of this Act, the declaration referred to in the preceding proviso shall not be required.
(iii) . . .
(iv) sales to any undertaking supplying electrical energy to the public under a licence or sanction granted or deemed to have been granted under the Indian Electricity Act, 1910, of goods for use by it in the generation or distribution of such energy;
(v) sales or purchases of goods failing under section 29;
(vi) the purchase of goods which are sold not later than six months after the close of the year to a registered dealer, or in the course of inter-State trade or commerce or in the course of export out of the territory of India:
Provided that in the case of such a sale to a registered dealer, a declaration, in the prescribed form and duly filled and signed by the registered dealer to whom the goods are sold is furnished by the dealer claiming deductions:
(vii) such other sales or purchases as may be prescribed;
(b) The amount of sales tax included in the gross turnover."
(iii) Under section 30A of the PGST Act, the State Government is empowered to exempt any class of industries from the payment of tax in the interest of industrial development of the State subject to conditions and period as may be prescribed. It is couched in the following terms:
"Power to exempt certain class of industries.--The State Government may, if satisfied that it is necessary or expedient so to do in the interest of industrial development of the State exempt such class of industries from the payment of tax, for such period and subject to such conditions, as may be prescribed:
Provided that in the case of industries which came into production for the first time on or after the first day of April 1989, or wherein modernization, expansion or diversification has been carried out in accordance with the Industrial Policy, 1989, the Government may exempt such industries from the payment of tax with effect from the 1st day of April 1989, subject to such conditions as may be prescribed:
Provided further that in the case of industries which came into production for the first time after the 24th day of June, 1991, or wherein expansion, modernization or diversification has been carried out in accordance with the Electronics Policy, 1991, the Government may exempt such industries from the payment of tax with effect from the 24th day of June, 1991, subject to such conditions, as may be prescribed.
Explanation.--For the purpose of this section,--
(i) the Industrial Policy, 1989 shall mean the Industrial Policy of 1989, notified by the Government of Punjab in the Department of Industries, as amended from time to time;
(ii) the Electronics Policy, 1991, shall mean the Electronics Policy of 1991 notified by the Government of Punjab in the Department of Industries as amended from time to time."
(iv) Section 30AA of the PGST Act was inserted on November 7, 2001 and was omitted with effect from December 7, 2002. It begins with a non obstante clause. The plain words of the provision indicate the legislative intent to pay the levy of surcharge under section 5(1C) even where the industries had been granted exemption under section 30A of the PGST Act. In other words, in the case where exemption had been granted to class of industries under section 30A of the PGST Act, they were liable to pay the surcharge levied under section 5(1C) thereof. Before omission, it reads thus:
"Liability to pay surcharge.--Notwithstanding any exemption granted to any class of industries under section 30A of this Act, such industries shall pay the surcharge levied under sub-section (1C) of section 5 of the Act, in the manner, as may be prescribed."
The validity of this provision was upheld by the Division Bench of this court in
(v) Rule 4A of 1991 Rules relevant for present appeal is as under:
(1) "Notwithstanding anything contained in any other provision of these Rules, and subject to the provisions of sub-rule (2),--
(i) Group of industries which are set up in "A" category area on or after the first day of October 1992 and the goods produced by them shall be exempt from the payment of sales tax for a period of ten years commencing from the date of production for the first time in the State of Punjab, subject to the condition that the total sales tax exemption shall not exceed 300 per cent of their fixed capital investment:
Provided that all fly ash based units that is units which use at least twenty-five per cent fly ash as raw material by weight or by volume, shall be eligible for incentives which are available to the units located in A category area, irrespective of their location, throughout the State of Punjab...."
According to the aforesaid rule, industries falling in A category area on or after October 1, 1992 producing goods shall be exempt for a period of 10 years from the date of commencing production in the State of Punjab which shall not exceed 300 per cent of the fixed capital investment.
(vi) Under rule 29 of the 1949 Rules, registered dealer is entitled to deduct various amounts from the gross turnover enumerated thereunder while calculating his taxable turnover. It nowhere refers to levy or exemption of payment of surcharge on taxable turnover.
8. A combined reading of the aforesaid clearly spells out that for purposes of determining the "taxable turnover", deductions as admissible under section 5(2) of the PGST Act and rule 29 of the 1949 Rules are to be allowed. Section 5(1C) of the PGST Act deals with levy of surcharge whereas section 30A of the Act provides for framing of rules for deferment and exemption. It may be noticed that during the period from November 7, 2001 to December 7, 2002, surcharge was separately payable inspire of exemption entitlement in view of section 30AA in the PGST Act before its omission. In the absence of any specific provision in the PGST Act or the Rules framed thereunder or under the 1991 Rules which confers any right on the assessee whereby surcharge on the taxable turnover would not be reduced from its exemption limit in case of exempted unit, the assessee is not entitled to claim such benefit. Accordingly, it is held that the tax and surcharge payable every year on the taxable turnover would form part of its exemption entitlement.
9. The Tribunal while repelling the contention of the counsel for the appellant had noticed as under:
"Counsel for the appellant had argued that as per section 5(2)(a) clause (vii) of the Act, the taxable turnover means that part of dealer''s gross turnover during any period which remains after deducting therefrom, such other sales or purchases as may be prescribed. It was argued that as per section 2(f) of the Act prescribed means prescribed by rules made under this Act. It was further argued that rules, i.e., Punjab General Sales Tax (Deferment and Exemption) Rules, 1991 had been made and when there was tax exemption, no surcharge would be payable as taxable turnover has to be calculated after deducting therefrom the turnover on which exemption is there.
Section 5(1C) provides for surcharge to be levied and collected on the taxable turnover of dealer at 10 per cent of tax payable by him under the Act. Even when the appellant is exempted unit as per entitlement certificate, still every year tax has to be calculated on the taxable turnover and then it has to be exempted within the exemption entitlement. The surcharge is leviable on tax payable and this shall also be added to the amount of tax for which exemption entitled is there since section 30AA added on November 7, 2001 has been omitted with effect from December 7, 2002. If that section had been there then surcharge was separately payable even inspire of exemption but in view of the fact that section 30AA had been omitted already in December 2002 and the present assessment year is 2003-04, the surcharge leviable on the tax has to be added towards the exemption entitlement. No fault can be found with the order of the authorities below in calculating the surcharge and then adjusting it against the exemption limit."
Thus questions (i) and (ii) stand answered against the assessee.
10. Adverting to question No. (iii), the findings recorded by the Tribunal may be noticed as under:
"It was further argued that there had been sale of three wheelers of the amount of Rs. 6,90,181 and as per second proviso to section 5(1C), no surcharge is leviable in case of three wheelers. However, from the file of the Department, no list was found having been submitted by the appellant to be that of the sale of three wheelers. As such, the contention of counsel for the appellant in this respect cannot be accepted."
11. The Tribunal had noticed that the assessee had failed to file any list to show that there was sale of three-wheelers and therefore by virtue of second proviso to section 5(1C) of the PGST Act, no such surcharge was leviable. A perusal of the assessment order and the order passed by the DETC (Appeals) also shows that there was no material to show that the finding recorded by the Tribunal was perverse or erroneous.
12. Taking up the last question regarding levy of penalty, section 23 of the PGST Act confers power on the appropriate authority to impose penalty for contravention or failure to comply with the provisions thereof or the rules made thereunder. It is to the following effect:
"23. Penalty.--(1) Whosoever contravenes, or fails to comply with any of the provisions of this Act or the Rules made thereunder or any order or direction made or given thereunder, shall, if no other penalty is provided under this Act for such contravention or failure, be liable to imposition of a penalty, not exceeding two thousand rupees and where such contravention or failure is a continuing one to a daily penalty not exceeding fifty rupees during the period of the continuance of the contravention or failure.
(2) An officer not below the rank of Excise and Taxation Officer appointed under sub-section (1) of section 3 may, after affording to the person a reasonable opportunity of being heard, impose the penalty mentioned in sub-section (1)."
13. The Tribunal had noticed that the assessee was asked to explain why action for penalty against it be not taken to which it did not respond. Once that was so, it could not be said that the levy of penalty under section 23 of the PGST Act was unwarranted. The observations of the Tribunal read thus:
"Counsel for the appellant had further argued that no penalty could be imposed as it was a penal action and notice was not issued. However, from the order of the assessing authority, it would come out that dealer had furnished in complete lists of sales made to the registered dealers. He was asked to explain as to why penal action under section 23 of the Act be not taken. He had nothing to say. Thereafter penalty of Rs. 5,000 was imposed under section 23 of the Act after hearing the dealer. In view of the facts mentioned in the order, it cannot be said that only because separate notice was not issued, imposition of penalty was bad and should be deleted."
14. Examining the judgments relied upon by the learned counsel for the appellant, suffice it to be notice that they were not directly relating to the issue as raised in the present appeal. Further, in view of the factual matrix involved therein, the aforesaid judgments do not come to the rescue of the appellant. In view of the above, the substantial questions of law are answered against the assessee and in favour of the Revenue. Consequently, finding no merit in the appeal, the same is hereby dismissed.
