G. SIVARAJAN, J. -
(1.) THE matter arises under the Kerala General Sales Tax Act, 1963 (for short "the Act" ). THE assessee is the revision petitioner. THE State is the respondent. THE assessment years concerned are 1994-95, 1995-96 and 1996-97. THE question that arises for consideration is as to whether surcharge under the Kerala Surcharge on Taxes Act, 1957, can be levied when the sales tax payable under the Act is exempted by virtue of the provisions of the notifications issued under section 10 of the Act. Incidentally the question as to whether, for the purpose of granting exemption under the notification under section 10 of the Act, surcharge should be taken into account also arises for consideration. THE facts which are necessary for determination of the said questions are set out below :
(2.) THE assessee is engaged in the manufacture and sale of maida, atta, suji and bran from wheat purchased from various dealers including the Food Corporation of India. It is a small-scale industrial unit registered with the General Manager, District Industries Centre, Palakkad. It was also granted exemption from payment of sales tax under the notification issued under section 10 of the Act as per proceedings No. 10090 of 1993 D. Dis. dated February 21, 1994 for the period from June 9, 1993 to June 8, 2000 on a sum of Rs. 1,48,70,691. In the assessment for the three years mentioned above, the assessee contended that since no tax was payable on the sales turnover of the finished products manufactured by it in the State it is not liable to assessment under the Kerala Surcharge on Taxes Act. THE assessing authority, however, rejected the said contention and reckoned surcharge also in the computation of tax though no sales tax was payable under the Act. THE surcharge amount was also deducted from the exemption available under the eligibility certificate. Being aggrieved by the assessment, the assessee filed appeals before the Additional Appellate Assistant Commissioner (Commercial Taxes), Palakkad, who by a common order dated February 28, 2001 (annexure B) upheld the assessment of surcharge for the three years. In second appeal, the Sales Tax Appellate Tribunal, Additional Bench, Palakkad, confirmed the orders of the assessing authority as upheld by the first appellate authority following the decision of a division Bench of this Court in Deputy Commissioner of Sales Tax, (Law), Board of Revenue (Taxes), Ernakulam v. K. P. Paper Products  74 STC 16.
In these tax revision cases the assessee has raised the following question of law : " Whether surcharge under the Kerala Surcharge on Taxes Act is leviable on the amount of tax exempted under section 10 of the KGST Act, 1963 and whether the surcharge tax can be levied and adjusted against the amount of total tax exempted ?" Sri M. C. Sen, learned counsel appearing for the petitioner, submitted that surcharge under the Kerala Surcharge on Taxes Act can be levied only when tax is payable under the Act and that in the present case the assessee was not liable to pay sales tax on its sales turnover in view of the exemption granted under the notification issued under section 10 of the Act and the eligibility certificate issued by the competent authority. The counsel also submitted that the Tribunal was not justified in upholding the adjustment of the surcharge from the tax exemption granted. The counsel in support of his contention relied on the decision of the Supreme Court in Ashok Service Centre v. State of Orissa  53 STC 1, and the decisions in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. K. P. Paper Products  74 STC 16 (Ker) and in Sales Tax Officer v. Ragam Plastics  77 STC 313 (Ker); (1989) 2 KLT 480.
The learned Government Pleader appearing for the respondent, on the other hand, submitted that since the exemption granted under the notification issued under section 10 of the Act is not on the goods but only on the tax payable the assessing authority is bound to compute the tax in accordance with law and the tax so assessed has to be adjusted from the exemption granted under the eligibility certificate. The Government Pleader also relied on the decision of this Court in K. P. Paper Products' case  74 STC 16 and other decisions and contended that the Tribunal has rightly rejected the claim made by the assessee. In order to appreciate the rival contentions it is necessary to refer to the relevant provisions of the Act and the Kerala Surcharge on Taxes Act and the notifications issued under section 10 of the Act under which the assessee has claimed the exemption.
(3.) SECTION 5 of the Act, which is the charging provision for levy of tax provides that every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than two lakhs rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedules. "taxable turnover" defined in section 2 (xxv) means the turnover on which a dealer shall be liable to pay tax as determined after making such deductions from his total turnover of purchase or sale in the course of Inter-State trade or commerce or in the course of export of the goods out of the territory of India or in the course of import of the goods into territory of India.
Rule 9 of the Kerala General Sales Tax Rules, 1963, provides for determination of taxable turnover. Clause (e) of rule 9 provides for deduction from the total turnover of the dealer all amounts for which goods exempted by a notification under section 10 are sold or purchased, as the case may be, provided that the terms and conditions, if any, for the exemption in the notification are complied with. Thus the assessing authority is bound to compute the taxable turnover of the dealer by making an assessment of the tax payable under the Act. Section 3 of the Kerala Surcharge on Taxes Act reads as follows : " 3 (1 ). The tax payable under the Kerala General Sales Tax Act, 1963, shall, in the case of a dealer whose turnover, - (a) is not less than one lakh rupees but does not exceed ten lakhs rupees in a year, be increased by a surcharge at the rate of five per centum, and (b) exceeds ten lakhs rupees in a year, be increased by a surcharge at the rate of ten per centum, of the tax payable for that year, and the provisions of the Kerala General Sales Tax Act, 1963, shall apply in relation to the said surcharge as they apply in relation to the tax payable under the said Act : Provided that where in respect of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956, the tax payable by such dealer under the Kerala General Sales Tax Act, 1963 together with the surcharge payable under this sub-section exceeds four per centum of the sale or purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed four per centum of the sale or purchase price. (2) Notwithstanding anything contained in sub-section (1) of section 22 of the Kerala General Sales Tax Act, 1963, no dealer referred to in sub-section (1) shall be entitled to collect the surcharge payable under the said sub-section. (3) Any dealer who collects the surcharge payable under sub-section (1) in contravention of the provisions of sub-section (2) shall be punishable with fine which may extend to one thousand rupees and no court below the rank of a Magistrate of the first class shall try any such offence. " By virtue of section 3 the tax payable under sub-section (1) of section 5 of the Act, in the case of a dealer whose turnover is not below rupees one lakh but does not exceed ten lakh rupees in a year, is increased by a surcharge at the rate of five per centum and where the turnover exceeds rupees ten lakhs in a year is increased by a surcharge at the rate of 10 per centum of the tax payable for that year. From the proceedings issued by the General Manager, District Industries Centre, Palakkad, referred to in the assessment order it is clear that the assessee had claimed the benefit of exemption under S. R. O. No. 1729 of 1993 issued under section 10 of the Act. Under the said notification the Government of Kerala in exercise of the powers conferred under section 10 of the Act in the public interest has granted tax exemptions to industrial units on the sale or purchase of goods by such industrial units subject to the conditions and restrictions specified thereunder. Under clause 1 in the case of new industrial units under small-scale industries an exemption was granted for a period of seven years from the date of commencement of commercial production (a) in respect of the tax payable by such units under the Act on the turnover of sale of goods manufactured and sold by them within the State; and on the turnover of goods taxable at the point of last purchase in the State which are used by such units for manufacturing other goods for sale within the State or Inter-State and (b) in respect of the surcharge payable under section 3 of the Kerala Surcharge on Taxes Act, 1957 in relation to the goods referred to in sub-clause (a) above. Clause 10 of the said notification provided for the conditions and restrictions for grant of the above relief. Under clause 10 (i) in the case of new industrial units under small-scale industries, the aggregate exemption in respect of sales tax, purchase tax, surcharge and Central sales tax payable together shall not exceed 100 per cent of the fixed capital investment of the unit. Clause 10 (viii) provides that the small-scale industrial units claiming such exemption shall produce the proceedings of the District Level Committee consisting of the District Collector (Chairman), the Deputy Commissioner of Agricultural Income-tax and Sales Tax (Member) and the General Manager, District Industries Centre (Member Secretary) having jurisdiction over the district. Thus it is clear that tax exemption under the above notification was available both in respect of the tax payable under the Act and under the Kerala Surcharge on Taxes Act provided the eligibility certificate contemplated under clause 10 (viii) is obtained and produced before the assessing authority. It must also be noted that an exemption granted under the notification, in the case of new industrial units under small-scale industries is limited to 100 per cent of the fixed capital investment of the units. From the said notification it is clear that unlike in the case of Government order dated April 11, 1979 issued by the Industries Department which was the subject-matter of the decision of the Supreme Court in Pournami Oil Mills case  65 STC 1, which granted blanket exemption from payment of sales tax for a period of five years, under all the statutory notifications (S. R. O. Nos. 968 of 1980, 499 of 1990 and 1729 of 1993) the exemption was geared to the capital investment in plant and machinery. It must also be noted that the exemption was not in respect of the goods but was only in respect of the tax payable. This notification clearly contemplates an assessment under the Act which necessarily takes in the computation under the Kerala Surcharge on Taxes Act also. It is only after the computation the question of exemption granted under the notification is considered. There cannot be any doubt that in the computation of tax under the Act necessarily the computation of tax under the Kerala Surcharge on Taxes Act is contemplated and by virtue of the provisions of sub-clause (b) of clause 1 exemption is also granted in respect of the surcharge payable under section 3 of the Kerala Surcharge on Taxes Act, 1957 in relation to the goods referred to in sub-clause (a) above.;