surcharge has been levied under Section 5A of the said Act on the gross sales tax payable, without deducting the entry tax as required under Section 4 of the OET Act.= 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. 21) Section 5A of the OST Act is a self-contained provision and the surcharge, as already seen above, is leviable at the specified per centum of tax payable under the OST Act. Tax payable under the OST Act is independent of the provisions of OET Act. The assessment or quantification or computation of surcharge shall have to be made in accordance with the provisions of the OST Act. 22) Thus, 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. 23) In view of the forgoing discussion, the impugned judgment and order dated 05.01.2007 passed by the High Court cannot be sustained and is liable to be set aside. In the result, all the appeals are allowed; however, the parties shall bear their own cost.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

1 CIVIL APPEAL NOs. 5913-5920 OF 2008
Commissioner of Commercial Taxes & Ors. …. Appellant(s)

Versus

M/s Bajaj Auto Ltd. & Anr. …. Respondent(s)
WITH

CIVIL APPEAL NOs. 5921 OF 2008
J U D G M E N T

R.K. Agrawal, J.
1) Challenge in the above said appeals is to the legality of the common
judgment and order dated 05.01.2007 rendered by a Division Bench of the
High Court of Orissa at Cuttack in Writ Petition (C) being No. 233 of 2002
and connected matters wherein the High Court allowed the petitions filed by
the respondents herein.
2) Civil Appeal No. 5913 of 2008 is being treated as the leading case,
hence, the facts of the said appeal are given below:-
The respondents are engaged in the sale and purchase of Motor Vehicles and
are registered dealers under the Orissa Sales Tax Act, 1947 (in short ‘the
OST Act’) as well as under the Central Sales Tax Act. The respondents had
been paying entry tax on the goods when they were bought into the State of
Orissa under Section 3(3) of the Orissa Entry Tax Act, 1999 (in short ‘the
OET Act’). However, they were paying surcharge on the balance amount after
deduction of the entry tax paid on the motor vehicles.
The Finance Department, Government of Orissa, by letter dated 20.11.2001,
stated 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.
On 30.03.2002, the Sales Tax Officer, Sambalpur-I Circle, passed an order
under Section 12(4) of the OST Act wherein surcharge was levied under
Section 5A of the OST Act on the gross sales tax payable by the respondent-
Company.
Being aggrieved by the demand notice dated 30.03.2002 as well as the letter
dated 20.11.2001 issued by the Finance Department of the Government of
Orissa, the respondent-Company filed a writ petition being No. 233 of 2002
along with a set of other writ petitions filed by the respondents herein
before the High Court of Orissa at Cuttack.
The Division Bench of the High Court, vide common judgment and order dated
05.01.2007, allowed the appeals filed by the respondents herein.
(f) Being aggrieved by the judgment and order dated 05.01.2007, the
appellants have preferred these appeals before this Court by way of special
leave.
3) Learned senior counsel for the appellants have taken the stand 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. This provision 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.
4) Learned senior counsel further submitted that the illustration given
under Rule 18 of the Odisha Entry Tax Rule, 1999 (in short ‘the Rules’)
neither curtails nor expands the ambit of the provisions of the Act for
which he relied upon a decision of this Court in Shambhu Nath Mehra vs. The
State of Ajmer AIR 1956 SC 404, wherein it was held as under:-

“11. We recognise that an illustration does not exhaust the full content of
the section which it illustrates but equally it can neither curtail nor
expand its ambit;….”
5) Learned senior counsel further relied upon Lalit Mohan Pandey vs.
Pooran Singh and Others (2004) 6 SCC 626, wherein this Court has held as
under:-

“75. The illustration appended to the Rules does not envisage such a
situation. Illustrations although are of relevance and have some value in
the construction of the text of the sections but they cannot have the
effect of modifying the language of the statute and they cannot either
curtail or expand the ambit of the statute.”

6) Learned senior counsel further submitted that the levy of tax
includes surcharge for which he relied upon the following judgments of this
Court in:-
(i) In The Commissioner of Income Tax, Kerala vs. K. Srinivasan (1972) 4
SCC 526, this Court has held as under:-

“10. The meaning of the word “surcharge” as given in the Webster’s New
International Dictionary includes among others “to charge (one) too much or
in addition …” also “additional tax”.”

(ii) In The Madurai District Central Co-operative Bank Ltd. vs. The Third
Income Tax Officer, Madurai (1975) 2 SCC 454, it was held as under:-

“18. In CIT Kerala v. K. Srinivasan on which the appellant relies, this
Court has traced the history of the concept of “surcharge” in the tax laws
of our country. After considering the report of the Committee on Indian
Constitutional Reforms, the provisions of the Government of India Act,
1935, the provisions of Articles 269, 270 and 271 of the Constitution and
the various Finance Acts, this Court held, differing from the High Court,
that the word “income tax” in Section 2(2) of the Finance Act, 1964
includes surcharges and the additional surcharge.”
(iii) In M/s Hoechst Pharmaceuticals Ltd. and Others vs. State of Bihar and
Others (1983) 4 SCC 45, it was held as under:-

“28. It cannot be doubted that a surcharge partakes of the nature of sales
tax and therefore it was within the competence of the State legislature to
enact sub-section (1) of Section 5 of the Act for the purpose of levying
surcharge on certain class of dealers in addition to the tax payable by
them…..

79. ….A surcharge in its true nature and character is nothing but a higher
rate of tax to raise revenue for general purposes….”
(iv) In M/s Ashok Service Centre and Others vs. State of Orissa (1983) 2
SCC 82, this Court has held as under:-

“17….The Act only levied some extra sales tax in addition to what had been
levied by the principal Act. The nature of the taxes levied under the Act
and under the principal Act was the same and the legislature expressly made
the provisions of the principal Act mutatis mutandis applicable to the levy
under the Act…..”

(v) In Sarojini Tea Co. (P) Ltd. vs. Collector of Dibrugarh, Assam and
Another (1992) 2 SCC 156, it was held as under:-

“16. From the aforesaid decisions, it is amply clear that the expression
‘surcharge’ in the context of taxation means an additional imposition which
results in enhancement of the tax and the nature of the additional
imposition is the same as the tax on which it is imposed as surcharge. A
surcharge on land revenue is an enhancement of the land revenue to the
extent of the imposition of surcharge. The nature of such imposition is the
same viz., land revenue on which it is a surcharge.”
7) On the other hand, learned senior counsel for the respondents
submitted that in view of the clarification issued by the office of
Commercial Tax through e-mail to one of the dealers in motor vehicles,
viz., TELCO, Bhubaneswar, the appellants were stopped from demanding
surcharge on the entire amount of tax payable under the OST Act before
deducting the amount payable under the OET Act. According to him, the
clarification issued by the Commercial Tax Department to TELCO,
Bhubaneswar, was in accordance with the illustration appended to Rule 18 of
the Rules which did not take into consideration the amount of surcharge
payable before deducting the entry tax paid while computing the amount of
sales tax payable. He, thus, submitted that the amount of surcharge is to
be levied only on the balance amount of sales tax payable on the sale price
of the motor vehicle after deducting the entry tax paid. According to him,
if two constructions are possible then the one which preserves the
workability and efficacy has to be preferred for which he relied upon a
decision of this Court in State of Tamil Nadu vs. M.K. Kandaswami and
Others (1975) 4 SCC 745, wherein it has been held as under:-

“26. It may be remembered that Section 7-A is at once a charging as well as
a remedial provision. Its main object is to plug leakage and prevent
evasion of tax. In interpreting such a provision, a construction which
would defeat its purpose and, in effect, obliterate it from the statute
book, should be eschewed. If more than one construction is possible, that
which preserves its workability, and efficacy is to be preferred to the one
which would render it otiose or sterile. The view taken by the High Court
is repugnant to this cardinal canon of interpretation.”

8) Learned senior counsel also relied upon a decision of this Court in
Associated Cement Companies Ltd. vs. State of Bihar and Others (2004) 7 SCC
642, wherein this Court has held that a dealer is entitled to reduction in
tax to the extent of tax paid under the Bihar Entry Tax Act while working
out the tax payable by it under the Bihar Sales Tax Act.
9) Heard learned counsel for the parties and perused the records.
10) The sole question for consideration is whether the ‘Surcharge’ under
Section 5A of the OST Act is to be computed on the gross amount of sales
tax or on the net amount of sales tax after setting of or deducting the
amount of entry tax?
11) Under Section 5 of the OST Act, Sales Tax is payable by a dealer on
the taxable turnover at a prescribed rate. Under Section 5A, it is provided
inter alia for payment of surcharge. Section 5A of the OST Act (as it stood
at the relevant time) reads as under:

“5A Surcharge: (1) Every dealer whose gross turnover during any year
exceeds rupees ten lakhs shall, in addition to the tax payable by him under
this Act, also pay a surcharge at the rate of ten per centum of the total
amount of tax payable by him:…..”
12) It would also be relevant to reproduce Section 4 of the OET Act (as
it stood at the relevant time) which reads as under:-
“(4) Reduction in Tax Liability:

(1) where an importer of motor vehicle liable to pay tax under sub-section
(3) of Section 3 being a Dealer in motor vehicles becomes liable to pay tax
under the Sales Tax Act by virtue of sale of such motor vehicles then his
liability under the Sales Tax Act shall be reduced to the extent of tax
paid under this Act.

Explanation: For the purpose of this sub section the chassis and the
vehicle with body built on the chassis shall be treated as one and the same
goods.

(2) When an importer or manufacturer of goods specified in Part-III of
the schedule except motor vehicles pays tax under sub-section (1) of
section 3 or section 26 of this Act, being a Dealer under the Sales Tax Act
becomes liable to pay tax under the said Act by virtue of Sale of such
goods, then his liability under the Sales Tax Act shall be reduced to the
extent of tax paid under this Act.
(3) The reduction in tax liability of an importer as provided in sub-
section (1) or of an importer or manufacturer as provided in sub-section
(2) shall not be allowed, unless the entry tax paid and tax payable under
the Sales Tax Act are shown separately in the cash memo or the bill or
invoice issued by him for the sale by virtue of which such liability
accrues.”

13) Rule 18 of the Odisha Entry Tax Rule, 1999 is reproduced hereunder:

“18. Set off of Entry Tax against Sales Tax: (1) When the importer of a
motor vehicle liable to pay tax under sub-section (2) of section 3 of this
Act being a dealer in motor vehicles becomes liable to pay tax under the
Sales Tax Act by virtue of sale of such motor vehicle, his tax liability
under the Sales Tax Act shall be reduced to the extent of the tax paid
under these rules.

Illustration: Assuming Entry Tax Rate and Sales Tax Rate to be 10%

|1) |Purchase Value of Motor Vehicle | Rs. |
| | |2,00,000/- |
|2) |Entry Tax Payable @ 10% | Rs. |
| | |20,000/- |
| |Total:- | Rs. 2,20,000/-|
|3) |Sale Price of the Motor Vehicle | Rs. |
| | |2,20,000/- |
|4) |(a) Sales Tax due @ 10% | Rs. |
| | |22,000/- |
| |Deduct Entry Tax paid | Rs. |
| | |20,000/- |
| |Sales Tax payable | Rs. |
| | |2,000/- |
| |Total:- | Rs. 2,22,000/-|

Note: If the sales tax payable on such motor vehicle is less than the entry
tax paid, then the sales tax payable will be nil.

(2) When an importer of goods specified in Part III of the Schedule to
the Act other than motor vehicle, liable to pay tax under this Act is also
a dealer liable to pay tax under the Sales Tax Act, then the Sales Tax
payable on the sale of goods shall be reduced to the extent of entry tax
paid in the same manner as illustrated under the sub-rule(1).”

In view of the statutory provision contained in Rule 18 of the Rules, the
tax payable under the said Act was to be determined after deduction
therefrom the entry tax paid by a dealer importing vehicle into the State
of Orissa.
14) Since the determination of surcharge payable under the OET Act was
relatable and/or linked to the tax payable under the OST Act, a
clarification was sought for by one of the dealers in motor vehicles,
namely, TELCO which is similarly situated as the Respondent No.1-company
from the office of Commercial Tax, in view of the provision contained in
Rule 18 of the Rules, which is as under:-

“Surcharge is payable on the amount of tax that becomes payable by a dealer
after set off of entry tax paid at the time of purchase of such goods.”
15) In accordance with the clarification issued to TELCO, Bhubaneswar, as
aforesaid, which was also circulated to other dealers of motor vehicles,
including the Respondent No.1-Company, surcharge was calculated and paid
which was quantified after deducting therefrom the amount of entry tax paid
by the Respondent No.1-Company while importing a motor vehicle into the
State of Orissa.
16) On 20.11.2001, the Government of Orissa, in the Finance Department,
wrote a letter to the Commissioner of Commercial Taxes, Orissa relating to
the computation of tax payable on the motor vehicle for the purpose of levy
of surcharge on an interpretation of the provisions of the OET Act, the OST
Act and the Rules which is as under:-

“GOVERNMENT OF ORISSA
FINANCE DEPARTMENT

No. CTB-23/2001. 55863/F
From:
Shri K.C. Parija,
Deputy Secretary to Government
To
The Commissioner of Commercial Taxes,
Orissa, Cuttack
Sub: Computation of tax payable on Motor Vehicle for the purpose of levy
of surcharge.

Ref: C.C.T.’s letter No. 15264/CT, dt. 12.7.2000
Bhubaneswar, the 19th November, 2001.

Sir,
In inviting a reference to the aforesaid letter, I am directed to say
that surcharge under Orissa Sales Tax Act, 1947, 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. The
position may kindly be clarified to the Field Officers and if such faulty
procedure of charging surcharge is adopted by any of the Circle Officers,
same should be discontinued forthwith and corrective measure as per the
provisions of the statue may be taken up to make good the loss.
2. It may further be noted that the illustration in rule -18 of
Orissa Entry Tax Rule, 1999 or provision of any other Finance Department
notification have limited implication for that purpose only and they have
no overriding effect on the statutory provisions of the OST Act.

Yours faithfully

Sd/-
(K.C. Parija)
DEPUTY SECRETARY TO GOVERNMENT

OFFICE OF THE COMMISSIONER OF COMMERCIAL TAXES: ORISSA: CUTTACK
Dated: 20.11.01
Memo No. 24808/CT
III(I) 207/2000

Copy forwarded to all ACCTs/All CTOs/All Addl. CTOs of Assessment
Units for information and necessary action. The CTOs are requested to
circulate the above clarification of Finance Deptt. to all the Addl. CTOs
of their respective circles.
Dd/-
Addl. Commissioner of Commercial
Taxes (Gen) Orissa, Cuttack”
In the said letter, it was inter alia intimated that surcharge shall be
calculated on the payable amount of tax due on the taxable turnover
(section 5 and 5A) instead of on the reduced sales tax amount after setting
off of Entry Tax.
17) On 30.03.2002, the Sales Tax Officer, Sambalpur-I Circle, Sambalpur
passed an order under section 12(4) of the OST Act wherein surcharge has
been levied under Section 5A of the said Act on the gross sales tax
payable, without deducting the entry tax as required under Section 4 of the
OET Act. As a result of this, excess surcharge to the tune of Rs.
21,25,117.37/- has been levied by the Sales Tax Officer.
18) It is well settled that an illustration given under the Rules does
not exhaust the full content of the section which it illustrates but
equally it can neither curtails nor expands its ambit. Further, surcharge
is nothing but an additional tax and is payable on the sale of goods in the
manner laid down for levy of surcharge. In view of the provisions
contained in 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.
19) On a plain reading of the provisions of the OST Act as well as the
OET Act and the Rules, it can be seen 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.
20) 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.
21) Section 5A of the OST Act is a self-contained provision and the
surcharge, as already seen above, is leviable at the specified per centum
of tax payable under the OST Act. Tax payable under the OST Act is
independent of the provisions of OET Act. The assessment or quantification
or computation of surcharge shall have to be made in accordance with the
provisions of the OST Act.

22) Thus, 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.

23) In view of the forgoing discussion, the impugned judgment and order
dated 05.01.2007 passed by the High Court cannot be sustained and is liable
to be set aside. In the result, all the appeals are allowed; however, the
parties shall bear their own cost.

……………….………………………J.
(SHIVA KIRTI SINGH)
.…….…………………………………J.
(R.K. AGRAWAL)

NEW DELHI;
OCTOBER 28, 2016.
———————–
18

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