JUDGMENT
V. Sivaraman Nair, J.
1. These tax revision cases filed by the Revenue under Section 41 of the Kerala General Sales Tax Act, 1963 relate to the assessment years 1980-81, 1981-82 and 1982-83. The assessee-respondent herein is a registered small scale industries unit engaged in the manufacture and sale of paper covers. The unit was started after 1st April, 1979 and is eligible for the exemption in respect of the tax payable under the Kerala General Sales Tax Act on the turnover of the sale of goods produced and sold by the unit for a period of five years from the date of commencement of sale of such goods in terms of the Government Notification S.R.O. No. 968/80, G.O. Ms. No. 74/80/TD dated 29th September, 1980 with effect from 1st April, 1979 subject to the conditions thereunder. The question arising for decision in this case is whether for the purpose of granting such exemption the additional sales tax and surcharge should also be taken into account.
2. The assessee herein was eligible for exemption to the sum of Rs. 39,734 only. The amount eligible for exemption carried forward from 1979-80 was Rs. 38,398. The aggregate of the tax and the additional tax due for the year 1980-81 was Rs. 28,371. Exemption was granted in respect of this amount and the balance Rs. 10,027 carried forward for 1981-82. The surcharge was computed at Rs. 1,302.98 and a demand was issued for this amount.
3. For the assessment year 1981-82 the total of the tax and additional tax was computed at Rs. 32,579. The eligible amount for exemption carried forward from 1980-81 was Rs. 10,027. The balance Rs. 22,552 and the surcharge of Rs. 1,480.86 had been included in the demand. For the year 1982-83 no exemption was granted. The tax due including additional tax is Rs. 24,151 and the surcharge Rs. 1,097.76.
4. The assessee’s claim that when the tax is exempted no additional tax and surcharge would be due was rejected by the assessing authority in this computation. The matter was carried in appeal before the Appellate Assistant Commissioner. The contention that the additional sales tax and surcharge are not leviable in respect of the exempted turnover was reiterated. The appellate authority held the view that the exemption under the notification is not complete exemption but conditional, that the cumulative sales tax concession granted to a unit at any point of time within the period of five years shall not exceed 90 per cent of the cumulative capital investment of the unit and therefore the levy of additional sales tax and surcharge is legal.
5. The Sales Tax Appellate Tribunal on further appeal by the assessee held the view that additional sales tax and surcharge cannot be levied. The Tribunal relied on the decision of the Supreme Court in Ashok Service Centre v. State of Orissa [1983] 53 STC 1. There, it was held that any dealer who is not liable to pay tax under the principal Act either by reason of his not having sufficient gross turnover of goods or by reason of exemption given under Section 7 of the principal Act as amended is not liable to pay the additional sales tax. Applying the ratio of this decision the Tribunal held that when the sales turnover is exempted under the notification dated 29th September, 1980 issued under Section 10 of the Kerala General Sales Tax Act additional sales tax is not leviable and when there is no tax payable by the dealer no surcharge can also be levied. The Revenue has challenged the correctness and legality of these findings of the Appellate Tribunal.
6. The first question raised is whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessing authority is not justified in levying additional sales tax and surcharge while concluding the assessment for the year 1980-81 in terms of the Notification SRO. No. 968/80. The Revenue has also raised the question “Is it not open to the assessing authority to compute the tax including additional tax and surcharge before granting exemption in accordance with the Notification SRO. No. 968/80 while completing the assessment of a small-scale industries unit under the provisions of the Kerala General Sales Tax Act.” The notification reads as follows :
SRO. No. 968/80…hereby make an exemption in respect of the tax payable under the said Act on the turnover of the sale of goods produced and sold by the new industrial units under the small-scale industries for a period of five years from the date of commencement of sale of such goods by the said units subject to the conditions that the tax if any collected by such units by way of tax on their sales shall be paid over to Government and that sales tax, if any, already paid by such units to Government shall not be refunded :
Provided that such units shall produce proceedings of the General Manager, District Industries Centre, declaring the eligibility of the units for claiming exemption from sales tax :
Provided further that the cumulative sales tax concession granted to a unit at any point of time within this period shall not exceed 90 per cent of the cumulative gross fixed capital investment of the unit.
Explanation.-For the purpose of this notification ‘new industrial units under the small-scale industries’ shall mean undertakings set up on or after 1st April, 1979 and registered with the Department of Industries and Commerce as a small-scale industrial unit (but shall not include old industrial units under the small-scale industries closed down and reopened under a new banner and style of business, after 1st April, 1979).
This notification shall be deemed to have come into force with effect from 1st April, 1979.
7. The levy of sales tax is under Section 5 of the Kerala General Sales Tax Act which provides that the dealer shall pay tax on his taxable turnover for the year. “Taxable turnover” as defined in Section 2(xxv) means the turnover as determined after making deductions as prescribed in Rule 9 of the Kerala General Sales Tax Rules. Under Clause (e) of that rule all amounts for which goods exempted by a notification under Section 10 are sold or purchased, as the case may be, are deductible subject to the terms and conditions if any for the exemption. The tax payable on the turnover of the sale of goods produced and sold by the new industrial unit under the small-scale industries is exempted subject to the conditions specified under the notification. What is exempted is only the tax payable and not the goods. Therefore, the tax has to be computed in accordance with the provisions of the statute on the turnover of the sale of such goods and the tax so computed has to be deducted from the aggregate. In computing the tax thus payable the liability of the assessee has to be determined.
8. The Kerala Additional Sales Tax Act, 1978 provides in Section 2 that the tax payable under the Kerala General Sales Tax Act, 1963 shall be increased by 20 per cent of such tax. Similarly, the Kerala Surcharge on Taxes Act, 1957 provides in Section 3 that the tax payable under the Kerala General Sales Tax Act, 1963 shall be increased by a surcharge at the rates specified. When the additional sales tax is an increase on the sales tax for the financial year, surcharge is an increase on the tax payable by the dealer whose turnover exceeds the limit. Therefore, when tax is payable under the Kerala General Sales Tax Act, for the financial year, the liability to pay the additional tax whereby the sales tax is increased also follows. However, when there is no liability to pay the tax by the dealer for the year there cannot be a levy of surcharge in respect of tax not payable. The liability to pay surcharge arises only when there is liability to pay the tax. It is only in the case of specified assessees the tax is increased by a surcharge. When the turnover is statutorily exempted from sales tax, there is no liability to pay surcharge also as the levy presupposes the liability to pay sales tax [vide State of Tamil Nadu v. Prem Shankar Stores [1984] 55 STC 217 (Mad.)]. Surcharge is really an enhancement of sales tax and not a tax on tax [vide Ernakulam Radio Company v. State of Kerala [1966] 18 STC 445 (Ker)]. Thus, tor the purpose of computing the eligibility for exemption in terms of the Government notification, the assessing authority cannot issue a separate demand for the surcharge after allowing exemption in respect of the tax and additional tax payable. If the amount of tax and additional tax computed is eligible for complete exemption, there cannot be a levy of surcharge for that year.
9. This does not, however, mean that for the purpose of determining the cumulative tax concession the amount of surcharge leviable is to be left out of consideration. The expression “tax concession” is significant. It signifies the benefit derived by the assessee by virtue of the notification in payment of tax. When the sales tax and additional sales tax and surcharge could be properly levied if such exemption was not allowed, the aggregate amount under these three counts are to be taken into account for the purpose of computing the total concessions. We are, therefore, of the view that it is open to the assessing authority to compute the tax including the additional tax and surcharge for the purpose of granting exemption in accordance with the notification, but there cannot be a demand for surcharge in case the assessee is eligible for the exemption from payment of sales tax.
In this view, we allow the tax revision cases, modify the order of the Appellate Tribunal and direct the assessing authority to recompute the tax payable for the three assessment years in the light of what has been stated above.