Additional VAT Surcharge Valid Over Concessional Tax: Punjab & Haryana High Court

The Punjab and Haryana High Court, on 27 February, held that an additional VAT surcharge under Section 7A can be levied over and above the concessional tax payable under Section 7 on sales of declared goods made to registered dealers.

A Division Bench comprising Justice Lisa Gill and Justice Parmod Goyal was dealing with a batch of appeals filed by Jyoti Strips Pvt. Ltd. challenging assessment and appellate orders passed under the Haryana Value Added Tax Act, 2003.

The Bench held:

"The additional tax/surcharge under Section 7-A is thus leviable over and above the tax specified under Section 7, which, in the case of sales of declared goods against VAT Form D-1, could be 4% under section 7. Levy of additional tax/surcharge under Section 7-A, in addition to the tax payable under Section 7, is not the tax payable on taxable turnover", the bench stated.

The appellant, a registered dealer, had effected sales to registered dealers within Haryana at the concessional 4% rate against production of VAT Form D-1, certifying that the goods were to be used for manufacturing goods for sale. The dealer charged tax at 4%, issued Form C-4 certificates, and claimed the corresponding input tax credit.

During assessment, the authorities imposed an additional tax or surcharge of 5% on the tax payable under Section 7A, effectively increasing the tax liability from 4% to 4.2%. The dealer challenged the levy, contending that once concessional tax under Section 7 was applied, no further surcharge could be imposed and that the authorities had misinterpreted the statutory provisions.

The Court rejected this contention, holding that Sections 7 and 7A operate in distinct fields: Section 7 prescribes the rate and levy of VAT on taxable turnover, while Section 7A provides for an additional tax in the nature of a surcharge, calculated as a percentage of the tax payable.

The Court observed that the non-obstante clause in Section 7A clearly indicates that the surcharge operates independently of the restrictions contained in Section 7, and its levy does not amount to impermissible double taxation.

It further noted that the combined rate of tax and surcharge remained within the ceiling prescribed for declared goods under Sections 14 and 15 of the Central Sales Tax Act, 1956.

The Court also highlighted that the legislative framework permits the levy of a surcharge in addition to VAT, stating:

"It is worth noting that legislature has ensured due compliance of provisions of Central Sales Tax, 1956 Act by adding proviso to Section 7A whereby total tax leviable u/s 7 and 7A was made in conformity with provisions of 14 & 15 of 1956 Act which imposes limit on declared goods, which are subject matter of present appeals maximum to the extent of 5%. Therefore, legislature was within in its competence to impose additional tax / surcharge to the extent of tax leviable under 1956 Act on declared goods."

Ultimately, the Court dismissed all the appeals filed by Jyoti Strips, confirming that the total tax liability of 4.2% remained within the statutory ceiling and was legally and constitutionally valid.

For Petitioner: Advocate, Rajiv Agnihotri

For Respondent: Addl. A.G. Haryana, Sourabh Goel