Full Judgment Text
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CASE NO.:
Appeal (civil) 4757-4758 of 2000
PETITIONER:
Ponni Sugars (Erode) Limited
RESPONDENT:
The Deputy Commercial Tax Officer
DATE OF JUDGMENT: 08/11/2005
BENCH:
Ruma Pal & H.K. Sema
JUDGMENT:
J U D G M E N T
RUMA PAL, J.
The appellant has a sugar mill and purchases sugarcane
from cane growers. An agreement was entered into between
the appellant and the cane growers. In terms of the agreement,
the appellant arranges transport of the sugarcane from the
fields to the appellant’s mill. The question is whether the
transport charges are excludible from the taxable turnover of
the appellant for the purpose of purchase tax under the Tamil
Nadu General Sales Tax Act, 1959?
The assessment years in question are 1987-88 and
1988-89. During this period, the agreement for sale and
purchase of sugar which was entered into between the
appellant and the cane growers (where the appellant is referred
as ’the first party’ and the cane growers as ’the second party’)
provided inter alia:
1) Both the parties agree to act according to
the provisions of Madras Sugar Factory
Control Rules, 1949, Sugarcane (Control)
Order, 1996 and the orders of Tamil Nadu
Government Agricultural (Cane)
Department and the Director of
Sugar/Cane Commissioner of Tamil Nadu
2) The Second Party agrees to sell the entire
cane planted/ to be planted in the land
specified in the schedule to this agreement
to the first party for the control price fixed
by the Government from time to time.
3) \005\005\005\005\005\005
4) \005\005\005\005\005\005
5) ..\005\005\005\005\005.
6) The second party agrees to sell and
deliver the cane by loading there as per
the terms of this agreement to the first
party. It is the responsibility of the first
party to arrange transportation of the
above delivered cane to the factory.
However, both the parties agree to follow
the orders passed from time to time by the
Director of Sugar/Commissioner of Sugar,
Tamil Nadu".
The other clauses of the agreement, broadly speaking,
related to the appellant’s financing of the growth and harvesting
of the sugarcane and its control over the cutting and disposal of
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the sugarcane.
By an order dated 29th June 1990 the Deputy Commercial
Tax Officer held that the transport charges formed part of the
taxable turnover of the appellant under the Act and assessed
the appellant accordingly for the years in question. The
appellant’s appeal was dismissed by the Appellate Assistant
Commissioner. The matter ultimately reached the Taxation
Special Tribunal which held in favour of the Revenue following
the decision of the jurisdictional High Court in Chengalvarayan
Co-operative Sugar Mills Ltd. V. State of Tamil Nadu, and
Thiru Arooran Sugars Ltd. V. Assistant Commissioner of
Commercial Taxes both reported in 105 STC 497 (Mad).
Aggrieved, the appellant filed a writ petition challenging the
order of the Tribunal before the High Court of Madras. The
High Court dismissed the writ petition following its decision in
Chengalvarayan Co-operatives case.
According to the appellant, the Sugar Cane Control
Order, 1966 (hereafter referred to as ’the Control Order’)
applies and the price fixed under the Control Order was the
purchase price for determining the taxable turnover of the
appellant. As an alternative case it has been submitted that no
amount which was incurred subsequent to the sale or delivery
of the sugarcane by the cane growers to the appellant was
includable in the taxable turnover. It is the appellant’s case that
according to the agreement the sale/purchase had taken place
on delivery of the sugarcane in the field. Therefore the transport
charges which were subsequent to the sale were not includible.
Secondly, it is submitted that by the direction of Sugarcane
Department of the State Government the sugar mills were
required to meet the transport charges for the cane which was
brought from beyond 40 kms. distance from the mills. The
transport charges for the registered cane would be borne by
the cane growers themselves and for the distance beyond 40
kms, the transport charges for the cane would be met by the
purchasing sugar mills. Therefore, it is submitted that there
was no question of including the transport charges for the
transportation of the sugarcane from beyond 40 kms to the
appellant’s mill paid by the appellant under this directive, in the
purchase price. The appellant has also relied upon the orders in
assessment proceedings in respect of earlier years whereby
the transport charges had been excluded from the taxable
turnover of the appellant on a construction of the agreement
between the appellants and the cane growers. Reliance has
also been placed on the Tribunal’s decision dated 24th March,
1995 rejecting the respondent’s claim to enhance the purchase
price by adding transportation charges. It was pointed out that
the Tribunal had referred to a Circular issued by the Board of
Revenue on 31st July, 1982, by which the Board of Revenue
excluded the transport subsidies paid by the appellants to the
lorry owners for transporting sugar cane from areas beyond 40
kms. It is submitted that the Circulars are binding on the
Department.
Learned counsel appearing for the respondent has
submitted that the price fixed by the Control Order was only the
minimum and that the definition of price in the Control Order
allowed for the price to be determined on the basis of the
agreement between the seller and the purchaser. It was also
submitted that the dispute raised by the appellant has been
decided against the assessee and in favour of the Revenue by
this Court in E.I.D. Parry (I) Ltd. Vs. Assistant Commissioner
of Commercial Taxes; (2000) 2 SCC 321. It is further pointed
out that the agreement expressly incorporated the Sugarcane
Department directive dated 12th September1985 which made it
clear that the price was to include the transportation charges.
The issue whether the price fixed by the Central
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Government under the Control Order was immutable has been
decided by a Constitution Bench of this Court in U.P.
Cooperative Cane Unions Federations Vs. West U.P. Sugar
Mills and Anr. (2004) 5 SCC 430. In that decision the
definition of "price" in Clause 2(g), as well as clauses 3 and 3(a)
of the Control Order were construed to come to the conclusion
that the price fixed under the Control Order was the minimum
price of sugarcane to be paid by purchasers of sugar for the
sugarcane purchased by them. This is the lowest permissible
rate. It was contemplated under these provisions that there can
be a price other than the minimum price namely, the price
agreed to between the purchaser and the sugarcane growers or
the sugarcane Growers Cooperative Society. It was said that:-
"A whole reading of the 1966 Order would,
therefore, show that the Central Government
shall fix the minimum price of sugarcane but
there can be a price higher than the minimum
price which may be in the nature of agreed
price between the producer of sugar and the
sugarcane-grower or the sugarcane-growers’
cooperative society".
In the present case the agreement, the relevant extracts
of which have been quoted earlier, clearly envisaged the
incorporation of the Circular issued by the Department of Sugar
on 12th September, 1985. The Circular says that unlike the
previous years it was decided that all the subsidies and
incentives that are proposed for 1985 to 1986 planting seasons
would be given to the cane growers only when the cane is
supplied to the mills. Among the subsidies and incentives
which were required to be granted by the sugar mills, the
purchasers of sugarcane were required to give a transport
subsidy. The Circular was expressly included in the agreement
entered into between the appellant and the cane growers.
Therefore the transport subsidy formed part of the agreement
for the sale of the cane to the appellant.
Clause (6) of the agreement did not say that the sale was to
take place in the field as contended by the appellant. It merely
provided for the method of sale. This is also clear from the
conduct of the parties. The appellant has admittedly included
the transport charges up to 40 kms. from the mill within the
purchase price and has admittedly paid tax thereon. If the sale
took place at the field and transportation charges did not have
any connection with the cane growers, there was no need
either to include the transport charges from the field upto the
40Km. mark in the purchase price or to expressly provide that
the transportation charges would be payable by the vendor.
Besides the very use of the word "subsidy" in the directive
dated 12th September, 1985 which was payable on delivery at
the factory gate would also support the view that the transport
charges were otherwise bearable by the cane growers.
The Full Bench of the Madras High Court was called upon
to resolve a dispute between conflicting decisions of the High
Court inter alia as to whether transport subsidies were
includible in the purchase turnover of the sugar mills which
were purchasing sugarcane under the Tamil Nadu General
Sales tax Act, 1959 ( referred to hereafter as the Act) in
Chengalvarayan Co-operative Sugar Mills Ltd. V. State of
Tamil Nadu, (supra). The Court while affirming the view
expressed in Kallakurichi Co operative Sugar Mills Ltd. vs.
State of Tamil Nadu (1985) 60 STC 113 (Mad.) and overruling
the decision in State of Tamil Nadu vs. Madurantakam
Cooperative Sugar Mills (1976) 38 STC 73 (Mad.) said.
" if subsidy \026 whatever name or nomenclature, it
may assume and whether paid or payable prior to or
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subsequent to the entering into contract of sale \026 is
linked to the supply of sugarcane, such subsidy and
expenses incurred for the transportation of the
sugarcane to the factory site \026 whether incurred by the
grower initially and paid by the sugar mills subsequently
or incurred by the sugar mills and shown separately in
the invoices \026 by adopting whatever procedure
reflecting those amounts in the accounts \026 shall form
part of the price includible in the purchase turnover as
such transportation alone makes the passing of
property in the sugarcane sold by the grower to the
assessee-mills complete".
This view was affirmed by this Court in E.I.D. Parry’s
case (supra). One of the questions which this Court had to
consider was whether the transport subsidy paid by the sugar
mills to third party lorry owners for transporting sugar cane
pursuant to the State Government’s direction can be
aggregated with the price of sugar cane and included in the
turnover of the mills under the Act. This Court noted that in
respect of sugarcane grown in reserved areas, the occupier of
the factory is required to enter into an agreement with the
sugarcane grower to purchase sugarcane in the form
prescribed under the Madras Sugar Factories Control Act 1949
and the Rules framed thereunder. It was found that the
prescribed form of agreement disclosed that sugarcane had to
be delivered by the grower at the factory premises.
After considering earlier authorities, this Court upheld the
view of the Full Bench of the Madras High Court and
concluded:-
"What transpires from the above case-law is
that the amounts paid by way of consideration
by the purchaser to the seller of goods in
pursuance of the contract of sale can
legitimately be regarded as purchase price
while calculating the turnover for the purposes
of sales tax legislation. What can legitimately
be brought to sales tax or purchase tax is the
aggregation of the consideration for the
transfer of property. All the payments should
have been made pursuant to the contract of
sale and not dehors it . Any amount paid as ex
gratia payment or as an advance cannot be the
component of the purchase price and
therefore cannot legitimately be included in the
turnover of the purchasing dealer. Whether one
of the components of the purchase price goes
to the coffers of the seller or not will not cease
to be so if it is necessary for completing the
same. Thus the total amount of consideration
for the purchase of goods would include the
price strictly so called and also other amounts
which are payable by the purchaser or which
represent the expenses required for completing
the sale as the seller would ordinarily include
all of them in the price at which he would sell
his goods. But if the sale price is fixed
statutorily then the only obligation of the
purchaser under the agreement would be to
pay that price only and no other amount can be
included in the purchase price even if the same
is paid by the purchaser to the seller.
(Emphasis supplied)
The appellant has relied on the last line of the quoted
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paragraph to contend that it showed that the statutory price
fixed would be the only price includible in the taxable turnover
of the purchasing sugar mill. This is not what the Court meant.
In the preceding sentence it has been made clear that the total
amount of consideration not only included the price but also
other amounts which represent the expenses required for
competing the sale. This is clear from the paragraph 21 of the
judgment where this Court said:-
"For the same reasons we hold that the
transport subsidy was a part of the
consideration for which sugarcane was sold by
the sugarcane-growers to the appellants.
Though the agreements between the parties
provided for delivery by the sugarcane-growers
at the factory gate and though the transport
charges paid by the appellants were not to the
sugarcane-growers but to third-party lorry-
owners, they were made for securing regular
supply of sugarcane as per the requirements.
Though payments were made at the instance
of the Government of Tamil Nadu they also
became a part of the implied agreement
between the appellants and the sugarcane-
growers. They were not post-sale expenses.
Those amounts were paid to ensure scheduled
delivery of sugarcane. The sale of sugarcane
became complete only thereafter. Those
payments can be regarded either as payments
made on behalf of the sugarcane-growers or
payments made in modification or variation of
the earlier agreements entered into by the
sugarcane-growers for selling sugarcane. In
either case they could legitimately be regarded
as the components of the sale price as the
sellers would have otherwise included those
amounts in the sale price." (Emphasis added)
It is of significance this view was expressed despite the
fact that the State Governments directive was not incorporated
in that particular agreement for purchase of sugar cane. The
principles would therefore a fortiori be applicable to the present
case where the directive formed part of the agreement. The
issue raised by the appellant before us has thus been
answered in the negative by this Court in E.I.D. Parry which
view we respectfully adopt.
The decision relied upon by the appellants namely
Commissioner of Sales Tax, U.P. Vs. M/s. Rai Bharat Das &
Bros.,1989 (1) SCC 143 does not support the appellant. In
fact the Court found in that case that the costs of freight or
delivery were included in the sale price.
The assessment orders of the Department in respect of
the earlier years also relied on by the appellants were based on
the earlier decision of the High Court in State of Tamil Nadu
vs. Madhurantakam Cooperative Sugar Mills (supra) which
was specifically overruled by the Full Bench in
Chengalvarayan’s case.
The findings of the Tribunal sought to be relied upon by
the appellant related to a previous stage of proceedings. The
order of the Special Taxation Tribunal which was passed on an
enhancement petition filed by the respondents and which was
the subject matter of the writ petition before the High Court, had
held against the assessee following the decision of the Full
Bench of the Madras High Court in Chengalvarayan Co-
operative Sugar Mills Ltd. V. State of Tamil Nadu (supra)
which was affirmed by this Court in E.I.D. Parry’s case.
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The appellants then said that the decision of this Court in
EID Parry (supra) was limited to the facts of that case and that
this has been held by the Karnataka High Court in Ugar Sugar
Works Ltd. vs. Deputy Commission of Commercial Taxes
(2005) 139 STC 413. According to the Karnataka High Court,
the decision in EID Parry did not lay down any principle but was
confined to the facts of that case. It is unnecessary for us to
consider whether the Karnataka High Court was correct in its
interpretation of the decision in EID Parry because we are of
the view that even on the basis of the opinion expressed in
Ugar Sugar Works Ltd. (supra), EID Parry cannot be factually
distinguished from the present case, as we have found as a
matter of fact that the transport subsidy formed part of the
consideration for the purchase of the sugar cane by the
appellant from the sugar cane growers.
In the circumstances aforesaid we are of the view that the
appeals must be and are hereby dismissed with costs.