Tribunal order in present case held relatable to "transport subsidy" HC

Facts in Brief:

1. Chengalvarayan Go-operative Sugar Mills Limited, Periyasevalai-607 209 (for short, "CCSM Ltd.") is the petitioner, while the State of Tamil Nadu represented by the Deputy Commercial Tax Officer, Full Additional Charge, Thirukoilur is the respondent in all these present tax cases (revisions) - Tax Case Nos. 474 to 478 of 1993. All these tax cases are relatable to the assessment years 1985-86, 1986-87, 1987-88, 1988-89 and 1989-90.

2. Certain statutory provisions governing the procurement of sugarcane, a raw material for the manufacture of sugar and matters allied thereto, besides the factual matrix - we rather feel - may be related here, in order to understand and have a fine grasp, with ease and grace, of the implications of the knotty legal questions - which we may pen down a little later - confronting us for a solution.

3. The Madras Sugar Factories (Control) Act, 1949 (for short, "the MSFC Act") provides for definition of "planting season", by section 2(gg) and "crushing season" by section 2(b).

(a) "Planting season", according to section 2(gg) means, in relation to any local area, such period or periods as may from time to time be notified by the Government in respect of such area.

(b) "Crushing season", according to section 2(b), means the period beginning on 1st November in any year and ending on the 30th June next following.

4. Under section 9, areas are declared by the Sugarcane Commissioner, as reserved areas for the concerned factory.

(a) Under section 10(1)(a) any cane-grower in a reserved area may offer to sell the sugarcane grown by him in the farm, as prescribed under section 10(1)(b). The occupier is required to enter into an agreement for the purchase or sugarcane offered by the grower subject to the proviso to section 10(2). The occupier may refuse to enter into an agreement, if the maximum consumption of the factory is already secured by the agreement.

(b) Under section 11-A, any grower having less than five (5) acres is not required to offer sugarcane.

5. Rule 11(6-A) of the Madras Sugar Factories (Control) Rules, 1949 (for short, "the MSFC Rules") prescribes the form of offer in Appendix IV-A and rule 11(7) prescribes the form of agreement in Appendix V. These visualise purchase and sale of sugarcane at prices fixed statutorily.

6. The Sugarcane (Control) Order, 1966 (for short, "the SC Order") by clauses 3 and 5-A prescribes the payment of minimum and additional prices, which are again determined in accordance with the Schedule to the said order.

7. Reverting to the factual matrix, CCSM Ltd., announced one or more of incentives, such as planting subsidy, chemical subsidy and transport subsidy to the growers during the relevant assessment years. The incentives so offered includible in the purchase turnover and consequently liable to tax, were, however, not disclosed either in the monthly return or in the revised statement filed in any of the relevant assessment years. The Enforcement Wing gathered those particulars and reported the same to the Assessing Officer - Deputy Commercial Tax Officer (FAC) - Full Additional Charge, Thirukoilur.

8. Based on such particulars, the assessing officer, in the light of the decision of the Sales Tax Appellate Tribunal (Additional Bench), Madras in Tax Appeals Nos. 1837 and 1838 of 1986 dated August 10, 1987, in the case of Vellore Co-operative Sugar Mills, upholding the levy of sales tax on subsidies, liable to be taxed at 12 per cent assessed the tax on the escaped turnover relatable to subsidies and also additional sales tax liable to be levied, besides quantifying the penalty to be levied at a prescribed percentage separately for each of the relevant assessment years.

9. Individual notices relatable to the relevant assessment years were issued to CCSM Ltd., requiring it to show cause as to why tax as respects the escaped turnover relatable to subsidies and consequent levy of additional sales tax at a prescribed percentage as regards the turnover in excess of Rs. 10 lakhs and penalty at the minimum prescribed percentage for wilful non-disclosure, as indicated in those notices should not be levied and collected.

10. CCSM Ltd., in its turn, filed individual objection petitions to the notices so issued. The assessing officer, however, overruled the objection petitions so filed and passed final orders individually confirming the proposals made in the individual notices relatable to the relevant assessment years in his proceedings Nos. (1) 202279/85-86 dated January 11, 1991; (2) 612968/86-87 dated January 11, 1991; (3) 612968/87-88 dated January 3, 1991; (4) 612968/88-89 dated January 10, 1991 and (5) 612968/89-90 dated April 26, 1991.

HC held as under,

11. The recent decision of the Supreme Court of India (State of Tamil Nadu v. Kothari Sugars and Chemicals Limited and Tungabhadra Sugar Works v. State of Karnataka) also supports the view we have taken in the cases before us. Though it was held by the Supreme Court in the above referred to decision that for the purpose of purchase tax, the only significant amount is the aggregate of the minimum price fixed under clause 3 and the additional cane price fixed under clause 5-A it also categorically declared it to be so only "unless a higher price is paid to the grower by agreement between the purchaser and the grower".

12. While adverting to the contention of the State that the higher price inclusive of the excess amount included in the advance paid on State advice must be deemed to have been paid by an agreement between the grower and the purchaser and, therefore, the entire amount would be the price of sugarcane, their Lordships of the Supreme Court held therein that, "This is a question of fact in each case. It is true that if in a given case it is found as a fact on the basis of evidence that the purchaser had agreed with the grower to pay the higher price described as 'advance' including the amount in excess of the additional price fixed under clause 5A then in that case the entire amount would be the price of sugarcane".

13. While adverting to the decisions of the Karnataka High Court reported in [1973] 32 STC 104 (Pandavapura Sahakara Sakkare Kharkhane (P.) Limited v. State of Mysore) and [1994] 93 STC 561 (Tungabhadra Sugar Works Ltd. v. State of Karnataka) the apex Court approved the view taken by the Karnataka High Court on the basis of the nature of the contract in those cases as necessitating and justifying the entire amount paid being treated as price of the sugarcane supplied since the statute does not prohibit any agreement between the grower and the purchaser for the payment of a higher price for the sugarcane by the purchaser.

14. Dealing with the decision in Tungabhadra Sugar Works Limited case [1994] 93 STC 561, of the Karnataka High Court, it was declared that if the entire amount paid could be treated as the price of the sugarcane supplied by virtue of the agreement between the grower and the purchaser, there could be no impediment, for treatment the entire amount paid by the purchaser as a price of sugarcane supplied, the condition prerequisite being that it must be found proved as a fact that the higher price including the excess amount was paid as the price of sugarcane under an agreement between the grower and the purchaser irrespective of a lower amount being fixed as the aggregate of the price fixation under clauses 3 and 5A of the Control Order. Since in the Tungabhadra case [1994] 93 STC 561, there was no such clear finding recorded, in the view of their Lordships of the Supreme Court, the matter required to be remitted to the High Court for a fresh decision.

15. So far as the facts and circumstances of the cases before us are concerned, the Tribunal has meticulously adverted to the terms of the contract and the particulars available from the papers filed before us, in the light of which detailed submissions were made by learned counsel on either side at the time of hearing, go to show that the extra payments made under the various headings or categories which are in dispute in these cases are directly relatable to the supply of sugarcane and that there were ample material implicit in the agreement itself to show that the various subsidies or the excess payments formed the aggregate or sum total at the sale price actually received by the supplier of the sugarcane for the supplies effected to the mills under the various agreements which formed the basis for the simple transaction of the supply of sugarcane by the grower to the sugar mills.

16. From the catena of decisions, referred to as above, what emerges is that if subsidy - whatever name or nomenclature it may assume and whether paid or payable prior to or subsequent to the entering into contract of sale - is linked to the supply of sugarcane, such subsidy and expenses incurred for the transportation of the sugarcane to the factory site - 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 - by adopting whatever procedure reflecting those amounts in the accounts - 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. For the reasons as above, point Nos. 3 to 9 are answered in favour of the Revenue and against the assessees-sugar mills.

17. Pertinent it is to recapitulate at this juncture that the Tribunal in the present Tax Case Nos. 474 to 478 of 1993, following the ratio in Madurantakam Co-operative Sugar Mills [1976] 38 STC 238 (Mad.) recorded a finding that the transport subsidy charges paid by the assessees-sugar mills to third party lorry owners do not form part of purchase turnover, since they are not connected with pre-purchase expenses and consequently, the claim, as respects the transport subsidy made by the assessees-sugar mills was allowed. It cannot be said that the Revenue is not aggrieved by such an order. But, nonetheless, it did not opt to file any revision.

18. The fact that the revenue filed no such revision is of no consequence, on the facts and in the circumstances of the case. Pertinent further it is to mention at this juncture that Mr. C. Natarajan, learned Senior Counsel, appears for the petitioner, in the tax cases and the petitioner in the writ petitions. As already stated, the writ petitions had been filed in a comprehensive fashion canvassing many a question, inclusive of the transport subsidy, besides drawing attention of this Court to the conflicting views of this Court in that regard, exactly at the time when the tax cases were listed for hearing, of course, with the laudable object of settling various questions, obviously with a request for the reference of the tax cases and the writ petitions to a larger Bench for an authoritative pronouncement, which in fact, is made as anticipated. Elaborate arguments of learned Senior Counsel appearing for the petitioners in tax cases and learned Additional Government Pleader (Taxes) were heard on all questions, inclusive of the question respecting "transport subsidy".

19. Such being the case it cannot be stated that any prejudice could be or had been caused to the petitioners in the present tax cases in reopening the question relatable to the "transport subsidy" in respect of which the Tribunal passed an order favourable to the petitioners herein, notwithstanding the fact that no revision had been filed by the Revenue aggrieved by such an order of the Tribunal. In the light of the view that we have taken, the decision in Madurantakam Co-operative Sugar Mills [1976] 38 STC 238 (Mad.), is no longer a good law and it is accordingly overruled. The correct legal position is reflected by the decision in Kallakurichi Co-operative Sugar Mills Limited [1985] 60 STC 113 (Mad.) the finding of the Tribunal in its common order in respect of the present Tax Case Nos. 474 to 478 relatable to "transport subsidy" requires to be set aside and the same is accordingly set aside.

Tax cases and writ petitions dismissed. 

Case Reference - Chengalvarayan Co-Operative ... vs State Of Tamil Nadu.