Karnataka High Court
The Ugar Sugar Works Ltd. vs The Deputy Commissioner Of Commercial ... on 16 June, 2004
Equivalent citations: ILR2004KAR3223, [2005]139STC413(KAR), 2004 AIR - KANT. H. C. R. 2464, (2004) 57 KANTLJ(TRIB) 257
Author: P. Vishwanatha Shetty
Bench: P. Vishwanatha Shetty, Ajit J. Gunjal
ORDER P. Vishwanatha Shetty, J.
1. In this Revision Petition filed under Section 23(1) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act'), the petitioner has called in question the correctness of the Order dated 6th February 1998 made in STA No. 587 of 1995 by the Karnataka Appellate Tribunal, Bangalore (hereinafter referred to as "the Tribunal").
2. Facts in brief:
The petitioner (hereinafter referred to as "the Assessee") is a Public Limited Company carrying on business in manufacture of Sugar and connected products. The Assessing Officer, negativing the objections raised by the asssessee to the proposition Notice issued by him, made an Order of Assessment dated 26th February 1993 for the assessment year 1990-91, confirming the total taxable turnover as proposed in the proposition Notice. Aggrieved by the said order of assessment, the assessee filed Appeal No. 349 of 1992-93 before the Joint Commissioner of Commercial Taxes (Appeals), Belgaum (hereinafter referred to the "the First Appellate Authority"). The First Appellate Authority, while partly granting relief to the assessee, negatived the claim of the assessee to the event the Assessing Authority had proceeded to include harvesting and transportation charges as part of purchase price. The assessee, aggrieved by the order passed by the First Appellate Authority, took up the matter in second appeal before the Tribunal. The Tribunal, in the impugned Order, confirmed the order passed by the First Appellate Authority.
3. Sri G.V. Shantharaju, learned Senior Counsel appearing for the assessee challenging the correctness of the impugned order submitted that the Tribunal has seriously erred in law in including the harvesting and transportation charges as part of purchase price of sugarcane purchased by the assessee. Elaborating this submission, the learned Counsel pointed out that when the purchase price was fixed between the assessee and the sugarcane suppliers as ex-field price and the assessee, as per the terms of the agreement between the parties, was required to incur the expenditure for harvesting of the sugarcane and transportation of the same to the factory, the Tribunal has seriously erred in law in affirming the finding of the First Appellate Authority and the Assessing Authority that the harvesting and transportation charges should be included in the purchase price on the short ground that the sugarcane purchased by the assessee was weighed at the factory premises and the purchase of sugarcane was complete when the sugarcane was delivered at the factory premises; and all amounts paid by the assessee to the sugarcane growers prior to delivery of the cane are pre-purchase expenditure; and as such it is required to be included in the purchase price. The learned Counsel further pointed out that the conclusion reached by the Tribunal and subordinate authorities that it is immaterial whether the transportation and harvesting charges were paid by the assessee either to the harvesting agency or to the transport contractor, and the conduct of the grower and purchaser, in the facts of the present case, would be sufficient to establish that all the amounts paid by the assessee was towards consideration of the purchase price. It is also his further submission that the levy of tax under Section 5(3)(b) of the act is on "taxable turnover" and the "taxable turnover" means the turnover determined on the basis of the purchase price paid/payable by the last purchaser in the State; and any amount spent by the purchaser after purchase of the sugarcane was liable to be deducted out of the total turnover; and it is open to the parties to determine the price either as ex-field price or ex-factory price and in the instant case the price of the sugarcane having been determined as ex-field price, merely because, the sugarcane was required to be weighed on the basis of the total quantity delivered and the price was required to be paid, the Tribunal could not have taken the view that the expenditure incurred by the assessee towards cost of harvesting and transportation charges are part of purchase price. It is his submission that the entire approach made by the Tribunal and the subordinate authorities to the matters in controversy is totally erroneous in law and the decision relied upon by the Tribunal and the subordinate authorities also have no application to the facts of the present case. He also pointed out that the several agreements entered into between the assessee and the sugarcane growers and the purchase price of the sugarcane fixed in terms of the provisions contained in Section 3 of the Sugar Control Order 1966 would clearly show that the assessee and the sugarcane growers have fixed the price at ex-field and since the assessee had incurred necessary expenditure for harvesting of the sugarcane crop and also transportation of the same, it could not have been included as part of the purchase price. In support of his submission, Sri Shantharaju relied upon the decision in the case of PERAMBALUR SUGAR MILLS LTD v. STATE OF TAMILNADU, 86 STC 17; in the case of STATE OF TAMILNADU v. NATIONAL CO-OPERATIVE SUGAR MILLS LTD., 86 STC 22 in the case of STATE OF KARNATAKA v GWALIOR RAYONS SILK (WEAVING) CO. LTD., 57 STC 81.; in the case of PANDAVAPURA SAHAKARI SAKKARE KARKHANE v. STATE OF MYSORE, 32 STC 104; in the case of TUNGABHADRA SUGAR WORKS LTD. v. STATE OF KARNATAKA, 93 STC 561.
4. However, Sri B. Anand, learned Government Advocate strongly supporting the Orders impugned, made three submission. Firstly, he submitted that the harvesting and transportation charges are required to be included in purchase price and therefore the Tribunal was fully justified in taking into account the harvesting and transportation charges as part of purchase price while assessing the total turnover of the assessee. Secondly, he submitted that since the Tribunal and the subordinate authorities, on appreciation of materials on record, have found that the harvesting and transportation charges were part of the purchase price it is not permissible for this Court, in exercise of its revisional jurisdiction under Section 23(1) of the Act, to interfere against the conclusion reached by the Tribunal and the subordinate authorities. Elaborating this submission, he pointed out that the Tribunal has assigned cogent and valid reasons to come to the conclusion that the harvesting and transportation charges are required to be included as part of purchase price and as such there is absolutely no justification for this Court to take a different view from the one taken by the Tribunal. Finally, he submitted that since the expenses borne by the assessee in the form of harvesting and transportation charges are relatable to the quantity of sugarcane purchased from the growers at certain rates per metric tonne, it cannot be any other expenses or consideration paid not connected with the purchase value of sugarcane. He also pointed out that the owner of the goods i.e., sugarcane grower, is required to bear the loss of fire and theft; and the payment is being made to him only after the cane is brought to the factory, wherein the quantity and quality of the sugarcane is tested and determined, and therefore, the ownership of the sugarcane continues to vest with the grower till the cane is delivered at the factory premises; the price of the sugarcane has to be determined as ex-factory price which is inclusive of harvesting and transportation charges. It is his further submission that the facility extended to the assessee for harvesting and transportation is only to see that there is an uninterrupted flow of sugarcane to the factory, and therefore, the harvesting and transportation charges paid to the harvesting agency or to the transport contractor being an expenditure incurred prior to the purchaser and the said expenditure incurred being directly connected with the purchase of the sugarcane, the same has to be treated as a part of purchase price. Sri Anand, also took us through the Orders impugned passed by the Tribunal and also the subordinate authorities. He also relied upon the decision of the Supreme Court in the case of STATE OF TAMILNADU v. KOTHARI SUGARS AND CHEMICALS, 101 STC 197; in the case of RAMCO CEMENT DISTRIBUTION CO. LTD. v. STATE OF TAMILNADU, 51 STC 171; in the case of KALLAKURICHI CO-OPERATIVE SUGAR MILLS LTD. v. STATE OF TAMILNADU, 60 STC 113; in the case of PANDAVAPURA SAHAKARI SAKKARE KARKHANE LIMITED v. STATE OF MYSORE , in the case of DYER MEAKIN BREWERIES LIMITED v. STATE OF KERALA, 26 STC 249, in the case of E.I.D. PARRY (I) LTD. v. ASSISTANT COMMISSIONER OF COMMERCIAL TAXES AND ORS., 117 STC 457 NEYVELI LIGNITE CORPORATION LIMITED v. COMMERCIAL TAX OFFICER, CUDDALORE AND ANR., 124 STC 586. He also referred to the decision in the case of PERAMBALUR SUGAR MILLS LIMITED (Supra) relied upon by Sri Shantharaju.
5. In the light of the rival submissions made by the learned Counsel appearing for the parties, the two questions that would arise for consideration in this petition are:
i) Whether the harvesting and transporting charges paid by he purchaser directly to the harvesting agencies and transport contractors, should be treated as part of purchase price paid by the assessee to the sugarcane growers?
ii) Whether in the facts and circumstances of the case, the harvesting and transportation charges paid by the assessee should be treated as part of purchase price of sugarcane?
Regarding 1st question:
Section 5 of the Act provides for levy of tax on sale or purchase of goods. Sub-section (3) of the said section provides for levy of sales tax in the case of purchase of any of the goods mentioned in column (2) of the Third Schedule at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the Third Schedule, by a dealer liable to pay tax under the Act on his taxable turnover of purchases in each year relating to such goods. It is useful to extract. Section 5(3)(b) of the Act, which reads as hereunder:
"5(3)(b) in the case of purchase of any of the goods mentioned in column (2) of the Third Schedule, at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said Schedule, on the dealer liable to tax under this Act, on his taxable turnover of purchases in each year relating to such goods."
Item 6 of the Third Schedule is as hereunder:
"6. Sugarcane: purchase by the last dealer in the State liable to tax under this Act.
Section 2(v) of the Act defines "Turnover". It reads as hereunder;
"2(v): "Turnover" means the aggregate amount for which goods are bought or sold, or supplied or distributed or delivered or otherwise disposed of in any of the ways referred to in Clause (t) by a dealer, either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration."
6. Therefore, the reading of Section 5(3)(b) read with item 6 of the Third Schedule of the Act referred to above makes it clear that every dealer is liable to pay tax in the case of purchase of sugarcane on his "taxable turnover" of purchases made in each year. The liability to pay tax is fastened on a dealer on his total turnover of purchases made. If the purchase price of sugarcane fixed is inclusive of harvesting and transportation charges, there cannot be any doubt that the total consideration paid for the purchase of sugarcane has to be taken into account and it has to be treated as total turnover of the assessee. 'Turnover', as provided under Section 2(v) of the Act, means the aggregate amount for which goods are sold or supplied or distributed or delivered or disposed of in any of the ways referred to in Clause (t) of Section 2 of the Act either directly or through another, on his own account or on account of others, whether for cash or for deferred payment or other valuable consideration. Therefore, turnover of a dealer for the purpose of fastening liability to pay tax under Section 5(3)(b) of the Act has to be determined with reference to the total sale consideration paid by the dealer for the purchase of sugarcane. Therefore, when the question arises as to what is total turnover of a dealer, the question that is required to be addressed what is the purchase price paid by the dealer for purchase of sugarcane to the grower or vendor of sugarcane? The purchase price of any goods, including the sugarcane, could be generally determined as a price, which the purchaser of the goods/sugarcane agrees to pay to the grower/vendor of the sugarcane. It is purely a matter of contract between the parties. The vendor and purchaser of the sugarcane could fix the sugarcane price either as ex-field price or as ex-factory price. There cannot be any Rule or principle which is of universal application with regard to the fixation of price by the parties regarding the value of the sugarcane. It is only on the total value of the consideration paid by the purchaser of the sugarcane to the vendor of the sugarcane, a dealer/purchaser of sugarcane is made liable to pay tax under Section 5(3)(b) of the Act, If, in a given case, the parties agree with regard to the price to be paid per metric tonne of sugarcane sold by the grower of the sugarcane to the purchaser of sugarcane before harvesting of the sugarcane and as per the terms of the agreement if the purchaser of the sugarcane has to harvest the sugarcane and transport the same to the factory at his cost, the price that would be paid to the sugarcane bought, would be ex-field price. It is open to the parties, by agreement, either to include the harvesting and transportation charges as part of sale consideration for the sugarcane sold by the grower of the sugarcane to the factory owner, or to exclude the harvesting and transportation charges and to fix the sale consideration of the sugarcane when it is a standing crop by casting the responsibility on the purchaser of the sugarcane/factory owner to harvest the sugarcane crop and transport the same to the factory at his cost. While entering into the contract of purchase of sugarcane, it is open to the parties to agree that the quantity of the sugarcane sold would be determined by weighing the sugarcane at the place agreed upon by them including the factory premises of the purchaser of the sugarcane. Once the sale of sugarcane as a standing crop is complete where the weighment of the sugarcane is made loses its significance so far as determination of its sale or purchase price is concerned only for the purpose of ascertaining the total quantity of the sugarcane sole. It is also open to the parties to agree to pay the sale consideration, depending upon the quantity and quality of the sugarcane at the time of weighment of the sugarcane purchase. Merely because, as per the terms of the agreement, the parties agreed that the total quantity of the sugarcane purchased is to be determined by weighing the same in the factory premises of a dealer, in our view, would not make the sale transaction incomplete, if otherwise, the materials on record show that the sale of the sugarcane has taken place ex-field and purchaser has agreed to get the standing sugarcane harvested and transported. It is open to the parties to enter into sale of standing sugarcane crop with reference to the field or total extent of land on which sugarcane crop is standing, fixing the price of sugar can purchased depending upon the total quantity and the quality of the sugarcane purchased. With reference to the facts of each case, the transaction as to when the purchase was completed, is required to be determined by the Assessing Authority. While so determining, it is open to the Assessing Authority to lift the veil and find out, even though the parties make it appear that the purchase of the sugarcane was the basis of the ex-field price, whether as a matter of fact, the harvesting and transportation charges were actually paid by the vendor i.e., grower of the sugarcane or actually paid by the purchaser on behalf of the vendor/grower of sugarcane; and an attempt is being made to avoid tax liability by creating evidence in such a way as to make it appear that the purchase of the sugarcane, in fact, had taken place at ex-field before harvesting of the sugarcane, though as a matter of fact, sale transaction is actually at factory premises. Further, when there is a dispute as to whether the purchase price fixed is ex-field price or ex-factory price, the circumstances that the parties have agreed to pay the price depending upon the quantity of sugarcane to be weighed and verified at the factory premises; and the quality of the same also is required to be determined at the factory premises may be some of the relevant circumstances that could be taken into account by the Assessing Authority while lifting the veil to find out what exactly is the nature of the transaction. Therefore, we are of the view that it cannot be laid down as a principle of law which will have universal application that in all cases harvesting and transporting charges are required to be treated as part and parcel of purchase price. As noticed by us earlier, each transaction is required to be considered by the Assessing Authority with reference to the facts and circumstances of each case and the materials placed before it. In our view, the decisions in the case of RAMCO CEMENT DISTRIBUTION CO. LTD. in the case of KALLAKURICHI COOPERATIVE SUGAR MILLS LTD., in the case of PANDAVAPURA SAHAKARI SAKKARE KARKHANE LIMITED; and the decision of the Supreme Court in the case of KOTHARI SUGARS & CHEMICALS (supra), referred to by the Tribunal in the course of the Order impugned and also strongly relied upon by Sri Anand in support of his submission that the harvesting and transportation charges are always treated as part of purchase price, is of no assistance to him.
7. It is useful to refer to some of the decisions referred to us by the learned Government Advocate in support of his submissions.
In the case of PANDAVAPURA SAHAKARA SAKKARE KARKHANE (supra), it was found proved as a fact that the substance of the transaction between the purchaser and the cane growers was for payment of the enhanced price for the sugarcane supplied and the amount paid in excess of the statutory price was paid under the contract and not as an ex-gratia payment or towards advance. In that situation, this Court took the view that the entire amount paid should be treated as purchase price.
In the case of TUNGABHADRA SUGAR WORKS LIMITED(supra), the Division Bench of this Court noticed that there being no prohibition against the parties aggrieved for the payment of higher price for purchase of sugar cane, the higher price paid in addition to the minimum purchase price fixed under Clause (3) of the Sugar Control Order 1966, was required to be held as purchase price fixed by the purchaser. For treating the entire amount paid by the purchase as the price of the sugarcane supplied, it was found proved as a fact that the higher price including the excess amount was paid as a price of the sugarcane in an agreement between the grower and the purchaser irrespective of lower amount being fixed as aggregate of the price fixation under Clause 3 and 5-A of the Sugar Control Order.
The decision of the Madras High Court in the case of PERAMBALUR SUGAR MILLS LTD. (supra), proceeded on the basis that there was an agreement entered into by the factory wherein the sugar cane growers had agreed to bring in sugarcane and deliver it at the factory premises in accordance with a date schedule fixed by the mills. There is no clause either in the application for registration or in the agreements to indicate that the sugarcane growers could deliver the sugarcane at a place other than the mill or factory premises and receive reduced prices. In that context, the Court took the view that the charges paid to the sugarcane growers to bring out sugarcane to the factory premises was liable to be included in the taxable turnover even though separate voucher was given and transport charges were paid by the assessee to the third party lorry-owners to transport the sugarcane to the factories as that has been done by the factory owners only to assist the sugarcane growers, and in that situation, even if the factory owner fixes the price of sugarcane as ex-field price and take up the responsibility of getting the sugarcane harvested and transported at its cost, still the said amount should be included as part of purchase price. The facts of the said case further indicates that a scheme was introduced by the factory with regard to payment of transport charges and as per the scheme if the sugar factory was at a distance exceeding 40 kilometers, the sugar factory was required to pay the transport charges to induce the farmers at a distance place to bring sugarcane to the factory; and under those circumstances, the Court took the view that the transport charges could be treated as part of purchase price. However, that is not the finding recorded either by the Tribunal, or the First Appellate Authority or the Assessing Authority in the present case.
The question that came up for consideration in this case of KALLAKURICHI CO-OPERATIVE SUGAR MILLS LIMITED AND ANOTHER (supra) was, whether the turnover referable to payment of transport charges by the mill owner is eligible for deduction from the purchase turnover of the mill owner? In that case two sugar mills entered into an agreement for supply of sugarcane with the sugarcane growers. One of the terms of the agreement was that the sugar cane grower should deliver the sugarcane at the mill or factory premises for the prices fixed by the Government. In cases where there is no transport facilities to supply sugarcane at the mill premises, the sugar mills or factories sent lorries to the sugarcane growers and brought the sugarcane to the factory premises. In all such cases, the factory owners deducted transport charges from statutory price payable to the sugarcane growers in respect of the sugarcane supplied by them and when the exemption was claimed from the purchase turnover towards transport charges so deducted by the factory owners from out of the amounts payable to the sugarcane growers computed in accordance with the price fixed by the Government, the Assessing Authority as well as the Appellate Authorities took the view that the purchase price of the sugarcane having been fixed from time to time and the purchase turnover was worked out with reference to the quantity and price per metric tonne so fixed by the Government, though the mills were at liberty to recover the transport charges incurred by them from the sugarcane growers, they were not entitled to reduce the cane price fixed by the Government statutorily by deducting the amount incurred by the mills for making transport arrangements with the sugar cane growers. In that context, the Madras High Court, affirming the order of assessment made by the Assessing Authority, took the view that the assesses cannot claim to exclude the transport charge from their assessable turnover. The Court took the view that the Transport charges initially paid by the mill owners and subsequently deducted out of the purchase price payable to the sugarcane growers cannot be treated as post-purchase expenses so as to enable the mill owners claiming benefit of deduction from the turnover. From the facts of that case, it is clear that the Court took into account that the transport price paid was required to be treated as part of purchase price as it was not permissible for the sugarcane growers to deduct the said amount from the minimum control price fixed by the Government.
In the cases of DYER MEAKIN BREWERIES LIMITED (supra), the question that came up for consideration before the Supreme Court was, when the company arranges to transport liquor for sale from its factory to its warehouse at Ernakulam, whether the expenditure incurred towers transport charges is entitled for deduction under Rule 9(f) of Kerala General Sales Tax Rules, 1963, which provides for deduction of freight and charges for packing and delivery from the price of the goods sold. While considering that question, the Supreme Court took the view that Rule 9(f) of the Kerala General Sales Tax Rules, 1963 seems to exclude only those charges which are incurred by the dealer either expressly or by necessary implication of and on behalf of the purchaser after the sale when the dealer undertakes to transport the goods and to deliver the same or where the expenditure is incurred as an incident of sale and the said Rule was not intended to exclude from the taxable turnover any component of the price, expenditure incurred by the dealer which he had to incur before sale and to make the goods available to the intending customer at the place of sale. The Court took the view that all the expenditure incurred on the facts of that case was prior to the sale and was evidently a component of the prices for which the goods were sold; and under those circumstances even if separate bills were made out for the prices of the goods ex-factory and for freight and handling charges it would not make any difference and the said charges were required to be included as a part of sale price.
The Supreme Court in the case of E.I.D. PARRY (I) LIMITED (supra) examined the question as to whether the planting subsidy and transport subsidy paid by the factory to the cane growers can be said to be the part of price of sugar cane purchased by it and therefore, can legitimately be included in the turnover of the factory owners; and whether the transport subsidy charges, in excess of 30 kilometers, paid by the factory would be a component of the sale price and had to be included in the taxable turnover of the appellants. While considering the said question, the Supreme Court, on examination of the true nature of transactions between the factory owners and the sugar cane growers and the object of the payments made for planting subsidy and freight subsidy, took the view that they were part of the purchase price. The entire decision in the said case turned on the facts of that case. This is clear from the observations made by the Supreme Court at paragraph 21 of the judgment, which reads as hereunder:
"21.... Apparently, the two agreements, - one agreement in respect of planting subsidy and the other agreement for the sale of sugarcane appear to be independent but on a close scrutiny it can be noticed that they constitute one single transaction. In their petitions filed before the High Court the appellants have stated that the planting or varietal subsidy is by way of incentive to the cane grower. It is given to motivate the cane grower to grow sugarcane and subsequently sell the same to the sugar factory. Thus the reason why the appellants had given planting subsidy was to see that the cane grower plant the desired and improved variety of sugarcane and that too in the months suggested by the appellants so as to ensure stagger supply of sugarcane as per the crushing schedule. The object of the planting subsidy was to obtain the desired variety and quality of sugarcane at the time required by the appellants. It is also significant to note that as a matter of fact the planting subsidy was given by the appellants to the cane growers at the time of delivery of sugarcane by them. Though the appellants had described the payments by way of planting subsidy as deferred payments the appellants and the cane growers not by way of agrarian reform or a social welfare measure. The appellants had given planting subsidy as purchasers of sugarcane and as a part of the consideration for which the sugarcane was ultimately purchased by them. As rightly pointed out by the Madras High Court in State of Tamil Nadu v. National co-operative Sugar Mills Ltd. (1992) 86 STC 22 giving of planting subsidy earlier and supply of sugarcane later were closely linked. The planting subsidy was relatable to the supply of sugarcane. If the whole deal between the appellants and the cane growers is examined they really constitute one contract of sale. Therefore, the sums paid by the appellants as planting subsidy to the cane grower were rightly treated as a part of the sale price and included in the taxable turnover of the appellants for the purpose of assessing the purchase tax liability."
On the same analogy, the Supreme Court at paragraph 22 of the judgment, took the view that for the reasons assigned to hold that the planting subsidy should be treated as part of purchase price, the transport subsidy also should be required to be treated as part of consideration for which sugarcane was sold by the sugarcane growers to the factory owner. It is useful to extract paragraph 22 of the judgment, which reads as hereunder:
"22. 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 and 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."
In the case of NEYVELI LIGNITE CORPORATION LIMITED (Supra), the question that came up for consideration before the Supreme Court was whether the subsidy received by the appellant forms part of its taxable turnover under the provisions of Tamil Nadu General Sales Tax Act? After referring to the decision in the case of KOTHARI SUGARS AND CHEMICALS (supra), it took the view that since there was no statutory basis for grant of subsidy; and the amount was received by the assessee pursuant to the administrative decision taken by the Central Government and the subsidy received was not traceable in agreement, directly or indirectly between the manufacturer and purchasers of fertiliser, the subsidy paid cannot be treated as part of the purchase price. In the said decision, the Court held that it is that amount which flows from purchaser to the seller which alone would form the part of the turnover of the seller and any sum received de-hors the contract of sale from another entity, whether it be government or any one also, cannot be regarded as being an amount which would form part of the sale price on which tax is payable.
8. Therefore, none of the decisions referred to above, strongly relied upon by the learned Government Advocate, in our considered opinion, is of no assistance to him to support his contentions that in all circumstances the transport and harvesting charges should be treated as part of sale price. We are of the considered view that unless the parties to the transaction decide to treat the transport and harvesting charges paid by the purchaser of the sugarcane as part of the purchase price, merely because the sugarcane was required to be delivered at factory premises and the total quantity and the quality of the sugar delivered is to be determined at the factory premises, is not a ground to come to the conclusion that the harvesting and transportation charges also should be treated as part of the purchase price.
9. In our view, we are also supported by the decision of the Supreme Court in the case of KOTHARI SUGARS AND CHEMICALS (supra) and in the case of BANGALORE SOFT DRINKS (PVT.) LIMITED (supra) and also the decision of the Kerala High Court in the case of the DEPUTY COMMISSIONER OF SALES TAX (LAW) BOARD OF REVENUE (TAXES) ERNAKULAM v. CO-OPERATIVE SUGARS LIMITED, 88 STC 84.
In the case of KOTHARI SUGARS AND CHEMICALS LIMITED the Supreme Court, while considering the question, whether for the purchase of sugarcane from the cane growers a purchaser is liable to pay purchase tax under the State Sales Tax Act on the amount paid by the purchaser to the cane grower over and above the price fixed under Clauses 3 and 5 A of the Sugarcane Control Order, 1966, took the view that where there is no evidence that the purchaser had agreed with the grower to pay higher price described as advance but the excess amount falling part of the advances was paid only under compulsion on the direction contained in the "State advice" which has no statutory basis, the excess amount paid cannot be treated as part of the turnover. In the said decision, the Supreme Court has considered the decisions of this Court in the case of PANDAVAPURA SAHAKARA SAKKARE KARKHANE (supra) and TUNGABHADRA SUGAR WORKS LIMITED (supra). At page 202 of the judgment, the Supreme Court has observed thus:
In the connected matters arising out of the judgment of the Karnataka High Court similar Writ Petitions filed by the purchasers of sugarcane were dismissed. The two decisions of the Karnataka High Court which require reference are Pandavapura Sahakara Sakkare Karkhane (P.) Ltd. v. State of Mysore (1973) 32 STC 104 and Tungabhadra Sugar Works Ltd. v. State of Karnataka (1994) 93 STC 561. In Pandavapura (1973 STC 104 (Mys) it was found proved as a fact that the substance of the transaction between the purchaser and the cane growers was for payment of the enhanced price for the sugarcane supplied and the amount paid in excess of the statutory price was paid under the contract and not either as ex gratia payment or towards advance. In that situation the entire amount paid was treated as the price. In our opinion, the nature of contract in that case being such, the entire amount paid had to be treated as price of the sugarcane supplied since the statute does not prohibit an agreement between the grower and the purchaser for payment of a higher price for the sugarcane by the purchaser. In the later decision in Tungabhadra (1994) 93 STC 561 (KAR) also it is noticed that there is no prohibition against the parties agreeing for the payment of a higher price of sugarcane. In that situation no doubt the entire amount paid has to be treated as the price of the sugarcane. However, as indicated earlier, for treating the entire amount paid by the purchaser as the price of sugarcane supplied, 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 5-A of the Control Order. Unless a clear finding to that effect is recorded, the amount paid by the purchaser in excess of the aggregate of the minimum price fixed under Clause 3 and the additional price fixed under Clause 5-A, as a part of the amount paid as advance prior to fixation of the additional price under Clause 5-A as a part of the amount paid as advance prior to Fixation of the additional price under Clause 5-A, cannot be treated automatically as a part of the total price of sugarcane. In matters arising out decisions of the Karnataka High Court, this aspect has not been adverted to and the Writ Petitions have been dismissed without going into this question. The Karnataka matters have, therefore, to be remitted to the High Court for a fresh decision on the above basis."
As noticed by us earlier, the decision of the Supreme Court in the said case clearly supports our view that whether the transport and harvesting charges paid by the purchaser to a third party should be treated as a part of the purchase price or not, depends upon the facts and circumstances of each case and it depends upon the question as to whether the parties intended the said amount to be treated as a part of purchase price, or it should be treated as a liability to be incurred by the purchaser on its or his own account and not as part of the purchase price paid to the grower of the sugarcane.
The decision of Kerala High Court in the case of CO-OPERATIVE SUGARS LIMITED (Supra) would indicate that in the said case a finding was recorded by the Appellate Authority that the transport charges were paid by the society to the lorry owners directly and therefore, the said charges cannot be included in the turnover of the assessee. It is useful to refer to the observation made at paragraph 4 of the judgment, which reads as follows:
"4. Now we shall deal with the common question. The assessing authority no doubt has found that the transport charges paid by the assessee to the transport agency was payment made on behalf of grower. The assessing authority accordingly held that the transport charges will form part of the purchase price. This finding was specifically under challenge before the appellate authorities. The appellate authorities, after considering the various aspects of the issue and taking into account the materials made available by the parties have concurrently found that the transporting charges represent amounts paid by the appellant society to the lorry owners directly and therefore the said charges need not be included in the turnover. This concurrent finding concludes the issue. Nonetheless, it has not specifically been challenged by the Revenue which has filed these revision petitions. We, therefore, are not inclined to entertain the question which may convey some sense only if the above finding is specifically challenged."
In the case of BANGALORE SOFT DRINKS (PVT.) LIMITED (supra), the question that came up for consideration before the Supreme Court was, whether the freight charges collected separately by the assessee from the wholesaler for the purpose of transportation of the goods from the factory site to the door of the buyer, could be included in the sales turnover of the assessee for the purpose of computation of sales tax. The Supreme Court, after referred to the decision of this Court in the case of NARAYANI RAO v. COMMISSIONER OF COMMERCIAL TAXES IN KARNATAKA, BANGALORE AND ANR., 93 STC 247, took the view that the freight charges collected separately by the assessee from the wholesaler for the purpose of transporting goods from the factory site to the door of the buyer is required to be excluded while computing the taxable turnover of the assessee. Further, in the same case, after referring to several decisions of this Court and also the decision of the Supreme Court in the case of DYER MEAKIN (supra), at paragraph 11 of the judgment has observed as under:
"11. The full Bench of this Court has stated that the test applied by the Supreme Court in Dyer Meakins' case (1970) 26 and D.C. Johar & Sons' case (1971) 27 STC 120 is the basic test. If the cost incurred by the dealer is incidental to his acquisition of goods, being part of his expenditure, it forms a component of the price when he sells the goods. If the cost of freight is charged by the dealer for the transportation of the goods, which is for and on behalf of the purchaser, it will be a case of post-sale expenditure, to which benefit of Rule 6(4)(f) will be available. Cost of freight incurred for the inward journey of the goods to the dealer is not deductible, but freight outwards is deductible.'
10. Further, in the case of CENTRAL WINES v. SPECIAL COMMERCIAL TAX OFFICER, (1987) 65 STC 48 the Supreme Court took the view that the amount of money which goes from the pocket of the purchaser to the pocket of the seller as a condition or consideration for the passing of the property in the goods is the sale price, in other words, it is the amount, but for the payment of which, the seller would not transmit his title to the goods in favour of the purchaser and the consideration obtained by the seller from the purchaser would, in the eye of law, be the sale price regardless of the nomenclature given to any part of the price charged. Therefore, what follows from the decision of the Supreme Court in the said case is that the entire consideration that passed on from the purchaser to the cane grower with reference to the purchase of cane by whatever name it is called or in whatever manner it is paid, is liable to be taxed. Therefore, in each case, the Assessing Authority is required to examine as to whether the amount paid by the purchaser of sugarcane by way of harvesting charges or transport charges was treated as part of the sale price by the purchaser and the grower of sugarcane. This is purely a question of fact, which is required to be examined with reference to each transaction.
11. In the light of what is stated above, we are of the view that the harvesting and transportation charges, if they are met by the purchaser of sugarcane on its or his own account, and directly paid to the harvesting agency and the transport contractor, and the purchase of sugarcane is ex-field and the said payments were not made on behalf of the grower of the sugarcane; such expenditure incurred by the purchaser on the materials placed before the Assessing Authority, can be treated as post-sale expenditure, such expenditure incurred cannot be treated as part of purchase price and the said amount cannot be taken into account while determining the total turnover of the assessee. This is purely a question of fact which is required to be considered and decided by the Assessing Authority in each case on the basis materials available on record. Accordingly, we answer the first question.
12. Now, the second question is, whether in the instant case the harvesting and transportation charges are required to be treated as part of the purchase price? In our view, on this question, the matter requires to be remitted to the Tribunal for consideration in the light of our conclusion on the first question, referred to above. We are of the view that the Tribunal and all the subordinate authorities have mainly proceeded on an erroneous view that the harvesting and transportation charges, in all cases, are required to be treated as part of purchase price. This is clear from the discussion made by the Tribunal in the course of its order wherein it proceeds on the basis that the total quantity of the sugarcane was required to be weighed at the factory premises and on that basis the sale consideration is required to be paid. In this connection, it is useful to refer to the observation made by the Tribunal at paragraph 7 of the Order which reads as hereunder:
"It has been held that the purchase price of sugarcane was fixed by a Triparty Committee and the sugarcane growers should supply their sugarcane at the factory site of the Mill. The price fixed is for the delivery at the factory site. There is no provision in the contract for payment of any reduced amount other than the one provided under the statutory provisions. No deduction is permissible underlying towards the transport charges incurred by the growers. The purchase price payable for the supplies is inclusive of the transport charges. The transport charges paid by the assessee to the third party to transport sugarcane from the field of the sugarcane growers to the assessee's factory premises in order to assist the cane growers should be included in the taxable turnover of the assessee. As per the Sugarcane Control Order, 1966, it is stipulated that under the provisions of the above said order (Section 3 of this order) provides for minimum price of sugarcane payable by the purchase of sugar. The minimum price is fixed on the basis of the cost of production of sugar, the returns of the growers from the alternative crop, the availability of sugar to the consumer at a fair price, the price at which sugar produced from sugarcane is sold by the purchaser and the recovery of sugar from the sugarcane. As could be seen the above said sugarcane Control Order, it provides for as to how the cost of minimum price of sugarcane must be structured. For the above reasons, we feel that the purchase price of sugarcane is bound by many variables and therefore it cannot be argued that the cost was arrived at ex-field which is not at all correct as the facts point out that cost of sugarcane must be relatable to expenditures incurred by the growers to bring the goods at the factory premises."
Again at paragraph 8 of the Order, it is observed as follows :
".... In this case also though amounts have been paid to the separate contractor it would not detract the fact that these expenses form part of purchase price."
13. The Assessing Authority, in the course of the Order has observed as follows:
"The additional payments made by the Factory to the sugarcane growers as harvesting charges, transportation charges are not voluntary or unilateral and so far as the growers are concerned also be towards the price and the consideration for the sugarcane supplied by them. The purchases are complete when the sugarcane is delivered to the factory by weighment in the factory premises and all amounts and considerations made relating prior to such delivery are pre-scale expenditure at the hands of the growers and hence forms part of purchase price at the hands of the assessee. The conduct of the sellers and buyers clearly established that the additional payments made are towards parts of the consideration for the sugarcane sold and paid. Therefore, the contention of the assessee that the said charges do not amount to part of the turnover on purchase of sugarcane is not correct."
14. From the reading of the Assessment Order, it is clear that the Assessing Officer proceeds on the basis that the purchase is complete only on the delivery of sugarcane at the factory and all expenses only on the delivery of sugarcane at the factory and all expenses incurred by the purchaser towards harvesting and transportation charges must necessarily be relatable to the cost of the purchase price, even if it is paid by the purchaser to an independent contractor appointed by him. The entire approach made by the Assessing Authority on this aspect of the matter is erroneous. The First Appellate Authority and the Tribunal also have committed the similar error in the course of the orders passed by them. The Tribunal proceeds on the assumption that the purchase price payable for the supplies is inclusive of the transportation charges and the transportation charges paid by the assessee to the third party to transport sugarcane from the field of the sugarcane growers to the assessee's factory to assist the cane growers, should be included in the taxable turnover of the assessee. The Tribunal proceeds on the assumption that the assessee has taken the transport of sugarcane to assist the grower. Therefore, in the light of what is stated above, we are of the view, it is just and necessary to set-aside the order dated 6th February 1998 made in STA No. 587 of 1995 passed by the Tribunal and remit the matter for fresh consideration by the Tribunal in the light of the observation made by us in the course of this Order and more particularly, while answering Question No. 1, referred to above, however, with the liberty reserved to the parties to place such materials, as they may deem fit, in support of their respective claim before the Tribunal.
15. In the light of the discussion made above, we make the following :
ORDER
(i) Order dated 6th February 1998 made in STA No. 587 of 1995 by the Tribunal is hereby set aside and the matter is remitted to the Tribunal for fresh consideration, in accordance with law, and in the light of the observation made above. However, liberty is reserved to parties to place such material, as they may deem fit, in support of their respective claim, before the Tribunal.
(ii) The Tribunal is directed to take a fresh decision in the matter as directed above, as expeditiously as possible and at any event of the matter not later than six months from the date of receipt of a copy of this Order.
16. In terms stated above this Revision Petition is allowed and disposed of.