Madras High Court
State Of Tamil Nadu vs National Co-Operative Sugar Mills ... on 15 July, 1991
Author: A.S. Anand
Bench: A.S. Anand
JUDGMENT Kanakaraj, J.
1. The assessee reported a total and taxable turnover of Rs. 7,37,71,056.18 and Rs. 2,83,55,079.89, respectively, for the year 1978-79. We are concerned in this case only with a sum of Rs. 1,59,305.48 which was paid by the assessee to certain cane growers as subsidy for early planting. The question is whether this subsidy paid to the cane growers can be treated as forming part of purchase turnover of sugarcane. The assessing authority found that as long as the amount was paid in lieu of sugarcane supplied by the cane growers to the assessee, the subsidy amount is includible in the taxable turnover. A notice was therefore issued to the assessee and after considering their objections the assessing authority came to the conclusion that the payment of the subsidy had nexus to the supply of sugarcane. It was a payment to the sugarcane growers in addition to the price of sugarcane. Accordingly, the said sum of Rs. 1,59,305.48 was included in the purchase turnover of sugarcane and tax at 12 per cent under entry 62 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, was levied. Consequently the additional sales tax at 0.7 per cent was also imposed under the Tamil Nadu Additional Sales Tax Act, 1970.
2. The assessee filed two appeals before the Appellate Assistant Commissioner in respect of the main assessment and in respect of a levy of additional sales tax. The appellate authority also found that the payment in question added to the cost of sugarcane purchased by the assessees. The fact that they had accounted for the payment under the head "cane development expenses" would not alter the character of the payment. Following certain judgments of the Karnataka High Court, the appellate authority held that the subsidy was rightly included in the taxable turnover of the assessees. On second appeals filed before the Tribunal, the findings of the assessing authority and the first appellate authority were reversed. The Tribunal came to the conclusion that the judgments of the Karnataka High Court are distinguishable. The Tribunal referred to the fact that the subsidy was paid for early planting on an acreage basis. The early planting subsidy was given only to the cane growers who accepted the offer. The payment was not based on the quantity purchased by the assessees. Accordingly, the Tribunal came to the conclusion that the sum of Rs. 1,59,305.48 cannot be termed as part of the purchase price. According to the Tribunal it was an independent amount, to encourage early cultivation of the sugarcane. The Revenue is in revision before us.
3. Reliance is placed on Hiranyakeshi Sahakari Sakkare Karkhane Niyamit v. State of Karnataka . In that case the assessees had paid certain amounts to the sugarcane suppliers as "khodki charges", for the purpose of keeping the land on which, sugarcane had been planted in good condition. In that case it was held that the "khodki charges" had been in fact paid as part of the consideration for the sugarcane supplied to the assessees by the growers. It was therefore included in the taxable turnover of the assessee. The High Court went on to say that the point of time at which such payment was made or the purpose for which the amount had been used by the grower would be immaterial as long as the payment was made in lieu of the sugarcane supplied by grower to the assessee. A similar view was taken in respect of transport charges and harvesting charges, in Pandavapura Sahakara Sakkare Kharkhane (P.) Ltd. v. State of Mysore [1973] 32 STC 104 (Mys). In the case on hand the incentive is the cause and the early supply of sugarcane is the effect and as such the payment has a close nexus to the supply of sugarcane. The distinction sought to be drawn by the Tribunal on the basis of the subsidy being paid with reference to acreage does not stand scrutiny on a proper interpretation. The Tribunal has failed to note that whatever is grown on the land, comes to the assessee's mill. Therefore there is no point in saying that the payment of subsidy is not linked to the cane purchased by the assessees. The reference to the assessee accounting for the payment under the "cane development expenses" cannot and does not affect the character of the payment. It cannot be disputed that, while calculating the profits the payment of the sum of Rs. 1,59,305.48 has also been taken into account. The amount paid as subsidy is undoubtedly retained by the cane growers and it is over and above the price fixed by the Government as the price of the sugarcane. It is therefore relatable to the supply of sugarcane. Therefore there is an implicit agreement that the subsidy forms part of the price. There is one other way of looking at the entire picture. The total price received by the cane growers is equal to the price fixed under the statute plus subsidy amount which is retained by the cane grower. Therefore the sale price of the product cannot be less than or more than the above price received by the cane grower. Necessarily they have to be equal. It follows therefore that the sale price includes the subsidy payment and therefore rightly forms part of the purchase turnover.
4. Reliance is also placed on [1985] 60 STC 113 (Mad.) (Kallakurichi Co-operative Sugar Mills Limited v. State of Tamil Nadu). In that case the sugarcane grower should deliver the sugarcane at the mill or factory premises for the price fixed by the Government. Certain transport charges had been initially paid by the assessees and such transport charges were sought to be deducted from the turnover. It was held that the assessees were not entitled to deduct the transport charges from the purchase turnover. The same view has been taken recently by another Division Bench of this Court in Perambalur Sugar Mills Limited v. State of Tamil Nadu [1992] 86 STC 17 supra.
In that case the ratio is laid down as follows :
"When once it is accepted that as per an agreement entered into, the sugarcane grower had agreed to bring the sugarcane and deliver it at the mill or factory premises in accordance with a date schedule fixed by the mills and there is no clause either in the application for registration or in the agreement to indicate that the sugarcane growers could deliver the sugarcane at a place other than the mill or factory premises and receive reduced prices, the charges paid to the sugarcane growers to bring the cut sugarcane to the mill site is liable to be included in the taxable turnover even though separate voucher is given to which they are entitled to, there is no reason for holding that since transport charges were paid by the assessee to the third party lorry owners to transport the sugarcane to the factory, in order to assist the cane growers, it should not be included in the taxable turnover of the assessee."
5. Learned counsel for the respondents placed strong reliance on the judgment of the Division Bench of this Court in Thiru Arooran Sugars Ltd v. Deputy Commercial Tax Officer [1988] 71 STC 444. In that case apart from statutory price fixed by the Government of India under clause 3 of the Sugarcane Control Order, 1966, the Director of Sugars had instructed the assessees to pay a certain higher amount as the price of sugarcane to the growers. Such additional payment as per the directions of the Director of Sugar was not a voluntary payment of the assessee. It was found that the assessees had paid the extra amount by way of advance and they had a right, in law, to recover such excess payment. It was held that there was no implicit agreement between the cane grower and the manufacturer to pay a price higher than the minimum statutory price. It was in those circumstances that the Division Bench of this Court held that the extra amount was not liable to be taxed as being part of the cane price. It is needless to point out that the ratio in the said judgment cannot be applied to the facts of the present case, because in this case the payment is voluntary and the subsidy is undoubtedly retained by the cane growers. We have also found that there is an implicit agreement to pay the subsidy when the assessee wants early and regular supply of sugarcane. This makes all the difference and the judgment rendered in Thiru Arooran Sugars Ltd V. Deputy Commercial Tax Officer [1988] 71 STC 444 (Mad.) will not apply to the facts of the present case.
6. Mr. Inbarajan, learned counsel for the respondents, has brought to our notice the order of a Division Bench of this Court dismissing the Tax Case No. 1285 of 1990 (State of Tamil Nadu v. Amaravathi Co-op. Sugar Mills Ltd.) filed by the Revenue on January 3, 1991 at the stage of admission. Apart from the fact that the said judgment was rendered at the stage of admission confirming the view of the Tribunal, we are unable to deduce any ratio from the judgment because the facts of the case had not been elaborately set out in the order. Further, that also relates to the payment of transport charges by the assessee which the Tribunal found was relatable to the sugarcane purchase price. We do not think that the said order made at the time of admission, upsets well considered judgments in Kallakurichi Co-operative Sugar Mills Ltd. v. State of Tamil Nadu [1985] 60 STC 113 (Mad.) and in Perambalur Sugar Mills Limited v. State of Tamil Nadu [1992] 86 STC 17 supra.
7. For the reasons given above we are clearly of the opinion that the sum of Rs. 1,59,305.48 should be treated as forming part of the purchase price of sugarcane. The order of the Tribunal is therefore set aside and those of the assessing authority dated March 31, 1980 and the appellate authority dated September 26, 1980 are restored. The revisions succeed and they are allowed. There will however be no order as to costs.
8. Petitions allowed.