Gujarat High Court
State Of Gujarat vs Western Agri Seeds Ltd. on 30 August, 2018
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/SCA/1889/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 1889 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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STATE OF GUJARAT
Versus
WESTERN AGRI SEEDS LTD.
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Appearance:
MR PRANAV TRIVEDI, AGP for the PETITIONER(s) No. 1
RULE SERVED(64) for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 30/08/2018
ORAL JUDGMENT
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C/SCA/1889/2017 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. This petition is filed by the State Government challenging the judgment dated 19.4.2016 passed by the Gujarat Value Added Tax Tribunal ('the Tribunal" for short) in the following background.
2. The respondent is a limited company and is engaged in the business of selling various types of seeds of agriculture produce. In the year 20062007, respondent had shown purchases of such seeds from various farmers. Audit assessment was done by the Assessing Authority. However, in such assessment, the question of levying purchase tax on such purchases of the assessee did not come up for consideration. Aggrieved by the order of the Assessing Authority, the assessee had also preferred appeal before the Deputy Commissioner who allowed partial relief. Thereafter, the Deputy Commissioner noticed that the assessee had made purchases of seeds from the farmers who are unregistered dealers and that therefore, assessee was liable to pay purchase tax on such purchases. Notice for revision was therefore, issued within the time prescribed under the provisions of Gujarat Value Added Tax Act ("VAT" Act for short). The assessee opposed such notice contending that the assessee is a producer of various seeds such as grains, pulses, vegetables, oil seeds including castor, groundnut and cotton seeds etc. As per the Government notification dated 29.4.2006, sales of all such seeds are exempt from tax. Before the authority, the Page 2 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT assessee also took the stand that such seeds marketed by the assessee are produced by the company itself. Under the supervision and guidance of the officers of the company, farmers would produce foundation seeds, for which seed plots would be prepared. The sowing, cultivation and harvesting would all be undertaken under the guidance of agriculture scientist and supervision of agriculture superviser of the company so that best quality seeds are produced. Seeds so produced are taken by the company to its processing plant where it would be tested for germination, purity, etc. Seeds which fail such test are returned to the farmers. Rest are packed and marketed in the open market. The same are used only for cultivation and not for human consumption. Heavy reliance was placed on behalf of the assessee on a determination order under section 80 of the VAT Act dated 4.3.2015 in case of M/s. King and Queen Seeds Corporation.
3. The Deputy Commissioner however did not accept such representation of the company. He was of the opinion that essentially the company merely purchased seeds from the farmers. At that stage, seeds were possible of human consumption. It was only after the detailed process undertaken by the company that the seeds would become marketable and were actually sold by the company. He relied on another determination order dated 18.3.2009 in case of M/s. Green India Farm Biotech. By the revisional order dated 4.3.2015, he imposed tax, interest and penalty on the dealer.
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4. The dealer thereupon approached the Tribunal by filing revision petition. Tribunal allowed such revision petition by the impugned judgment on the following grounds :
i) When the original audit assessment order was passed by the Assessing Officer on 29.12.2010, the determination order in case of M/s. Green India Farm Biotech was already in existence, despite which, the Assessing Officer did not levy the purchase tax.
ii) While the Deputy Commissioner disposed of the appeal, he could as well have revised the order on the basis of the determination order in case of M/s. Green India Farm Biotech. The fact that he did not do so would indicate that he did not find it proper to levy tax.
iii) After the determination order in case of M/s. Green India Farm Biotech, another determination order came to be passed in case of M/s. King and Queen Seeds Corporation in which earlier determination order was noticed despite which, a different view was taken. Decision to levy tax in the present case would amount to change of opinion.
iv) The assessee was not purchasing certified seeds from the farmers but got the seeds produced in the farms by providing basic seeds and other inputs. Farmers merely cultivate the seed on behalf of the assessee. Case of the assessee was therefore, akin to the facts arising in case of Page 4 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT M/s. King and Queen Seeds Corporation.
5. Though served no one appeared for the respondents. We have heard learned AGP for the petitioner. His main contention was that the facts of the case were akin to those arising in M/s. Green India Farm Biotech and not in the later decision in case of M/s. King and Queen Seeds Corporation. In earlier round when the assessment was made and the appeal of the appellant was decided, this question did not come up for consideration at all. The Tribunal therefore, committed an error in presuming that the authorities were aware but consciously decided not to impose tax. Our attention was drawn to a specimen agreement executed by the respondent company with the farmers for production of seeds to contend that this was a case in which the company had agreed to purchase the seeds produced by the farmer.
6. Since the respondent has remained exparte, we are somewhat handicapped in consideration of the issues. Nevertheless, we have perused the documents on record.
7. First of all, we do not think that the Tribunal was correct in drawing a conclusion that despite existence of the determination order in case of M/s. Green India Farm Biotech since the Assessing authority and the appellate authority did not levy tax, they must be presumed to have taken a conscious decision in favour of the assessee. The existence of a determination order and such determination Page 5 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT order being noticed by the Assessing Officer are two entirely different issues. It is not the case of the respondent that the determination order was brought to the notice of the Assessing Officer or the appellate authority, despite which, it was not consciously applied.
8. Section 75 of the VAT Act pertains to revision. Sub section(1) thereof provides that subject to the provisions of section 74, the Commissioner of his own motion within three years or on an application made to him within one year from the date of any order passed by any officer appointed under section 16 to assist him, may call for and examine the record of any such order and pass such order thereon as he thinks fit within five years from the date of such order. This provision does recognise the powers of the Commissioner to revise any order passed by the subordinate authority.
9. The crux of the issue is, did the case of the assessee fall within the determination order in case of M/s. Green India Farm Biotech or in the later order in case of M/s. King and Queen Seeds Corporation? To determine this question, we may take note of facts arising in each case and compare them with the facts of the present case.
10. In case of M/s. Green India Farm Biotech, the facts were that the dealer in the course of business would purchase seeds from the farmers, carry out detail process of coating them with pesticides, pack them in lots in Page 6 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT different packings and then put in market for sale. Dealer applied to the authority to be advised whether on the purchases of such seeds made by him from the farmers, any tax would be payable. Determination authority observed that the seeds purchased by the dealer were not marketed in the same condition. Seeds when purchased were untreated. A detailed treatment process was undertaken before such seeds were sold. Thus what was purchased by the dealer and what was sold in the market were two different products. Dealer was therefore liable to pay the purchase tax on such purchases.
11. In case of M/s. King and Queen Seeds Corporation, the assessee had pointed out to the determination authority that they are in business of marketing seeds. For such purpose, they produce the seeds through their Research and Development programme through the farmers. Foundation seeds would be prepared, which would be supplied to the farmers. Such seeds would be sown by the farmers in their fields under the supervision of the scientist of the company so that good quantity of high quality of seeds are produced. Such seeds are brought to the laboratory of the company where they are made to undergo germination, growup and genetic test, after which they are coated with pesticides, packed in packages and sold in market. During the entire process, farmers merely permit the company to utilise their lands for production of seeds and look after the cultivation during its cycle. Farmers are remunerated at the agreed rate per kilogram Page 7 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT of seeds produced. During the entire process, no purchase takes place. Determination authority accepted such representation of the company and held that entire process does not result into purchase of seeds from the farmers by the company. Farmers are remunerated only for the use of the land and for looking after the cultivation.
12. Respondents ofcourse, tried to take advantage of this determination order in case of M/s. King and Queen Seeds Corporation. However, the specimen agreement which is produced for our consideration between the company and the farmers, would present somewhat different picture. We would refer to relevant clauses of this agreement.
(i) In this agreement, farmer agreed to use only the foundation seed provided by the company, for the use of which, it would pay the cost to the company.
(ii) During such cultivation, the farmer would use sufficient water, fertilizer and pesticides. He would maintain necessary isolation distance, failing which, his seed supplied would be automatically cancelled. He would take all necessary steps to ensure the purity of the seeds.
(iii) If in the process, he committed any fault due to which the seeds are either damaged or destroyed, same would be entirely his responsibility and he would raise no claim against the company.Page 8 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019
C/SCA/1889/2017 JUDGMENT (iv) He would collect the sacks for transportation of the
seeds from the appointed place at his cost.
(v) He would provide the seeds to the company for grading.
(vi) If due to natural factors or any other calamity, seeds are destroyed or damaged, the company would not accept the same for which he would raise no claim for compensation.
(vii) He would transport the seeds to the place appointed by the company at his risk and cost.
(viii) After the production of the seeds, he would accept the payment made by the company upon laboratory testing.
(ix) If the seeds are rejected, he would remove the seeds from godown of the company at his cost.
(x) After the produce is supplied to the company, the company would pay 80% or 90% of the price at the rate fixed by the market yard by way of part payment.
Remaining payment would be made considering 10% to 15% premium over the price fixed by the market yard.
13. All these clauses unequivocally show that entire production of seeds was by the farmer himself. At all stages, farmer undertook the responsibility of production and risk of failure of production. It may be that the Page 9 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019 C/SCA/1889/2017 JUDGMENT foundation seed may have been provided by the company and scientific guidelines and technical inputs may also have been provided by the company to the farmer in order to enhance the production, nevertheless, it was the farmer who was actually producing the seeds. It is not a case where the company merely used the land of the farmer and his caretaking during cultivation for which the remuneration was paid to the farmer. This was clearly a case where the company merely provided foundation seeds and the technical inputs to the farmer. Entire production was done by the farmer on his own labour, with input of his own cost and at the risk of the crop failing. At several stages, the agreement provided that any failure of the crop for any reason whatsoever, whether be it on account of an error of the farmer, natural factors or manmade factors, the company would not compensate the farmer for any loss. Farmer would pay for the seeds, would pay for the costs such as irrigation, fertilizer and pesticides. Farmer would cart the produce at his cost to the depot of the company. If the produce is rejected, the farmer would remove the same at his cost. Very clearly therefore, the entire process of cultivation, cost and risk involved were on the shoulders of the farmer. The company had clearly purchased the seeds so produced by the farmer. This was therefore, clearly a case as one involved in determination order in case of M/s. Green India Farm Biotech and not akin to later determination order in case of M/s. King and Queen Seeds Corporation. We therefore, find that the Tribunal committed a serious error.
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14. While reversing the judgment of the Tribunal and restoring the revisional order of the Deputy Commissioner, we clarify that the determination order may bind the department, however, adverse order would not bind the assessee in question because it was not the determination order in his case. Tribunal therefore, despite such earlier determination order, if so advised, could have taken a different view in law. However, the Tribunal has not adopted this course. We have therefore, proceeded on the basis of materials on record.
15. Petition is disposed of accordingly.
(AKIL KURESHI, J) (B.N. KARIA, J) Raghu Page 11 of 11 Downloaded on : Sun Jun 30 01:11:22 IST 2019