SUPREME COURT OF INDIA
Ponni Sugars (Erode), Limited
Vs
Deputy Commercial Tax Officer
Civil Appeal Nos. 4757-4758 of 2000
((Mrs.) Ruma Pal and H.K.Sema)
08/11/2005
MRS. RUMA PAL, J.
1. 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?
2. 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).......
4).........
5).........
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." *
3. 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 the sugarcane.
4. 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 jurisdiction High Court in
Chengalvarayan Co-operative Sugar Mills Ltd. vs. State of Tamil Nadu, and Thiru
Arooan Sugars Ltd. vs. Assistant Commissioner of Commercial Taxes both reported
in 1996 Indlaw MAD 184 (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.
5. 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.
6. 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; . It is further pointed out that the
agreement expressly incorporated the Sugarcane Department directive dated 12th
September 1985 which made it clear that the price was to include the
transportation charges.
7. The issue whether the price fixed by the Central 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. . 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." *
8. 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 be the appellant.
9. 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 40kms. 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.
10. 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. vs. State of Tamil Nadu, (supra).
The Court while affirming the view expressed in Kallukurichi Co-operative Sugar
Mills Ltd. vs. State of Tamil Nadu 1984 Indlaw MAD
69 (Mad.) and overruling the decision in State of Tamil Nadu vs. Madurantakam
Cooperative Sugar Mills 1976 Indlaw CAL 26
(Mad) said.
"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". *
11. 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 purchaser 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.
12. 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).
13. The appellant has relied on the last line of the quoted 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)
14. 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.
15. The decision relied upon by the appellants namely Commissioner of Sales
Tax, U.P. vs. M/s. Rai Bharat Das & Bros, 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.
16. 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.
17. 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. vs. State of
Tamil Nadu (supra) which was affirmed by this Court in E.I.D. Parry's case.
18. 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 2004 Indlaw KAR 88.
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 of 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. #
19. In the circumstances aforesaid we are of the view that the appeals must be
and are hereby dismissed with costs.