1999 (12) TMI 708 - SC - VAT and Sales Tax

Taxable turnover includes subsidies; penalties set aside due to appellants' genuine belief

The Court upheld the inclusion of planting and transport subsidies in the taxable turnover but set aside the penalties imposed on the appellants, ... Whether planting subsidy paid by the appellants to the cane growers can be said to be a part of the price of sugarcane purchased by it from them and can legitimately be included in the turnover of the appellants? Whether the transport subsidy charges in excess of 30 kms. paid by the appellants to third party lorry owners for transporting sugarcane pursuant to the State Government’s direction can be aggregated with the price of sugarcane and included in the turnover of the appellants? Whether levy of penalty was justified in view of the facts and circumstances of these cases? Held that:- Appeal partly allowed. As held that the appellants were not right in not including the amounts of planting subsidy and transport subsidy in the taxable turnover, considering the facts and circumstances of the case, it would not be correct to say that they had acted deliberately in defiance of law or that their conduct was dishonest or they had acted in conscious disregard of their obligation under the Sales Tax Act. The Sales Tax Authorities were, therefore, wrong in passing the orders of penalty and upholding the same. The High Court also, in our opinion, committed an error in upholding the orders of penalty. In the result, these appeals are partly allowed. The order of the High Court and the orders of the Sales Tax Authorities imposing and upholding levy of penalty are set aside. Only to that extend the appellants succeed and their appeals are allowed. The judgment of the High Court in respect to the planting subsidy and transport subsidy is upheld. Issues Involved:1. Inclusion of planting subsidy in the turnover.2. Inclusion of transport subsidy in the turnover.3. Justification for the levy of penalty.Detailed Analysis:1. Inclusion of Planting Subsidy in the Turnover:The primary issue was whether the planting subsidy paid by the appellants to the cane growers could be considered part of the price of sugarcane and included in the turnover. The appellants argued that the planting subsidy was an incentive for planting a specific variety of sugarcane and was unrelated to the sale, thus should not be included in the turnover. The respondents contended that the planting subsidy was part of the consideration for the sugarcane and should be included in the turnover.The Court examined the nature of the transaction, noting that the planting subsidy was given to ensure the supply of a specific variety and quality of sugarcane at the required time. The subsidy was paid at the time of sugarcane delivery, making it part of the consideration for the sale. The Court concluded that the planting subsidy was rightly included in the taxable turnover as it was a part of the sale price.2. Inclusion of Transport Subsidy in the Turnover:The second issue was whether the transport subsidy paid by the appellants for transporting sugarcane beyond 30 km could be aggregated with the price of sugarcane and included in the turnover. The appellants argued that transport charges paid to third-party lorry owners were post-sale expenses and should not be included in the turnover. The respondents argued that the transportation charges were part of the price paid for the sugarcane as they facilitated delivery to the factory.The Court held that the transport subsidy was part of the consideration for the sugarcane. Despite the agreements requiring delivery at the factory gate, the transport charges paid by the appellants ensured regular supply and scheduled delivery of sugarcane. These payments were considered part of the sale price and thus rightly included in the taxable turnover.3. Justification for the Levy of Penalty:The final issue was whether the levy of penalty was justified. The appellants contended that the law was unclear, and they had a bona fide belief that the subsidies were not includible in the turnover. The respondents argued that the appellants should have included the subsidies in their turnover following the Madras High Court's decision in Kallakurichi Co-operative Sugar Mills Ltd. v. State of Tamil Nadu.The Court found that the legal position was not clear until the Madras High Court's judgment in 1991 and subsequent Tribunal orders held that transport subsidy was not includible in the turnover. The appellants' non-inclusion of subsidies in their turnover was not intentional or in defiance of the law. Consequently, the Court ruled that the penalty was unjustified and set aside the orders imposing and upholding the penalty.Conclusion:The Court upheld the inclusion of planting and transport subsidies in the taxable turnover but set aside the penalties imposed on the appellants, recognizing their bona fide belief and the unclear legal position at the time. The appeals were partly allowed, with no order as to costs.