Subsidy under an independent Government scheme is not part of sale price or taxable turnover, with refund consequences

A subsidy paid under an independent Government scheme, and not by or on behalf of the purchaser, does not form part of the sale price or taxable turnover. The right to receive the subsidy arose on clearance of goods from the factory, not from any act or omission of the purchaser, so turnover tax could not be levied on that amount. Tax already paid on the subsidy, where retained by the Revenue after the assessments were held unsustainable, was required to be refunded to the assessee.

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Issues: (i) Whether subsidy received by a fertiliser manufacturer under a Government scheme formed part of the taxable turnover or sale price. (ii) Whether the amount of tax already paid on such subsidy, to the extent retained by the Revenue, was refundable.

Issue (i): Whether subsidy received by a fertiliser manufacturer under a Government scheme formed part of the taxable turnover or sale price.

Analysis: The subsidy was payable under a Government scheme and not by or on behalf of the purchaser. The right to receive it arose on clearance of the goods from the factory and not by reason of any act or omission of the purchaser. The governing legal position had already been settled by the Supreme Court, which held that such subsidy does not constitute part of the sale price or turnover.

Conclusion: The subsidy was not includible in the taxable turnover.

Issue (ii): Whether the amount of tax already paid on such subsidy, to the extent retained by the Revenue, was refundable.

Analysis: Once the assessment orders treating the subsidy as turnover were unsustainable, the tax levied thereon could not be retained by the Revenue. The amount earlier paid pursuant to the court's directions was therefore liable to be returned.

Conclusion: The retained amount was directed to be refunded to the assessee forthwith.

Final Conclusion: The assessment orders were set aside and the writ petitions were allowed, with consequential refund relief granted to the assessee.

Ratio Decidendi: A subsidy paid under an independent Government scheme, and not by the purchaser or on the purchaser's behalf, does not form part of the sale price or taxable turnover and cannot be subjected to turnover tax.

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