2004 (6) TMI 601 - HC - VAT and Sales Tax

Court Overturns Tribunal Decision on Sugarcane Pricing, Emphasizes Contractual Terms

Ugar Sugar Works Ltd. Versus Deputy Commissioner of Commercial Taxes, Assessments II, Belgaum and others

Ugar Sugar Works Ltd. Versus Deputy Commissioner of Commercial Taxes, Assessments II, Belgaum and others - [2005] 139 STC 413 (Kar) Issues Involved1. Whether the harvesting and transportation charges paid by the purchaser directly to the harvesting agencies and transport contractors should be treated as part of the purchase price paid by the assessee to the sugarcane growers.2. Whether, in the facts and circumstances of the case, the harvesting and transportation charges paid by the assessee should be treated as part of the purchase price of sugarcane.Detailed AnalysisIssue 1: Inclusion of Harvesting and Transportation Charges in Purchase PriceThe primary legal question revolves around whether the harvesting and transportation charges paid by the purchaser directly to the harvesting agencies and transport contractors should be considered part of the purchase price of sugarcane. Section 5 of the Karnataka Sales Tax Act, 1957, which provides for the levy of tax on the sale or purchase of goods, is pivotal in this context. Specifically, Section 5(3)(b) states that the tax is levied on the dealer's taxable turnover of purchases, which includes the purchase of sugarcane by the last dealer in the state liable to tax.The term 'Turnover' as defined in Section 2(v) of the Act means the aggregate amount for which goods are bought or sold, supplied, distributed, delivered, or otherwise disposed of. The court emphasized that the determination of the taxable turnover should be based on the total sale consideration paid by the dealer for the purchase of sugarcane. This includes whether the purchase price is fixed as ex-field or ex-factory price, which is a matter of contract between the parties.The court highlighted that it is within the parties' discretion to include or exclude harvesting and transportation charges as part of the sale consideration. The assessing authority must determine whether these charges are part of the purchase price based on the facts of each case. The court noted that the decisions cited by both parties, such as those in the cases of Pandavapura Sahakara Sakkare Karkhane v. State of Mysore and E.I.D Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes, support the view that the inclusion of such charges depends on the specific contractual terms and the nature of the transaction.Issue 2: Treatment of Harvesting and Transportation Charges in the Present CaseThe second issue pertains to whether, in the present case, the harvesting and transportation charges should be treated as part of the purchase price. The court found that the Tribunal and subordinate authorities erred in their approach by assuming that these charges must always be included in the purchase price. The Tribunal's decision was based on the assumption that the total quantity of sugarcane was to be weighed at the factory premises, thus making the purchase price inclusive of transportation charges.The court observed that the assessing authority's approach was flawed as it assumed that all expenses incurred by the purchaser towards harvesting and transportation must be related to the purchase price, even if paid to an independent contractor. The Tribunal also assumed that the transportation charges were paid to assist the grower, which was not necessarily the case.The court concluded that the matter requires a fresh examination by the Tribunal. The Tribunal must consider whether the harvesting and transportation charges were paid on behalf of the grower or were expenses incurred by the purchaser on its own account. The court remitted the matter to the Tribunal for fresh consideration, allowing the parties to present additional material to support their claims.Order1. The order dated February 6, 1998, made in S.T.A. No. 587 of 1995 by the Tribunal is set aside, and the matter is remitted to the Tribunal for fresh consideration in accordance with the observations made.2. The Tribunal is directed to take a fresh decision within six months from the date of receipt of a copy of this order.ConclusionThe revision petition is allowed, and the Tribunal is instructed to reconsider the matter, focusing on whether the harvesting and transportation charges should be included in the purchase price based on the specific facts and contractual terms of the case.