TaxTMI 
TaxTMI 
1999 (12) TMI 708
X X X X Extracts X X X X
X X X X Extracts X X X X
....5 and S.L.P. (Civil) Nos. 5441-52 of 1997 are against the decision in Writ Petition Nos. 15705- 15706 of 1995. 3.. The appellant in the appeals arising out of S.L.P. (Civil) Nos. 4973-74 of 1997 and S.L.P. (Civil) Nos. 5589 to 5592 of 1997 is Thiru Arooran Sugars Ltd. (hereinafter referred to as "Arooran Sugars"). Arooran Sugars is engaged in manufacturing sugar in its units at Vadapathimangalam and Tirumandankudi. The Madras Sugar Factories Control Act, 1949 (hereinafter referred to as "the Act") the Rules framed thereunder and also the Sugarcane (Control) Order, 1966, apply to its sugar manufacturing activity. In order to provide incentives to sugarcane growers and to ensure sufficient supply of sugarcane of good quality it has been announcing every year planting subsidy payable to those sugarcane growers who are able to grow, for the immediately following crushing season, that variety of sugarcane which it requires. For the year 1990-91 it had announced on November 5, 1989, planting subsidy payable to those sugarcane growers who were willing to plant CO. C. 661. For those growers who were to plant that variety in December, 1989, and January, 1990, the subsidy was to be paid at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereto are ultra vires entry 54 of List II of the Seventh Schedule to the Constitution and, therefore, subsidies and expenses incurred by the sugar manufacturers or paid to the sugarcane growers both prior to or collateral to the sugarcane agreements or after the sale and transfer of property in sugarcane from the growers to the manufacturers are outside the charging provisions of section 3(2) of the Sales Tax Act and also for a mandamus restraining the sales tax authorities from recovering purchase tax by including the amounts paid as planting and transport subsidies in its taxable turnover. It had also filed some appeals and tax cases but it is not necessary to refer to them. 4.. The appellant in the other two appeals is E.I.D. Parry (I) Ltd. (hereinafter referred to as "Parry"). Parry is also engaged in manufacturing sugar. The facts relating to Parry are also similar to the facts of Arooran Sugars except that the assessment years involved are different. Challenging the assessment orders it filed Writ Petition Nos. 15705 and 15706 of 1995 in the High Court as by that time others had filed writ petitions raising the same questions in the High Court. Like Arooran Sugars it also qu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the price for which the goods were bought and, therefore, could not have been rightly included in the turnover of the appellants for determining their purchase tax liability. On the other hand, the contention raised on behalf of the sales tax authorities/respondents was that the act of giving planting subsidy for growing sugarcane followed by an agreement for sale of the sugarcane by the grower constituted one single transaction and the planting subsidy being an amount paid in relation to the goods purchased had been rightly regarded as a part of the price of sugarcane and included in the turnover of the appellants. As regards the transport subsidy, the contention of the appellants was that the transport charges were in fact paid by the appellants to third party lorry owners for transporting sugarcane beyond the distance of 30 kms (20 kms after 1992-93) in view of the Government's directions. The transport charges being not the amounts charged by the growers nor being the amounts paid to them were really in the nature of post-sale expenses and, therefore, could not have been lawfully treated as part of the price and included in the turnover of the appellants. The contention o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erved, such quantity of sugarcane grown by him as may be specified, but not exceeding the quantity specified for such grower by the Sugarcane Commissioner or the authorised Inspector. The offer is required to be made in the form prescribed by rule 11(6-A). On an offer being made the occupier of the factory is required to enter into an agreement with the grower for purchase of all the sugarcane offered by him and that agreement is also required to be entered into in the form prescribed by rule 11(7). The occupier is entitled to refuse to enter into such an agreement where sugarcane is offered for delivery during the period in respect of which he has already entered into agreements with other growers in the reserved area, for the purchase of required quantity of sugarcane for that period. Section 11 prohibits sale of sugarcane grown by the grower in the reserved area to any person other than the occupier of the factory unless such an occupier has refused to buy sugarcane exercising his rights under the proviso to sub-section (2) of section 10. Section 11 also prohibits the occupier of the factory from refusing to purchase any sugarcane offered to him under section 10(1), except in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ernment from time to time under the Sugarcane (Control) Order, 1966. The prescribed form in which sugarcane grower has to make an offer to sell sugarcane grown by him to the factory discloses that the offer is to sell sugarcane "at inspection and weighment at the factory". The prescribed form of agreement also discloses that sugarcane has to be delivered by the grower at the factory premises and the factory has to pay to the grower statutory or controlled price for the accepted quality of sugarcane. It is not in dispute that offers were made by the sugarcane growers and required agreements between the sugarcane growers and the appellants were made in the prescribed forms. It is also not in dispute that under the agreements of sale and purchase the amounts paid as planting and transport subsidies were not to be deducted from the purchase price. In fact, neither the Act nor the Rules nor the agreements refer to planting subsidy or transport subsidy. Though the obligation of the cane growers under the agreements was to deliver sugarcane at factory premises and thus bear the expenses of bringing sugarcane to the factory premises, part of it was borne by the appellants, like other sugar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....than by way of a mortgage, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment of other valuable consideration and includes- ....................." 14.. A number of decisions were cited at the Bar to indicate what can be and what cannot be the component of sale price for the purpose of sales tax legislation. This Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13; [1979] 1 SCR 276 has held that sale price would include all the amounts which are payable by the purchaser for the sale of goods. Sale price will be inclusive of excise duty and while so holding it observed as under: "Take for example, excise duty payable by a dealer who is a manufacturer. When he sells goods manufactured by him, he always passes on the excise duty to the purchaser. Ordinarily, it is not shown as a separate item in the bill, but it is included in the price charged by him. The 'sale price' in such a case could be the entire price inclusive of excise duty because that would be the consideration payable by the purchaser for the sale of the goods. True, the excise duty component of the price would not be an addition to the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....goods have been held to be a part of the sale price in Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC); [1979] 1 SCR 276. In Black Diamond Beverages v. Commercial Tax Officer [1997] 107 STC 219, this Court has held that when the venue of the sale was the place of the buyer and the time of sale was the point of delivery, the delivery charges would contribute an addition to the cost of the goods and would clearly be a component of the price charged from the purchaser and would be part of the "sale price" as defined in section 2(d) of the West Bengal Sales Tax Act, 1954. When the manufacturer of refrigerators sold refrigerators with one year service warranty on which the customers had no option, the charges for the one year warranty were held includible in the sale price since there was no sale without it. State of A.P. v. Hyderabad Allwyn Ltd. [1970] 78 STC 56 (AP). In Ramco Cement Distribution Co. Pvt. Ltd. v. State of Tamil Nadu and other connected matters, [1993] 88 STC 151, this Court has held that freight charges could not be deducted by the producing dealer in computing taxable turnover of cement for the purposes of the Sales Tax Act as under the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the controlled or statutory price and the sugar mill had paid the price fixed under clauses 3 and 5-A of the Sugarcane (Control) Order. The Madras High Court took that view because there was no agreement between the cane grower and the manufacturer to pay a price higher than the minimum statutory price. In Kothari Sugars & Chemicals Ltd. [1996] 101 STC 197, this Court has held that an amount paid in excess of the minimum cane price fixed under clauses 3 and 5-A of the Sugarcane (Control) Order paid by the purchaser to the grower of sugarcane could not be added to the price of sugarcane. This Court held so because there was no agreement between the parties to pay a higher price and the only agreement was to pay a price fixed under clauses 3 and 5-A of the Sugarcane (Control) Order. 16.. The learned counsel for the appellants also relied upon some decisions wherein it has been laid down that if any amount is paid by the purchaser to the seller of goods de hors the agreement of sale, then such amount could not be included in his turnover for the purpose of assessing purchase tax. In Srinivasa Timber Depot v. Deputy Commercial Tax Officer [1969] 23 STC 158 (Mad.), a case arising und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt of the company to pay the freight and the price received by the company for the sale of goods was the invoice amount less freight charges, this Court held that the freight was not part of sale price and could not be included in the turnover of the company. 17.. The learned counsel for the appellants had also drawn our attention to the decision in Sakthi Sugars Limited v. Deputy Commercial Tax Officer, Bhavani [1969] 23 STC 232 (Mad.), but the question raised therein was quite different. In that case the sugar mills advanced monies to the ryots, who supplied sugarcane to them, to enable the ryots to purchase the sugarcane sets from the owners of the seed plots and this advance was adjusted in the price to be paid by the mills to the ryots for the sugarcane supplied and the ryots gave promissory notes for the amounts advanced. It was held by the Madras High Court that the mills were only financiers and could not be deemed as dealers in sugarcane setts under the provisions of the Madras General Sales Tax Act, 1959. This decision is, therefore, of no help to the appellants. So also the case of Esso Petroleum Co. Ltd. v. Customs and Excise Commissioners 1975 (1) WLR 406 is not helpf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owards advance then that amount has to be treated as price of the sugarcane supplied. 19.. 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 de hors 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 wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s also submitted that even after taking planting subsidy the cane grower may or may not plant that specified variety and even if he plants and grows sugarcane as per the said agreement he may not sell the whole or part of the sugarcane grown by him to the sugar factory as he is entitled to consume the sugarcane or process it into jaggery if its holding is small in area. 21.. In support of this last submission not only the relevant provisions under the Act but the decision of this Court in Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212; [1968] 1 SCR 705 was also relied upon. Apparently, the two agreements-one agreement in respect of planting subsidy and the other agreement for the sale of sugarcane appear to be independent but on a close scrutiny it can be noticed that they constitute one single transaction. In their petitions filed before the High Court the appellants have stated that the planting or varietal subsidy is by way of incentive to the cane grower. It is given to motivate the cane grower to grow sugarcane and subsequently sell the same to the sugar factory. Thus the reason why the appellants had given planting subsidy was to see that the cane grower pla....