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PETITIONER: M/S. MARIKAR MOTORS LIMITED

       Vs.

RESPONDENT: SALES TAX OFFICER AND ANR.

DATE OF JUDGMENT:       06/02/1996

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) MAJMUDAR S.B. (J)

CITATION:  1996 SCC  (3) 263        JT 1996 (2)   169  1996 SCALE  (2)120

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      This appeal is preferred against the Judgment of a Full Bench of  the Kerala High Court. The matter arises under the Kerala Sales  Tax Act  and the  relevant assessment  year is 1965-66. The  appellant is  a dealer  in motor  vehicles and automobile parts.  The question herein, however, is confined to motor-trucks.  The appellant  sells trucks both by way of direct sale  and also  on the basis of hire-purchase. We are concerned with the sales effected on hire-purchase basis.      According to  the hire-purchase  agreement entered into between the  appellant and  the hirer, the period of hire is two  years.  The  agreement  stipulates  that  the    entire consideration specified  under the  said agreement  shall be paid within  the said  period of  two years and that, at the end of that period, the hirer shall become  the owner.      In the  course of assessment proceedings, the  question - how  to value  the vehicles  and with  reference  to which date -  arose. The  matter was  brought to this  Court in 19 S.T.C.80. This  Court held  that the hire-purchase agreement comprises two  elements (1)  the element of bailment and (2) the element  of sale  in the  sense that  it contemplates an evential sale.  lt was  held that  element of  sale  in  the transaction fructifies  when the  option is exercised by the intending  purchaser  after  fulfilling  the  terms  of  the agreement. When  all   the terms  of agreement are satisfied and the  option is  exercised, it was held, sale takes place of the  goods which till then have been hired. Only when the sales take  place, it  was held further, it will attract the sales tax.      In an earlier decision of this Court in K.L.Johar & Co. v. Deputy Commercial Tax Officer, Coimbatore (16 S.T.C.213), it has  been held  that in  the matter  of   determining the consideration for  sale,  two  courses  are    open  to  the Revenue, viz.,  (a) to  take the original price of the goods and deduct  the appropriate amount of depreciation out of it

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or (2)  to take the market-value of the goods on the date of the sale.      Applying  the   aforesaid  principles,  the  Sales  Tax Officer proposed  to adopt first of the above two methods of valuation. In  other words,  he wanted  to take the original sale price  from which  he proposed  to deduct the amount of depreciation. But  this,  in  turn,  gave  rise  to  another controversy, viz.,  rate  of  depreciation.  The  Sales  Tax Officer  proposed  to  adopt  the  rate  of  twelve  percent depreciation per  annum. Yet  another  question  before  the Sales Tax  Officer was  whether the sale should be deemed to have taken  place at the end of the period stipulated in the agreement or  on the  date when the hirer actually exercised the option  to purchase  after paying  the full  price.  The appellant’s case  was not  only that  he was  entitled to  a higher rate  of depreciation  but  also  that  wherever  the period of  hire-purchase  has  been  extended  by  agreement between the  parties, the  extended period  should be  taken into consideration  and the depreciation worked out for that entire periods  i.e., upto  the date the hirer exercised the option to  purchase. According to the assessee, the sale did not come  about automatically  at  the  end  of  the  period stipulated in  the  agreement  but  only  when  the    hirer exercised the  option after  paying the  full amount    due, whether within  the period  stipulated in  the  agreement or the extended  period, as  the case  may be.   The  Sales Tax Officer rejected  both the contentions of  the appellant. He adopted  twelve   percent  per   annum  as   the   rate   of depreciation. He  also refused  to look  into  the question, whether and  in how  many cases,  was there  an extension of the period  of hire-purchase.  He simply   took  the  period stipulated in  the agreement  as final and  treated the last date of  the said period as the date of  sale. The appellant questioned the order of assessment directly by way of a writ petition in the kerala High  Court. The learned Single Judge allowed the  writ   petition holding  (a) that so far as the rate of   depreciation  is  concerned,  the  authority  must examine the  matter over  again and  (2) that  the Sales Tax Officer  was in error in treating the period of agreement as the   only relevant  period and  in ignoring  the extensions granted by  the appellant.  Following the  decision of  this Court in K.L.Johar & Co., the learned Single Judge held that the sale  comes about  when the  hirer exercises  the option and not  automatically at  the end of the  period stipulated in the agreement. He accordingly  remitted the matter to the Sales Tax  Officer for  making the  assessment in accordance with the judgment.      The Revenue  filed an  appeal. The matter was  referred to a  Full Bench.  On the question of rate of  depreciation, the Full  Bench held  that no  material was   placed  by the appellant before  the Court  to hold  that the rate actually adopted by  the assessing  officer was  not reasonable. With respect to  the other  question, the  Full Bench declined to express itself.  It only held  that the appellant has failed to prove, as a fact, that  there were extensions. Once there is no such proof, the  Full Bench opined, it was unnecessary for them  to go   into  the question  whether the  Sales Tax Officer was   right   in  holding that  the sale comes about automatically     at  the   end  of   the  agreement  period irrespective of  any    other  factors.  The  said  view  is questioned in this  appeal.      Before proceeding further, we may mention a fact  which is relevant. Pursuant to the judgment of the  learned Single Judge, the  Sales Tax  Officer made  an  assessment which is dated July  16, 1976.  [We are  told  that there was no stay

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pending the  writ appeal.]  A copy   of  the said  order  is placed before us. The assessment  order shows that the Sales Tax Officer has accepted the  extended period wherever there was extension.  lt also appears that in some cases, the full payment was made even prior to the stipulated period and the hirer exercised  the option to purchase. In those cases, the actual period  was taken  as the basis and the sale was held to have  taken place at the end of such period. Now, it must be remembered  that on  the first  occasion, the  Sales  Tax Officer did not find as a fact that there were no extensions as averred  by the  assessee. He  refused to  go  into  that aspect because  of his  opinion that  it was irrelevant. The material was  before him.  Now, that  we have  held that the said fact  is relevant,  the factual aspect becomes relevant and for  that purpose  we have  looked into  the  subsequent assessment order  dated July 16, 1976. If so, the basis upon which the  Full Bench has held against the assessee [insofar as the  question -  when does  the sale  take place] must be held to have become untenable.      Now, coming to the principle applicable in this behalf, we may  reiterate  the  law  enunciated  by  this  Court  in K.L.Johar’s case  [supra], viz.,  that coming  into being of the sale  is a question of fact and that it takes place when the hirer  exercises the  option. lt  cannot  be  said  that merely because  the  hire-purchase  agreement  stipulates  a particular period for the total payment of the consideration and for  the purchaser to exercise the option to purchase at the end of the said  period, the sale does not take place at the end  of that   period  willy-nilly. There  may be  cases where the hirer  may default in paying the amount within the stipulated   period, he may ask for extension and the dealer may   grant the extension. In such cases, the sale obviously takes place  only when  the purchaser  exercises the  option to purchase  after fully  paying the agreed amount. In  this view of  the matter and also in view of the findings of fact affirmed in  the assessment  order dated July 16,  1976, the order of  the Full  Bench is liable to be set  aside on this issue. We  affirm the  order of  assessment   dated July 16, 1976 on this issue.      The next question pertains to the rate of depreciation. The assessment  order dated  July 16, 1976 has again adopted the rate  of twelve  percent per  annum. Sri  Poti,  learned counsel, says  that this  figure is  arbitrary and  that the authorities have not explained the basis upon which the said figure has  been arrived  at. He  says that under the income Tax Act, where the  trucks are held for running on hire, the rate of   depreciation  is forty  percent. He says that this factor should have been kept in mind in determining the rate of depreciation. As stated above, the Full Bench has  opined that the  appellant has failed to place any material showing that the  said rate  was   arbitrary. It has also refused to take into  consideration the  rate of  depreciation fixed by the Income  Tax Act  on the ground  that that is a different enactment and  that the  rate  prescribed therein is for the purposes of  that Act.  Be    that  as  it  may,  since  the appellant has a right of appeal against assessment order, we do not  wish to  either   into this question. It was open to the assessee  to   challenge the  said finding in the appeal which may  have   been filed  by him  against the  order  of assessment. lt  is made clear that in case, the assessee has not filed  the appeal against the order dated July 16, 1976, he may   be  permitted to  file such  an appeal  now. If the appeal   against the assessment order dated July 16, 1976 is filed within  one  month  from  todays  the  same  shall  be treated as  filed within  time  and  shall  be  disposed  of

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accordingly. If,  however, he has already filed the  appeal, this direction shall not operate.      There is  another minor  question arising herein.  That relates to  rebate. The  question is  whether the  amount of rebate should  have been excluded from the turn-over. Having regard to  the smallness  of the Amount involved, we express no opinion on this aspect and leave the question open.      In the  circumstances, this  appeal is disposed of with the above  directions. The  judgment of the full Bench shall be deemed  to have  been set  aside to  the extent  it  runs contrary to the judgment. State of Tamil Nadu & Ors. V. Kothari Sugars & Chemicals Ltd. etc. W I T H CIVIL APPEAL NOS. 10733-10735 OF 1995 State of Tamil Nadu & Ors. V. Kothari Sugars & Chemicals Ltd. etc. W I T H CIVIL APPEAL NO. 11213 OF 1995 State of Tamil Nadu & Ors. V. E.I.D. Parry (India) Ltd., Madras W I T H CIVIL APPEAL NOS. 11605-11608 OF 1995 Tungabhadra Sugar Works & Anr. V. State of Karnataka & Ors. W I T H CIVIL APPEAL NO.11211 OF 1995 State of Tamil Nadu & Ors. V. M/s.Kothari Sugar & Chemicals Ltd. W I T H CIVIL APPEAL NO.11214 OF 1995 Godavari Sugar Mills V. State of Karnataka & Ors. A N D CIVIL APPEAL NO.11212 OF 1995 State of Tamil Nadu & Anr. V. Tvl Cauvery Sugars & Chemicals J U D G M E N T J.S. VERMA, J.      The question for decision is : Whether for the purchase of sugar-cane  from tho  cane growers, a purchaser is liable to pay  purchase tax  under the  State Sales Tax Act on  the amount paid  by the  purchaser to  the cane  grower over and above the  price fixed  under Clauses 3 and 5-A of the Sugar cane (Control) Order, 1966 ?      Clause  3   of  the  Control  Order  issued  under  the Essential  Commodities   Act,  1955   empowers  the  Central Government to  fix the minimum price for sugar-cane for each season and   different  prices are permitted to be fixed for different   areas or  different quantities  or varieties  of sugar-cane.   Since 1.10.1974  pursuant to the acceptance of Bhargava   Commission   Report,   the   Central   Government introduced Clause  5-A in  the Sugar-cane  (Control)  Order, 1966, the material part of which is as under ;      "5-A.    ADDITIONAL    PRICE    FOR      SUGARCANE PURCHASED ON OR AFTER 1ST      OCTOBER, 1974      (1) Where  a producer  of sugar  or

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    his agent purchases sugarcane, from      a  sugarcane   grower  during  each      sugar year,  he shall,  in addition      to  the   minimum  sugarcane  price      fixed under  clause (3)  pay to the      sugarcane  grower   an   additional      price, if  found due  in accordance      with the  provisions of  the Second      Schedule annexed to this Order.      (2) The  Central Government  or the      State Government,  as the  case may      be, may  authorise   any person  or      authority, as  it thinks  fit,  for      tho  purpose   of  determining  the      additional    price  payable  by  a      producer of sugar under  sub-clause      (1) and the person or authority, as      the case may be, who determines the      additional   price, shall  intimate      the  same   in  writing   to    the      producer  of  sugar  and  sugarcane      grower connected with the supply of      sugarcane  to   such  Producer   of      sugar.      xxx             xxx             xxx In Tamil Nadu, the State Government duly exercised its power by appointing  the Director  of Sugar and Cane Commissioner, who, by order dated 2.7.1983 determined the "additional cane price"  under   Clause  5-A  at  Rs.28.15  per  MT  for  the respondent i.e.  Thiru Arroran Sugars Ltd., making the final statutory   cane price as per the Control Order at Rs.179.55 per MT,  the "minimum  cane  price"  fixed  by  the  Central Government being  Rs.151.40 por MT. There is no dispute that this additional   price  fixed  under  Clause  5-A  attracts purchase tax  which has   already  been paid.  However,  the dispute is with regard to  the claim of the State Government for payment  of purchase  tax   on the excess amount paid by the purchaser  in addition  to the  aggregate of the minimum cano price  fixed under  Clause 3  and   the additional cane price fixed under Clause 5-A by the  Central Government.      The occasion for payment by the purchaser of the amount in excess  of the  aggregate of  the minimum cane price  and the additional  cane price so fixed, arises on account of an Order of the State Government dated 15.11.1980 purporting to fix a  higher revised  minimum cane  price and directing the sugar factories  in Tamil Nadu to pay that price to the cane growers. Pursuant  to the  direction, each sugar factory was directed to make that payment and in compliance thereof this sugar  factory  paid  the  excess  amount  as  an  "Advance" described as under :      "  being  advance  payment  towards      cane supply  during 1980-81 Season,      against  probable  additional  cane      price  under   Section  5A  of  the      Sugarcane (Control) Order, 1966."      This amount paid as "advance" by the sugar factory for purchase of  sugar-cane in  anticipation of  fixation of the additional cane price under Clause 5-A was Rs.52.40 per MT Accordingly, on  fixation of  the additional  cane price  at Rs.28.15 per  MT, the  excess  amount  of  advance  came  to (Rs.52.40 per  MT minus  Rs.28.15 per  MT) Rs  24.25 per MT. While the  sugar factory  claims that  this excess amount of Rs.24.25 per  MT paid  by it  to the  cane grower is towards advance and  liable to  adjustment or  refund,  even  if  it remains with  the cane  grower, it  cannot form  part of the

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price of sugar-cane which cannot exceed the aggregate of the minimum cane  price fixed  under clause 3 and the additional cane price  fixed under Clause 5-A. This is the common stand of all  sugar factories, as purchasers of sugarcane from the growers.      The purchasers  filed writ  petitions  challenging  the demand by  the State Government of purchase tax on the above excess amount of Rs.24.25 per MT. They contested the  demand on the  ground that  it could  not form  a part  of the sale price  of  cane  sugar  which  had  been  statutorily  fixed under. Clauses  3 and  5-A of  the Control Order. The Madras High Court  rejected the  contention of the State Government and allowed  the writ  petitions of  the  assessees.  Hence, these appeals  by way of special leave by the State of Tamil Nadu.      On a  perusal of  the relevant provisions of the Sugar- cane (Control)  Order, 1966,  particularly Clauses 3 and 5-A therein, it  is clear  that the  total price  of  sugar-cane fixed thereunder  is the aggregate of the minimum cane price fixed under  Clause 3  and the  additional cane  price fixed under Clause 5-A. Thus, unless there be an agreement between the grower and the purchaser for  purchase of the sugar-cane at a higher price, the obligation of the purchaser is to pay to the  grower only the aggregate of the amounts fixed under Clauses 3  and 5-A.  In other words, under the Statute there is no  liability of  the purchaser  to pay to the grower any amount in excess of this aggregate amount. Thus, without any contractual or  statutory basis  fixing the  sale  price  of sugar-cane at  an amount  higher than the minimum cane price fixed under  Clause 3  and the  additional cane  Price fixed under Clause  5-A, any  sum paid  by the  purchaser  to  the grower as  advance prior  to fixation of the additional cane price under Clause 5-A cannot form part of the price of cane sugar.      In these matters there is admittedly no statutory basis since the  ’State advice’ to the purchasers to pay a certain amount in  addition to  the minimum  cane price  fixed under Clause 3, in anticipation of fixation of the additional cane price under  Clause 5-A,  does not have any statutory basis. The amount  paid as advance under the State advice also does not have  any contractual basis since this was not paid as a result of an agreement between the grower and the purchaser. The amount  of advance  was paid in anticipation of fixation of the  additional cane  price under  Clause 5-A which means that in  case the  fixation under Clause 5-A was at a higher amount than  the amount  paid as  advance then the purchaser would have  to pay  the deficit  amount. Similarly, when the amount of  advance was  in excess,  the purchaser  would  be entitled to refund of the excess amount, irrespective of the fact whether  the refund  was actually  made or not. For the purpose  of   determining  the   price  of   sugar-cane  for computation of the purchase tax, the only significant amount is the  aggregate of  the minimum price fixed under Clause 3 and the additional cane price fixed under Clause 5-A, unless a higher  price is  paid to  the grower by agreement between the purchaser and grower.      It was argued by learned counsel for the State that the higher price inclusive of the excess amount included  in the advance paid  on State advice is deemed to have been paid by an agreement  between the  grower  and  the  purchaser  and, therefore, the  entire amount  would be  the price of sugar- cane. This  is a  question of  fact in each case. It is true that if  in a  given case it is found as a fact on the basis of evidence that the purchaser had agreed with the grower to pay the  higher price  described as  ’advance’ including the

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amount in  excess of the additional price fixed under Clause 5-A then  in that  case the entire amount would be the price of sugar-cane.  However, there is no such basis found in the present case  wherein the  excess amount forming part of the advance was  paid only  under compulsion  on  the  direction contained in  the ’State  advice’. It  is significant that a provision for  adjustment is  clearly made in sub-clause (6) of Clause  5-A. This  provision supports  the view  we  have taken. The  decision of  the  Madras  High  Court  which  is reported in  Thiru Arooran Sugars Ltd. Vs. Deputy Commercial Tax Officer  Mannargudi  &  Ors.,  1988  (71)  STC  444  is, therefore, upheld  and the  appeals against  the decision of the Madras High Court are, therefore, dismissed.      In the connected matters arising out of the judgment of the Karnataka  High Court,  similar writ  petitions filed by the  purchasers   of  sugar-cane  were  dismissed.  The  two decisions  of   the  Karnataka   High  Court  which  require reference are  Pandavapura Sahakara  Sakkare  Kharkhane  (P) Ltd. v.  State of  Mysore, 1973 (32) STC 104 and Tungabhadra Sugar Works Ltd. v. State of Karnataka & Ors., 1994 (93) STC 561. In  Pandavapura it  was found proved as a fact that the substance of  the transaction  between the purchaser and the cane growers  was for  payment of the enhanced price for the sugar-cane supplied  and the  amount paid  in excess  of the statutory price  was paid  under the contract and not either as ex-gratia  payment or  towards advance. In that situation the entire  amount paid  was treated  as the  price. In  our opinion, the nature of contract in that case being such, the entire amount  paid had to be treated as price of the sugar- cane  supplied  since  the  Statute  does  not  prohibit  an agreement between  the grower  and the purchaser for payment of a  higher price  for the  sugar-cane by the purchaser. In the later  decision in  Tungabhadra also  it is noticed that there is no prohibition against the parties agreeing for the payment of  a  higher  price  of  the  sugar-cane.  In  that situation no  doubt the entire amount paid has to be treated as the  price  of  the  sugar-cane.  However,  as  indicated earlier,  for   treating  the  entire  amount  paid  by  the purchaser as  the price  of sugar-cane  supplied, it must be found proved  as a  fact that the higher price including the excess amount  was paid  as the price of sugar-cane under an agreement between  the grower and the purchaser irrespective of a  lower amount being fixed as the aggregate of the price fixation under  Clauses 3  and 5-A  of  the  Control  Order. Unless a  clear finding  to that  effect  is  recorded,  the amount paid  by the  purchaser in excess of the aggregate of the minimum  price fixed  under Clause  3 and the additional price fixed  under Clause  5-A, as a part of the amount paid as advance  prior to  fixation of the additional price under Clause 5-A, cannot be treated automatically as a part of the total  price   of  sugarcane.  In  matters  arising  out  of decisions of  the Karnataka  High Court, this aspect has not been adverted  to and the writ petitions have been dismissed without going  into this  question.  The  Karnataka  matters have, therefore,  to be  remitted to  the High  Court for  a fresh decision on the above basis.      As a  result of  the aforesaid decision, the appeals of the State  of Tamil  Nadu (Civil  Appeal  Nos.  10733-10735, 11083-11141, 11211,  11212 and  11213 of  1995) against  the judgment of the Madras High Court are dismissed. The appeals against the  decision of  the Karnataka  High Court  by  the sugar factories  (Civil Appeal Nos. 11605-11608 and 11214 of 1995) are allowed. The matters are remitted to the Karnataka High Court  for a  fresh decision  in accordance with law in the manner indicated after hearing both sides.

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