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CASE NO.: Appeal (civil)  4757-4758 of 2000

PETITIONER: Ponni Sugars (Erode) Limited                     

RESPONDENT: The Deputy Commercial Tax Officer                

DATE OF JUDGMENT: 08/11/2005

BENCH: Ruma Pal & H.K. Sema

JUDGMENT: J U D G M E N T

RUMA PAL, J. The appellant has a sugar mill and purchases sugarcane  from cane growers.  An agreement was entered into between  the appellant and the cane growers.  In terms of the agreement,  the appellant arranges transport of the sugarcane from the  fields to the appellant’s mill.  The question is whether the  transport charges are excludible from the taxable turnover of  the appellant for the purpose of purchase tax under the Tamil  Nadu General Sales Tax Act, 1959?         The assessment years in question  are 1987-88 and  1988-89.  During this period, the agreement for sale and  purchase of sugar which was entered into between the  appellant and the cane growers (where the appellant is referred  as ’the first party’ and the cane growers as ’the second party’)  provided inter alia:   1)      Both the  parties agree to act according to  the provisions of Madras Sugar Factory  Control Rules, 1949, Sugarcane (Control)  Order, 1996 and the orders of Tamil Nadu  Government Agricultural (Cane)  Department and the Director of  Sugar/Cane Commissioner of Tamil Nadu

2)      The Second Party agrees to sell the entire  cane planted/ to be planted in the land  specified in the schedule to this agreement  to the first party for the control price fixed  by the Government from time to time.     

3)      \005\005\005\005\005\005 4)      \005\005\005\005\005\005 5)      ..\005\005\005\005\005.

6)      The second party agrees to sell and  deliver the cane by loading there as per  the terms of this agreement to the first  party.  It is the responsibility of the first  party to arrange transportation of the  above delivered cane to the factory.   However, both the parties agree to follow  the orders passed from time to time by the  Director of Sugar/Commissioner of Sugar,  Tamil Nadu".

   The other clauses of the agreement, broadly speaking,  related to the appellant’s financing of the growth and harvesting  of the sugarcane and its control over the cutting and disposal of

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the sugarcane.         By an order dated 29th June 1990 the Deputy Commercial  Tax Officer held that the transport charges formed part of the  taxable turnover of the appellant under the Act and assessed  the appellant accordingly for the years in question.  The  appellant’s appeal was dismissed by the Appellate Assistant  Commissioner.  The matter ultimately reached the Taxation  Special Tribunal which held in favour of the Revenue following  the decision of the jurisdictional High Court in Chengalvarayan      Co-operative Sugar Mills Ltd. V. State of Tamil Nadu, and  Thiru Arooran Sugars Ltd. V. Assistant Commissioner of  Commercial Taxes both reported in 105 STC 497 (Mad).   Aggrieved, the appellant filed a writ petition challenging the  order of the Tribunal before the High Court of Madras.  The  High Court dismissed the writ petition following its decision in  Chengalvarayan Co-operatives case.   According to the appellant, the Sugar Cane Control  Order, 1966 (hereafter referred to as ’the Control Order’)  applies and the price fixed under the Control Order was the  purchase price for determining the taxable turnover of the  appellant. As an alternative case it has been submitted that no  amount which was incurred subsequent to the sale or delivery  of the sugarcane by the cane growers to the appellant was  includable  in the taxable turnover. It is the appellant’s case that  according to the agreement the sale/purchase had taken place  on delivery of the sugarcane in the field. Therefore the transport  charges which were subsequent to the sale were not includible.  Secondly, it is submitted that by the direction of Sugarcane  Department of the State Government the sugar mills were  required to meet the transport charges for the cane which was  brought from beyond 40 kms. distance from the mills. The  transport charges for the registered cane  would be borne by  the cane growers themselves and for the distance beyond 40  kms, the transport charges for the cane would be met by the  purchasing sugar mills.  Therefore, it is submitted that there  was no question of including the transport charges for the  transportation of the sugarcane from beyond 40 kms to the  appellant’s mill paid by the appellant under this directive, in the  purchase price. The appellant has also relied upon the orders in  assessment proceedings in respect of earlier years whereby  the transport charges had been excluded from the taxable  turnover of the appellant on a construction of the agreement  between the appellants and the cane growers.  Reliance has  also been placed on the Tribunal’s decision dated 24th March,  1995 rejecting the respondent’s claim to enhance the purchase  price by adding transportation charges. It was pointed out that  the Tribunal had referred to a Circular issued by the Board of  Revenue on 31st July, 1982, by which the Board of Revenue  excluded the transport subsidies paid by the appellants to the  lorry owners for transporting sugar cane from areas beyond 40  kms.  It is submitted that the Circulars are binding on the  Department.      Learned counsel appearing for the respondent has  submitted that the price fixed by the Control Order was only the  minimum and that the definition of price in the Control  Order  allowed for the price to be determined on the basis of the  agreement between the seller and the purchaser. It was also  submitted that the dispute raised by the appellant has been  decided against the assessee and in favour of the Revenue by  this Court in E.I.D. Parry (I) Ltd. Vs. Assistant Commissioner  of Commercial Taxes; (2000) 2 SCC 321. It is further pointed  out that the agreement expressly incorporated the Sugarcane  Department directive dated 12th  September1985 which made it  clear that the price was to include the transportation charges.    The issue whether the price fixed by the Central

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Government under  the Control Order was immutable has been  decided by a Constitution Bench of this Court in U.P.  Cooperative Cane Unions Federations Vs. West U.P. Sugar  Mills and Anr. (2004) 5 SCC 430.  In that decision the  definition of "price" in Clause 2(g), as well as clauses 3 and 3(a)  of the Control Order were construed to come to the conclusion  that the price fixed under the Control Order was the minimum  price of sugarcane to be paid by purchasers of sugar for the  sugarcane purchased by them.  This is the lowest permissible  rate. It was contemplated under these provisions that there can  be a price other than the minimum price namely, the price  agreed to between the purchaser and the sugarcane growers or  the sugarcane Growers Cooperative Society.  It was said that:- "A whole reading of the 1966 Order would,  therefore, show that the Central Government  shall fix the minimum price of sugarcane but  there can be a price higher than the minimum  price which may be in the nature of agreed  price between the producer of sugar and the  sugarcane-grower or the sugarcane-growers’  cooperative society".

  In the present case the agreement, the relevant extracts  of which have been quoted earlier, clearly envisaged the  incorporation of the Circular issued by the Department of Sugar  on 12th September, 1985.  The Circular says that unlike the  previous years it was decided that all the subsidies and  incentives that are proposed for 1985 to 1986 planting seasons  would be given to the cane growers only when the cane is  supplied to the mills.  Among the subsidies and incentives  which were required to be granted by the sugar mills, the  purchasers of sugarcane were required to give a transport  subsidy.  The Circular was expressly included in the agreement  entered into between the appellant and the cane growers.   Therefore the transport subsidy formed part of the agreement  for the sale of the cane to the appellant.  Clause (6) of the agreement did not say that the sale was to  take place in the field as contended by the appellant. It merely  provided for the method of sale. This is also clear from the  conduct of the parties.  The appellant has admittedly included   the transport charges up to 40 kms. from the mill within the  purchase price and has admittedly paid tax thereon. If the sale  took place  at the field and transportation charges did not have  any connection with the cane growers, there was no need  either to include the transport charges from the field upto the  40Km. mark in the purchase price or to expressly provide that  the transportation charges would be payable by the vendor.  Besides the very use of the word "subsidy" in the directive  dated 12th September, 1985 which was payable on delivery at  the factory gate would also support the view that the transport  charges were otherwise bearable by the cane growers.      The Full Bench of the Madras High Court was called upon  to resolve a dispute between conflicting decisions of the High  Court inter alia as to whether transport subsidies were  includible in the purchase turnover of the sugar mills which  were purchasing sugarcane under the Tamil Nadu General  Sales tax Act, 1959 ( referred to hereafter as the Act) in  Chengalvarayan     Co-operative Sugar Mills Ltd. V. State of  Tamil Nadu, (supra).  The Court while affirming the view  expressed in  Kallakurichi Co operative Sugar Mills Ltd.  vs.  State of Tamil Nadu  (1985) 60 STC 113 (Mad.) and overruling  the decision in  State of Tamil Nadu  vs.  Madurantakam  Cooperative Sugar Mills (1976) 38 STC 73 (Mad.) said. " if subsidy \026 whatever name or nomenclature, it  may assume and whether paid or payable prior to or

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subsequent to the entering into contract of sale \026 is  linked to the supply of sugarcane, such subsidy and  expenses incurred for the transportation of the  sugarcane to the factory site \026 whether incurred by the  grower initially and paid by the sugar mills subsequently  or incurred by the sugar mills and shown separately in  the invoices \026 by adopting whatever procedure  reflecting those amounts in the accounts \026 shall form  part of the price includible in the purchase turnover as  such transportation alone makes the passing of  property in the sugarcane sold by the grower to the  assessee-mills complete".  

   This view was affirmed by this Court in E.I.D. Parry’s  case (supra).  One of the questions which this Court had to  consider was whether the transport subsidy paid by the sugar  mills to third party lorry owners for transporting sugar cane  pursuant to the State Government’s direction can be  aggregated with the price of sugar cane and included in the  turnover of the mills under the Act.  This Court noted that in  respect of sugarcane grown in reserved areas, the occupier of  the factory is required to enter into an agreement with the  sugarcane grower to purchase sugarcane in the form  prescribed under the Madras Sugar Factories Control Act 1949  and the Rules framed thereunder.  It was found  that the  prescribed form of agreement disclosed that sugarcane had to  be delivered by the grower at the factory premises.   After considering earlier authorities, this Court upheld the  view of the Full Bench of the Madras High Court and  concluded:- "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 dehors 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 would ordinarily include  all of them in the price at which he would sell  his goods.  But if the sale price is fixed  statutorily then the only obligation of the  purchaser under the agreement would be to  pay that price only and no other amount can be  included in the purchase price even if the same  is paid by the purchaser  to the seller.  (Emphasis supplied)

     The appellant has relied on the last line of the quoted

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paragraph to contend that it showed that the statutory price  fixed would be the only price includible in the taxable turnover  of the purchasing sugar mill. This is not what the Court meant.  In the preceding sentence it has been made clear that the total  amount of consideration not only included the  price but also  other amounts which represent the expenses required for  competing the sale. This is clear from the paragraph 21 of the  judgment where this Court said:- "For the same reasons we hold that the  transport subsidy was a part of  the  consideration for which sugarcane was sold by  the sugarcane-growers to the appellants.   Though the agreements between the parties  provided for delivery by the sugarcane-growers  at the factory gate and though the transport  charges paid by the appellants were not to the  sugarcane-growers but to third-party lorry- owners, they were made for securing  regular  supply of sugarcane as per the requirements.   Though payments were made at the instance  of the Government of Tamil Nadu they also  became a part of the implied agreement  between the appellants and the sugarcane- growers.  They were not post-sale expenses.   Those amounts were paid to ensure scheduled  delivery of sugarcane.  The sale of sugarcane  became complete only thereafter.  Those  payments can be regarded either as payments  made on behalf of the sugarcane-growers or  payments made in modification or variation of  the earlier agreements entered into by the  sugarcane-growers for selling sugarcane.  In  either case they could legitimately be regarded  as the components of the sale price as the  sellers would have otherwise included those  amounts in the sale price." (Emphasis added)

It is of significance this view was expressed despite the  fact that the State Governments directive was not incorporated  in that particular agreement for purchase of sugar cane.  The  principles would therefore a fortiori be applicable to the present  case where the directive formed part of the agreement. The  issue raised by the appellant before us has thus been  answered in the negative by this Court in E.I.D. Parry which  view we respectfully adopt.    The decision relied upon by the appellants namely   Commissioner of Sales Tax, U.P. Vs. M/s. Rai Bharat Das &  Bros.,1989 (1) SCC 143  does not support the appellant.  In  fact the Court found in that case that the costs of freight or  delivery were included in the sale price.    The assessment orders of the Department in respect of  the earlier years also relied on by the appellants were based on  the earlier decision of the High Court in State of Tamil Nadu  vs. Madhurantakam Cooperative Sugar Mills (supra) which  was specifically overruled by the Full Bench in  Chengalvarayan’s case.    The findings of the Tribunal sought to be relied upon by  the appellant related to a previous stage of proceedings.  The  order of the Special Taxation Tribunal which was passed on an  enhancement petition filed by the respondents and which was   the subject matter of the writ petition before the High Court, had  held against the assessee following the decision of the Full  Bench of the Madras High Court in Chengalvarayan Co- operative Sugar Mills Ltd. V. State of Tamil Nadu (supra)  which was affirmed by this Court in E.I.D. Parry’s case.

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        The appellants then said that the decision of this Court in  EID Parry (supra) was limited to the facts of that case and that  this  has been held by the Karnataka High Court in Ugar Sugar  Works Ltd. vs. Deputy Commission of Commercial Taxes   (2005) 139 STC 413.  According to the Karnataka High Court,  the decision in EID Parry did not lay down any principle but was  confined to the facts of that case.  It is unnecessary for us to  consider whether the Karnataka High Court was correct in its  interpretation of the decision in EID Parry because we are of  the view that even on the basis of the opinion expressed in  Ugar Sugar Works Ltd. (supra), EID Parry cannot be factually  distinguished from the present case, as we have found as a  matter of fact that the transport subsidy formed part of the  consideration for the purchase of the sugar cane by the  appellant from the sugar cane growers.     In the circumstances aforesaid we are of the view that the  appeals must be and are hereby dismissed with costs.