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PETITIONER: STATE OF TAMIL NADU & ORS.

       Vs.

RESPONDENT: KOTHARI SUGARS & CHEMICALS LTD. ETC.

DATE OF JUDGMENT:       08/02/1996

BENCH: J.S. VERMA, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                           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

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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      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

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    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 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

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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 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

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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.