IMPORTANT POINT
Planting subsidy and transport subsidy given to sugar cane growers by Sugar Mills would form part of taxable turnover under the Tamil Nadu General Sales Tax Act for the purpose of purchase tax.

Headnote:(i) Tamil Nadu General Sales Tax Act, 1959-Sections 2(r), 2(ii) Explanation and 3(2)-Taxable turnover-Sugar mills-Purchase of sugar at factory gate-Sugar mills giving planting subsidy and transport subsidy to sugar cane growers-Sugar Mill s plea that planting subsidy and transport subsidy cannot for part of turnover and have to be excluded from turnover for purposes of purchase tax-Not tenable-Agreements with sugar cane growers in respect of planting subsidy and agreement for sale of sugar cane constitute one single transaction-Planting subsidy relateable to supply of sugar cane-Sum paid as planting subsidy must be treated as part of sale price and included is taxable turnover-Transport subsidy paid to ensure scheduled delivery of sugar cane-Payment though made to transporters can be regarded either as payments made on behalf of sugar cane growers or payments made in modification or variation of earlier agreement s entered into by sugar cane growers for selling sugar cane-Planting subsidy and transport subidy have to be includedin taxable turnover.
       Held : 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 contractof 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 can 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 represents the expenses required for completing the sale as, the seller would ordinarily include all of them is 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 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. (Para 18)
       Therefore, what is now required to be considered is whether the planting subsidy and the freight subsidy given by the appellants to the sugarcane growers were given by way of consideration for sale of the sugarcane. The answer to this question also calls for the examination of the true nature of the transaction between the appellants and the sugarcane growers and the object of the payments made as planting subsidy and frieght subsidy. We have earlier pointed out that in the State of Tamil Nadu, because of Madras Sugar Factories (Control) Act there are certain restrictions on the transactions of sugarcane in reserved areas. A grower of sugarcane in the reserved area cannot sell any sugarcane grown in that area except to the specified sugar manufacturer. He is required to enter into an agreement by making an offer of the specified sugar mill for sale of the sugarcane grown by him. Pursuant to this offer the sugar mill has to enter into an agreement with him for purchasing of sugarcane offered by him. The Sugarcane (Control) Order, 1966 controls distribution and movement and also the purchase price of sugarcane. As neither the Madras Sugar Factories (Control) Act nor the Sugarcane (Control) Order provide for any agreement between the sugarcane grower and the purchaser i.e. the sugar mill for giving planting subsidy or freight subsidy it was contended by the learned counsel for the appellants that the agreements which the appellants have entered into with the cane growers in respect of planting subsidy are independent though collateral contracts and, therefore, they having nothing to do with the sale or purchase of sugarcane. It was submitted that the invitation to cane grower to plant a particular variety and claim the amount of subsidy per acre if planted in the stipulated month precedes the planting and growing of sugarcane. Acceptance of that offer by the grower also precedes growing of sugarcane and the statutory offer which the grower is required to make under Section 10(1) of the Madras Sugar Factories (Control) Act. It was 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 in small in area. (Para 19)
       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 plant the desired and improved variety of sugarcane and that too in the months suggested by the appellants so as to ensure stagger supply of sugarcane as per the crushing schedule. The object of the planting subsidy was to obtain the desired variety and quality of sugarcane at the time required by the appellants. It is also significant to note that as a matter of fact the planting subsidy was given by the appellants to the cane growers at thetime of delivery of sugarcane by them. Though the appellants had described the payments by way of planting subsidy as deferred payments that cannot conceal the real nature of the transaction between the appellants and the cane growers. The planting subsidy was given by the appellants to the cane growers not by way of agrarian reform or a social welfare measure. The appellants had given planting subsidy as purchasers of sugarcane and as a part of the consideration for which the sugarcane was ultimately purchased by them. As rightly pointed out by the Madras High Court in State of Tamil Nadu v. National Co-operative Sugar Mills Ltd. [(1992) 86 STC 22] giving of planting subsidy earlier and supply of sugarcane later were closely linked. The planting subsidy was relatable to the supply of sugarcane. If the whole deal between the appellants and the cane growers is examined they really constitute one contract of sale. Therefore, the sums paid by the appellant as planting subsidy to the cane grower were rightly treated as a part of the sale price and included in the taxable turnover of the appellants for the purpose of assessing the purchase tax liability. (Para 20)
       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 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 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. (Para 21)(
       (ii) Tamil Nadu General Sales Tax Act, 1959-Penalty-Dishonest suppression of taxable turnover-Sugar Mills giving planting subsidy and transport subsidy but not including same in turnover for purpose of purchase tax-Sales tax authorities including subsidies in taxable turnover and levying penalty-Mills plea that subsidies cannot be included in taxable turnover-Position of law doubtful as regards claim of sugar mills-Doubt set at rest now by Supreme Court that subsidies have to be included in taxable turnover-It cannot be said, on facts and circumstances, that conduct of sugar mills dishonest-Penalty, therefore, cannot be visited with.
       Held : Till the judgment of the Madras High Court, on 15.7.1991, in Perambular Sugar Mills Ltd. v. State of Tamil Nadu [(1992) 86 STC 17], the correct position of law within the State of Tamil Nadu was not free from doubt. Even thereafter, the Sales Tax Tribunal had in subsequent orders held that transport subsidy was not includible in the taxable turnover. Such a view was held by the Tribunal till 19.3.1993. It appears that on bona fide belief that planting and transport subsidies were not includible in the taxable turnover, the appellants had not included those amounts in their turnover and for that reason non-inclusion of these two items in the turnover do not seem to be intentional. Though we have now held that the appellants were not right in not including the amounts of planting subsidy and transport subsidy in the taxable turnover, considering the facts and circumstances of the case, it would not be correct to say that they had acted deliberately in defiance of law or that their conduct was dishonest or they had acted in conscious disregard of their obligation under the Sales Tax Act. The Sales Tax Authorities were, therefore, wrong in passing the orders of penalty and upholding the same. The High Court also, in our opinion, committed an error in upholding the orders of penalty. In the result these appeals are partly allowed. The order of the High Court and the orders of the Sales Tax Authorities imposing and upholding levy of penatly are set aside. (Para 22)

JUDGMENT

Nanavati, J.-Leave granted.

2. These eight appeals arise out of three different judgments of the Madras High Court in Writ Petition Nos. 15530-31 of 1995, 15532-35 of 1995 and 15705-15706 of 1995. SLP (C) Nos. 4973-4974 of 1997 are against the decision in Writ Petition Nos. 15530-31 of 1995, SLP (C) Nos. 5589-92 of 1997 are against the decision in Writ Petition Nos. 15532-35 of 1995 and SLP (C) 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 SLP (C) Nos. 4973 : 74 of 1997 and SLP (C) 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 Sugar 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 199-91 it had announced on 5.11.1989, 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 the rate of Rs. 800/- pre acre and for those who were to plant in February, June and July, 1990 it was to be paid at the rate of Rs. 600/- per acre. On the basis of that announcement willing cane growers had entered into agreements with it. Pursuant to those agreements the sugarcane growers were supplied seeds by it and the cane growers after sowing and raising the crops had offered the same for sale to it in the prescribed manner. One of the terms of the agreement was that sugarcane was to be delivered at the factory gate by the sugarcane growers. Price as fixed by the Central Government was to be paid against delivery of sugar cane. Though the same contemplated by the Act was factory gate sale and under the agreements also the obligation of the sugarcane growers was to deliver sugarcane at the factory gate, in view of the general advice of the Tamil Nadu State Government, which was in the nature of administrative instruction, it did subsidise freight/transport charges. For the year 1990-91 the advice was that the sugarcane growers should bear transportation charges up to the distance of 30 kms. and for the distance beyond 30 kms. the charges should be borne by the sugar manufacturers. In its sales tax returns for that year it did not include the amounts paid as planting subsidy and transport subsidy in its taxable turnover as according to it the same were not includible therein. The Assistant Commissioner of Sales Tax did not agree with it and assessed tax after including these amounts. Against that order and the demand raised on its basis the appellant preferred an appeal to the Deputy Commissioner but it was dismissed. The appellant then preferred an appeal to the higher appellate authority. For the years 1991-96 also it had followed the same pattern. Same view was taken by the Sales Tax authorities and against the orders passed it had filed appeals and they were pending when on 6.11.1996 to avoid returning of such situation every year it filed six writ petitions in the Madras High Court, seeking a declaration that words aggregate , or delivered or supplied or otherwise disposed , either directly or through another , and account of others in the definition of the term turnover as contained in Section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Tamil Nadu Sales Tax Act ) and the Explanation (2)(ii) thereto are ultra vires Entry 54 of List II of the 7th Sche

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1999 Supreme(SC) 1555

IMPORTANT POINTPlanting subsidy and transport subsidy given to sugar cane growers by Sugar Mills would form part of taxable turnover under the Tamil Nadu General Sales Tax Act for the purpose of purchase tax.

Cases Referred (7)

IMPORTANT POINT
Planting subsidy and transport subsidy given to sugar cane growers by Sugar Mills would form part of taxable turnover under the Tamil Nadu General Sales Tax Act for the purpose of purchase tax.