IMPORTANT POINT
The subsidy received by appellant under Clause 3 of Fertilizer (Control) order does not form part of the Taxable Turnover under the provisions of the Tamil Nadu General Sales Tax Act.

Headnote:Fertilizer (Control) Order-Clause 3-Disbursement of an amount of subsidy to the claimant-industry being the difference between the retention price and selling price fixed under-Whether the subsidy received by the appellant is to form part of its taxable turnover under the provisions of the Tamil Nadu General Sales Tax Act-Tamil Nadu Taxable Special Tribunal answering in affirmative-Whether correct? (No)-Appeals allowed-Case law reviewed and conflict resolved.
       Held : It appears to us that it is that sale consideration, whether in cash or otherwise, which is receivable in respect of sales made by a dealer which can possibly form part of the turnover of a dealer. It is that sum which can be legitimately regarded as forming part of the aggregate amount for which the goods have been bought or sold. The sum has to be paid either by the purchaser or on his behalf by some other person. In the instant case, as far as the Fertilizer (Control) Order is concerned, the appellant is only required to receive either the fixed price determined or the maximum price which may be fixed. For example, vide notification dated 30th January, 1988, maximum price per tonne of different types of fertilizer specified therein was fixed. In respect of urea, the maximum price per tonne fixed was Rs. 2,350/. No manufacturer of urea could sell the same at a price in excess of Rs. 2,350/-. The Explanation in the said notification provided that the maximum price so fixed was to be inclusive of Central sales tax, State sales tax or other local taxes wherever levied. Neither in the notification nor in the Fertilizer (Control) Order is there any reference to the Retention Price Scheme of the Government. The Retention Price Scheme first enunciated by letter dated 31st December, 1977 is clearly an administrative decision of the Government of India. It has been issued pursuant to the Ministry s Resolution and it enables a factory, like the appellant, to receive subsidy from the Government in case the retention price is more than the price fixed under Clause 3 of the Fertilizer (Control) Order. It is mentioned in the assessment order that according to the appellant the subsidy which is paid by the Government of India is a non-plan expenditure which is debited to the Budget allocation. This subsidy is payable on the basis of the quantity of fertilizer produced and removed from the factory. The forms on the basis of which subsidy has to be given, do not indicate that the reimbursement of the subsidy is dependent on the sale of fertilizer having been made. The basis for the grant of subsidy is the removal of the fertilizer from the factory, though it has to be certified by the company that the said removal is for sale for agricultural purposes. It is clear from the aforesaid that whereas in respect of sale of fertlizer the purchaser has to pay the price as fixed under the Fertilizer (Control) Order giving of subsidy is not contemplated by the said Order and the same is given pursuant to an administrative decision taken by the Government of India. The subsidy so given is undoubtedly to see that the ultimate consumer gets fertilizer at a reasonable price and the manufacturer is not unduly burdened by the lower fixation of the price of fertilizer. The payment which is so made by the Government to a manufacturer cannot be regarded as a discharge of any liability or obligation by the Government towards the purchaser of fertilizer. The two payments received by the manufacturer, namely, the subsidy and the price fixed under the Fertilizer (Control) order are independent of each other. Subsidy does not form part of the bargain between the manufacturer and the purchaser of fertilizer. (Paras 10, 11, 12 & 13)
       Distinguishing E.D. Party case 2000(2) 321
       Held : In the present case, however, there is no agreement between the appellant and the purchasers of fertilizer for payment of any amount by the purchasers to the manufacturer in excess of the price fixed and under the Fertilizer (Control) Order. Subsidy is paid to the appellant not by or on behalf of the purchasers, but is paid by the Government of India for different reasons and under its own scheme and after a budgetary allocation. As we have already observed, the scheme of payment postulates the right of the appellant to receive the subsidy on its clearance from the factory and not necessarily after the sale of fertilizer. Even before the sale of fertilizer, the right to receive the subsidy arises and under the circumstances, it cannot be said that subsidy would form part of the sale price or turnover of the appellant. (Para 19)
       Referring to decisions of High Court :
       Held : A Single Judge of the Kerala High Court in Madras Fertilizers Ltd. v. Asstt. Commissioner (Assessment), Special Circle-11, Agrl. Income Tax and Sales Tax Dept., Ernakulam & Anr., 95 STC 134 (Kerala) after analysing the provisions of the Fertilizer (Control) Order and the claim of payment of subsidy, observed as follows :
       "11. Sale is a bilateral transaction which stems out of a contract between the seller and the purchaser. An essential ingredient of a sale is "price". Fixation of the price is a matter of agreement between the parties. "Sub-section (1) of Section 9 of the Sale of Goods Act, 1932, provides that the price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. In cases where the price is not determined in accordance with these provisions, the buyer shall pay the seller a reasonable price. Therefore, price is an essential element of a contract of sale and is ordinarily a matter of agreement between the parties. What the purchaser of the fertiliser bargains when he purchases fertiliser from the petitioners is to obtain a certain quantity of fertilisers at a certain price which shall not exceed the price fixed by the Central Government by notification under the Fertilizer (Control) Order. The sale is not conditional on the Central Government paying any amount by way of subsidy. There is no agreement between the parties for any further amount to be paid, than what is paid by the purchaser at the time of the sale. "Turnover" is defined in Section 2(xxvii) of the KGST Act as meaning the aggregate price for which goods are either bought or sold, supplied or distributed by a dealer. "Sale" is defined in Section 2(xxi) as meaning every transfer, whether in pursuance of a contract or not, of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for other valuable consideration. The essential contract between the parties, namely, the seller and the purchaser of fertilisers, is only for payment of the price subject to the maximum fixed by the Central Government and not for any other. This being the contract, any other sum received by the seller-petitioners for a different purpose and not as consideration for the sale, is not part of the sale price, and therefore of their turnover. The fact that the amount of subsidy is determined with reference to the quantum of fertilisers cleared from the factory on which considerable stress was made by the Government Pleader, does not lead to any inference that the payment is made in consideration of the sale. The retention price and the transfer price are fixed with reference to various factors. The subsidy is paid for the benefit of the public, to keep the prices at a reasonable level, and at the same time to ensure a reasonable return on investment to the units, and not as consideration for the sales effected by them. I am therefore of the view that the amount of subsidy received by the petitioners for the purpose of their units, which is not related to any particular transaction of sale, but is related to other circumstances, cannot constitute turnover in their hands assessable under the KGST Act."
       This decision was affirmed by the Division Bench in Assistant Commissioner of Sales Tax (Assessment), Special Circle-II, Ernakulam & Ors. v. Krishak Bharathi Co-op. Ltd., 99 STC 17 (Kerala) and the special leave petition filed against the same was dismissed by this Court. We are in respectful agreement with the view of the Single Judge of Kerala High Court and that, in our opinion, is the correct enunciation of law. For the aforesaid reasons, this appeal is allowed and the judgment dated 3rd August, 1998 and other orders passed subsequent thereto of the Tribunal are set aside. (Paras 20, 21 & 22)

JUDGMENT

Kirpal, J.-Civil Appeal No. 5678 of 2000 :

Whether the subsidy received by the appellant is to form part of its taxable turnover under the provisions of the Tamil Nadu General Sales Tax Act, is a short question which arises for consideration in this and the connected cases.

2. Briefly stated the facts are that in 1957 under the provisions of Section 3 of the Essential Commodities Act, 1955, the Central Government promulgated the Fertilizer (Control) Orders. This Order has been revised from time to time and in respect of the assessment year 1996-97 we are concerned with the provisions of the Fertilizer (Control) Order, 1985.

3. Under the provisions of the Fertilizer (Control) Order, maximum selling price for different types of fertilizer is determined under Clause 3. No manufacturer like the appellant can sell or offer for sale any fertilizer at a price exceeding the maximum price or the rate fixed under Clause 3. Non-compliance or violation of the same attracts penal consequences.

4. Fertilizer which is manufactured by the appellant is usually used by the agriculturists. In order to ensure the availability of fertilizer at a reasonable price, the prices are fixed under the Fertilizer (Control) Order normally at a figure which may possibly be less than the normal market price at which it can be sold. In order to ensure that no hardship is caused to the manufacturer and sufficient supplies are available, the Government of India took administrative decision and it introduced on 31st December, 1977 a Retention Price Scheme. This was introduced with effect from 1st November, 1977 and this Scheme, inter alia, contemplated the fixation of maximum sale price of fertilizer under Clause 3 of the Fertilizer (Control) Order; determination of retention price for each manufacturer; scheme of reimbursement of the difference between retention price fixed for the industry and the maximum selling price fixed under Clause 3 of the Fertilizer (Control) Order; submission of claims by the manufacturer supported by details of manufacture along with copy of central excise records to be addressed to the Executive Director, Fertilizer Industry Coordination Committee, New Delhi; and disbursement of an amount of subsidy to the claimant-industry being the difference between the retention price and the selling price fixed under Clause 3 of the Fertilizer (Control) Order.

5. The procedure enunciated on 31st December, 1977 was then substituted by another one as stipulated in the Government s letter of 29th September, 1980. Broadly speaking, according to the procedure now prescribed, bills to payments and recovery under the Retention Price Scheme for subsidy are to be submitted when fertilizer is moved out of the factory along with the proof of movement. The claims are to be made in the forms which are prescribed and one of the conditions contained therein is that the fertilizer which is moved, has been sold or will be sold for agricultural purposes.

6. M/s. Neyveli Lignite Corporation Limited received notices from the sales tax authorities to the effect that according to it the subsidy received by the appellant from the Government of India would form part of the taxable turnover of the appellant, and, therefore, was liable to sales tax. This was challenged by the appellant by filing a writ petition in the High Court at Madras. With the establishment of the Tami Nadu Taxation Special Tribunal, the writ petition was transferred to the Tribunal.

7. The Taxation Tribunal by the decision dated 3rd Octber, 1998 came to the conclusion that the fertilizer subsidy disbursed by the Government of India against the claim made under the Subsidy Scheme was sale price or turnover attracting sales tax. The writ petition was, accordingly, dismissed. Hence, this appeal by special leave.

8. It has been contended on behalf of the appellant that what was received by the appellant from the Government of India was subsidy which could not b

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2001 Supreme(SC) 1312

IMPORTANT POINTThe subsidy received by appellant under Clause 3 of Fertilizer (Control) order does not form part of the Taxable Turnover under the provisions of the Tamil Nadu General Sales Tax Act.

Cases Referred (4)

IMPORTANT POINT
The subsidy received by appellant under Clause 3 of Fertilizer (Control) order does not form part of the Taxable Turnover under the provisions of the Tamil Nadu General Sales Tax Act.