The main legal point established in the judgment is that a subsidy received for the benefit of the public and to ensure a reasonable return on investment for an industry is not part of the taxable turnover under the Kerala General Sales Tax Act, 1963.

Headnote:
Fertiliser Subsidy - Taxable Turnover - Kerala General Sales Tax Act, 1963 - Section 2(xxvii) - Section 2(xxi)
Fact of the Case:

The court addressed the inclusion of fertiliser subsidy in the taxable turnover of fertilisers under the Kerala General Sales Tax Act, 1963. The petitioners, manufacturers and sellers of urea and other complex fertilisers, objected to the inclusion of the subsidy in their taxable turnover, citing a decision by the Andhra Pradesh High Court that ruled the subsidy was not taxable.
Finding of the Court:

The court found that the subsidy received by the petitioners was not part of the taxable turnover. It emphasized that the subsidy was not paid as consideration for any sale of fertiliser, but for the benefit of the public and to ensure a reasonable return on investment for the fertiliser industry.
Issues: The main issue was whether the fertiliser subsidy could be treated as part of the price paid for the sale of products and form part of the turnover of the dealer liable to be taxed.
Ratio Decidendi: The court held that the subsidy was not part of the sale price or turnover, as it was not paid as consideration for the sale of fertiliser, but for the benefit of the public and to ensure a reasonable return on investment for the fertiliser industry.
Final Decision: The court quashed the assessments that imposed tax on the amount of subsidy, ruling that the assessments were illegal and unsustainable. The court also directed the Appellate Assistant Commissioners to dispose of the appeals dealing with any other points raised in accordance with the law.

Judgment :-

T. L. VISWANATHA IYER, J.

The challenge in this batch of seven writ petitions is to the inclusion of the fertiliser subsidy received by the petitioners in their taxable turnover of fertilisers under the Kerala General Sales Tax Act, 1963 ("the KGST Act", for brevity). The petitioner in O.P. Nos. 14991, 15020 and 15021 of 1992 and 6743 and 6744 of 1993 is the same, namely, the Madras Fertilisers Limited, while the petitioner in O.P. No. 16931 of 1992 is M/s. Krishak Bharathy Co-operative Limited, a Government of India enterprise O.P. No. 3430 of 1994 is by the Rashtriya Chemicals and Fertilisers Ltd., a Government of India undertaking who, it is said, had fought an earlier bout of litigation in the Andhra Pradesh High Court on the same point, and won. O.P. Nos. 14991, 15020 and 15021 of 1992 challenge the revised orders of assessment for the year 1987-88, 1988-89 and 1989-90 respectively, after the original assessments were reopened to include the fertiliser subsidy as part of the taxable turnover, while the other two writ petitions filed by the same assessee, the Madras Fertilisers Ltd., challenge the original orders of assessment for the years 1990-91 and 1991-92. In O.P. No. 16931 of 1992, exhibits P1 and P2 are revised assessments for the years 1988-89 and 1989-90 while exhibit P3 is the original assessment for 1990-91. In O.P. No. 3430 of 1994, the challenge is to the original orders of assessment, exhibits P1, P4 and P7 for the years 1988-89, 1989-90 and 1990-91.

2. I shall state the facts in O.P. No. 14991 of 1992 which is typical of the controversy in all the cases.

3. Petitioner is a manufacturer and seller of urea and other complex fertilisers, which are essential commodities within the meaning of the Essential Commodities Act, 1955

4. The operation of this order and the pegging down of the prices thereunder was likely to render some units sick or without adequate return on the investment. Therefore, pursuant to the recommendations of a committee constituted under the Chairmanship of Sri S. S. Marathe, Chairman of the Bureau of Industrial Cost and Prices, the Government of India introduced a scheme of retention prices for units in the nitrogenous fertiliser industry with effect from November 1, 1977. This scheme, as mentioned earlier, was introduced with a view to ensure a reasonable return on investment, and to facilitate the healthy development and growth of the fertiliser industry. The scheme was to be administered by the Fertiliser Industry Co-ordination Committee to be set up for the purpose, and the Committee was to operate a Fertiliser Price Fund Account, the purpose of which is explained in a letter D.O. No. 166/21/77-FA(A) dated October 24, 1977, addressed by the Government of India to the various fertiliser units. A substantial contribution was made from Government revenues for the purposes of the scheme. The scheme provided for an-ex-factory retention price per tonne of fertiliser, net of excise duty and Fertiliser Pool Equalisation Charge (FPEC), and exclusive of the approved dealer's margin and equated freight, for each plant, based on a capacity utilisation of 80 per cent and a combination of norms and actuals in regard to consumption efficiencies and maintenance and other costs, and providing for a post tax return of 12 per cent of net worth. This was to be known as "retention price". A standard ex-factory realisation, also net of excise duty and FPEC and exclusive of the dealer's margin and equated freight for the industry as a whole was also to be fixed from time to time. This was referred to as the "transfer price". The scheme was to be so operated as to ensure that all units receive the transfer price either through adjustment of the excise duty and FPEC or through alternative means. The units whose retention price as fixed under the scheme was lower than the transfer price were required to credit the difference to the Fund Account. The amount will be calculated on the quantities of fertilis

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