The subsidy paid to cane growers should be treated as forming part of the purchase price of sugarcane, as it has a close nexus to the supply of sugarcane.

KANAKARAJ, J.

The assessee reported a total and taxable turnover of Rs. 7, 37, 71, 056.18 and Rs. 2, 83, 55, 079.89, respectively, for the year 1978-79. We are concerned in this case only with a sum of Rs. 1, 59, 305.48 which was paid by the assessee to certain cane growers as subsidy for early planting. The question is whether this subsidy paid to the cane growers can be treated as forming part of purchase turnover of sugarcane. The assessing authority found that as long as the amount was paid in lieu of sugarcane supplied by the cane growers to the assessee, the subsidy amount is includible in the taxable turnover. A notice was therefore issued to the assessee and after considering their objections the assessing authority came to the conclusion that the payment of the subsidy had nexus to the supply of sugarcane. It was a payment to the sugarcane growers in addition to the price of sugarcane. Accordingly, the said sum of Rs. 1, 59, 305.48 was included in the purchase turnover of sugarcane and tax at 12 per cent under entry 62 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, was levied. Consequently the additional sales tax at 0.7 per cent was also imposed under the Tamil Nadu Additional Sales Tax Act, 1970.

2. The assessee filed two appeals before the Appellate Assistant Commissioner in respect of the main assessment and in respect of a levy of additional sales tax. The appellate authority also found that the payment in question added to the cost of sugarcane purchased by the assessees. The fact that they had accounted for the payment under the head "cane development expenses" would not alter the character of the payment. Following certain judgments of the Karnataka High Court, the appellate authority held that the subsidy was rightly included in the taxable turnover of the assessees. On second appeals filed before the Tribunal, the findings of the assessing authority and the first appellate authority were reversed. The Tribunal came to the conclusion that the judgments of the Karnataka High Court are distinguishable. The Tribunal referred to the fact that the subsidy was paid for early planting on an acreage basis. The early planting subsidy was given only to the cane growers who accepted the offer. The payment was not based on the quantity purchased by the assessees. Accordingly, the Tribunal came to the conclusion that the sum of Rs. 1, 59, 305.48 cannot be termed as part of the purchase price. According to the Tribunal it was an independent amount, to encourage early cultivation of the sugarcane. The Revenue is in revision before us.

3. Reliance is placed on Hiranyakeshi Sahakari Sakkare Karkhane Niyamit v. State of Karnataka 1978 (42) STC 184 (Kar). In that case the assessees had paid certain amounts to the sugarcane suppliers as "khodki charges", for the purpose of keeping the land on which, sugarcane had been planted in good condition. In that case it was held that the "khodki charges" had been in fact paid as part of the consideration for the sugarcane supplied to the assessees by the growers. It was therefore included in the taxable turnover of the assessee. The High Court went on to say that the point of time at which such payment was made or the purpose for which the amount had been used by the grower would be immaterial as long as the payment was made in lieu of the sugarcane supplied by grower to the assessee. A similar view was taken in respect of transport charges and harvesting charges, in Pandavapura Sahakara Sakkare Kharkhane (P.) Ltd. v. State of Mysore 1973 (32) STC 104 (Mys). In the case on hand the incentive is the cause and the early supply of sugarcane is the effect and as such the payment has a close nexus to the supply of sugarcane. The distinction sought to be drawn by the Tribunal on the basis of the subsidy being paid with reference to acreage does not stand scrutiny on a proper interpretation. The Tribunal has failed to note that whatever is grown on the land, comes