TMI Blog1993 (12) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... Sugarcane is the principal raw material in the manufacture of sugar. Sugarcane has been declared as an essential commodity under the Essential Commodities Act, 1955. In exercise of the powers conferred under section 3 of the said Act, the Central Government has promulgated the Sugarcane (Control) Order, 1966, to regulate and control the production and distribution of sugarcane; clause (3) of the Control Order authorises the Central Government to fix the minimum price of sugarcane for each year, in respect of each sugar factory by taking into account the relevant factors enumerated in the said clause. For the sugar year 1990-91, ending September 30, 1991, the Government of India issued a notification dated December 27, 1990, fixing the minimum sugarcane price at Rs. 289.50 per quintal in respect of the petitioner's factory under clause 3, subject to the rebates provided under clause 3A of the said order. Clause 5A provides for fixation and payment of additional price for the sugarcane purchased by the sugar producer. The sugar producer has to purchase sugarcane grown in an area reserved for them, under clause 6 of the said order. 3.. The State Government in its advisory capacity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.. Aggrieved by the said order of assessment and the order under appeal, the petitioner has filed this writ petition for quashing the assessment order and demand notice dated September 21, 1992 and the appellate order dated January 23, 1993 and seeking a mandamus to respondents 2 and 3 not to levy and collect purchase tax on the State advised price, but to levy and collect tax only on the minimum price fixed by the Central Government. The petitioner contended that although there is an alternative remedy by way of appeal to the Karnataka Appellate Tribunal provided in the Act, the same was not an efficacious remedy, as the Tribunal did not have the power to grant stay pending disposal of the appeal and having regard to the order of the Government fixing the State advised price, the petitioner would not get any relief before the Tribunal. When the matter came up before a learned single Judge on March 2, 1993, he referred the matter to a Division Bench as the petitioner contended that the decision in India Sugars [1984] 56 STC 145 required reconsideration. 7.. Sri G.V. Shantharaju, learned counsel for the petitioner, submitted (a) that the purchase tax was payable only on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase tax to Rs. 289.50 per M.T. 9.. To appreciate the rival contentions, it is necessary to refer to some of the relevant provisions of the Karnataka Sales Tax Act and the Control Order. The Karnataka Sales Tax Act, 1957: 9.1. Section 5(3)(b) of the Act provides that in the case of purchase of any goods mentioned in column (2) of the Third Schedule, at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said Schedule tax under the Act shall be levied on the dealer liable to tax under the Act, on his taxable turnover of purchases in each year, relating to such goods. From April 1, 1990, sugarcane has been added at item 6 in the Third Schedule to the Act. The rate of tax is 8 per cent and point of levy is purchase by the last dealer in the State liable to tax under the Act. "Taxable turnover" is the aggregate amount for which the goods are bought or sold by a dealer, whether for cash or for deferred payment or other valuable consideration, on which a dealer shall be liable to tax-vide section 2(1)(u-1) read with section 2(1)(u-2) and 2(1)(v). The Sugarcane (Control) Order, 1966: 9.2. Section 2(g) of the Control Order defines "pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Control Order. The Second Schedule gives the formula for computation of the additional price payable to the cane grower by the sugar producer. Sub-clauses (2) and (3) provide the procedure for determination of such additional price. Sub-clauses (4), (5) and (6) of clause 5A, providing for the manner of payment of such additional price are extracted below: "(4) The additional price determined under sub-clause (2) or sub-clause (3), as the case may be, shall be paid by the producer of sugar to the sugarcane grower, at such time and in such manner as the Central Government or the State Government as the case may be, may, from time to time, direct. (5) No additional price determined under sub-clause (2) or sub-clause (3), as the case may be, shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under clause 3 to the sugarcane grower: Provided that the price so paid shall in no case be less than the total price comprising the minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional price fixed under its provisions, the Control Order does not prohibit parties from voluntarily agreeing to a higher price; nor is there any compulsion to sell or purchase sugarcane at a fixed price. In these circumstances, purchase tax is payable under the Sales Tax Act on the agreed price or the aggregate of the minimum price and the additional price fixed under the Control Order, whichever is higher. It is also evident from the terms of the Control Order that if the sugar producer pays only minimum price to the cane growers at the time of delivery, then he will have to pay purchase tax on such minimum price on account. When the additional price is subsequently determined under clause 5A, the sugar producer shall be liable to pay purchase tax on such additional price. If the additional price is paid during a subsequent year, then the payment of the purchase tax on the additional price will be governed by section 12AA of the Act. If an agreed price is paid by the sugar producer to the cane grower, there is no provision which enables the producer to contend that he is liable to pay purchase tax only on the minimum price and treat the difference as an advance towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of the concerned factories, etc.; but under no circumstances, the price should be less than Rs. 360 per M.T. 13.. The petitioner contends that fixing of cane price, whether the minimum price or the additional price can be done only under the provisions of clause 3 and clause 5A of the Control Order; that outside the aforesaid provisions of the Control Order, the State Government had no authority or power to fix or indicate a State advisory minimum price; that when the Control Order provided for minimum price payable immediately and the additional price payable ultimately after taking into account the necessary relevant factors, it was totally unnecessary for the State Government to fix the advised minimum price; that on account of the State Government fixing the advised minimum price, at a figure far higher than the minimum price fixed under clause 3 and further directing the Director of Sugar to ensure that the price paid by the sugar producer to the cane grower was more than the State advised minimum price, it became impossible for the sugar producer to pay the lesser minimum price fixed by clause 3; therefore payment of any amount in excess of the minimum price under claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugarcane (Control) Order, 1966. The petitioners paid the amounts directed by the State Government to the cane growers and treated the amounts paid in excess of the price notified under clause 3 of the Sugarcane (Control) Order, as 'advance payment' kept in an 'advance account'. Representations to the State Government made by the petitioners seeking waiver of purchase tax on these excess amounts, on the ground that they were not part of the purchase price, were rejected. Assessments were made accordingly and demands raised for arrears of tax on the difference between the statutory cane price fixed under clause 3 and the price directed by the State Government. The petitioners filed writ petitions, initially challenging the entire demand, but subsequently conceded that the amount representing the additional cane price payable under clause 5A of the Sugarcane (Control) Order, which was to be adjusted from the advance, could also be treated as part of the price on which tax could be levied. The petitioners, therefore, confined the challenge in the writ petitions to amounts paid in excess of the additional price payable under clause 5A(6) and contended that these amounts could not be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 5A of the Sugarcane (Control) Order, 1966." The Madras High Court though elaborately considered the matter, has proceeded on the assumption that the price legally payable by the sugar producer to cane grower is only the minimum price and additional price fixed under clauses 3 and 5A of the Control Order and that the Control Order does not contemplate any negotiated agreed price between the sugar producer and cane grower and any payment in excess of the price payable under clauses 3 and 5A, is a payment made under compulsion on account of the action of the State Government. The effect of express provisions of clause 3A which provides for a negotiated price being agreed between the sugar producer and cane grower and sub-clauses (4), (5) and (6) of clause 5A which contemplate payment of a higher agreed price by the sugar producer to the cane growers which is more than the aggregate of the minimum price and additional price under clauses 3 and 5A of the Control Order, have not been considered. Hence, though the facts of this case are similar to Arooran's case [1988] 71 STC 444 (Mad.) with great respect to the learned Judges who decided Arooran's case [1988] 71 STC 444 (Mad.) we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee towards harvesting and transportation charges is the assessee's turnover and the view taken by the Sales Tax Appellate Tribunal was right. 16.2. In India Sugars and Refineries case [1984] 56 STC 145 (Kar) the facts were: "The assessee was a company engaged in the manufacture of sugar. For the years 1969-70 and 1971-72, the assessee entered into agreements with the sugarcane growers for the purchase of sugarcane at the minimum price fixed by the Central Government under the Sugarcane (Control) Order. Subsequently, there was some dispute between the assessee and the sugarcane growers as to the price payable for sugarcane. The dispute relating to the year 1969-70 was referred to an arbitrator who made the award directing that the company must pay a certain sum per metric ton as bonus. The award was accepted by the company and payment was accordingly made to the respective sugarcane growers. For the year 1971-72 the company itself agreed to pay a certain sum per metric ton as freight or lorry charges to the sugarcane growers and payment was made accordingly. The question was whether the extra payment made formed part of the purchase turnover liable to be taxed." Anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted by the ryots provided that the mills had to pay the controlled price or the price which was legally payable to them. The claim of the assessee was that any amount paid over and above Rs. 73.70 per tonne fixed under the Sugarcane (Control) Order was in the nature of a subsidy and not a part of the price of sugarcane supplied, and, therefore, could not be included in the turnover. The court held, that as the dispute between the assessee and the cane growers regarding the price payable was amicably settled by the assessee agreeing to pay Rs. 110 per tonne, that would amount to a novation of the contract, in so far as the price payable was concerned and entire sum of Rs. 110 per tonne represented the price payable for the sugarcane and no part of it was subsidy and, therefore, the entire amount was liable to be included in the turnover. 18.. Arooran [1988] 71 STC 444 (Mad.) distinguished these three cases on the ground that these decisions were rendered prior to insertion of clause 5A in the Control Order with effect from October 1, 1974, and on the ground that these cases related to novation of contracts regarding the price payable. The insertion of clause 3A by notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers with reference to purchase of cane, whatever name it is called or in whatever manner it is paid, is liable to purchase tax. The petitioner will not be able to avoid payment of purchase tax on any part of Rs. 395 per M.T. paid, by calling it as advance or payment under compulsion or share in profits or otherwise. 20.. The petitioner also relied on clause 6 of their standard form of contract for purchase of sugarcane with sugarcane growers. Under the said clause the cane growers agreed to receive the sale price determined by the Central Government for the sugarcane supplied by them. The petitioner therefore contended that anything paid in excess of what was fixed by the Central Government under the Control Order was on account of compulsion by the State Government. The contention that the contract provides for payment as per the price fixed by the Central Government and therefore, no purchase tax is payable on the amount paid in excess of what is fixed under the Control Order is not tenable. Even though the contract may fix a price, nothing prevents the parties from subsequently modifying or increasing the price, resulting in novation. The aforesaid term in the contract can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase tax cannot be collected on the basis of State advised price which is merely recommendatory, if the sugar producer has not paid such advised price. We therefore hold that the purchase tax cannot be demanded on the basis of State advised minimum price, unless the said advised price has been paid or agreed to be paid by the purchaser. 22.. We therefore, hold that assessment order dated September 21, 1992 and the order of the appellate authority dated January 23, 1993, are in accordance with law and do not call for interference. We hold that the assessing authority is entitled to levy and collect purchase tax on the price of Rs. 395 per M.T. paid by the petitioner to the cane growers. 23.. We also issue the following clarifications and directions regarding levy and collection of purchase tax on sugarcane supplied under the Sugarcane (Control) Order, 1966: (a) If the sugar producer (purchaser of cane) pays only the minimum price fixed by the Central Government under clause 3 of the Control Order, and nothing more, purchase tax shall be payable only on such minimum price. (b) Merely because the State Government has recommended or notified a State advised minimum price, purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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