1996 (2) TMI 408 - SC - VAT and Sales Tax

Whether for the purchase of sugarcane from the cane growers, a purchaser is liable to pay purchase tax under the State Sales Tax Act on the amount paid by the purchaser to the cane grower over and above the price fixed under clauses 3 and 5A of the Sugarcane (Control) Order, 1966? Held that - Unless a clear finding to that effect is recorded, the amount paid by the purchaser in excess of the aggregate of the minimum price fixed under clause 3 and the additional price fixed under clause 5A, as a part of the amount paid as advance prior to fixation of the additional price under clause 5A, cannot be treated automatically as a part of the total price of sugarcane. In matters arising out of decisions of the Karnataka High Court, this aspect has not been adverted to and the writ petitions have been dismissed without going into this question.

Summary

Issues:
Interpretation of clauses 3 and 5A of the Sugarcane (Control) Order, 1966 in relation to the liability of a purchaser to pay purchase tax on excess amount paid to cane growers.

Analysis:
The Supreme Court was tasked with determining whether a purchaser of sugarcane is liable to pay purchase tax on the amount paid to cane growers over and above the price fixed under clauses 3 and 5A of the Sugarcane (Control) Order, 1966. The Court examined the provisions of the Control Order, particularly clauses 3 and 5A, which empower the Central Government to fix the minimum price for sugarcane and provide for an additional price to be paid by sugar producers to cane growers. The Court emphasized that the total price of sugarcane is the aggregate of the minimum cane price under clause 3 and the additional cane price under clause 5A, unless there is a separate agreement between the purchaser and grower for a higher price.

In the case at hand, the State Government directed sugar factories to pay an excess amount as an "advance" to cane growers, which was later adjusted based on the final additional cane price fixed under clause 5A. The purchasers contended that this excess amount paid as advance should not be considered part of the price of sugarcane, as it exceeded the aggregate of the minimum and additional prices fixed under the Control Order. The Court held that unless there is a contractual or statutory basis for a higher price, any amount paid in excess of the aggregate amount cannot be deemed part of the price of sugarcane for tax purposes.

The Court rejected the State's argument that the excess amount paid under the State advice should be considered part of the price, emphasizing that such payments lacked a contractual or statutory basis. The Court upheld the decision of the Madras High Court, which ruled in favor of the purchasers, stating that the excess amount paid as advance did not form part of the price of sugarcane. However, the Court noted that in cases where there is evidence of an agreement between the purchaser and grower for a higher price, the entire amount paid could be considered the price of sugarcane.

In matters related to judgments of the Karnataka High Court, the Court found that the issue of whether the excess amount paid should be included in the price of sugarcane was not adequately addressed. As a result, the Court remitted these matters back to the High Court for a fresh decision based on the principles outlined in the judgment. The Court dismissed the appeals by the State of Tamil Nadu against the Madras High Court's decision but allowed the appeals by the sugar factories against the Karnataka High Court's decision, directing a reevaluation of the cases in light of the legal principles established.