1994 (4) TMI 364 - HC - VAT and Sales Tax

Summary

Issues Involved: Inclusion of fertilizer subsidy in taxable turnover under the Kerala General Sales Tax Act, 1963 (KGST Act).

Summary:

1. Background and Facts:
The petitioners, including Madras Fertilisers Limited, Krishak Bharathy Co-operative Limited, and Rashtriya Chemicals and Fertilisers Ltd., challenged the inclusion of fertilizer subsidy in their taxable turnover under the KGST Act. The revised and original assessment orders for various years were contested.

2. Regulatory Framework:
Petitioners are governed by the Fertilizer (Control) Order, 1985, which regulates the sale and distribution of fertilizers. The Central Government fixes the maximum prices for fertilizers to ensure equitable distribution and fair prices.

3. Subsidy Scheme:
To prevent units from becoming financially unviable due to price controls, the Government of India introduced a retention price scheme for nitrogenous fertilizer units. This scheme ensures a reasonable return on investment and is administered by the Fertiliser Industry Co-ordination Committee. Subsidies are paid from the Fertiliser Price Fund Account to units whose retention price exceeds the transfer price.

4. Petitioners' Objection:
Petitioners argued that the subsidy received should not be included in their taxable turnover, citing a similar decision by the Andhra Pradesh High Court, which held that such subsidies are not taxable.

5. Legal Precedents:
The petitioners relied on the Andhra Pradesh High Court's decisions in Fertiliser Corporation of India Ltd. v. Commercial Tax Officer and Coromandel Fertilisers Ltd. v. Commercial Tax Officer, which ruled that subsidies are not part of the taxable turnover as they are not related to any single sale transaction.

6. Definition and Nature of Subsidy:
Subsidy is defined as a government grant to aid an enterprise for public benefit, often to keep commodity prices low. It is not paid as consideration for any sale of fertilizer but to ensure a reasonable return on investment and facilitate industry growth.

7. Legal Analysis:
The court analyzed that the subsidy is not part of the sale price or turnover as defined in the KGST Act. The sale transaction between the seller and purchaser is limited to the price fixed by the Central Government, and the subsidy is not related to any particular sale transaction.

8. Conclusion:
The court agreed with the Andhra Pradesh High Court's view that the subsidy is not part of the taxable turnover. The assessments imposing tax on the subsidy were deemed illegal and unsustainable.

9. Judgment:
The writ petitions were allowed, and the impugned assessment orders were quashed to the extent they included the subsidy in the taxable turnover. Appeals pending under section 34 of the KGST Act were directed to be disposed of in accordance with the law, excluding the subsidy from the taxable turnover.

Writ petitions allowed.