1996 (7) TMI 522 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Section 2(r) and Explanation (2)(ii) of the TNGST Act.
2. Constitutionality of Rule 6(c) of the TNGST Rules.
3. Inclusion of various subsidies and expenses in the purchase turnover.

Summary:

1. Constitutionality of Section 2(r) and Explanation (2)(ii) of the TNGST Act:
The court examined whether these provisions were ultra vires of entry 54-List II of the Seventh Schedule to the Constitution of India. It was contended that the State Legislature cannot enlarge the definition of "sale" beyond its established concept under the Sale of Goods Act, 1930. The court referred to multiple precedents, including *Mariappa Nadar v. State of Madras* and *Sun-N-Sand Hotel Private Ltd. v. State of Maharashtra*, and concluded that the provisions were not ultra vires. The court held that the State Legislature has the competence to define "turnover" to include all sums charged by the dealer in respect of the goods sold at the time of or before delivery. Thus, the provisions of Section 2(r) and Explanation (2)(ii) of the TNGST Act were upheld as constitutional.

2. Constitutionality of Rule 6(c) of the TNGST Rules:
The issue was whether Rule 6(c) was ultra vires and violative of Article 14 of the Constitution of India. The court noted that Rule 6(c) allows for the exclusion of freight and delivery charges from the total turnover if specified and charged separately by the dealer. The court held that the Rule is applicable only to selling dealers and not purchasing dealers. The court reasoned that the distinction between selling and purchasing dealers is rational and serves the legislative intent of reducing the taxable turnover for the benefit of consumers. The court cited the decision in *Jiwajirao Sugar Company Limited v. State of Madhya Pradesh* and upheld the constitutionality of Rule 6(c).

3. Inclusion of Various Subsidies and Expenses in the Purchase Turnover:
The court addressed whether subsidies such as planting subsidy, varietal subsidy, cane seed subsidy, and transport charges should be included in the purchase turnover. The court examined the nature of these subsidies and concluded that they are closely linked to the supply of sugarcane and form part of the consideration for the sale. The court referred to the decision in *State of Tamil Nadu v. National Co-operative Sugar Mills Limited* and held that these subsidies and expenses are includible in the purchase turnover. The court also resolved the apparent conflict between the decisions in *Madurantakam Co-operative Sugar Mills* and *Kallakurichi Co-operative Sugar Mills Limited*, overruling the former and upholding the latter.

Conclusion:
The court dismissed Tax Case Nos. 474 to 478 of 1993 and Writ Petition Nos. 15530 and 15531 of 1995. The court upheld the constitutionality of Section 2(r) and Explanation (2)(ii) of the TNGST Act and Rule 6(c) of the TNGST Rules. It also held that various subsidies and transport charges are includible in the purchase turnover.