1998 (8) TMI 551 - AT - VAT and Sales Tax

Issues Involved:
1. Whether the subsidy received by the assessees from the Government of India as fertiliser subsidy forms part of the sale price of the fertilisers supplied by the assessees to their customers.

Detailed Analysis:

1. Background and Context:
The primary question in this case is whether the fertiliser subsidy received by the assessees from the Government of India is part of the sale price of the fertilisers supplied to their customers. The sale price of urea and other fertilisers is fixed under clauses of the Fertiliser (Control) Orders of 1957 and 1985. Petitioners submitted their returns under the Tamil Nadu General Sales Tax Act (TNGST Act) and were assessed accordingly. Fertilisers were taxable at the point of first sale in the State at 3.5%. The Government of India fixes the sale price to encourage agriculturists, and the manufacturers receive a subsidy to cover the difference between the retention price and the ex-factory price.

2. Arguments by Petitioners:
The petitioners argue that the subsidy received from the Government of India does not form part of the sale price. They contend that the subsidy is not paid on behalf of the buyers and is unrelated to the contract of sale between the petitioner and their customers. Under the TNGST Act, only the price paid by the buyer to the seller on a contract of sale is taxable.

3. Arguments by Respondent:
The respondent contends that the manufacturers receive payments both from the customers and the Government of India (in the form of subsidy). The total consideration for the sale of fertilisers includes both the ex-factory price received from the customers and the subsidy from the Government. Therefore, the subsidy forms part of the turnover as defined in section 2(r) of the TNGST Act, which includes the aggregate amount for which goods are bought or sold.

4. Judicial Precedents and Analysis:
The Tribunal examined various judicial precedents:

- Andhra Pradesh High Court Decisions: The court held that the subsidy does not form part of the sale price as it is not recorded in the bills of sale and is not received from the purchaser or on behalf of the purchaser.
- Kerala High Court Decision: The court agreed with the Andhra Pradesh High Court, stating that the subsidy is paid for ensuring a reasonable return on investment and is not related to any particular sale transaction.
- Allahabad High Court Decision: The court held that the subsidy from the Central Government is not part of the amount received for the sale of goods to customers.

The Tribunal, however, had reservations about these views due to the statutory compulsion enforced by the Essential Commodities Act, which mandates the sale of fertilisers at a fixed price under the Control Order.

5. Provisions of the TNGST Act:
The Tribunal examined the definition of "turnover" under the TNGST Act, which includes the aggregate amount for which goods are sold, whether for cash, deferred payment, or other valuable consideration. The Tribunal concluded that any amount that goes into the consideration for effecting the sale should be treated as "turnover," including the subsidy received from the Government.

6. Relevant High Court Decisions:
- State of Tamil Nadu v. National Co-operative Sugar Mills Limited: The court held that the subsidy for early planting given by the sugar manufacturer to the cane grower forms part of the purchase price.
- Chengalvarayan Co-operative Sugar Mills Ltd v. State of Tamil Nadu: The Full Bench concluded that any subsidy linked to the supply of goods forms part of the price and is includible in the purchase turnover.

Conclusion:
The Tribunal held that the subsidy received by the petitioners from the Government of India forms part of the "turnover" and is therefore assessable to sales tax. The petitions were dismissed.

Final Order:
The Tribunal ordered that the judgment be observed and carried into execution by all concerned. The petitions were dismissed on the 3rd day of August, 1998.

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