2010 (8) TMI 863 - HC - VAT and Sales Tax

Whether cess payable under Act 20 of 1949 would form part of the sugarcane price and thereby would attract payment of sales tax under the provisions of the Tamil Nadu General Sales Tax Act? Held that - There is a statutory liability of inclusion of cess also in the price of the rubber payable by the manufacturer to the person concerned who is involved in the production of rubber for the purpose of levy of excise duty and collection of such levy either from the owner of the estate or from the manufacturer if there is one who uses such rubber. The honourable Supreme Court has dealt with the said consequence in paragraph Nos. 17 and 18 and therefore it was held that the liability of tax as prescribed under the Kerala General Sales Tax Act 1963 as per section 5 read along with entry 71 would include the cess payable under section 12 of the Act. There is absolutely no scope for including the payment of cess for the purpose of assessing the liability of tax under the provisions of the Tamil Nadu General Sales Tax Act. Appeal allowed.

Summary

Issues Involved:
1. Whether cess payable under the Madras Sugar Factories Control Act, 1949 forms part of the sugarcane price and attracts sales tax under the Tamil Nadu General Sales Tax Act.
2. Validity of the revised assessment and imposition of tax and penalty by the assessing authority.
3. Applicability of the Supreme Court decision in State of Kerala v. Madras Rubber Factory Ltd. to the present case.

Issue-wise Detailed Analysis:

1. Cess as Part of Sugarcane Price:
The core issue was whether the cess levied under the Madras Sugar Factories Control Act, 1949 should be included in the purchase price of sugarcane, thereby attracting sales tax under the Tamil Nadu General Sales Tax Act. The court referred to sections 2(r) and 3(2) of the Tamil Nadu General Sales Tax Act, which define "turnover" and stipulate the tax payable by a dealer on the turnover of goods. The court also examined clauses 3 and 5A of the Sugarcane (Control) Order, 1966, which outline the minimum and additional price of sugarcane fixed by the Central and State Governments, respectively.

The court concluded that the cess levied under sections 10(2) and 14(1) of the Madras Sugar Factories Control Act, 1949, does not form part of the purchase price of sugarcane. The cess is levied on the entry of sugarcane into the factory and is not related to the purchase price. The court emphasized that the levy of cess is on the occupier of the factory and is based on the entry of sugarcane into a specified area, not on the transaction of purchase. Therefore, the cess cannot be included in the taxable turnover for the purpose of sales tax.

2. Validity of Revised Assessment and Imposition of Tax and Penalty:
The assessing authority issued a revised pre-assessment notice and included the cess payment in the purchase price for the assessment year 1993-94. The petitioner contended that the cess should not form part of the purchase price and thus should not attract sales tax. The Appellate Assistant Commissioner initially allowed the appeal, holding that no tax is leviable on the cess. However, the Tribunal reversed this decision, relying on the Supreme Court decision in State of Kerala v. Madras Rubber Factory Ltd. and held that the cess was part of pre-purchase expenses.

The court found that the Tribunal's reliance on the Supreme Court decision was misplaced. The court noted that the Tribunal failed to consider the relevant provisions and the specific circumstances of the case. The court reiterated that the cess paid under the Madras Sugar Factories Control Act, 1949, is not related to the purchase price and thus should not be included in the taxable turnover. Consequently, the revised assessment and imposition of tax and penalty by the assessing authority were deemed invalid.

3. Applicability of Supreme Court Decision:
The Tribunal relied on the Supreme Court decision in State of Kerala v. Madras Rubber Factory Ltd. to justify the inclusion of cess in the purchase price. However, the court distinguished this case from the present one. The Supreme Court decision was based on the specific provisions of the Rubber Act, 1947, and the Kerala General Sales Tax Act, 1963, which mandated the inclusion of cess in the price of rubber for the purpose of excise duty. The court noted that the provisions of the Rubber Act and the Kerala General Sales Tax Act are different from those of the Madras Sugar Factories Control Act and the Tamil Nadu General Sales Tax Act.

The court concluded that the Supreme Court decision in State of Kerala v. Madras Rubber Factory Ltd. is not applicable to the present case. Instead, the court relied on the Division Bench decision in Cauvery Sugars and Chemicals Ltd. v. Joint Commercial Tax Officer, which held that the cess does not form part of the purchase price of sugarcane and is not subject to sales tax.

Conclusion:
The court set aside the orders of the Tribunal and allowed the writ petitions. The court held that the cess levied under the Madras Sugar Factories Control Act, 1949, does not form part of the purchase price of sugarcane and thus should not be included in the taxable turnover for the purpose of sales tax under the Tamil Nadu General Sales Tax Act. Consequently, the revised assessment and imposition of tax and penalty by the assessing authority were invalid.