1994 (4) TMI 401 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of fertilizer subsidy in taxable turnover under the Kerala General Sales Tax Act, 1963 (KGST Act).
2. Validity of assessments levying tax on subsidy amounts.
3. Applicability of Andhra Pradesh High Court decisions on similar matters.
4. Definition and treatment of subsidies in the context of sales tax.

Issue-wise Detailed Analysis:

1. Inclusion of Fertilizer Subsidy in Taxable Turnover:
The primary issue in these writ petitions is whether the fertilizer subsidy received by the petitioners should be included in their taxable turnover under the KGST Act. The petitioners, manufacturers, and sellers of fertilizers, argue that the subsidy received from the Central Government should not be considered part of their taxable turnover.

2. Validity of Assessments Levying Tax on Subsidy Amounts:
The petitioners challenge the assessments on the grounds that the subsidy amount cannot form part of their taxable turnover. They reference a decision by the Andhra Pradesh High Court, which held that such subsidies were not taxable. The assessing authority, however, included the subsidy in the taxable turnover, leading to the current dispute.

3. Applicability of Andhra Pradesh High Court Decisions:
The petitioners support their submissions with decisions from the Andhra Pradesh High Court, specifically in Fertiliser Corporation of India Ltd. v. Commercial Tax Officer and Coromandel Fertilisers Ltd. v. Commercial Tax Officer. These cases concluded that subsidies received from the Central Government were not related to any single sale transaction and thus could not be treated as part of the taxable turnover. The Kerala High Court agrees with these decisions, noting that the subsidy was not paid as consideration for any sale of fertilizer but was a grant to ensure a reasonable return on investment and facilitate the healthy development of the fertilizer industry.

4. Definition and Treatment of Subsidies:
The judgment delves into the definition of "subsidy" from various dictionaries and legal sources. A subsidy is described as a grant by the government to an enterprise for public benefit, often to keep commodity prices down. The court emphasizes that the subsidy received by the petitioners is not related to any particular sale transaction but is instead a grant to ensure fair returns and the healthy growth of the fertilizer industry. Therefore, the subsidy cannot be considered part of the sale price or turnover.

Conclusion:
The court concludes that the subsidy received by the petitioners from the Fertiliser Price Fund Account is not part of the taxable turnover under the KGST Act. The assessments imposing tax on the subsidy amounts are deemed illegal and unsustainable. Consequently, the court quashes the relevant assessment orders to the extent they levy tax on the subsidy amounts and directs the Appellate Assistant Commissioners to dispose of any remaining points in the appeals according to law. The writ petitions are allowed with no order as to costs.