2004 (8) TMI 744 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the State Advise Price (SAP) paid by the respondent company to sugarcane growers forms part of the purchase price and is subject to purchase tax.
2. The implications of the Supreme Court's decision in EID Parry (I) Ltd. vs. Asst. Commissioner of Commercial Taxes on the present case.

Detailed Analysis:

1. Whether the SAP paid by the respondent company to sugarcane growers forms part of the purchase price and is subject to purchase tax:

The respondent company, a registered dealer under the Karnataka Sales Tax Act, 1957, and Central Sales Tax Act, 1957, engaged in the manufacture of sugar, is liable to pay tax on the purchase of sugarcane. The price payable for sugarcane is fixed by the Government of India under the Sugarcane (Control) Order, 1966, known as the Statutory Minimum Price (SMP). Additionally, the Government of Karnataka fixes the State Advise Price (SAP). The assessing authority included all amounts paid to sugarcane growers, including SAP, in the purchase price and levied purchase tax.

The respondent company contested the assessment, arguing that the tax should only be levied on the SMP and not on the additional amounts paid as SAP. This argument was initially rejected by the High Court, which was later upheld by the Supreme Court in a related case, Kothari Sugars and Chemicals Ltd., and Tungabhadra Sugar Works vs. State of Karnataka.

The Supreme Court in Kothari's case clarified that unless there is an agreement between the grower and purchaser to pay a higher price, the obligation is only to pay the aggregate amounts fixed under clauses 3 and 5-A of the Sugarcane (Control) Order. Payments exceeding this aggregate amount without a contractual or statutory basis cannot be automatically treated as part of the total price of sugarcane.

Following the Supreme Court's directive, the High Court remitted the matter back to the assessing authority for fresh consideration. The assessing authority, upon detailed verification, concluded that the SAP paid forms part of the purchase price due to an implied agreement between the parties, as indicated in the cane bills.

2. Implications of the Supreme Court's decision in EID Parry (I) Ltd. vs. Asst. Commissioner of Commercial Taxes on the present case:

The Supreme Court in EID Parry's case dealt with whether planting subsidy and transport subsidy charges paid by the sugar factory could be included in the turnover. The Court held that these subsidies were part of the consideration for which sugarcane was sold and thus could be included in the turnover. However, the Court also reiterated that any ex-gratia payment or advance amount without a statutory or contractual basis could not be included in the purchase price.

In the present case, the High Court examined whether the SAP paid by the respondent company, which was advised by the State Government and not based on any contractual agreement, could be included in the turnover. The Court found that there was no evidence of an agreement between the sugarcane purchasers and growers for payment of SAP, and the excess amount paid was only on the advice of the State Government. Hence, following the principles laid down in Kothari's case, the Court concluded that the SAP could not be treated as part of the turnover.

Conclusion:

The High Court dismissed the revision petitions, holding that the SAP paid by the respondent company to sugarcane growers, without any contractual agreement, could not be included in the turnover for the purpose of computing purchase tax. The Court emphasized the distinction between statutory obligations and payments made under compulsion or advice without a contractual basis, aligning with the Supreme Court's rulings in both Kothari and EID Parry cases.