2016 (10) TMI 660 - HC - VAT and Sales Tax

Scope of taxable turnover - whether the market fee or cess which is paid by the petitioner is in the nature of compensation for the special services rendered by the market committee and there must be quid pro quo for the services rendered by the Government or local body and such pre-expenses levied in rendering service by the market committee forms part of the taxable turnover for the purpose of levying tax and as such expenses are liable to be deducted from the total turn over? - Madras Sugar Factories Control Act, 1949 - Held that - the nature and incidence of cess was not intended to form part of the consideration for the purchase of sugar by the assessee therein. The said principle could very well be applied to the case on hand, since the petitioner had paid the fee or cess to the regulated market committee which renders certain services to the seller and the purchaser. In other words, the market committee acts as a facilitator for which a fee is collected - fee/cess paid by the petitioner to the market committee cannot form part of the taxable turn over nor made liable to tax - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to pre-revision notice including market fee in taxable turnover for assessment year 1999-2000.

Analysis:
The petitioner, a firm engaged in manufacturing groundnut and vegetable oil, challenged the inclusion of market fee in taxable turnover for the assessment year 1999-2000. The petitioner regularly purchased groundnuts from agriculturists, paying market fee as per the Tamil Nadu Agricultural Produce Marketing Regulation Act, 1987. The petitioner argued that the market fee is compensation for services by the market committee and should not be part of taxable turnover.

The petitioner received pre-revision notices for previous assessment years, stating that the market fee paid would form part of the purchase turnover liable to tax under the Tamil Nadu General Sales Tax Act, 1959. The petitioner objected, stating that market fee is an expense, not a tax, and should be deducted from total turnover. The matter was brought to the High Court, where the legal issue was whether the market fee could be included in the taxable turnover.

Referring to previous judgments, the petitioner argued that market fee should not be part of turnover. The Division Bench held that the market committee acts as a facilitator, and the fee paid is not intended as consideration for the purchase. The court concluded that the impugned notice was based on a misconception of taxable turnover, and the market fee should not be included in the taxable turnover.

In a similar case, the Punjab and Haryana High Court ruled that market fee should not be part of the turnover for tax purposes. The legal duty to pay market fee lies with the buyer, not the seller, and it should not be considered part of the purchase price. The court emphasized that market fee is not part of the sale consideration and should not be included in turnover for assessment or purchase tax.

Therefore, the High Court allowed the writ petition, setting aside the impugned notice and ruling that the market fee paid by the petitioner should not form part of the taxable turnover. The judgment clarified that the fee/cess paid to the market committee is not liable to tax and should not be included in the taxable turnover.