2017 (9) TMI 680 - HC - VAT and Sales Tax

Valuation - subsidy - includibility - whether the subsidy received by the companies would form part of the turnover for the purpose of levy of tax under the Kerala Value Added Tax Act? - Held that - Subsidy is given to the manufacturer/dealer to make up the difference between the Retention Price and the price fixed by the Government under the Fertiliser Control Order. Though subsidy paid is for the benefit of the consumer public to ensure that the prices are kept at a reasonable level and at the same time, a reasonable return on investment is also ensured to the manufacturers/dealers, the subsidy is not a consideration for the sales effected. It is also not a reimbursement of the difference in the purchase price and sale price, but what is paid as subsidy is the difference between the maximum price specified in the Fertiliser Control Order and the Retention Price Scheme. The dealer sells the products namely, fertiliser, liquefied Petroleum Gas or PDS Kerosene as the case may be, at prices fixed by the Government of India and what is reimbursed by the Government of India is not part of the price or the difference between the purchase price or sale price. Only if what is reimbursed is the balance of the price, then and then alone, Explanation VII would be of relevance. Therefore, even in spite of the incorporation of Explanation VII to Section 2(Iii) of the KVAT Act, the legal position that subsidy received by dealers like the respondents herein cannot form part of their turn over remains unaltered. Appeal dismissed - decided against Revenue.

Issues:
1. Whether subsidy received by companies would form part of the turnover for the purpose of levy of tax under the Kerala Value Added Tax Act.
2. Whether the judgments under appeal, allowing the writ petitions, can be challenged by the State.
3. Whether the view taken by the learned Single Judge on the taxable turnover of the assessees is correct.
4. Whether re-examination of the issue is necessary under the provisions of the Kerala Value Added Tax Act.
5. Interpretation of the definitions of 'taxable turnover,' 'total turnover,' and 'turnover' under the KVAT Act, 2003.
6. Application of Explanation VII of Section 2(Iii) of the KVAT Act to include subsidies in turnover.
7. Analysis of the Fertiliser Control Order, Retention Price Scheme, and nature of subsidies paid by the Government of India.
8. Treatment of subsidies in the sale of fertilizers, Liquefied Petroleum Gas, and PDS Kerosene.
9. Comparison of subsidy distribution under the PDS Kerosene and Domestic LPG Subsidy Scheme with fertilizers.
10. Whether subsidies received by dealers can be considered part of their turnover under the KVAT Act.

Analysis:
1. The judgment involves writ appeals by the State of Kerala and its officers challenging the decision of the learned Single Judge regarding the inclusion of subsidies in the turnover for tax purposes under the Kerala Value Added Tax Act. The issue arose from petitions filed by companies manufacturing and importing fertilizers, as well as petroleum companies supplying Liquefied Petroleum Gas and Kerosene. The judgments under appeal were based on precedents, including the Madras Fertilizers case, which held that subsidies would not form part of turnover.

2. The State filed a revision against an order by the Tribunal, which allowed an appeal by an assessee based on a Supreme Court judgment. The Government Pleader argued that a re-examination of the issue was necessary under the KVAT Act, specifically focusing on the definitions of 'taxable turnover' and 'total turnover.'

3. The court examined the definition of 'turnover' under the KVAT Act, particularly Explanation VII, which specifies the treatment of amounts received by a dealer for goods sold at a lower price. The court clarified that Explanation VII applies only in cases where the difference in price is reimbursed, emphasizing that subsidies are not automatically included in turnover.

4. Regarding the Fertiliser Control Order and subsidies paid by the Government of India, the court highlighted that subsidies aim to maintain reasonable prices for consumers without affecting the sales agreement between manufacturers and purchasers. The court emphasized that subsidies do not form part of the sales consideration or reimbursement for price differences.

5. The judgment also analyzed the PDS Kerosene and Domestic LPG Subsidy Scheme, highlighting the similarities in subsidy distribution principles with fertilizers. The court concluded that subsidies received by dealers, as in the case of fertilizers, should not be considered part of their turnover under the KVAT Act.

6. The court dismissed the appeals and the revision, upholding the view that subsidies received by dealers should not be included in their turnover for tax purposes, based on the legal position clarified by previous judgments and the specific provisions of the KVAT Act.

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