WP/1308/2001 of INDIAN POTASH LTD Vs ASST COMMSNR (CT) ZONE IX on 19 December 2001

: ORDER

(Order of the Court was made by R.Jayasimha Babu,J.)

The definition of "turnover" in the Tamil Nadu General SalesTax Act lays emphasis on the consideration for the goodswhich are the subject-matter of sale. Price is not definedin the Act. It is defined in the Sale of Goods Act as themoney consideration for the sale of goods. The Sales TaxAct of the State does not require that for an amount to beregarded as part of the turnover, the consideration musthave been paid by the actual buyer. The definition of"turnover" is in relation to the dealer who receives theconsideration and the source from which that considerationis received is not required to be gone into, so long as thereceipt of the consideration for the sale is clear and isestablished. 2. The Assessing Authority, having sought totax the petitioner, who is a manufacturer of fertilizer butwhose product Potash, is not subject to the Fertilizer(Control) Order so far as the pricing is concerned, and whohad sold the product in terms of an administered Schemeframed by the Central Government which provided for paymentof an amount which was described as a concession in theScheme formulated by the Central Government to themanufacturer, subject to the manufacturer agreeing to sellthe fertilizer to the farmer at the price set out in theScheme, the sum total of the two amounts being regarded bythe Assessing Authority as a consideration for the sale, thepetitioner filed an Original Petition, challenging theassessments made on that basis. The Taxation SpecialTribunal having upheld the assessment, the Assessee is nowbefore us. 3. It was submitted by Mr.C.Natarajan, learnedSenior Counsel appearing for the dealer that the matter inissue is squarely covered by the decision rendered by athree Judges Bench of the Supreme Court in the case ofNEYVELI LIGNITE CORPORATION LIMITED -vs- COMMERCIAL TAXOFFICER, CUDDALORE AND ANOTHER reported in (2001) Vol.124STC 586. That submission was made even while acknowledgingthat the fertilizer, the sale of which was thesubject-matter of that decision was subject to theFertilizer ( Control) Order unlike the Potash sold by thedealer here which is not subject to that Control Order, sofar as price is concerned. 4. In that decision, at para10, it was observed by the Court that "It appears to us thatit is that sale consideration, whether in cash or otherwise,

which is receivable in respect of sales made by a dealerwhich can possibly form part of the turnover of a dealer".After noticing the fact that the subsidy under theAdministered Scheme considered in that case, was payable atthe time of removal of goods from the factory although afterthe Company had certified that the removal is for sale foragricultural purposes, it was observed by the Court at Para13 that "the subsidy so given is undoubtedly to see that theultimate consumer gets fertilizer at a reasonable price andthe manufacturer is not unduly burdened by the lowerfixation of the price of fertilizer. The payment which isso made by the Government to a manufacturer cannot beregarded as a discharge of any liability or obligation bythe Government towards the purchaser of fertilizer. The twopayments received by the manufacturer, namely, the subsidyand the price fixed under the Fertilizer (Control) Order areindependent of each other. Subsidy does not form part ofthe bargain between the manufacturer and the purchaser offertilizer". 5. The Court after referring to the decisionrendered in the case of STATE OF TAMIL NADU -vs- KOTHARISUGARS & CHEMICALS LTD. (1996) 101 STC 197) observed atpara 15 thus:- "Here also there is no statutory basis forthe grant of subsidy; and the amount was received by theappellant pursuant to the administrative decision taken bythe Central Government. Furthermore, the subsidy is nottraceable to any agreement, direct or indirect, between themanufacturer and the purchaser of fertilizer". The Courtthen referred to the decision of the Constitution Bench ofthe Apex Court in the case of GEORGE OAKES (PRIVATE) LIMITED-vs- STATE OF MADRAS (1961 (12) STC 476) regarding the scopeof the term "turnover" and quoted with approval thefollowing passage in that judgment: "So far as thepurchaser is concerned, he pays for the goods what theseller demands viz., price even though it may include tax.That is the whole consideration for the sale and there is noreason why the whole amount paid to the seller by thepurchaser should not be treated as the consideration for thesale and included in the turnover." 6. The Court then wenton to state the effect of that passage in these terms: "Itis clear from the aforesaid observations that it is thatamount which flows from the purchaser to the seller whichalone would form part of the turnover of the seller. Anysum received de hors the contract of sale from anotherentity, whether it be Government or anyone else, cannot beregarded as being an amount which would form part of thesale price on which tax is payable". At para 20 of thejudgment, reference was made to the case of E.I.D.PARRY(2000) 117 STC 457). Thereafter, the Court emphasized thefact that there was no agreement in t he case before it thatany part of the price would be paid by the Government and,therefore, the amount received by the manufacturer from the

Government would not form part of the sale price. The Courtobserved that "In the present case, however, there is noagreement between the appellant and the purchasers offertilizer for payment of any amount by the purchasers tothe manufacturer in excess of the price fixed under theFertilizer (Control) Order. Subsidy is paid to theappellant not by or on behalf of the purchasers, but is paidby the Government of India for different reasons and underits own Scheme and after a budgetary allocation". 7.Having regard to the pronouncement of the Apex Court thatthe price is that which the seller receives from thepurchaser and that the subsidy received by the seller fromthe Government in terms of an Administered Scheme which doesnot provide that the amount paid by the Government is beingpaid on behalf of the buyer, the amount of the 'concession'received by the petitioner from the Government cannot beregarded as forming part of the price which alone can besubjected to tax under the Act. 8. Counsel also brought tothe notice the decision of the Apex Court TISCO GENERALOFFICE RECREATION CLUB -VS- THE STATE OF BIHAR & OTHERS (JT2001 (10) SC 101), wherein the Court held that the subsidygiven by the management to the canteen does not form part ofthe gross turn over of the canteen, as though the pricefixed for the food items was below cost price, the valuableconsideration for the sale of the food item was only theprice so fixed. 9. Though the concept of sale wasconsiderably widened by the definition of tax on the sale orpurchase of goods incorporated in Clause 29-A of Article 366of the Constitution, which resulted in the earlier law whichhad assigned to the term sale under the Sales Tax Laws thesame meaning that it bore under the Sale of Goods Act, therehas been no change in the other concept of consideration.Consideration is even now understood as only the amount paidor payable by the buyer which would also include the amountspayable by others on behalf of such buyer, but would excludeamounts receivable by the seller for others under a Schemeto which the buyer is not a party. 10. We must, therefore,hold that the order of the Tribunal holding that the amountof concession received by the manufacturers from theGovernment under the Administered Scheme forms part of thesale consideration, is not in accordance with the lawdeclared by the Apex Court. The impugned order of theTribunal is set aside, and the original petition filed bythe petitioner before the Taxation Tribunal shall standallowed. 11. The learned counsel for the petitioner pointsout that the petitioner had paid certain amounts during thependency of the matter before this Court under the Ordersmade by this Court. Such amount shall be adjusted againstother liabilities, if any, of the manufacturer. If thereare no such liabilities, the amount shall be refunded.

Sd/ ASSISTANT REGISTRAR // True copy //

SUB. ASST. REGISTRAR.

To

1. The Assistant Commissioner (CT),Fast Tract Assessment Circle-I,Greams Road, Chennai-6.

2. The State of Tamil Nadu,rep.by Secretary to Government,Department of Commercial Taxesand Religious Endowments,Fort St.George, Chennai-9.

3. The Tamil Nadu Taxation Special Tribunal,rep. by the Registrar,Singaravelar Maligai,Rajaji Salai, Chennai.

JS

R.JAYASIMHA BABU, J.ANDA.K.RAJAN, J.

W.P.NOS.17235 OF 2000AND 1308 OF 2001

19.12.2001