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Judgment
F.M. Ibrahim Kalifulla, J.—As the issue involved in these writ petitions is covered by our order passed in W.P. Nos. 50111, 50189 and
50190 of 2006, following the same, these cases also stand disposed of on merits.
The petitioner is common in all the writ petitions and is one of the appellants before the Tribunal, in which a common order came to be passed
by the Tribunal dated 02.04.2007 in T.A. Nos. 1173, 1174, 1175 & 1176 of 2001 and STA Nos. 1446, 1289, 1447 and 1401 of 2001.
Therefore, these Writ Petitions are being disposed of by this common order. For the sake of convenience, we refer to the facts relating to the
petitioner in W.P. No. 31554 of 2007.
The Assessment Order pertains to 1993-94. The assessment was completed on 31.07.1997. The assessment was however revised by an order
dated 31.3.1999 u/s 16 of the TNGST Act. The petitioner is Sugar Mills. The petitioner in W.P. No. 31554 of 2007 procured sugarcane for
crushing from sugarcane growers. It is common ground that by virtue of Section 3 of the Essential Commodities Act and pursuant to the Sugarcane
Control Order, 1966 came into being, the Central Government used to fix the price of the sugarcane to be procured apart from additional price
fixed by the State Government. Under the Madras Sugar Factories Control Act (in Act 20/1949) and the Madras Sugar Factories Control Rules,
1949, Cess also became payable on entry of sugarcane into the factory. Such cess levied on the Sugar Mills were to be remitted to the Director of
Sugars. The question involved herein is as to whether such cess payable under Act 20/1949 would form part of the sugarcane price and thereby
would attract payment of the Sales Tax under the provisions of the TNGST Act.
To appreciate the issue involved, it is worthwhile to refer to Sections 2(r) and 3(2) of the TNGST Act read along with Part-E of First Schedule
as well as Clauses 3 and 5A of the Sugarcane Control Order and Section 10(2) of Act 20/1949 read along with Section 14 of the Madras Sugar
Factories Control Act 1949. Section 2(r), Section 3(2) and Entry 22 of Part-E of First Schedule read as under:
Section 2(r) [""turnover"" means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any
of the ways referred to in Clause (n), by a dealer] either directly or through another, on his own account or on account of others whether for cash
or for deferred payment or other valuable consideration provided that the proceeds of the sale by a person of agricultural or horticultural produce,
other than tea, [and rubber (natural rubber latex and all varieties and grades of raw rubber] grown within the State by himself or on any land in
which he has an interest whether as owner, usufrcturary mortgagee tenant or otherwise shall be excluded from his turnover;
Section 3(2) Subject to the provisions of Sub-section (1), in the case of goods mentioned in the First Schedule, the tax under this Act shall be
payable by a dealer at the rate and only at the point specified therein on the turnover in each year relating to such goods:
Provided that all spare parts, components and accessories of such goods shall also be taxed at the same rate as that of the goods if such spare
parts, components and accessories are not specifically enumerated in the First Schedule and made liable to tax under that Schedule;
[Provided further that in the case of goods mentioned in the First Schedule which are taxable at the point of first sale, the tax under this Act shall be
payable by the first or earliest of the successive dealers in the State who is liable to tax under this section].
ORIGINAL ENTRY FROM 12-3-1993
Sugarcane excluding sugarcane sets.
At the point of 12-03-93
Last Purchase
in the State
Note:
This entry is as per substituted First Schedule to the TNGST Act, 1959 introduced by Act No. 24 of 1993-Tamil Nadu Govt. Gazette.
Extraordinary, Part IV, Section 2 dated 28.5.1993-Effective from 12.3.1993.
See Item No. 62 of First Schedule existed till 11.3.1993.
Reduction in rate of tax payable to eleven per cent on the purchase of sugarcane by the Sugar Mills was notified in G.O.P. No. 88 CT & RE
dated 17.3.1993-Notn. No. II(1)/ CTRE/41(b)/93 - Gazettee dated 17.3.1993 Effective from 1.10.1992) Relevant para of Clauses 3 and 5 A of
the Sugarcane Control Order reads as under:
Minimum price of sugarcane payable by producer of sugar .-- (1) The Central Government may, after consultation with such authorities, bodies
or associations a it may deem fit, by notification in the Official Gazette, from time to time, fix the minimum price of sugarcane to be paid by
producers of sugar or their agents for the sugarcane purchased by them, having regard to --
(a) the cost of production of sugarcane;
(b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
(c) the availability of sugar to the consumer at a fair price;
(d) the price at which sugar produced from sugarcane is sold by producers of sugar; and
(e) the recovery of sugar from sugarcane:
[Provided, that the Central Government or with the approval of the Central Government, the State Government may, in such circumstances and
subject to such conditions as specified in Clause (3-A), allow a suitable rebate in price so fixed.]
5-A. Additional price for sugarcane purchased on or after 1st October,1974.-- (1) Where a producer of sugar or his agent purchases sugarcane,
from a sugarcane grower during each sugar year, he shall in addition to the minimum sugarcane price, fixed under Clause 3 pay to the sugarcane
grower an additional price, if found due in accordance with the provisions of the Second Schedule annexed to this Order.
Section 10(2) of Act 20/49 as well as Section 14(1) of the Act framed thereunder are as under:
10 (1)....
(2)The occupier of such factory shall enter into an agreement with the growers for the purchase of all sugarcane offered by him in accordance with
Sub-section (1); and the agreement shall be in such form shall be executed on or before such date, and shall contain such terms and conditions as
may be prescribed:
Provided that the occupier may refuse to enter into such an agreement where the sugarcane is offered for delivery during a period in respect of
which he has already entered into agreements with growers in the reserved area for the purchase of a quantity of sugarcane equal to the maximum
consumption of the factory during such period.
14 (1) The Government may, after consulting the Advisory Committee, by notification, levy of a cess not exceeding four annas per standard maund
as defined in the Standards of Weight Act, 1939,
Levy of Cess on sugarcane brought into any area specified in such notification, for consumption, use or sale therein.
Keeping the above provisions in mind, the issue involved has to be examined.
The Assessing Authority after completion of the assessment on 31.07.1997, issued a revised Pre-Assessment Notice dated 23.3.1999 and
called upon the petitioner to show cause as to why the Cess payment should not also be included in the purchase price for the assessment year
1993-94. The petitioner contended that the same will not form part of the purchase price and therefore, it would not fall within the prescription
contained u/s 3(2) read along with Entry 22 of Part-E of First schedule and therefore no tax could be levied. However, rejecting the contention of
the petitioner, by an order dated 31.3.1999, the taxable turn over on the Cess levied under Act 20/49 was determined at a sum of Rs. 9,25,431/-
and after giving credit to whatever tax paid, the balance tax due was determined at a sum of Rs. 1,01,785/-. On the said sum, the surcharge due
and the additional tax was also determined apart from imposing penalty of Rs. 64,466/-.
Aggrieved against the said order of the Assessing Authority, the writ petitioner approached the Appellate Assistant Commissioner who by its
order dated 20.03.2001, allowed the appeal holding that no tax is leviable on the Cess paid under the provisions of Act 20/1949. As against the
order of the Appellate Assistant Commissioner, the State went on appeal before the Tribunal in STA No. 1446 of 2001 and the Tribunal by the
order impugned in these Writ Petitions dated 02.04.2007, held that the Cess was part of Pre-Assessment expenses and in the light of the decision
of the Hon''ble supreme Court reported in State of Kerala Vs. Madras Rubber Factory Ltd., , the revision of assessment made by the assessing
authority was justified. The Tribunal while setting aside the order of the Appellate Assistant Commissioner, restored the order of the Assessing
Authority. However, the Tribunal confirmed the order of the Appellate Assistant Commissioner in so far as deletion of penalty by holding that there
was a change of opinion based on which tax came to be levied.
Assailing the order of the Tribunal Mr. Prasad, learned Counsel appearing for the petitioners after referring to the clause contained in the
Sugarcane Control Order, under which the minimum price and the additional price are fixed by the Central and State Governments respectively as
well as the Cess leviable under Sections 10(2) and 14 of Act 20/1949 and after taking us through Section 3(2) and Entry 22 of Part-E of the First
Schedule of the TNGST Act, contended that the Cess levied under the provisions of Act 20/49 has absolutely no nexus to the price of sugarcane
procured by the petitioner either from the sugarcane growers or by its own in respect of the sugarcane harvested by itself and brought into its
factory. The learned Counsel would contend that as the expense of levy of Cess u/s 10(2) read along with Section 14 of Act 20/1949, has no
relation at all with the price of the sugarcane and the event of purchase alone would attract payment of tax u/s 3(2) of the TNGST Act, the very
demand made by the Assessing Authority u/s 16 of the Act was not valid in law and consequently the order of the Assessing Authority and the
confirmation of the same by the Tribunal are liable to be set aside.
As far as the decision reported in 108 STC 583 is concerned, according to the learned Counsel, the same is clearly distinguishable and
therefore the Tribunal''s reliance upon the said decision for imposing of tax liability under the provisions of TNGST Act is liable to be interfered
with. The learned Counsel also relied upon the decisions reported in State of T.N. and Others Vs. Kothari Sugars and Chemicals Ltd. and Others,
, Harsh Dhingra Vs. State of Haryana and Others, in support of his submissions.
As against the above submissions, Mr. Haja Naziruddin, learned Special Government Pleader appearing for the State contended that Section
14 of the Act, being a regulatory provision and the petitioner having entered the payment of Cess as part of their purchase expenses in their ledger,
which finding has been made by the Appellate Assistant Commissioner, there was every justification for the respondents to have raised the demand
by way of revision of assessment u/s 16 of the Act and therefore the order of the Assessing Authority and the Tribunal does not call for
interference.
Having heard the respective counsel and having perused the relevant provisions as well as the orders impugned herein, we are of the view that
the stand of the petitioner merits acceptance. When we refer to Sections 2(r) and 3(2) of TNGST Act, we find that u/s 2(r) of the Act, the
turnover has been defined to mean aggregate amount of goods bought or sold whether for cash or for deferred payment or other valuable
consideration. What is excluded is agricultural or horticultural purchase other than Tea grown within the State by the Assessee of any land in which
he has interest whether as owner or as usufrcturary mortgagee tenant or otherwise. Therefore, for the purpose of inclusion of an amount as
turnover, it should be the aggregate amount for which the goods are bought or sold. The said provision has relevance inasmuch as the levy of tax in
so far as the petitioner is concerned and the same is to be worked out by invoking Section 3(2) of the TNGST Act, as the taxable event in respect
of sugarcane is under Entry 22 of Part-E of First Schedule and the point of such levy is the last purchase in the State. u/s 3(2) of the Act, it is
specifically stipulated that the tax under the TNGST Act should be paid by a dealer at the rate and only at the point specified on the turnover in
each year relating to such case mentioned in the First Schedule.
Therefore a reading of Section 2(r) read along with Section 3(2) and Part-E of the First Schedule makes it abundantly clear that in the case of
the petitioner who is dealing with the particular goods namely sugarcane, the point of last purchase in the State is the relevant event and in the event
of such last purchase of sugarcane taking place at the instance of the petitioner, the same would attract payment of tax at the rate of 12% on the
turnover to be assessed as prescribed u/s 2(r) of the Act.
Therefore, in order to find out what is the turnover in the case of the petitioner, necessarily the price of the sugarcane at which it is bought by
the petitioner has to be found out. In the said circumstances, the question arise as to whether apart from Clauses 3 & 5-A of the Sugarcane
Control Order, the Cess levied u/s 10 (2) read along with Section 14(1) of Act 20/49 would also fall within the component of price of sugarcane.
In so far as the minimum price of sugarcane fixed under Clause (3) by the Central Government and the additional sugarcane price fixed under
Clause 5-A of the State Government is concerned, the petitioner has rightly disclosed the same in its return and the tax has also been duly paid.
When we come to the Cess levied u/s 10(2) of the Act, we find that while Section 10(2) of the Act stipulates that the occupier of sugar factory
should enter into an agreement with the grower for production of all sugarcane offered by the grower in accordance with Sub-section (1) and the
agreement should be in such form where it should contain the terms and conditions as may be prescribed.
We are not concerned with the proviso to Section 10(2) of the Act. u/s 14(1) of Act 20/1949, it is prescribed that the Government have
consulted the Advisory Committee and by notification levied a cess not exceeding four annas per standard maund as defined in the Standards of
Weight Act, 1939, on sugarcane brought into any area specified in such notification, for consumption, use or sale therein. Therefore, the crucial
words are ""the levy of cess at the prescribed rate by the notification on the sugarcane brought into any area specified"" in the notification. When the
said prescription contained in Section 14(1) of the Act is analyzed and read along with Sections 3(2) and 2(r) of TNGST Act, it is plain and
unambiguous that there is no element of any purchase or sale involved for the purpose of levy of cess. The mere factum of the sugarcane entering
into the factory would attract the levy of cess on the occupier of factory manufacturing sugar.
Such entry of sugarcane brought into the notified area of notification issued u/s 14 of the Act would thus result in levy of cess. Significantly, the
leviability of cess is on the person who owns the sugar factory and the location of such sugar factory in a notified area and nothing more. The only
other event to be ascertained is the entry of sugarcane into an area, which is specified in the notification, either for own consumption, use or even
for sale.
As far as the petitioner is concerned, in so far as the liability to pay the tax under the provisions of TNGST Act is concerned, as was stated
earlier, the liability is by virtue of the prescription in Section 3(2) of the Act and the point of levy being the purchase of sugarcane as stipulated
under Entry 22 of Part E of First Schedule. Under no other circumstances, the TNGST Act provides or creates any liability of payment of tax on
the petitioner who owns a sugar manufacturing unit and who happen to purchase sugarcane as the basic raw material for the manufacture of sugar.
The various other expressions other than the expression ''bought and sold'' used in Section 2(r) of the Act have no relations to the petitioner
which is a sugar factory. Therefore, the turn over which can be ascertained in relation to the petitioner can only relate to the purchase of sugarcane
as has been prescribed under Entry 22 of Part-E of First Schedule read along with Section 3(2) of the Act. In so far as the aggregate amount of
the purchase involved in the case of the petitioner the same was duly ascertained and assessed and such assessment indisputably was completed as
early as on 31.07.1997. Therefore, we are at a loss to understand as to how the cess levied u/s 14(1) of Act 20/1949 read along with Section
10(2) of the said Act and remitted to the Director of Sugars could be held to be even remotely relatable to the event of purchase of sugarcane
which alone would make the petitioner liable for assessment being made for the purpose of payment of tax under the provisions of TNGST Act. In
other words, there being no event of purchase of sugarcane in so far it related to the levy of Cess as stipulated u/s 14(1) of Act 20/1949, we do
not find any scope at all for the respondents to seek for and make a demand for payment of tax on the cess so levied by invoking the provisions
contained in the TNGST Act.
The above legal position stated by us is also fortified by the Division Bench decision of this Court reported in Cauvery Sugars and Chemicals
Ltd. and Others Vs. The Joint Commercial Tax Officer and Another, . This very issue namely as to whether the cess will form part of transaction
of purchase of sugarcane was the direct question involved in the said decision and the Division Bench after a detailed consideration has held as
under:
The cess does not even form part of transaction of purchase of sugarcane and is not by any means in any case part of the consideration for the
purchase of sugarcane. The cess paid is not taken into account for fixing the price u/s 12(1). The grower seller has neither any liability for the cess
nor is it paid on its behalf. (emphasis supplied). It is true that where a seller pays excise duty and includes it in the purchase price, such excise duty
will undoubtedly form part of the consideration like sales tax or any other tax which he has included in the consideration. But that cannot be the
case where cess as in this case is paid by the purchaser on his own liability and not on behalf of the seller. In fact the payment of cess u/s 14 read
with relevant rule is unconnected with the transaction of the purchase and price fixed u/s 12(1) The view of the Department as well as the Tribunal
that cess is integral part of the purchase, turnover of sugarcane cannot therefore be accepted as correct.
Then again the Court observed that
in fixing the price of the sugarcane cess was not taken into account. There was also no stipulation between the assessee and the growers - sellers
that the duty should as between them, be borne by the seller and that when a buyer on whom the liability was, paid the cess, it should be on behalf
of the seller. The cess paid by the assessee in discharge of their own statutory liability and on their own account cannot therefore form part of the
purchase price and therefore of the purchase turnover chargeable to tax. The inclusion of cess in the chargeable purchase turnover was, therefore
illegal.
We are therefore convinced that the question is no longer res integra inasmuch as the issue is directly covered by the above referred to decision of
the Division Bench.
Once we steer clear of the legal position and when we examine the correctness of the orders impugned, we find that the Assessing Officer in
his order has not given any reasons except stating that the petitioner failed to include the cess payment in the taxable purchase turnover and failed
to pay tax thereon and therefore the assessment was being made and for the very same reason also imposed the penalty.
In the case of the petitioner in W.P. No. 31554 of 2007, the Appellate Assistant Commissioner in his order dated 20.03.2001, in the first
instance, rightly held that the Cess would not form part of the purchase price and therefore no tax could be levied. The Appellate Assistant
Commissioner also followed the earlier Division Bench decision reported in Cauvery Sugars and Chemicals Ltd. and Others Vs. The Joint
Commercial Tax Officer and Another, and Appellate Assistant Commissioner also distinguished the decision reported in State of Kerala Vs.
Madras Rubber Factory Ltd., .
The Tribunal unfortunately without examining the issue with reference to the relevant provisions, has taken the view that the cess payment made
by the petitioner under the provisions of Act 20/1949 came to be disclosed in the ledger as purchase expenses and consequently it should be held
to be part of the sales turnover as prescribed u/s 2(r) of the TNGST Act, apart from relying upon State of Kerala Vs. Madras Rubber Factory
Ltd., .
As far as the reasoning that the petitioner disclosed the payment of cess as part of purchase price is concerned, the learned Counsel brought to
our notice the relevant entry made by the petitioner in its ledger, a copy of which was stated to have also been placed before the Tribunal by filing
necessary application. From the records, we find that the Account Head noted therein is ""cane cess"". The entry made therein disclose the cane
cess paid for the relevant month based on the total quantity in metric tonnes subtracted by the quantity of sugarcane which were brought into the
factory from within the local area itself and for arriving at the total quantity of sugarcane brought within the factory premises from outside the local
area, the value was made and the cess payable was debited to the concerned accounts for different months. Therefore when the ledger entry
distinctly disclose that the payment of cess debited to the concerned account was not by way of any purchase price, it can only be held that the
said factor was completely omitted to be noted both by the Tribunal as well as by the Appellate Assistant Commissioner.
When we examine the decision of the Hon''ble Supreme Court reported in State of Kerala Vs. Madras Rubber Factory Ltd., , as rightly
contended by the learned Counsel for the petitioner, the said decision has to be understood in the light of the specific provision contained in
Section 12 of Rubber Act 1947 and Section 5 read along with Entry 71 of the Kerala General Sales Tax Act. Section 12 of the Rubber Act has
been extracted in the said decision at page No. 589, which reads as under:
Imposition of new rubber cess.-- (1) With effect from such date as the Central Government may, by notification in the Official Gazette, appoint,
there shall be levied as a cess for the purposes of this Act, a duty of excise on all rubber produced in India at such rate, not exceeding fifty naye
paise per kilogram of rubber so produced, as the Central Government may fix.
(2) The duty of excise levied under Sub-section (1) shall he collected by the Board in accordance with rules made in this behalf either from the
owner of the estate on which the rubber is produced or from the manufacturer by whom such rubber is used.
While a reading of Section 12 of the Rubber Act discloses that though the levy of Cess was on the rubber produced at a particular rate, as
provided u/s 12(1) of the Rubber Act, the collection of the said Cess is made obligatory both on the manufacturer by whom such rubber is used as
well as the owner of the Estate concerned. In the event of there being a manufacturer intervening in the production of rubber as provided under
Sub-Section 2 of Section 12 then and there alone by virtue of the specific stipulation contained in Section 12(2), it will be mandatory either for the
owner or the manufacturer to pay the Cess on the quantum of rubber produced. Thus, there is a statutory liability of inclusion of Cess also in the
price of the rubber payable by the manufacturer to the person concerned who is involved in the production of rubber for the purpose of levy of
excise duty and collection of such levy either from the owner of the Estate or from the manufacturer if there is one who use such rubber. The
Hon''ble Supreme Court has dealt with the said consequence in paragraph Nos. 17 & 18 and therefore, it was held that the liability of tax as
prescribed under Kerala General Sales Tax as per Section 5 read along with Entry 71 would include the cess payable u/s 12 of the Act.
Therefore the said decision having been based on the specific provisions contained in Section 12 of the Rubber Act as well as Section 5 of the
Kerala Sales Tax Act, which is clearly distinguishable as compared to the provisions contained in Section 14(1) of Act 20/1949, there is absolutely
no scope for applying the said decision to the facts of this case. The case on hand is directly covered by the earlier Division Bench decision of this
Court in Cauvery Sugars and Chemicals Ltd. and Others Vs. The Joint Commercial Tax Officer and Another, and therefore, there is absolutely no
scope for including the payment of cess for the purpose of assessing the liability of tax under the provisions of TNGST Act.
Having regard to our above conclusion, we do not find any need to refer to other decisions placed before us. Therefore the order of the
Tribunal impugned in these Writ Petitions is set aside. The Writ Petitions stand allowed. No costs. Consequently, connected Miscellaneous
Petitions are closed.