Case: M/s. Neyveli Lignite Corporation Ltd Vs. Commercial Tax Officer, Cuddalore &amp; Another

2. Briefly stated the facts are that in 1957 under the provisions of Section 3 of the Essential Commodities Act, 1955, the Central Government promulgated the Fertilizer (Control) Order. This Order has been revised from time to time and in respect of the assessment year7 we are concerned with the provisions of the Fertilizer (Control) Order, 19853. Under the provisions of the Fertilizer (Control) Order, maximum selling price for different types of fertilizer is determined under Clauses 3. No manufacturer like the appellant can sell or offer for sale any fertilizer at a price exceeding the maximum price or the rate fixed under Clause 3.e or violation of the same attracts penal consequences4. Fertilizer which is manufactured by the appellant is usually used by the agriculturists. In order to ensure the availability of fertilizer at a reasonable price, the prices are fixed under the Fertilizer (Control) Order normally at a figure which may possibly be less than the normal market price at which it can be sold. In order to ensure that no hardship is caused to the manufacturer and sufficient supplies are available,e, the Government of India took administrative decision and it introduced on 31st December, 1977 a Retention Price Scheme. This was introduced with effect from 1st November, 1977 and this Scheme, inter alia, contemplated the fixation of maximum sale price of fertilizer under Clause 8 of the Fertilizer (Control) Order; determination of retention price for each manufacturer; scheme of reimbursement of the difference between retention price fixed for the industry and the maximum selling price fixed under Clause 3 of the Fertilizer (Control) Order; submission of claims by the manufacturer supported by details of manufacture along with copy of central excise records to be addressed to the Executive Director, Fertilizer Industry Coordination Committee, New Delhi; and disbursement of an amount of subsidy to they being the difference between the retention price and the selling price fixed under Clause 3 of the Fertilizer (Control) Order5. The procedure enunciated on 31st December, 1977 was then substituted by another one as stipulated in the Governments letter of 29th September, 1980. Broadly speaking according to the procedure now prescribed, bills for payments and recovery under the Retention Price Scheme for subsidy are to be submitted when fertilizer is moved out of the factory along with the proof of movement. The claims are to be made in the forms which are prescribed and one of the conditions contained therein is that the fertilizer which is moved, has been sold or will be sold for agricultural purposes6. M/s. Neyveli Lignite Corporation Limited received notices from the sales tax authorities to the effect that according to it the subsidy received by the appellant from the Government of India would form part of the taxable turnover of the appellant, and, therefore, was liable to sales tax. This was challenged by the appellant by filing a writ petition in the High Court at Madras. With the establishment of the Tamil nadu Taxation Special Tribunal, the writ petition was transferred to the Tribunal7. The Taxation Tribunal by the decision dated 3rd October, 1998 came to the conclusion that the fertilizer subsidy disbursed by the Government of India against the claim made under the Subsidy Scheme was sale price or turnover attracting sales tax. The writ petition was, accordingly, dismissed. Hence, this appeal by special leave.

Reasoning:
11. In the instant case, as far as the Fertilizer (Control) Order is concerned, the appellant is only required to receive either the fixed price determined or the maximum price which may be fixed. For example, vide notification dated 30th January, 1988, maximum price per tonne of different types of fertilizer specified therein was fixed. In respect of urea, the maximum price per tonne fixed was Rs.. No manufacturer of urea could sell the same at a price in excess of Rs. 2,350/The Explanation in the said notification provided that the maximum price so fixed was to be inclusive of Central sales tax, State sales tax or other local taxes wherever levied. Neither in the notification nor in the Fertilizer (Control) Order is there any reference to the Retention Price Scheme of the Government13. It is clear form the aforesaid that whereas in respect of sale of fertilizer the purchaser has to pay the price as fixed under the Fertilizer (Control) Order giving of subsidy is not contemplated by the said Order and the same is given pursuant to an administrative decision taken by the Government of India. The subsidy so given is undoubtedly to see that the ultimate consumer gets fertilizer at a reasonable price and the manufacturer is not unduly burdened by the lower fixation of the price of fertilizer. The payment which is so made by the Government to a manufacturer cannot be regarded as a discharge of any liability or obligation by the Government towards the purchaser of fertilizer. The two payments received by the manufacturer, namely, the subsidy and the price fixed under the Fertilizer (Control) order are independent of each other. Subsidy does not form part of the bargain between the manufacturer and the purchaser of fertilizer15. It appears to us that the aforesaid observations are clearly applicable in the present case. Here also, there is no statutory basis for the grant of subsidy; and the amount was received by the appellant pursuant to the administrative decision taken by the Central Government. Furthermore, the subsidy is not traceable to any agreement, direct or indirect, between the manufacturer and the purchaser of fertilizer. What was payable in law as a sale price for fertilizer was the amount or the rate fixed under the Fertilizer (Control) Order and no moreIt is apparent that the amount given by the Central Government under the administrative scheme of furnishing subsidy is not to be regarded as a part of the sale price or consideration for the sale of fertilizers by the appellantIt is clear that this subsidy was paid pursuant to an agreement between the growers and the purchasers and the payment was made at the time of the sale. In the present case, however, there is no agreement between the appellant and the purchasers of fertilizer for payment of any amount by the purchasers to the manufacturer in excess of the price fixed under the Fertilizer (Control) Order. Subsidy is paid to the appellant not by or on behalf of the purchasers, but is paid by the Government of India for different reasons and under its own scheme and after a budgetary allocation. As we have already observed, the scheme of payment postulates the right of the appellant to receive the subsidy on its clearance from the factory and not necessarily after the sale of fertilizer. Even before the sale of fertilizer, the right to receive the subsidy arises and under the circumstances, it cannot be said that subsidy arises and under the circumstances, it cannot be said that subsidy would form part of the sale price or turnover of the appellant22. This decision was affirmed by the Division Bench in Assistant Commissioner of Sales Tax (Assessment), Special, Ernakulam and others, v. Krishak Bharathi. Ltd., 99 STC 17 (Kerala) and the special leave petition filed against the same was dismissed by this Court. we are in respectful agreement with the view of the Single Judge of Kerala High Court and that, in our opinion, is the correct enunciation of law.