Case: State of Karnataka &amp; Others Vs. M/s. Sri Chamundeswari Sugar Ltd

2. The respondent company is a dealer registered under the provisions of the Karnataka Sales Tax Act, 1957 (in short the Act) and Central Sales Tax Act, 1956 (in short the Central Act) and is engaged in the manufacture of sugar and is liable to pay tax on purchase of sugarcane. The price payable for purchase of sugarcane by a sugar factory is fixed by the Government of India in exercise of its powers under clause 3 of the Sugarcane (Control) Order, 1966 (in short Control Order). The price so fixed is called the Statutory Minimum Price. In addition to statutory price so fixed, the Government of Karnataka also fixes the price payable to sugarcane growers by the sugar factories as State Advised Price (SAP for short). The price paid by sugar factories to sugarcane growers also comprises harvesting subsidy, transportation subsidy, plantation subsidy and the advance payment towards these subsidies.3. The assessing authority for the assessment years 1990-1991, 1991-1992, 1992-93 and 1993-94 had passed assessment orders taking into consideration the statutory minimum price fixed by the Central Government, SAP fixed by the State of Karnataka and all other amounts paid to sugarcane growers by the respondent-company as the purchase price paid to sugarcane growers and had levied purchase tax under the Act.4. The orders of assessment passed by the Assessing Officer were questioned by the respondent-company by filing a Writ Petition before the High Court. Grievance of the respondent-company was that the Assessing Authority was not justified in levying purchase tax on the amount paid by the factory to the sugarcane growers over and above the statutory minimum price fixed by the Central Government. The High Court rejected the Writ Petition and held that the amount paid under the different nomenclatures required to be considered as purchase price paid by the purchaser of sugarcane to the cane growers. The respondent-company approached this Court questioning correctness or otherwise of the order passed by the High Court by filing a Special Leave Petition. The appeal was disposed of alongwith other appeals involving similar issues by order dated 8.2.1996 i.e. State of Tamil Nadu and Ors. v. Kothari Sugars and Chemicals Ltd. (1996 (101) STC 197 ). It was inter-alia observed asa perusal of the Sugarcane (Control) Order, 1966, it is clear that the total price of Sugarcane fixed thereunder is the aggregate of the minimum cane price fixed under clause 3 and the additional price fixed under clause 5-A. Unless there be an agreement between the grower and purchaser for purchase of the sugarcane at a higher price, the obligation of the purchaser is to pay the grower only the aggregate of the amounts fixed under clauses 3 and 5-A. In other words, under the statute there is no liability of the purchaser to pay the grower any amount in excess of this aggregate amount. Where, without any contractual or statutory basis the sale price of sugarcane is fixed at an amount higher than the minimum cane price fixed under clause 3 and the additional cane price fixed under clause 5-A, any sum paid by the purchaser to the grower as advance prior to fixation of the additional cane price under clause 5-A, to the extent that it is in excess of the additional cane price fixed later, cannot form part of the price of cane sugar. It must be proved as a fact that the higher price including the excess amount was paid as the price of the sugarcane under an agreement between the grower and purchaser irrespective of the lower amount being fixed as the aggregate of the price fixation under clauses 3 and 5-A of the Control Order. Unless a clear finding to that effect is recorded, the amount paid-by the purchaser in excess of the aggregate of the minimum price fixed under clause 3 and the additional price fixed under clause 5-A, as a part of the-amount paid as advance prior to the fixation of the additional price under clause 5-A, cannot be automatically treated as a part of total price of sugarcane".So far as the decision of Karnataka High Court in Tungabhadra Sugar Works and Anr. v. State of Karnataka and Ors., this Court remitted the matter for a fresh consideration in the light of certain observations and directions given. After remand by order dated 9.7.1996 in Writ Petition No.4583/93 and connected matters, the High Court remanded the matter to the Assessing officer with certain observations, the relevant portion of which reads asalso think that the proper course to be adopted in these cases is to remit the matter to the assessing Authority for fresh consideration in the light of what has been stated by the Supreme Court in its order in Civil Appeal No.11605-608/1995. Hence, we quash the assessment orders or the orders made in appeals arising therefrom or any demands subsisting thereto and direct the assessing authorities concerned to redo the assessments, in the light of the decision of the Supreme Court aforesaid.The Assessing Officer after a detailed verification of the materials made available by the respondent-company came to hold that the State Advised Price paid by the respondent forms part of the purchase price paid to the sugarcane growers and, therefore, that required to be included in the turnover of the dealer for the purpose of computation of tax. The appeal filed by the respondent-company was dismissed by the First Appellate Authority, but in Second Appeal the Karnataka Appellate Tribunal (in short the Tribunal) decided in favour of the respondent-company.7. Aggrieved by the findings, the State and its functionaries filed Sales Tax Revision Case Nos.59-62 of 2001 before the High Court. Question of law raised was asthe Tribunal was justified in holding that the advance towards SAP cannot be subjected to tax even though the other incentive subsidies were to be treated as part of purchase price in view of the decision of the Supreme Court in EID Parry (I) LimitedReferring to the decisions of this Court in EID Parrys and Kothari Sugars cases (supra), the High Court held that the matter was concluded by para 9 in Kotharis case (supra). The High Court further held that in the absence of agreement between sugarcane purchasers and sugarcane growers, the payment of excess amount fixed by the State/Central Government was not to be reckoned. The writ petition was accordingly dismissed.

Court's reasoning:
It is the stand of the respondent that purchase price is not defined and, therefore, the agreed price would be taken to be the purchase price.This plea is clearlythe commercial sense, a transaction of purchase is a part of a transaction of sale. A transaction of sale can never be complete unless there is a transfer of property from the seller as well and the buyer who is the purchaser, must, therefore, acquire the property before he can claim to have purchased the property.17. In the Sale of goods Act and also in the Central Sales Tax Act or in any of the sales tax laws made in the several States, the definition includes the sale of goods, and not to the purchase of goods. That must be so because the sale of a commodity must include within its ambit the concept of sale as well as purchase. It is not possible to conceive of a sale of goods without a buyer.18. It is fairly accepted that SAP has been paid. The claim of the respondent is that determination is tentative and certain adjustments can be made later. But till that is done the SAP has to be taken as the consideration. In our view appellants were justified in demanding purchase tax on the amount paid as SAP and the High Courts view is clearly unsustainable and is set aside. The view expressed in Ponni Sugars case (supra) is in consonance with the view expressed by the Constitution Bench in U.P. Cooperatives case (supra). The observations relating to the agreed price which is above the lowest permissible rate cannot read to mean that any ceiling is fixed by the agreed price. In fact in Ponni Sugars case (supra) and U.P. Cooperatives case (supra) this Court held that the price fixed under the Control Order was the minimum price and it was the lowest permissible rate. The highest amongst the three prices relatable to the purchase is the price on the basis of which the purchase tax is to be levied.