of Tamil Nadu & Ors Vs. Kothari Sugars
& Chemicals Ltd.  INSC 216 (8 February 1996)
Verma, K. Venkataswami J.S. Verma, J.
CIVIL APPEAL NOS. 10733-10735 OF 1995 State of Tamil Nadu & Ors. V. Kothari Sugars & Chemicals Ltd. etc.
WITH CIVIL APPEAL NO. 11213 OF 1995 State of Tamil Nadu & Ors. V. E.I.D. Parry (India) Ltd., Madras WITH CIVIL APPEAL NOS. 11605-11608
OF 1995 Tungabhadra Sugar Works & Anr. V. State of Karnataka & Ors. WITH CIVIL APPEAL
NO.11211 OF 1995 State of Tamil Nadu
& Ors. V. M/s.Kothari Sugar & Chemicals Ltd. WITH CIVIL APPEAL NO.11214
OF 1995 Godavari Sugar Mills V. State of Karnataka & Ors. AND CIVIL APPEAL
NO.11212 OF 1995 State of Tamil Nadu
& Anr. V. Tvl Cauvery Sugars & Chemicals
question for decision is : Whether for the purchase of sugar-cane from tho cane
growers, a purchaser is liable to pay purchase tax under the State Sales Tax
Act on the amount paid by the purchaser to the cane grower over and above the
price fixed under Clauses 3 and 5-A of the Sugar cane (Control) Order, 1966 ?
Clause 3 of the Control Order issued under the Essential Commodities Act, 1955
empowers the Central Government to fix the minimum price for sugar-cane for
each season and different prices are permitted to be fixed for different areas
or different quantities or varieties of sugar-cane. Since 1.10.1974 pursuant to
the acceptance of Bhargava Commission Report, the Central Government introduced
Clause 5-A in the Sugar-cane (Control) Order, 1966, the material part of which
is as under ;
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.
The Central Government or the State Government, as the case may be, may authorise
any person or authority, as it thinks fit, for tho purpose of determining the
additional price payable by a producer of sugar under sub-clause (1) and the
person or authority, as the case may be, who determines the additional price,
shall intimate the same in writing to the producer of sugar and sugarcane
grower connected with the supply of sugarcane to such Producer of sugar.
xxx In Tamil Nadu, the State Government duly exercised its power by appointing
the Director of Sugar and Cane Commissioner, who, by order dated 2.7.1983
determined the "additional cane price" under Clause 5-A at Rs.28.15
per MT for the respondent i.e. Thiru Arroran Sugars Ltd., making the final
statutory cane price as per the Control Order at Rs.179.55 per MT, the
"minimum cane price" fixed by the Central Government being Rs.151.40 por
MT. There is no dispute that this additional price fixed under Clause 5-A
attracts purchase tax which has already been paid. However, the dispute is with
regard to the claim of the State Government for payment of purchase tax on the
excess amount paid by the purchaser in addition to the aggregate of the minimum
cano price fixed under Clause 3 and the additional cane price fixed under
Clause 5-A by the Central Government.
occasion for payment by the purchaser of the amount in excess of the aggregate
of the minimum cane price and the additional cane price so fixed, arises on
account of an Order of the State Government dated 15.11.1980 purporting to fix
a higher revised minimum cane price and directing the sugar factories in Tamil Nadu
to pay that price to the cane growers. Pursuant to the direction, each sugar
factory was directed to make that payment and in compliance thereof this sugar
factory paid the excess amount as an "Advance" described as under :
advance payment towards cane supply during 1980-81 Season, against probable
additional cane price under Section 5A of the Sugarcane (Control) Order,
1966." This amount paid as "advance" by the sugar factory for
purchase of sugar-cane in anticipation of fixation of the additional cane price
under Clause 5-A was Rs.52.40 per MT Accordingly, on fixation of the additional
cane price at Rs.28.15 per MT, the excess amount of advance came to (Rs.52.40
per MT minus Rs.28.15 per MT) Rs 24.25 per MT.
the sugar factory claims that this excess amount of Rs.24.25 per MT paid by it
to the cane grower is towards advance and liable to adjustment or refund, even
if it remains with the cane grower, it cannot form part of the price of
sugar-cane which cannot exceed the aggregate of the minimum cane price fixed
under clause 3 and the additional cane price fixed under Clause 5-A. This is
the common stand of all sugar factories, as purchasers of sugarcane from the
purchasers filed writ petitions challenging the demand by the State Government
of purchase tax on the above excess amount of Rs.24.25 per MT. They contested
the demand on the ground that it could not form a part of the sale price of
cane sugar which had been statutorily fixed under. Clauses 3 and 5-A of the
Control Order. The Madras High Court rejected the contention of the State
Government and allowed the writ petitions of the assessees. Hence, these
appeals by way of special leave by the State of Tamil Nadu.
perusal of the relevant provisions of the Sugar- cane (Control) Order, 1966,
particularly Clauses 3 and 5-A therein, it is clear that the total price of
sugar-cane fixed thereunder is the aggregate of the minimum cane price fixed
under Clause 3 and the additional cane price fixed under Clause 5-A. Thus,
unless there be an agreement between the grower and the purchaser for purchase
of the sugar-cane at a higher price, the obligation of the purchaser is to pay
to 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
to the grower any amount in excess of this aggregate amount. Thus, without any
contractual or statutory basis fixing the sale price of sugar-cane 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 cannot
form part of the price of cane sugar.
these matters there is admittedly no statutory basis since the 'State advice'
to the purchasers to pay a certain amount in addition to the minimum cane price
fixed under Clause 3, in anticipation of fixation of the additional cane price
under Clause 5-A, does not have any statutory basis.
amount paid as advance under the State advice also does not have any
contractual basis since this was not paid as a result of an agreement between
the grower and the purchaser.
amount of advance was paid in anticipation of fixation of the additional cane
price under Clause 5-A which means that in case the fixation under Clause 5-A
was at a higher amount than the amount paid as advance then the purchaser would
have to pay the deficit amount. Similarly, when the amount of advance was in
excess, the purchaser would be entitled to refund of the excess amount,
irrespective of the fact whether the refund was actually made or not. For the
purpose of determining the price of sugar-cane for computation of the purchase
tax, the only significant amount is the aggregate of the minimum price fixed
under Clause 3 and the additional cane price fixed under Clause 5-A, unless a
higher price is paid to the grower by agreement between the purchaser and
argued by learned counsel for the State that the higher price inclusive of the
excess amount included in the advance paid on State advice is deemed to have
been paid by an agreement between the grower and the purchaser and, therefore,
the entire amount would be the price of sugar- cane. This is a question of fact
in each case. It is true that if in a given case it is found as a fact on the
basis of evidence that the purchaser had agreed with the grower to pay the
higher price described as 'advance' including the amount in excess of the
additional price fixed under Clause 5-A then in that case the entire amount
would be the price of sugar-cane. However, there is no such basis found in the
present case wherein the excess amount forming part of the advance was paid
only under compulsion on the direction contained in the 'State advice'. It is
significant that a provision for adjustment is clearly made in sub-clause (6)
of Clause 5-A. This provision supports the view we have taken. The decision of
the Madras High Court which is Tax Officer Mannargudi & Ors., 1988 (71) STC
444 is, therefore, upheld and the appeals against the decision of the Madras
High Court are, therefore, dismissed.
connected matters arising out of the judgment of the Karnataka High Court,
similar writ petitions filed by the purchasers of sugar-cane were dismissed.
The two decisions of the Karnataka High Court which require reference are Pandavapura
Sahakara Sakkare Kharkhane (P) Ltd. v. State of Mysore, 1973 (32) STC 104 and Tungabhadra
Sugar Works Ltd. v. State of Karnataka & Ors., 1994 (93) STC 561. In Pandavapura
it was found proved as a fact that the substance of the transaction between the
purchaser and the cane growers was for payment of the enhanced price for the
sugar-cane supplied and the amount paid in excess of the statutory price was
paid under the contract and not either as ex-gratia payment or towards advance.
In that situation the entire amount paid was treated as the price. In our
opinion, the nature of contract in that case being such, the entire amount paid
had to be treated as price of the sugar- cane supplied since the Statute does
not prohibit an agreement between the grower and the purchaser for payment of a
higher price for the sugar-cane by the purchaser. In the later decision in Tungabhadra
also it is noticed that there is no prohibition against the parties agreeing
for the payment of a higher price of the sugar-cane. In that situation no doubt
the entire amount paid has to be treated as the price of the sugar-cane.
However, as indicated earlier, for treating the entire amount paid by the
purchaser as the price of sugar-cane supplied, it must be found proved as a
fact that the higher price including the excess amount was paid as the price of
sugar-cane under an agreement between the grower and the purchaser irrespective
of a lower amount being fixed as the aggregate of the price fixation under
Clauses 3 and 5-A of the Control Order.
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 fixation of the additional price under Clause 5-A, cannot be
treated automatically as a part of the total price of sugarcane. In matters
arising out of decisions of the Karnataka High Court, this aspect has not been
adverted to and the writ petitions have been dismissed without going into this
question. The Karnataka matters have, therefore, to be remitted to the High
Court for a fresh decision on the above basis.
result of the aforesaid decision, the appeals of the State of Tamil Nadu (Civil Appeal Nos. 10733-10735,
11083-11141, 11211, 11212 and 11213 of 1995) against the judgment of the Madras
High Court are dismissed. The appeals against the decision of the Karnataka
High Court by the sugar factories (Civil Appeal Nos. 11605-11608 and 11214 of
1995) are allowed. The matters are remitted to the Karnataka High Court for a
fresh decision in accordance with law in the manner indicated after hearing