Ponni Sugars (Erode)
Limited Vs. The Deputy Commercial Tax Officer  Insc 632 (8 November 2005)
Ruma Pal & H.K. Sema Ruma
The appellant has a sugar mill and purchases sugarcane from cane growers. An
agreement was entered into between the appellant and the cane growers. In terms
of the agreement, the appellant arranges transport of the sugarcane from the
fields to the appellant's mill. The question is whether the transport charges
are excludible from the taxable turnover of the appellant for the purpose of
purchase tax under the Tamil Nadu General Sales Tax Act, 1959? The assessment
years in question are 1987-88 and 1988-89. During this period, the agreement
for sale and purchase of sugar which was entered into between the appellant and
the cane growers (where the appellant is referred as 'the first party' and the
cane growers as 'the second party') provided inter alia:
1) Both the parties agree to act according to the provisions of Madras Sugar
Factory Control Rules, 1949, Sugarcane (Control) Order, 1996 and the orders of
Tamil Nadu Government Agricultural (Cane) Department and the Director of
Sugar/Cane Commissioner of Tamil Nadu 2) The Second Party agrees to sell the
entire cane planted/ to be planted in the land specified in the schedule to this
agreement to the first party for the control price fixed by the Government from
time to time.
3) 4) 5) ...
6) The second party agrees to sell and deliver the cane by loading there as
per the terms of this agreement to the first party. It is the responsibility of
the first party to arrange transportation of the above delivered cane to the
However, both the parties agree to follow the orders passed from time to
time by the Director of Sugar/Commissioner of Sugar, Tamil Nadu".
The other clauses of the agreement, broadly speaking, related to the
appellant's financing of the growth and harvesting of the sugarcane and its
control over the cutting and disposal of the sugarcane.
By an order dated 29th June 1990 the Deputy Commercial Tax Officer held that
the transport charges formed part of the taxable turnover of the appellant
under the Act and assessed the appellant accordingly for the years in question.
The appellant's appeal was dismissed by the Appellate Assistant Commissioner.
The matter ultimately reached the Taxation Special Tribunal which held in favour
of the Revenue following the decision of the jurisdictional High Court in Chengalvarayan
Co-operative Sugar Mills Ltd. V. State of Tamil Nadu, and Thiru Arooran Sugars
Ltd. V. Assistant Commissioner of Commercial Taxes both reported in 105 STC 497
Aggrieved, the appellant filed a writ petition challenging the order of the
Tribunal before the High Court of Madras. The High Court dismissed the writ
petition following its decision in Chengalvarayan Co-operatives case.
According to the appellant, the Sugar Cane Control Order, 1966 (hereafter
referred to as 'the Control Order') applies and the price fixed under the
Control Order was the purchase price for determining the taxable turnover of
the appellant. As an alternative case it has been submitted that no amount
which was incurred subsequent to the sale or delivery of the sugarcane by the
cane growers to the appellant was includable in the taxable turnover. It is the
appellant's case that according to the agreement the sale/purchase had taken
place on delivery of the sugarcane in the field. Therefore the transport
charges which were subsequent to the sale were not includible.
Secondly, it is submitted that by the direction of Sugarcane Department of
the State Government the sugar mills were required to meet the transport
charges for the cane which was brought from beyond 40 kms. distance from the
mills. The transport charges for the registered cane would be borne by the cane
growers themselves and for the distance beyond 40 kms, the transport charges
for the cane would be met by the purchasing sugar mills. Therefore, it is
submitted that there was no question of including the transport charges for the
transportation of the sugarcane from beyond 40 kms to the appellant's mill paid
by the appellant under this directive, in the purchase price. The appellant has
also relied upon the orders in assessment proceedings in respect of earlier
years whereby the transport charges had been excluded from the taxable turnover
of the appellant on a construction of the agreement between the appellants and
the cane growers. Reliance has also been placed on the Tribunal's decision
dated 24th March, 1995 rejecting the respondent's claim to enhance the purchase
price by adding transportation charges. It was pointed out that the Tribunal
had referred to a Circular issued by the Board of Revenue on 31st July, 1982, by which the Board of Revenue excluded the transport subsidies paid by the appellants
to the lorry owners for transporting sugar cane from areas beyond 40 kms. It is
submitted that the Circulars are binding on the Department.
Learned counsel appearing for the respondent has submitted that the price
fixed by the Control Order was only the minimum and that the definition of
price in the Control Order allowed for the price to be determined on the basis
of the agreement between the seller and the purchaser. It was also submitted
that the dispute raised by the appellant has been decided against the assessee
and in favour of the Revenue by of Commercial Taxes; (2000) 2 SCC 321. It is
further pointed out that the agreement expressly incorporated the Sugarcane
Department directive dated 12th September1985 which made it clear that the
price was to include the transportation charges.
The issue whether the price fixed by the Central Government under the
Control Order was immutable has been decided by a Constitution Bench of this
Court in U.P.
Mills and Anr. (2004) 5 SCC 430. In that decision the definition of
"price" in Clause 2(g), as well as clauses 3 and 3(a) of the Control
Order were construed to come to the conclusion that the price fixed under the
Control Order was the minimum price of sugarcane to be paid by purchasers of
sugar for the sugarcane purchased by them. This is the lowest permissible rate.
It was contemplated under these provisions that there can be a price other than
the minimum price namely, the price agreed to between the purchaser and the
sugarcane growers or the sugarcane Growers Cooperative Society. It was said
that:- "A whole reading of the 1966 Order would, therefore, show that the
Central Government shall fix the minimum price of sugarcane but there can be a
price higher than the minimum price which may be in the nature of agreed price
between the producer of sugar and the sugarcane-grower or the
sugarcane-growers' cooperative society".
In the present case the agreement, the relevant extracts of which have been
quoted earlier, clearly envisaged the incorporation of the Circular issued by
the Department of Sugar on 12th September, 1985. The Circular says that unlike
the previous years it was decided that all the subsidies and incentives that
are proposed for 1985 to 1986 planting seasons would be given to the cane
growers only when the cane is supplied to the mills. Among the subsidies and
incentives which were required to be granted by the sugar mills, the purchasers
of sugarcane were required to give a transport subsidy. The Circular was
expressly included in the agreement entered into between the appellant and the
Therefore the transport subsidy formed part of the agreement for the sale of
the cane to the appellant.
Clause (6) of the agreement did not say that the sale was to take place in
the field as contended by the appellant. It merely provided for the method of
sale. This is also clear from the conduct of the parties. The appellant has
admittedly included the transport charges up to 40 kms. from the mill within
the purchase price and has admittedly paid tax thereon. If the sale took place
at the field and transportation charges did not have any connection with the
cane growers, there was no need either to include the transport charges from
the field upto the 40Km. mark in the purchase price or to expressly provide
that the transportation charges would be payable by the vendor.
Besides the very use of the word "subsidy" in the directive dated
12th September, 1985 which was payable on delivery at the factory gate would
also support the view that the transport charges were otherwise bearable by the
The Full Bench of the Madras High Court was called upon to resolve a dispute
between conflicting decisions of the High Court inter alia as to whether
transport subsidies were includible in the purchase turnover of the sugar mills
which were purchasing sugarcane under the Tamil Nadu General Sales tax Act,
1959 ( referred to hereafter as the Act) in Chengalvarayan Co-operative Sugar
Mills Ltd. V. State of Tamil Nadu, (supra). The Court while affirming the view
expressed in Kallakurichi Co operative Sugar Mills Ltd. vs.
State of Tamil Nadu (1985) 60 STC 113 (Mad.) and overruling the decision in
State of Tamil Nadu vs. Madurantakam Cooperative Sugar Mills (1976) 38 STC 73 (Mad.)
" if subsidy whatever name or nomenclature, it may assume and whether
paid or payable prior to or subsequent to the entering into contract of sale is
linked to the supply of sugarcane, such subsidy and expenses incurred for the
transportation of the sugarcane to the factory site whether incurred by the
grower initially and paid by the sugar mills subsequently or incurred by the
sugar mills and shown separately in the invoices by adopting whatever
procedure reflecting those amounts in the accounts shall form part of the
price includible in the purchase turnover as such transportation alone makes
the passing of property in the sugarcane sold by the grower to the assessee-mills
This view was affirmed by this Court in E.I.D. Parry's case (supra). One of
the questions which this Court had to consider was whether the transport
subsidy paid by the sugar mills to third party lorry owners for transporting
sugar cane pursuant to the State Government's direction can be aggregated with
the price of sugar cane and included in the turnover of the mills under the
Act. This Court noted that in respect of sugarcane grown in reserved areas, the
occupier of the factory is required to enter into an agreement with the
sugarcane grower to purchase sugarcane in the form prescribed under the Madras
Sugar Factories Control Act 1949 and the Rules framed thereunder. It was found
that the prescribed form of agreement disclosed that sugarcane had to be
delivered by the grower at the factory premises.
After considering earlier authorities, this Court upheld the view of the
Full Bench of the Madras High Court and concluded:- "What transpires from
the above case-law is that the amounts paid by way of consideration by the
purchaser to the seller of goods in pursuance of the contract of sale can
legitimately be regarded as purchase price while calculating the turnover for
the purposes of sales tax legislation. What can legitimately be brought to
sales tax or purchase tax is the aggregation of the consideration for the
transfer of property. All the payments should have been made pursuant to the
contract of sale and not dehors it . Any amount paid as ex gratia payment or as
an advance cannot be the component of the purchase price and therefore cannot
legitimately be included in the turnover of the purchasing dealer. Whether one
of the components of the purchase price goes to the coffers of the seller or
not will not cease to be so if it is necessary for completing the same. Thus
the total amount of consideration for the purchase of goods would include the
price strictly so called and also other amounts which are payable by the
purchaser or which represent the expenses required for completing the sale as
the seller would ordinarily include all of them in the price at which he would
sell his goods. But if the sale price is fixed statutorily then the only
obligation of the purchaser under the agreement would be to pay that price only
and no other amount can be included in the purchase price even if the same is
paid by the purchaser to the seller.
(Emphasis supplied) The appellant has relied on the last line of the quoted
paragraph to contend that it showed that the statutory price fixed would be the
only price includible in the taxable turnover of the purchasing sugar mill.
This is not what the Court meant.
In the preceding sentence it has been made clear that the total amount of
consideration not only included the price but also other amounts which
represent the expenses required for competing the sale. This is clear from the
paragraph 21 of the judgment where this Court said:- "For the same reasons
we hold that the transport subsidy was a part of the consideration for which
sugarcane was sold by the sugarcane-growers to the appellants.
Though the agreements between the parties provided for delivery by the
sugarcane-growers at the factory gate and though the transport charges paid by
the appellants were not to the sugarcane-growers but to third-party lorry-
owners, they were made for securing regular supply of sugarcane as per the
Though payments were made at the instance of the Government of Tamil Nadu
they also became a part of the implied agreement between the appellants and the
sugarcane- growers. They were not post-sale expenses.
Those amounts were paid to ensure scheduled delivery of sugarcane. The sale
of sugarcane became complete only thereafter. Those payments can be regarded
either as payments made on behalf of the sugarcane-growers or payments made in
modification or variation of the earlier agreements entered into by the sugarcane-growers
for selling sugarcane. In either case they could legitimately be regarded as
the components of the sale price as the sellers would have otherwise included
those amounts in the sale price." (Emphasis added) It is of significance
this view was expressed despite the fact that the State Governments directive
was not incorporated in that particular agreement for purchase of sugar cane.
The principles would therefore a fortiori be applicable to the present case
where the directive formed part of the agreement. The issue raised by the
appellant before us has thus been answered in the negative by this Court in
E.I.D. Parry which view we respectfully adopt.
The decision relied upon by the appellants namely Bros.,1989 (1) SCC 143
does not support the appellant. In fact the Court found in that case that the
costs of freight or delivery were included in the sale price.
The assessment orders of the Department in respect of the earlier years also
relied on by the appellants were based on the earlier decision of the High
Court in State of Tamil Nadu vs. Madhurantakam Cooperative Sugar Mills (supra)
which was specifically overruled by the Full Bench in Chengalvarayan's case.
The findings of the Tribunal sought to be relied upon by the appellant
related to a previous stage of proceedings. The order of the Special Taxation
Tribunal which was passed on an enhancement petition filed by the respondents
and which was the subject matter of the writ petition before the High Court,
had held against the assessee following the decision of the Full Bench of the
Madras High Court in Chengalvarayan Co- operative Sugar Mills Ltd. V. State of
Tamil Nadu (supra) which was affirmed by this Court in E.I.D. Parry's case.
The appellants then said that the decision of this Court in EID Parry
(supra) was limited to the facts of that case and that this has been held by
the Karnataka High Court in Ugar Sugar Works Ltd. vs. Deputy Commission of
Commercial Taxes (2005) 139 STC 413. According to the Karnataka High Court, the
decision in EID Parry did not lay down any principle but was confined to the
facts of that case. It is unnecessary for us to consider whether the Karnataka
High Court was correct in its interpretation of the decision in EID Parry
because we are of the view that even on the basis of the opinion expressed in Ugar
Sugar Works Ltd. (supra), EID Parry cannot be factually distinguished from the
present case, as we have found as a matter of fact that the transport subsidy
formed part of the consideration for the purchase of the sugar cane by the
appellant from the sugar cane growers.
In the circumstances aforesaid we are of the view that the appeals must be
and are hereby dismissed with costs.