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Kallakurichi Co-Operative Sugar Mills Limited And Another v. The State Of Tamil Nadu
Factual and Procedural Background
These matters are tax revision petitions (Tax (Revision) Cases Nos. 101, 102, 579, 580 and 581 of 1978) brought under section 38 of the Tamil Nadu General Sales Tax Act, 1959. The petitions arise from a common order of the Tribunal and concern assessments for the years 1973-74 and 1974-75 (and, in one instance, an assessment under the Additional Sales Tax Act for 1974-75) involving two cooperative sugar mills: Kallakurichi Co-operative Sugar Mills Limited and Madurantakam Co-operative Sugar Mills Limited.
The factual matrix set out in the opinion is as follows. The mills purchase sugarcane from growers for manufacture of sugar. A statutory minimum purchase price for sugarcane is fixed annually by the Central Government under the Sugarcane (Control) Order, 1966; the State Government may fix a higher price after consultation. The mills entered into registration forms and written agreements with growers specifying that the grower should deliver sugarcane at the mill or factory premises and the grower would be paid the statutory price (or statutory plus any additional amount fixed).
Many growers lacked transport facilities. In such cases the mills provided lorries from their fleet to collect cane from growers and brought it to the mills; the mills paid or advanced the transport hire and deducted the transport charges from the statutory price payable to the growers. The petitioners sought to exclude (deduct) those transport charges from their purchase turnover for sales-tax assessment purposes. The assessing and appellate authorities denied the deduction, treating the statutory price as the purchase price and holding that mills could recover transport charges from growers but could not reduce the statutorily fixed price for sales-tax purposes. The Tribunal, after examining registration applications, agreements, billing practice and documentary material (including a lorry allotment register), upheld the view that delivery remained at the mill premises and that transport charges were advance payments recovered from the grower rather than modifications of the purchase price; it dismissed the petitioners' appeals. The petitioners then filed these revisions to this Court.
Legal Issues Presented
- Whether the turnover referable to transport charges (i.e., amounts deducted by the mills from the statutory purchase price payable to sugarcane growers to recover transport costs advanced by the mills) is eligible for deduction from the petitioners' purchase turnover for sales-tax assessment purposes.
Arguments of the Parties
Petitioners' Arguments (as presented before this Court)
- The petitioners contended that the delivery had been effected in the fields (i.e., delivery at the grower's fields rather than at the mill), with property passing to the mills upon such delivery, thereby making the transport charges incurred by the mills post-purchase expenses.
- Because the transport charges were post-purchase expenses, they submitted those amounts would not form part of the purchase price and therefore should be deductible from their purchase turnover for tax purposes.
- The petitioners relied on several precedents in support of this contention (cases cited in the opinion).
Respondent / Additional Government Pleader's Arguments
- The Additional Government Pleader maintained that there was no alteration or modification of the contracts between the mills and the growers; the situs of delivery continued to be the mill or factory premises as specified in registration forms and written agreements.
- Accordingly, transport charges paid by the mills on behalf of growers could not be treated as deductible from the statutory purchase price fixed under the Sugarcane (Control) Order; they could be advanced by the mills and recovered from the grower but not subtracted from the statutory purchase price for the purpose of computing purchase turnover.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Tamil Nadu v. Madurantakam Co-operative Sugar Mills, [1976] 38 STC 238 | Cited by the petitioners in support of their contention that transport charges may be treated as post-purchase expenses (i.e., not forming part of the purchase price). | Cited by petitioners; the Court stated it did not consider it necessary to advert to the decisions relied upon by the petitioners in reaching its conclusion. |
| Gwalior Rayon Silk Manufacturing and Weaving Co. Ltd. v. State of Tamil Nadu, [1982] 49 STC 73 | Cited by the petitioners in support of the post-purchase expense argument. | Cited by petitioners; the Court did not rely on or specifically examine this decision because it concluded the facts and documents established delivery at the mill and rejection of the petitioners' claim. |
| Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, [1969] 24 STC 487 (SC) | Cited by the petitioners for the proposition that certain expenditures may qualify as post-purchase expenses and thus be excluded from purchase turnover. | Cited by petitioners; the Court stated it was unnecessary to advert to the decisions relied on by the petitioners and decided the matter on the contractual documents and factual findings. |
| Hindustan Sugar Mills Ltd. v. State of Rajasthan and J.K. Synthetics Ltd. v. Commercial Tax Officer, Kota, [1979] 43 STC 13 (SC) | Cited by the petitioners to support their contention regarding treatment of transport or similar charges. | Cited by petitioners; the Court observed it need not examine these decisions in light of the contractual and documentary evidence establishing delivery at the mills and the billing practice. |
| Co-operative Sugars (Chittur) Limited v. State of Tamil Nadu, [1977] 40 STC 195 | Cited by the petitioners as authority for the proposition that transport charges may be post-purchase deductions. | Cited by petitioners; the Court declined to advert to the authorities relied upon because it concluded the petitions failed on the contract and factual material before it. |
Court's Reasoning and Analysis
The Court conducted a fact-focused analysis grounded on the documentary record and the contractual terms rather than on the precedents relied upon. The steps in the Court's reasoning, as stated in the opinion, are:
- Examination of the statutory scheme and contractual framework: The Court noted that a statutory price for sugarcane is fixed annually under the Sugarcane (Control) Order and sometimes supplemented by a further State-fixed amount after consultations.
- Review of registration forms and written agreements: The Court emphasised that both the specimen registration applications and the agreements produced and considered by the Tribunal expressly required the grower to deliver the sugarcane at the mill or factory premises. In one set of documents an alternative was noted (grower may use his own lorry or lorries engaged by the mill), but payment remained linked to delivery at the mill and the statutory price.
- Analysis of actual practice and documentary evidence: The Court referenced the Tribunal's consideration of the lorry allotment register and the billing practice. The register showed lorries were allotted to growers on their indents from the mill fleet; growers then used these lorries to transport cane to the mills. After arrival and delivery at the mill, the mills issued invoices showing the gross statutory price; out of that gross amount the mills deducted lorry/transport charges, advances, loan recoveries and similar items to arrive at the net payment to the grower.
- Legal characterization of the transport arrangements: From the contract terms, billing practice and the lorry allotment evidence, the Court concluded that the mills merely facilitated transport by maintaining a fleet and making those lorries available to growers; this facilitation did not amount to a sale/purchase in the fields or a contractual variation shifting the situs of delivery to the fields. Consequently, the transport charges were amounts payable by the grower (although advanced by the mill) and not post-purchase expenses incurred after transfer of property to the mills.
- Conclusion on tax treatment: Because the statutory price was consistently treated as the purchase price in contract and in billing, and there was no evidence of contractual variation to effect purchase in the field, the transport charges could not properly be excluded from the purchase turnover for sales-tax assessment purposes.
- On precedents: The Court explicitly stated that it did not consider it necessary to advert to the decisions relied on by the petitioners, having reached its conclusion on the basis of the contractual documents and factual materials.
Holding and Implications
Holding: These tax revision cases are dismissed.
Immediate implications and effect on the parties:
- The petitioners (the two cooperative sugar mills) cannot exclude the transport charges deducted from amounts payable to sugarcane growers from their assessable purchase turnover for the assessment years in question; the statutory price fixed under the Sugarcane (Control) Order is the purchase price for tax purposes.
- The authorities below (assessing and appellate authorities and the Tribunal) were correct in their conclusions; no interference with their orders was warranted.
- There will be no order as to costs.
Broader legal implications:
The Court decided the matter on contractual documents and factual findings and expressly stated it did not find it necessary to advert to the precedents relied on by the petitioners. The opinion does not purport to lay down new law beyond the application of existing statutory framework and factual analysis to these cases; the decision's operative effect is limited to the dismissal of these petitions and the confirmation that, on these facts, transport charges advanced by mills and later recovered cannot be excluded from assessable purchase turnover.
The Judgment of the Court was delivered by
Ratnam, J.:— These tax revision cases, though preferred by two different assessees under section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Act), are dealt with together as they arise out of a common order of the Tribunal and a common question also arises for decision. Tax (Revision) Cases Nos. 101 and 102 of 1978 relate to Kallakurichi Co-operative Sugar Mills Limited, while Tax (Revision) Cases Nos. 579 and 580 of 1978 are at the instance of Madurantakam Co-operative Sugar Mills Ltd. These four cases relate to the assessment years 1973-74 and 1974-75 in respect of both the sugar mills. Tax (Revision) Case No. 581 of 1978 is in respect of the assessment under the Additional Sales Tax Act for the assessment year 1974-75 in relation to Madurantakam Co-operative Sugar Mills Ltd.
2. The common question for decision in these cases is whether the turnover referable to the payment of transport charges is eligible for deduction from the purchase turnover of the petitioners.
3. The petitioners are co-operative sugar mills. They purchase sugarcane from the growers for the purpose of manufacturing sugar therefrom. The minimum price payable for the purchase of sugarcane by the sugar mills is fixed by the Government of India under the Sugarcane Control Order, 1966. Considering the representations made by the cane growers and after consulting the sugar factories and the growers as well, the State Government fixes a higher price also. In these cases, the two sugar mills entered into agreements for the supply of sugarcane with sugarcane growers. One of the terms in the agreement was that the sugarcane grower should deliver the sugarcane at the mill or factory premises for the price fixed by the Government. Some of the growers, who had so contracted to supply sugarcane grown by them, had transport facilities, while, many others did not command such facilities. In such cases, where the sugarcane grower did not have transport facilities the sugar mills or factories sent lorries to the sugarcane growers and brought the sugarcane to the mills or the factories. In all such cases, the petitioners deducted the transport charges from the statutory price payable to the sugarcane growers in respect of the sugarcane supplied by them. In the course of the assessment proceedings for the years 1973-74 and 1974-75, the petitioners claimed exemption from the purchase turnover of the transport charges so deducted by the petitioners from out of the amounts payable to the sugarcane growers computed in accordance with the price fixed by the Government. The assessing as well as the appellate authorities were of the view that the purchase price of sugarcane was fixed by the Central and State Government from time to time and the purchase turnover was worked out with reference to the quantity and price per metric ton as fixed by the Government, though the mills were at liberty to recover the transport charges incurred by them from the sugarcane growers. In this view, the mills or the factories were held not entitled to reduce the cane price fixed by the Government statutorily by deducting the amounts incurred by the mills or factories for making transport arrangements for the sugarcane growers. On further appeal to the Tribunal, on a consideration of the applications made by the sugarcane growers for registration and also the agreements entered into by them with the mills or the factories, the Tribunal found that the sugarcane grower was responsible for the delivery of ‘sugarcane in the mill or the factory premises, that that agreement was not in any manner modified or otherwise deviated from, that the mills or factories merely lent a helping hand to the sugarcane growers by providing lorries and deducting the hire or transport charges at the time of payment of the purchase price, that the process of billing employed by the sugar mills or the factories recognised the statutory price as the purchase price of the sugarcane and the transport charges as an amount payable by the grower, but advanced by the sugar mills or factories and subsequently recovered from the grower, that rule 6(c) of the Rules under the Act would not be applicable as the amounts deducted towards transport charges had not been charged for separately without being included in the price and that the rule cannot be applied with respect to a purchasing dealer and therefore, no reduction in price or any admissible deduction under rule 6(c) of the Rules could be granted in the assessable turnover of the mills or the factories. In view of the aforesaid conclusions, the appeals preferred by the petitioners were dismissed.
4. Before this Court, the learned counsel for the petitioners maintained the same stand taken up by the sugar mills or factories before the authorities below and contended that instead of delivery of sugarcane being effected by the growers at the sugar mill or factory, they agreed to deliver the sugarcane in their fields in modification of the contract earlier entered into and on such delivery the property in the sugarcane passed to the petitioners and the’ transport charges incurred by the petitioners would readily be in the nature of post-purchase expenses and therefore, such amounts will not form part of the purchase price. In support of this, reliance was placed by the learned counsel for the petitioners on the decisions in State of Tamil Nadu v. Madurantakam Co-operative Sugar Mills, [1976] 38 STC 238, Gwalior Rayon Silk Manufacturing and Weaving Co. Ltd. v. State of Tamil Nadu, [1982] 49 STC 73, Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh, [1969] 24 STC 487 (SC), Hindustan Sugar Mills Ltd. v. State of Rajasthan and J.K Synthetics Ltd. v. Commercial Tax Officer, Kota, [1979] 43 STC 13 (SC) and Co-operative Sugars (Chittur) Limited v. State of Tamil Nadu, [1977] 40 STC 195. On the other hand, the learned Additional Government Pleader submitted that there was no alteration or modification of the contract entered into between the petitioners and the sugarcane growers and the situs of the delivery continued to the mill or the factory site so that the transport charges paid by the petitioners on behalf of the sugarcane growers could not be deducted from the price for sugarcane fixed by the Government in accordance with the Sugarcane (Control) Order and therefore, no deduction as claimed by the petitioners is admissible.
5. It is necessary to advert to the mode of fixation of sugarcane price and the terms of the contract entered into between the mills or factories and the sugarcane growers. Under clause (3) of the Sugarcane (Control) Order, every year the Central Government fixes a statutory price payable by every sugar mill or factory as purchase price for supply of cane by the cane growers. Often times, as a result of representations made and discussions held between the representatives of the mills or factories, the growers and the State Government, some additional amount is also paid to the sugarcane growers as fixed by the Government. Normally, the sugarcane growers deliver the sugarcane at the mill or factory, either in their own vehicles or in the vehicles belonging to others and in such cases, the full statutory price is made available to the sugarcane growers. However, a majority of the sugarcane growers do not command transport facilities and they transport sugarcane in the lorries arranged by the mills or factories and in those cases, the transport charges are paid by the mills and deducted from the amount payable to the sugarcane growers. The petitioners claimed that those amounts representing transport charges should be reduced from the purchase price as arrived at by computing it with reference to the statutory fixation and the balance alone should be treated as the purchase turnover liable to tax. How far such a claim is justified has to be seen.
6. The specimen forms of application for registration of the grower of sugarcane with the mills or factories and the agreement entered into between the mills and the sugarcane grower have been made available in this case and referred to by the Tribunal in the course of its order. Even in the application for registration of the sugarcane grower with the mills or factories, the sugarcane grower had specifically agreed to deliver sugarcane in the mill or factory premises. In the case of the petitioner in T.C Nos. 579 to 581 of 1978, an alternative is also provided that the sugarcane grower will bring the sugarcane in his own lorry or he will send the sugarcane in lorries engaged by the sugar mills with the further undertaking that the sugarcane grower will deliver the sugarcane in the mill and get paid the minimum statutory price fixed by the Government. In the agreements also, the sugarcane grower had agreed to bring the sugarcane and deliver it at the mill or factory premises in accordance with a date schedule fixed by the mills. There is no clause either in the application for registration or in the agreements to indicate that the sugarcane growers could deliver the sugarcane at a place other than the mill or factory premises and receive reduced prices. The provisions in the application for registration and also the agreement thus clearly establish that the sugarcane grower is responsible for the delivery of the sugarcane in the mill premises. It is true that the mills or factories maintain a fleet, of lorries at their disposal and send such lorries to the growers for facilitating delivery. But there is nothing to indicate that there was any departure from the terms of the contract relating to delivery. The sending of lorries by the mills or factories was only to help or facilitate the sugarcane growers to engage and load the lorries at appropriate times in order that the quality of the sugarcane may not deteriorate and also to ensure a steady inflow of sugarcane into the mills or factories depending upon their crushing schedule. There is nothing to show that the sugarcane growers sold the sugarcane and the petitioners purchased it in the fields as claimed by them. Indeed, it is seen from the contract lorry allotment register produced before the Tribunal that the lorry was allotted to a sugarcane grower on his indent about his reqirement and thereafter, the sugarcane grower took the required number of lorries from the fleet available with the mills and then arranged for the transport of the sugarcane to the mills or factories. After delivery of the sugarcane in the mill or factory, an invoice for the full amount of the statutory price payable to the sugarcane grower was prepared by the mills or factories and from out of that, the transport charges and other advances were deducted. It is thus seen that the contractual obligation of the sugarcane grower for delivering the sugarcane at the mill or factory premises had not been departed from or varied even in practice. The method adopted for transporting sugarcane had been devised only to enable the sugarcane growers to arrange for the speedy transport of sugarcane to the mills, as otherwise, they would be obliged to be on the look out for stray lorries outside. In that view, the mills or the factories have merely helped or assisted the sugarcane growers by keeping certain lorries at their disposal and providing them to the sugarcane growers and recovering the transport charges from the sugarcane growers at the time of the payment of purchase price for the sugarcane. It has earlier been pointed out that there is no provision in the contract for the payment of any reduced amount other than the statutory price. The billing practice also accords with the contract and the actual practice regarding transport. It is seen that in respect of supplies effected by a sugarcane grower, the bill is prepared for the gross amount of the purchase price in accordance with the statutory price fixed by the Government. Any additional sugarcane price allowed to the sugarcane grower is subsequently given credit to separately. From the price of sugarcane so arrived at, lorry charges, share money, recovery of loan (principal and interest, etc.) are deducted and the net amount payable is arrived at. The bill is passed for the gross amount and the net amount. This also indicates that at all times, the mills or the factories recognised only the statutory price as the purchase price of sugarcane and the transport or other charges have been regarded as amounts payable by the sugarcane grower, but initially paid by the mill and later recovered from the price payable to the sugarcane grower. On these materials, the contention on behalf of the petitioners that there has been a variation or modification of the contract entered into between the mills or factories and the sugarcane growers pursuant to which delivery was taken at the fields, cannot be accepted. Equally, the transport charges paid for initially by the petitioners and subsequently deducted cannot be treated as post-purchase expenses so as to enable the petitioners to claim the benefit of a deduction from the turnover.
7. Thus on a careful consideration of the facts and circumstances of these cases, we are of the view that the petitioners cannot claim to exclude the transport charges from their assessable turnover. We do not therefore consider it necessary to advert to the decisions relied on by the petitioners. The authorities below were therefore quite correct in their conclusions and no interference is called for. Consequently, these tax revision cases are dismissed. There will be, however, no order as to costs.
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