Natraj Organics Limited v. Assistant Commissioner (Assessment), Sales Tax, Muzaffarnagar

1. Petitioner-M/s. Natraj Organics Ltd., is engaged in the business of manufacture and sale of sulphuric acid and single superphosphate, which is a chemical fertilizer.

2. The question for consideration is that whether the subsidy allowed on fertilizer by the Central Government is liable to be included in the “turnover” as defined in section 2(i) of the U.P Sales Tax Act, 1948?

3. An assessment was made under the Act excluding the subsidy amount from the purview of “turnover”, but subsequently the impugned notices under section 21 were issued calling upon the petitioner to show cause why the subsidy amount should not be added to the “turnover” for the years 1985–86 to 1988-89.

4. It is the validity of these notices which is under challenge in this petition.

5. The question involved in the case, appears to be covered by the decision of the Andhra Pradesh High Court in Fertiliser Corporation of India Ltd. v. Commercial Tax Officer (OFA), Punjagutta Division, Hyderabad, [1991] 83 STC 129, followed in Coromandel Fertilisers Ltd. v. Commercial Tax Officer (OFA), Punjagutta Division, Hyderabad, [1992] 85 STC 552. It has been held therein that the subsidy has no relation to any single sale transaction in that it is determined on the basis of several factors and therefore, any subsidy received by the manufacturer could not be treated as a part of “turnover”. The definition of “turnover” as given in section 2(s) of the Andhra Pradesh General Sales Tax Act, 1957, in fact is substantially in pari materia with the definition of the term as contained in section 2(i) of the U.P Sales Tax Act and the principles laid down in the aforesaid cases are, in our opinion, fully applicable to the present case. In Dharamsi Morarji Chemicals Ltd. v. Commissioner of Sales Tax, [1991] STD, Full Bench of the Sales Tax Tribunal has taken a similar view on “turnover” as defined in section 2(i) of the U.P Sales Tax Act. We have no reason to take a contrary view in the matter.

6. The learned Standing Counsel placed reliance on a decision of the Supreme Court in Hindustan Sugar Mills Ltd. v. State of Rajasthan, [1979] 43 STC 13, 1979 UPTC 37. The said decision, in our opinion, is not applicable to the facts of the present case, inasmuch as, in that case the question was, whether the cost of freight should be included in the sale price for the purposes of determining “turnover”. Present is not a case of inclusion of freight charge, rather the question involved in the present case is whether subsidy given by the Central Government to the manufacturer of chemical fertilizer, should be included within the definition of “turnover” as given in section 2(i) of the Act. “Turnover” as defined in section 2(i) means the aggregate amount for which the goods are supplied or distributed by way of sale or are sold by a dealer. Subsidy amount received by the manufacturer is certainly not an amount for which goods are supplied by a dealer to the customer by way of sale. The expression “by way of sale” “or are sold” occurring in section 2(i) is significant. The amount received by the petitioner by way of subsidy is not an amount “received by way of sale” price. We are in respectful agreement with the view expressed by the Andhra Pradesh High Court that the subsidy is not related to a particular transaction of sale and that being the position, the subsidy amount cannot be included in the “turnover”. The question of reopening of the assessment does not arise. The impugned notices are liable to be quashed. On the facts stated above, it cannot be said that the assessing authority had “reason to believe” that whole or any part of the turnover of the petitioner for the relevant assessment years had escaped the assessment to tax, or had been under-assessed to tax at a rate lower than that at which it was assessable under the Act. The condition precedent for assessing under section 21 of the Act, being non-existent, the impugned notices and further proceedings pursuant thereto, are liable to be quashed. The impugned notices for reassessment for the years 1985–86 to 1988–89 both under the U.P Sales Tax and Central Sales Tax Acts, are quashed, and the petition is allowed.

Petition allowed.