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2023 DIGILAW 360 (CHH)

Savitri Dhan Kutai Udyog v. State of Chhattisgarh

2023-08-01

RAKESH MOHAN PANDEY

body2023
ORDER : 1. In the present petition, the petitioner has challenged the orders dated 11.09.2012 passed by the Additional Commissioner, Commercial Tax, Raipur and orders dated 26.04.2010 and 13.05.2011 passed by the Assistant Commissioner, Commercial Tax, Raipur, respectively, and sought following relief(s):- “10.1 quash/set aside Order dated 11.09.2012 (Annexure P/1) and (Annexure P/2) in Case No. 166/R/2012 and 129/R/2012 respectively, passed by the Additional Commercial, Commercial Tax Raipur/Respondent No.4, while confirming the Order dated 26.04.10 (Annexure P/6) in Case No. 93/2007 and Order dated 13.05.11 (Annexure P/7) in Case No. 94/2008 passed by the Assistant Commissioner/Respondent Non.5. 10.2 direct the Respondent authorities to refund the additional purchase tax which has already been paid by the Petitioner for the assessment Year 2006-07 so far as it relates to the incentive bonus. 10.3 prohibit/restrict the Respondent authorities from levying purchase tax for the assessment year 2007-08 so far as it relates to the incentive bonus. 10.4 direct the Respondent Commercial Tax Department to not to levy purchase tax on incentive bonus upon the Petitioner in future, as the same being illegal, and/or, if so subjected the Respondent Food Corporation of India may kindly be directed to refund the same to the Petitioner in consonance with the agreement. 10.5 Grant any other relief as may be deemed fit in the facts and circumstances of the case.” 2. The facts of the present case are that the petitioner was engaged in the business of Manufacturing Rice after obtaining Registration from Commercial Tax Department under the Chhattisgarh Value Added Tax Act, 2005 (hereinafter referred to as 'the VAT Act, 2005') bearing TIN No. 22742100886. For purposes of milling, the petitioner had to purchase paddy from agriculturists directly according to the terms of the contract and it had to pay an incentive bonus as declared by the Central Government of India as per letter no. 167 (8) 2006-PY1 dated 29.09.2006 for the year 2006-07 and letter no. 167 (25) 2007- PY-1 dated 11.07.2008 for the year 2007-08. The minimum support price of paddy and incentive bonus both were fixed by the Central Government. Chhattisgarh Value Added Tax Act was enacted in 2005 and it was notified on 19.01.2006. According to the relevant provisions of the VAT Act, 2005 if rice is sold within the territory of the State, the tax is payable as purchase tax by virtue of notification dated 12.04.2006. Chhattisgarh Value Added Tax Act was enacted in 2005 and it was notified on 19.01.2006. According to the relevant provisions of the VAT Act, 2005 if rice is sold within the territory of the State, the tax is payable as purchase tax by virtue of notification dated 12.04.2006. The petitioner approached the authorities for reimbursement of the incentive bonus which was paid to the farmers in the year 2006-07 and 2007-08. 3. The petitioner filed a return and after assessment the learned Assistant Commissioner imposed a tax upon the total amount including the incentive bonus for years 2006-07 vide order dated 26.04.2010 in Case No. 93/2007 and for years 2007-08 vide order dated 13.05.2011 in Case No. 94/2008. 4. The petitioner preferred revisions under Section 49 (1) of the VAT Act, 2005 before the Additional Commissioner, but both the revisions preferred by the petitioner were dismissed vide order dated 11.09.2012 vide Annexure P/1 & P/2 for the year 2006-07 and 2007- 08, against which this petition has been preferred. 5. Learned counsel for the petitioner would submit that the petitioner paid incentive bonus to the farmers in pursuance of the circular/notification issued by the Central Government dated 29.09.2006 and 11.07.2008 for the years 2006-07 and 2007-08 and that amount of incentive bonus cannot be included in profit or loss. He would further submit that the petitioner paid the incentive bonus to the farmers as the compulsory payment. He would further submit that the definition of the ‘sale price’ as given in the VAT Act, 2005 means an amount or any other consideration payable to the dealer as valuable consideration for the sale and it would not include any sum allowed as cash discount. He would further argue that the refund of the incentive bonus does not form part of the purchase price. His next contention is that the Government of India vide circular dated 29.09.2006 has clarified that incentive bonuses will not be subject to levy of State taxes including VAT and incentive bonuses will be refunded on production of proof of payments, thus, he would pray to quash the impugned orders. 6. On the other hand, learned counsel for the State would submit that the purchase price defined under Section 2(q) of the VAT Act, 2005, includes commission etc. and, therefore, the authorities have rightly imposed the tax upon the petitioner. 6. On the other hand, learned counsel for the State would submit that the purchase price defined under Section 2(q) of the VAT Act, 2005, includes commission etc. and, therefore, the authorities have rightly imposed the tax upon the petitioner. He would further submit that the petitioner could not demonstrate the fact that the incentive bonus was not included in the sale price. Thus, he would submit that the petition preferred by the petitioner deserves to be dismissed. 7. I have heard the learned counsel for the parties and perused the documents annexed with the petition. 8. The question involved in the present petition is whether the incentive bonus would be part of the sale price or the same would not be included in the purchase price. 9. From a perusal of the documents, it appears that the petitioner purchased paddy in the year 2006-07 and 2007-08 from the farmers directly and also paid incentive bonuses. He sought for a refund of the incentive bonus paid to the farmers in the FY 2006-07 and 2007-08. The revenue found that the bonus amount of Rs.18,69,922/- has not been added by the petitioner and assessed purchase value of Rs.7,89,90,720/- and added purchase tax at the rate of 4% amounting to Rs.31,59,629/-. The department imposed a penalty and fine to the tune of Rs.32,02,362/- on the petitioner and after adjusting the already deposited amount of Rs.33,73,187/- only a refund of Rs.1,70,825/- was allowed. For the financial year 2007-08, the department after adjusting Rs.50,51,382/- raised an additional demand of Rs. 7,62,461/-, whereas a purchase tax of Rs.57,30,362/- was imposed. The revisions preferred by the petitioner against both orders were dismissed. 10. For the financial year 2007-08, the department after adjusting Rs.50,51,382/- raised an additional demand of Rs. 7,62,461/-, whereas a purchase tax of Rs.57,30,362/- was imposed. The revisions preferred by the petitioner against both orders were dismissed. 10. It would be advantageous to go through the relevant provisions of the VAT Act, 2005, particularly Sections 2(q), 2(t) & 2(y) of the VAT Act, 2005 which are as under:- “2(q) “Purchase price” shall comprise of– (i) the amount payable by a dealer as valuable consideration for the purchase of goods' simplicitor: Provided that where goods are purchased together with the packing material or container, then notwithstanding anything contained in this Act, the purchase price of such goods shall be inclusive of the price or cost or value of such packing material or container, whether such price or cost or value is paid separately or not as if such packing material or container were the goods purchased; (ii) transport costs, if any; (iii) trade commission, if any, by whatever name called; (iv) forwarding and handling charges, if any; (v) insurance charges, if any; (vi) local taxes, if any; (vii) excise duty, if any, leviable under the Central Excise Act, 1944 (No. 1 of 1944); (viii) cost of packing, if any; and (ix) any other charges or costs other than those specified above, if incurred or paid in respect of goods so purchased; Explanation.– For the purpose of this clause “transport cost” includes such expenses as are incurred by the dealer on transportation of goods after taking delivery from the seller; 2(t) “Sale price” means the amount or any other consideration payable to a dealer as valuable consideration for the sale of any goods less any sum allowed as case discount according to the ordinary trade practice but inclusive of any sum charged for anything done by the dealer in respect of the goods at the time of or before delivery thereof other than the cost of freight or delivery or the cost of installation when such cost is separately charged; Explanation. – (i) Where goods are sold on hire purchase or any system of payment by instalments, the sale price of such goods shall be exclusive of insurance charges, interest and hire charges and such other charges as may be prescribed; (ii) Where goods are sold by way of transfer of right to use such goods, the sale price thereof shall be the amount of valuable consideration received or receivable by the transfer or for such transfer; (iii) The amount of valuable consideration paid or payable to a dealer for the sale of Drugs and Medicines specified in Entry 42 in Part II of Schedule II shall be the maximum retail price printed on the package containing the Drugs and Medicines, for the purpose of levy of tax under Section 8; 2(y) “Turnover” in relation to any period means the aggregate of the amount of sale prices received and receivable by a dealer in respect of any sale or supply or distribution of goods made during that period, whether or not the whole or any portion of such turnover is liable to tax but after deducting the amount, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within six months from the date of such sale : Provided that – (i) in the case of sale by bonafide agriculturist as defined in clause (e) of sub-section (1) of Section 2 of the Chhattisgarh Land Revenue Code, 1959 (No. 20 of 1959, of ghee produced by himself; or (ii) in case of sale by a person of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save mere dehusking, cleaning, grading or sorting, the amount of consideration relating to such sales, shall be excluded from his turnover;” 11. From the definition of the purchase price, it is clear that it comprises the amount payable by a dealer as reasonable consideration for the purchase of the goods and it includes transport cost, trade commission, forwarding and handling charges, insurance charges, local taxes, excise duties and any other charges. From the definition of the purchase price, it is clear that it comprises the amount payable by a dealer as reasonable consideration for the purchase of the goods and it includes transport cost, trade commission, forwarding and handling charges, insurance charges, local taxes, excise duties and any other charges. The definition of sale price says that the amount of any consideration payable to a dealer as valuable consideration would not include any sum allowed as a cash discount. The word 'turnover' means the aggregate of the amount of sale prices received and receivable by a dealer during that period is liable to tax but after deducting the amount refundable by a dealer to a purchaser. 12. From a bare reading of the above-mentioned definitions, it is quite clear that the sale price does not include any subsidy and for assessment of turnover any amount refunded by the dealer to the purchaser is not liable to tax. 13. The Hon'ble Supreme Court in the matter of Neyveli Lignite Corporation Ltd. Vs. Commercial Tax Officer, Cuddalore and Another, reported in (2001) 9 SCC 648 , while dealing with the scope of subsidy received by the manufacturer under an administrative scheme held that such subsidy shall not be includible in taxable turnover of the manufacturer and in paras- 20 & 21 held as under:- “20. The aforesaid observation clearly support the contention of the learned Solicitor-General before us, namely, that the sale price which has been fixed by the Fertilizer (Control) Order is the only obligation of the purchaser under the agreement to pay the same and not other amount including subsidy could be included in the purchase price. In E.I.D. Parry (I) Ltd. v. Asstt. Commr. of Commercial Taxes, (2000) 2 SCC 321 however, the Court came to the conclusion that the aforesaid principle was not applicable because the planting subsidy was given to the cane-growers at the time of delivery of sugarcane by them: (SCC p. 337, para 20) “The planting subsidy was given by the appellants to the cane-growers not by way of agrarian reform or a social welfare measure. The appellants had given planting subsidy as purchasers of sugarcane and as a part of the consideration for which the sugarcane was ultimately purchased by them.” The Court regarded this subsidy as a deferred payment and, therefore, includible in the taxable turnover. The appellants had given planting subsidy as purchasers of sugarcane and as a part of the consideration for which the sugarcane was ultimately purchased by them.” The Court regarded this subsidy as a deferred payment and, therefore, includible in the taxable turnover. It is clear that this subsidy was paid pursuant to an agreement between the growers and the purchasers and the payment was made at the time of the sale. In the present case, however, there is no agreement between the appellant and the purchasers of fertilizer for payment of any amount by the purchasers to the manufacturer in excess of the price fixed under the Fertilizer (Control) Order. Subsidy is paid to the appellant not by or on behalf of the purchasers, but is paid by the Government of India for different reasons and under its own scheme and after a budgetary allocation. As we have already observed, the scheme of payment postulates the right of the appellant to receive the subsidy on its clearance from the factory and not necessarily after the sale of fertilizer. Even before the sale of fertilizer, the right to receive the subsidy arises and under the circumstances, it cannot be said that subsidy would form part of the sale price or turnover of the appellant. 21. Learned Solicitor-General has drawn our attention to various decisions of the High Courts who have taken a similar view. Some of them are: Fertiliser Corpn. of India Ltd. v. CTO, (1991) 83 STC 129 (AP), Coromandel Fertilisers Ltd. v. CTO, (1992) 85 STC 552 (AP), Natraj Organics Ltd. v. Asstt. Commr. (Assessment), (1995) 96 STC 261 (All), Rashtriya Chemicals and Fertilisers Ltd. v. State of U.P., (1996) 101 STC 487 (All), Bongaigaon Refinery & Petrochemicals Ltd. v. Commr. of Taxes, (1996) 103 STC 132 (Gau) and Commr. of Taxes v. Bongaigaon Refinery & Petrochemicals Ltd., (1999) 114 STC 26 (Gau). A Single Judge of the Kerala High Court in Madras Fertilisers Ltd. v. Asstt. Commr. (Assessment), (1994) 95 STC 134 (Ker) after analysing the provisions of the Fertilizer (Control) Order and the claim of payment of subsidy, observed as follows: (STC pp. 139-40, para 11) “11. Sale is a bilateral transaction which stems out of a contract between the seller and the purchaser. An essential ingredient of a sale is 'price'. Fixation of the price is a matter of agreement between the parties. 139-40, para 11) “11. Sale is a bilateral transaction which stems out of a contract between the seller and the purchaser. An essential ingredient of a sale is 'price'. Fixation of the price is a matter of agreement between the parties. Sub-section (1) of Section 9 of the Sale of Goods Act, 1932, provides that the price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. In cases where the price is not determined in accordance with these provisions, the buyer shall pay the seller a reasonable price. Therefore, price is an essential element of a contract of sale and is ordinarily a matter of agreement between the parties. What the purchaser of the fertilizer bargains when he purchases fertilizer from the petitioners is to obtain a certain quantity of fertilizers at a certain price which shall not exceed the price fixed by the Central Government by notification under the Fertilizer (Control) Order. The sale is not conditional on the Central Government paying any amount by way of subsidy. There is no agreement between the parties for any further amount to be paid, than what is paid by the purchaser at the time of the sale. “Turnover” is defined in Section 2(xxvii) of the KGST Act as meaning the aggregate price for which goods are either bought or sold, supplied or distributed by a dealer. 'Sale' is defined in Section 2(xxi) as meaning every transfer, whether in pursuance of a contract or not, of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or for other valuable consideration. The essential contract between the parties, namely, the seller and the purchaser of fertilizers, is only for payment of the price subject to the maximum fixed by the Central Government and not for any other. This being the contract, any other sum received by the seller-petitioners for a different purpose and not as consideration for the sale, is not part of the sale price, and therefore of their turnover. This being the contract, any other sum received by the seller-petitioners for a different purpose and not as consideration for the sale, is not part of the sale price, and therefore of their turnover. The fact that the amount of subsidy is determined with reference to the quantum of fertilizers cleared from the factory on which considerable stress was made by the Government Pleader, does not lead to any inference that the payment is made in consideration of the sale. The retention price and the transfer price are fixed with reference to various factors. The subsidy is paid for the benefit of the public, to keep the prices at a reasonable level, and at the same time to ensure a reasonable return on investment to the units, and not as consideration for the sales effected by them. I am therefore of the view that the amount of subsidy received by the petitioners for the purpose of their units, which is not related to any particular transaction of sale, but is related to other circumstances, cannot constitute turnover in their hands assessable under the KGST Act.” 14. In the matter of Sri Kali Prasad Babu Rice Traders, Gunupudi, Bhimmavaram, West Godavari District and others Vs. Union of India and others, reported in 2012 SCC Online AP 614, the Hon’ble Supreme Court held that the purpose of ensuring exemption of the bonus amount from levy of State taxes is to ensure that the incentive bonus paid by the Union reaches the farmers wholly without deductions towards State taxes and levies. It reads as under:- “15. While the letters addressed by the 1st respondent do incorporate the condition that the State must fully exempt the bonus amount from all State taxes and levies, the purpose of ensuring exemption of the bonus amount from levy of State taxes is to ensure that the incentive bonus paid by the Union reaches the farmers wholly without deductions towards State taxes and levies. None of the letters nor any other policy of the Union requires rice millers/dealers to pay a higher price for paddy including the component of incentive bonus, to the farmers. The incentive bonus payable by rice millers, in addition to the procurement/minimum support price, to farmers and reimbursement to the millers by the FCI/State Agencies (of the incentive component) is only for rice supplied towards levy. The incentive bonus payable by rice millers, in addition to the procurement/minimum support price, to farmers and reimbursement to the millers by the FCI/State Agencies (of the incentive component) is only for rice supplied towards levy. It is only the incentive bonus reimbursed by the Union through the FCI/State Agencies, which is enjoined by the Union to be exempt from State taxes and levies.” 15. In the matter of Andhra Conductors (P) Ltd. Vs. State of Andhra Pradesh, reported in 1994 SCC Online AP 577 in para- 5 while dealing with a similar issue, the High Court of Andhra Pradesh held that the assessee did not collect the excise duty from the customer-purchaser and it did not form part of the consideration, therefore, it cannot be taken as part of turnover. Para- 5 reads as under:- “5. The result of the discussion is that as the petitioner-assessee did not collect the excise duty from the customer-purchaser, it did not form part of the consideration. Therefore, it cannot be taken as part of turnover. In this view of the matter, we set aside the order of the Tribunal and allow the revisions. However, we make it clear that the sales tax shown in the bills and collected by the assessee from the customer-purchaser should be refunded to the customer purchaser.” 16. Coming to the facts of the present case in light of the judgments passed by the Hon'ble Supreme Court and the High Court of Andhra Pradesh, it emerges that the petitioner purchased paddy from farmers directly and paid minimum support price and incentive bonuses. He made payment of incentive bonuses to the farmers in pursuance of a circular issued by the Central Government. The Central Government has exempted the incentive bonus from the levy of tax to ensure that the incentive bonus paid by the Union reaches the farmers wholly without deductions towards State taxes and levies. Therefore, the subsidy received by the miller cannot be treated as part of turnover within the meaning of Section 2(y) of the VAT Act, 2005 and more so the transactions are covered by bills as required by the statutory reasons. Therefore, the subsidy received by the miller cannot be treated as part of turnover within the meaning of Section 2(y) of the VAT Act, 2005 and more so the transactions are covered by bills as required by the statutory reasons. In the present case, the petitioner has produced sufficient proof of payment of incentive bonus to the farmers, same was accepted by the department, but the department included the same in the purchase price which is per se illegal and contrary to the wellsettled principles of law. 17. Consequently, the petition is allowed and the impugned orders dated 11.09.2012 passed by the Additional Commissioner, Commercial Tax, Raipur in Case No. 166/R/2012 (State) year 2006-07 and Case No. 129/R/2012 (State) year 2007-08 (Annexure- P/1 & P/2) and order dated 26.04.2010 passed in Case No. 93/2007 & order dated 13.05.2011 passed in Case No. 94/2008 by the Assistant Commissioner, Commercial Tax, Raipur (Annexure- P/6 & P/7) are hereby set aside. The respondents are directed to make payment of amount of incentive bonus claimed by the petitioner for the year 2006- 07 and 2007-08. 18. With the aforesaid observation(s) and direction(s), the petition stands disposed of.