Holding

The subsidy paid by the Government is not part of the sale consideration and therefore does not form part of the appellant’s taxable turnover under the Tamil Nadu General Sales Tax Act.

Summary

Neyveli Lignite Corporation Ltd., a fertilizer manufacturer, received a government subsidy under the Retention Price Scheme, which compensated the difference between the retention price and the maximum price fixed by the Fertilizer (Control) Order. The Tamil Nadu tax authority treated the subsidy as part of the company's taxable turnover under the Tamil Nadu General Sales Tax Act and demanded sales tax for AY 1996‑97. The company challenged the assessment, arguing that the subsidy was not consideration for the sale of fertilizer and therefore should not be included in turnover. The Supreme Court held that only amounts payable by the purchaser under the contract of sale constitute turnover; a subsidy paid by the Government, unrelated to any sale contract, is independent of the sale price and cannot be treated as taxable turnover. Consequently, the Court allowed the appeal, set aside the Tribunal’s order and held the subsidy not liable to sales tax.

Issues considered

Whether the subsidy received by the appellant under the Retention Price Scheme forms part of its taxable turnover under the Tamil Nadu General Sales Tax Act.
Whether the subsidy can be characterised as consideration for the sale of fertilizer.
Interpretation of ‘turnover’ and ‘sale’ under Sections 2(r) and 3 of the Tamil Nadu General Sales Tax Act.

Legislation cited

Essential Commodities Act, 1955s. 3

Subjects

sales taxturnoversubsidyFertilizer (Control) OrderEssential Commodities ActTamil Nadu General Sales Tax Acttaxable turnovergovernment subsidy

Judgment

M/S. NEYVELI LIGNITE CORPORATION LTD. A
v.
COMMERCIAL TAX OFFICER, CUDDALORE AND ANR.

SEPTEMBER 19, 2001

[B.N. KIRPAL, S.N. PHUKAN AND P. VENKATARAMA REDDI, JJ.] B

Tamil Nadu General Sales Tax Act : Section 2(n) & (r) and 3.

Sales Tax-Fertilizer-Subsidy on-Liability to sales tax-AY 1996-97-
Maximum sale price of fertilizer fixed under Fertiliser (Control) Order-
Subsidy, being difference between retention price and selling price, given to
c
manufacturer-Held: The price which is receivable in respect of sales made by
a dealer forms part of his taxable turnover-The two payments, namely, the
subsidy and sale price, are independent of each other-Subsidy is not part of
sale price-Hence, not liable to sales tax-Essential Commodities Act, 1955,
S.3-Fertilizer (Control) Order, 1985. D

The appellant manufactured fertilizer and its maximum sale price
was fixed under the Fertilizer (Control) Order, 1955 promulgated under
Section 3 of the Essential Commodities Act, 1955. In order that no hardship
was caused to the manufacturer a Retention Price Scherµe was introduced
E
by the Central Government under which an amount of subsidy, being the
difference between the retention price and the maximum selling price, was
disbursed to the claimant-industry. This subsidy was payable on the basis
of the quantity of fertilizer produced and removed from the factory.

The appellant received notices for the Assessment Year 1996-97 from F
the sales tax authority to the effect that according to it the subsidy received
by the appellant would form part of the taxable turnover of the appellant
under the Tamil Nadu General Sales Tax Act and, therefore, was liable to
sales tax. The Tamil Nadu Taxation Special Tribunal dismissed the
appellant's petition challenging the aforesaid notices. Hence this appeal. G

The following question arose before this Court:-

Whether the subsidy received by the appellant was to form part of
its taxable turnover under the provisions of the Tamil Nadu Gene;al Sales
Tax Act? H
163
164 SUPREME COURT REPORTS [2001) SUPP. 3 S.C.R.
A Allowing the appeal, the Court

HELD.: l. It is that sale consideration, whether in cash or otherwise,

B
which is receivable in respect of sales made by a dealer, which can possibly
form part of the turnover of a dealer. It is that sum which can be legitimately
regarded as forming part of the aggregate amount for· which the goods
..
have been bought or sold. The sum has to be paid either by the purchaser
or on his behalf by some other person. [168-A·B]

2.1. Whereas in respect of sale offertilizer the purchaser has to pay the
price as fixed under the Fertilizer (Co!'trol) Order, 1985 giving of subsidy is
c not contemplated by the said Order and the same is given pursuant to an
administrative decision taken by the Central Government. The subsidy so
given is undoubtedly to see that the ultimate consumer gets fertilizer at a ··
reasonable price and the manufacturer is not unduly burdened by the lower
fixation of the price of fertilizer. The payment, which is so made by the
Central Government to a manufacturer, cannot be regarded as a discharge
D of any liability or obligation by t~e Government towards the purchaser of
fertilizer. The two payments received by manufacturer, namely, the subsidy
and the price fixed under the Fertilizer (CoQtrol) Order, 1985 are independent
of each other. Subsidy does not form part of the bargain between ·the
manufacturer and the purchaser of fertilizer. [168-H; 169-A-B]
E
2.2. It is the amount whkh flows from the purchaser to the seller
which alone would form part of the turnover of the seller. Any sum received
dehors the contract of sale from another entity, whether it be the
Government or any one else, cannot be regarded as being an amount
which would form part of the sale price on which tax is payable. [170-E]
F
2.3. Whatever is payable by the purchaser to the seller in terms of a .it
Control Order promulgated under Section 3 of the Essential Commodities
Act, 1955 has to be regarded as a part of the sale price a.nd no more. [170-H]

State of T.N. v. Kothari Sugars ~-Chemicals Ltd., [1996) 7 SCC 751,
G Mis. George Oakes (P) Ltd. v. State of Madras, [1962) 2 SCR 570 and Assam
State Electricity Board v. E!rahma Putra Steels (P) Ltd., [1996) 8 SCC 73,
relied on;

· E.l.D. Pany (/) Ltd. v. Asst!. Commnr. of Commercial Taxes, [2000) 2
H sec 321, held inapplicable.
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.] 165
3. In the present case, there is no agreement between the appellant A
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 Central Government for different reasons and under its
own scheme and ~fter a budgetary allocation. The scheme of payment
B
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
circumstance, it cannot be said that subsidy would form part of the sale
price or turnover of the appellant. [172-H; 173-A-B]
c
Madras Fertilizer~ Ltd. v. Asstt. Commnr., 95 STC 134 (Ker) and Asst.
Comnr. v. Krishak Bharathi Co-op. Ltd., 99 STC 17 (Ker), approved.

Hindustan Sugar Mills v. State of Rajasthan, [1978] 4 SCC 271, Fertilizer
Corporation of India v. CTO, 83 STC 129 (AP), Coromandel Fertilizers Ltd. v.
CTO, 85 STC 552 (AP), Natraj Organics Ltd. v. Asst. Commnr., 96 STC 261 D
(All), Rashtriya Chemical and Fertilizers Ltd. v. State of UP, 101 STC 487
(All), Bongaigaon Refinery & .Petrochemicals Ltd. v. Commnr. of Taxes, 103
STC 132 (Gau) and CTO v. Bongaigaon Refinery & Petrochemicals Ltd., 114
STC 26 (Gau), referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5610 of 2000.
E

From the Judgment and Order dated 6.4.2000 of the Tamil Nadu Taxation
Special Tribunal, Chennai in O.P. No. 420 of 2000.

WITH
F
C.A. Nos. 5679-5683, 6213, 6214/2000, T.C. (C) Nos. 14, 15, 16, 17, 18,
19/2001 and T.C. (C) Nos. 27-35/2001 @ T.P.(C) Nos. 239-247 of 2001.

'Harish N. Salve, Solicitor General, Mukul Rohtagi, Additional Solicitor
General, M.L. Verma, T.L.V. Iyer, S. Balakrishnan, R.L. Ramani, N.Prasad, G
K.K. Mani, C.N. Sreekumar, Ms. Deepa, Ms. Revathy Raghavan, Ms. Shweta
Garg and Ms. Rekha Pandey for the appearing parties.

The Judgment of the Court was delivered by

KIRPAL, J. : Civil Appeal No. 5678 of 2000 H
166 SUPREME COURT REPORTS [2001] SUPP. 3 S.C.R.
A Whether the subsidy received by the appellant is to form part of its
taxable turnover under the provisions of the Tamil Nadu General Sales Tax
Act, is a short question which arises for consideration in this and the connected
cases.

Briefly stated the facts are that in 1957 under the provisions of Section
B 3 of the Essential Commodities Act, 1955, the Central Government promulgated
the Fertilizer (Control) Order. This Order has been revised from time to time
and in respect of the assessment year 1996-97 we are concerned with the
provisions of the Fertilizer (Control) Order, 1985.

Under the provisions of the Fertilizer (Control) Order, maximum selling
c price for different types of fertilizer is determined under Clause 3. No
manufacturer like the appellant can sell or offer for sale any fertilizer at a price
exceeding the maximum price or the rate fixed under Clause 3. Non-compliance
or violation of the same attracts penal consequences.

D Fertilizer which is manufactured by the appellant is usually used by the
agriculturists. In order to ensure the availability of fertilizer at a reasonable
price, the prices are fixed under the Fertilizer (Control) Order normally at a
figure which may possibly be less than the normal market price at which it can
be sold. In order to ensure that no hardship is caused to the manufacturer and
sufficient supplies are available, the Government of India took administrative
E decision and it introduced on 31st December, 1977 a Retention Price Scheme.
This was introduced with effect from 1st November, 1977 and this Scheme,
inter alia, contemplated the fixation of maximum sale price of fertilizer under
Clause 3 of the Fertilizer (Control) Order; determination of retenticn price for
each manufacturer; scheme of reimbursement of the difference between retention
p price fixed for the industry and the maximum selling price fixed under Clause
3 of the Fertilizer (Control) Order; submission of Claims by the manufacturer
supported by details of manufacture along with copy of central excise records
to be addressed to the Executive Director, Fertilizer Industry Coordination
Committee, New Delhi; and disbursement of an amount of subsidy to the
claimant-industry being the difference between the retention price and the
G . selling price fixed under Clause 3 of the Fertilizer (Control) Order.

The procedure enunciated on 31st December, 1977 was then substituted
by another one as stipulated in the Government's letter of 29th September,
1980. Broadly speaking, according to the procedure now prescribed, bills for
H payments and recovery under the Retention price Scheme for subsidy are to
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.] 167
be submitted when fertilizer is moved out of the factory along with the proof A
of movement. The claims are to be made in the forms which are prescribed and
one of the conditions contained therein is that the fertilizer which is moved,
has been sold or will be sold for agricultural purposes.

•Mis. Neyveli Lignite Corporation Limited received notices from the
B
sales tax authorities to the effect that according to it the subsidy received by
the appellant from the Government of India would form part of the taxable
turnover of the appellant, and, therefore, was liable to sales tax. This was
challenged by the appellant by filing a writ petition in the High .Court at
Madras. With the establishment of the Tamil Nadu Taxation Special Tribunal,
the writ petition was transferred to the Tribunal. c
The Taxation Tribunal by the decision dated 3rd October, 1998 came to
the conclusion that the fertilizer subsidy disbursed by the Governme~t of India
against the claim made under the Subsidy Scheme was sale price or turnover
attracting sales tax. The writ petition was, accordingly, dismissed. Hence, this D
appeal by special leave.

It has been contended on behalf of the appellant that what was received
by the appellant from the Government of India was subsidy which could not
be regarded as a part of the sale price or consideration of sale of fertilizer made
E
by the appellant. A number of decisions were relied upon to which we shall
refer. later. Mr. Balakrishnan, on the other hand contended while relying upon
a decision in E.l.D. Parry (I) Ltd. etc. v. Asstt. Commnr. of Commercial Taxes
and Anr., [2000] 2 SCC 321 that the amount of subsidy which was received
is clearly relatable to the sale of fertilizer and formed an integral part of the
sale price and would, therefore, be added to the taxable turnover and sales tax F
levied thereon.

Sales tax is levied on sale or purchases of goods under Section 3 of the
Tamil Nadu General Sales Tax Act on the turnover of a dealer in a year.
'Turnover' is defined in Section 2(r), illter alia, to rriean the aggregate amount G
for which the goods are bought or sold or supplied in any of the ways referred
to in clause (n) by a dealer whether for cash or for deferred payment or other
valuable consideration. Clause (n) of Section 2 defines 'sale' as meaning
transfer of property in goods by one person to another in the course of business
for cash, deferred payment or other valuable consideration. H
168 SUPREME COURT REPORTS [2001] SUPP. 3 s.c:R.
A It appears to us that it is that sale consideration whether in cash or .
otherwise, which is receivable in respect of sales made by a dealer which can
possibly form part of the turnover of a dealer. It is that sum which can be
legitimately regarded as forming part of the aggregate amount for which the
goods have been bought or sold. The sum has tc;> be paid either by the purchaser
or on his behalf by some other person.
B
In the instant case, as far as the Fertilizer (Control) Order is concerned,
the ·appellant is only required to recei.ve either the fixed price deterffiined or
· . the maximum price which may be fixed. For example, vide notification dated
30th January; 1988; maximum price per tonne of different types of fertilizer
c specified therein was fixed. In respect of urea, the maximum price per tonne
fixed was Rs. 2,350. No manufacturer of urea could sell the same·at a price
in excess of Rs. 2,350. The Explanation in the said notification provided that
the maximum price so fixed was to be incl,usi ve of Central sales tax, State sales I,
tax or other local taxes wherever levied. Neither in the notification nor in the
Fertilizer (Control) Order is there any reference to the Retention Price Scheme
D of the Government.

The Retention Price Scheme first enunciated by letter dated 31st December,
1977 is clearly an administrative decision o(the Government of India: It has .
been issued pursuant to the Ministry's Resolution and it enables a factory, like
the app~llant, to receive. subsidy from the Government in case the retention
E
price is more than the price fixed under Clause 3 of the Fertilizer (Control)
Ordei:. It is mentioned in the assessment order that according to the appellant
the subsidy which is paid by the Government of India is a non-plan expenditure
which is debited to the Budget·allocati.on. This subsidy is payable on the basis
of the quantity of fertilizer produced and removed from the factory. The forms
.F· on the basis of which subsidy has to be given, do not indicate that the
reimburs.ement of the subsidy is dependent on the sale of f~rtilizer having been
made. The basis for the grant of subsidy· is the removal of the fertilizer from
the factory, though it has to be certified by the company that the said removal
is for sale for agricultural purposes.
G It is clear from the aforesaid that whereas in respect of sale of fertilizer
the purchaser has to pay the price as fixed under The Fertili~er (Control) Order
giving of ~ubsidy .is not contemplated ~y the said Order and the same is given
pursuant to an administrative decision taken by the Government of India. The
subsidy so given is undoubtedly to see that the ultimate consumer gets fertilizer
H at a reasonable price and the manufacturer is not unduly burdened by the lower
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.] 169
fixation of the price of fertilizer. The payment which is so made by the A
Government to a manufacturer cannot be regarded as a discharge of any
liability or obligation by the Government towards the purchaser of fertilizer.
The two payments received by the manufacturer, namely, the subsidy and the
price fixed under the Fertilizer (Control) order are independent of each other.
Subsidy does not forii-i part of the bargain between the manufacturer and the
purchaser of fertilizer.
B

At this juncture, it will be useful to refer to the decisions of this Court
which also lead to the conclusion that the subsidy so received cannot be
regarded as a part of the taxable turnover. In State of T.N. and Ors. v. Kothari
Sugars & Chemicals Ltd. and Ors., [1996] 7 SCC 751, excess amount was paid
by the purchaser to the cane grower as advance over and above minimum cane
c
price fixed under Clause 3 and the additional cane price fixed under Clause SA
of the Sugarcane (Control) Order. The question arose whether this excess
amount so paid can be regarded as a part of the price paid by the purchaser
to the grower for the purpose_s of levy of sales tax on purchase. After referring
to the provisions of the Sugarcane (Control) Order, 1966 and the scheme of D
paying to the cane grower as advance, this Court observed as follows :

"7. Jn 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 ciause 5-A, does not have E
any statutory basis. The amount paid as advance under the State advice
also does not have arty contractual basis since this was not paid as a
result of an agreement between the grower and the purchaser. The
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
F
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 sugarcane for computation of the purchase G
tax, the only significant amount is the aggregate of the minimum price
fixed under clause 3 and the addition:ll cane price fixed under clause
5-A, unless a higher price is paid to the grower by agreement between
the purchaser and grower,"

It appears to Lis that the aforesai_d o~servations are clearly applicable in H
170 SUPREME COURT REPORTS [2001] SUPP. 3 S.C.R.
A the present case. Here also, there is no statutory basis for the grant of subsidy;
and the amount was received by the appellant pursuant to the administrative
decision taken by the Central Government. Furthermore, the subsidy is not
traceable to any agreement, direct or indirect, between the manufacturer and
the purchaser of fertilizer. What was payable in law as a sale price for fertilizer
was the amount or the rate fixed under the Fertilizer (Control) Order and no
B
more. This position is also made clear by Jhe observations. of this Court in
Mis. George Oakes (P.) Ltd. v. State of Madras, [1962] 2 SCR 570, wherein
a Constitution Bench observed that the expression turnover means the aggregate
amount for which goods are bought or sold, whether for cash or for 'deferred
payment or other valuable consideration, and when.a sale attracts purchase tax
c and the tax is passed on to the consumer, what the quyer has to pay for the
goods includes the tax as .well and the .aggregate ainount so paid would fall
within the definition of turnover. At page 580,-it was observed that "so far as
the purchaser is concerned, he pays for the goods what the seller demands, viz.,
price even though it may include tax. That is the whole consideration for the
D sale and there i~ no reason why the whole amount paid to the seller by. the
purchaser should not be treated as the consideration for the sale and included
in the turnover." It is clear from the aforesaid observations that it is that amount
which flows from the purchaser to the seller which alone would form part of
the turnover of the seller. Any sum received dehors the contract of sale from
another entity, whether it be Government or any one else, cannot be regarded
E as being an amount which would form part of the sale price on which tax is
payable.

In Hindustan Sugar Mills etc. v. State ofRajasthan & Ors., [1978] 4 SCC
271, the question which arose was whether freight was incl~dible in the
expression 'sale price' for the purpose of levy of sales tax. The Cement Control
F
Order, 1967 provided for payment of railway freight by the purchaser and it
is in this context that the question arose whether the freight so paid was to be
regarded as a part of the taxable turnover. Examining the prov_isions of the
Cement Control Order, it was observed that the said provisions have statutory
force and it postulated the payment or price of Rs. 214.65 per metric tonne free
G on rail destination railway station. The Control Order was regarded as being
paramount having overriding eff\!Ct over contractual terms and It stipulated that
the freight which was paid formed part of the sale price within the meaning
of the definition of the said expression. It follows from this decision that
whatever is payable by the purchaser to the seller in terms of a Control Order
H promulgated under Section 3 of the Essential Commodities Act has to be
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.] 171
regarded as a part of the sale price and no more. A
If the contention of the counsel for the respondent is correct, then it
would mean that, say for sale of urea, the appellant would be getting a price
of Rs. 2,350 per tonne plus the subsidy it receives from the Government. If this
will be so, then there would be a clear violation of the provisions of the Control
Order because the manufacturer cannot sell urea at a price higher than Rs. B
2,350. If on the other hand the manufacturer was to reduce the price of urea
by the amount of subsidy it received and was to get a sum less than Rs. 2,350
from the purchaser, the very concept or purpose of giving subsidy would be
lost. The Fertilizer (Control) Order having been promulgated by the Central
Government, it cannot be presumed that the Central Government would be c
giving subsidy which was to be regarded as a part of the price, which will have
the effect of the Fertilizer (Control) Order being breached. It is apparent that
the amount given by the Central Government under the administrative scheme
of furnishing subsidy is not to be regarded as a part of the sale price or
consideration for the sale of fertilizers by the appellant.
D
What is the nature of a subsidy also came up for consideration before
this Court in Assam State Electricity Board and Ors. v. Brahma Putra Steels
(P) Ltd., and Ors., [1996] 8 SCC 73. There was an industrial policy of the
Government of Assam which provided for subsidy being granted and a question
arose whether this subsidy was in any way linked with electricity charges
E
payable by the consumer. The Court held that the policy statement which
provided for the grant of subsidy to an industry. was not linked with the
payment of electricity charges by the industry to the Board.

As already mentioned, Mr. Balakrishnan, learned senior counsel for the
respondent, relied upon a decision of this Court in E.l.D. Parry(!) Ltd. etc. v. F
Asstt. Commnr. of Commercial Taxes and Anr., [2000] 2 SCC 321. In that case,
the Sugarcane (Control) Order, 1966 fixed a minimum price which was payable
for the purchase of sugarcane. Planting subsidy, dehors the Control Order, was
announced by the manufacturer of sugar for sugarcane growers who undertook
to grow the required variety of sugarcane and to sell the same to the said
manufacturer. The question arose whether payment of this subsidy constituted
G
a part of the sale price and whether it was includible in the taxable turnover.
After referring to the earlier decision of this Court including that of Kothari
Sugars (Supra), it was observed at page 336 as follows :

"18. What transpires from the above case-law is that the amounts paid H
172 SUPREME COURT REPORTS [2001] SUPP. 3 S.C.R.
A 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
·B
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
c for completing the same. Thus the total amount of consideration for
the purchase of goods would include the price strictly so called and .
ruso 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
D
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."

The aforesaid observations clearly support the contention of the learned ·
E 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 no other.amom:it including subsidy could .
be included in the purchase price. In EID Parry (supra),.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
F sugarcane by them. "The planting subsidy was given by the appellants to the
cane-growers riot by way of agrarian reforms 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,
G ·includible in the taxable turnove~. 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 *e appellant not by or on
H
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.] 173
behalf of the purchasers, but is paid by the Government of India for different A
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
B
would form part of the sale price or turnover of the appellant.

Learned Solicitor-General has drawn our attention to various decisions
of the High Court who have taken a similar view. Some of them are Fertilizer
Corporation.<>flndia Ltd. v. Commercial Tax Officer(OFA), Punjagutta Division,
Hyderabad and Ors., 83 STC 129 (A.P.), Coromandel Fertilizers Ltd. v. The C
Commercial Tax Officer (OFA), Punjagutta Division, Hyderabad, 85 STC 552
(A.P.); Natraj Organics Ltd. v. Assistant Commissioner (Assessment), Sales
Tax, Muzaffamagar, 96 STC 261 (Allahabad); Rashtriya Chemicals and
Fertilizers Limited v. State of U.P. and Others, 101 STC 487 (Allahabad);

,
..
Bongaigaon Re.finery & Petroc/:temtcals Ltd. v. Commissioner of Taxes,
Assam & Ors., 103 STC 132 (Gauhati); and Commissioner of Taxes and Ors.
v. Bongaigaon Re.finery & Petrochemicals Ltd., 114 STC 26 (Gauhati). A
Single Judge of the Keral;i High Court in Madras Fertilizers Ltd. v. Asstt.
Commissioner (Assessment), Special Circle-II, Agrl. Income-tax and Sctles Tax
Dept., Emakulam & Am:, 95 STC 134 (Kerala) after analysing the provisions
D

of the Fertilizer (Control) Order and the claim of payment of subsidy, observed E
as follows :

"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
F
parties. "Sub-section (l) 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 fertiliser
G

bargains when he purchases fertilizer from the petitioners is to obtain
a certain quantity of fertilisers at a certain price which shall not exceed
the price fixed by the Central Government by notification under the H
174 SUPREME COURT REPORTS (2001) SUPP. 3 S.C.R.
A 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 (xx vii) of the KOST Act as meaning the aggregate
price for which goods are either bought or sold, supplied or distributed
B
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
c purchaser of fertilisers, is only for payment of the price subject to the
maximum fixed by the Central Governmment 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. The fact that the
D amount of subsidy is determined with reference to the quantum of
· fertilisers 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
E
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,
F cannot constitute turnover in their hands assessable under the KOST
Act."

This decision was affirmed by the Division Bench in Assistant
Commissioner of Sales Tax (Assessment), Special Circle-II, Emakulam & Ors.
v. Krishak Bharathi Co-op. Ltd., 99 STC 17 (Kerala) and the special leave
G
petition filed against the same was dismissed by this Court. We are in respectful
agreement with the view of the Single Judge of Kerala High Court and that,
in our opinion, is the correct enunciation of law.

For the aforesaid reasons, this appeal is allowed and the judgment dated
H 3rd August, 1998 and other orders passed subsequent thereto of the Tribunal
NEYVELI LIGNITE CORPN. LTD. v. COMMERCIAL TAX OFFICER [KIRPAL, J.) 175
are set aside. A

C.A. N(Js. 5679-568312000, 621312000 and 621412000.

- For the reasons stated in our judgment in C.A. No. 5678 of 2000, these
appeals are also allowed and the impugned orders of the High Court are set
aside. B
TC(C) Nos.1412001, 1512001, 1612001, 1712001, 1812001, 1912001 andTC(C)
Nos. 27-3512001 @ TP(C) Nos. 239-247101.

For the reasons stated in our judgment in C.A. No. 5678 of 2000, these
transferred cases are allowed, the result of which will be that the writ petitions C
filed in the High Court stand allowed and the orders of the Tribunal quashed.

v.s.s. Appealsff.C. allowed.