Holding

An excess amount paid as advance does not constitute part of the price of sugarcane for purchase‑tax purposes unless a factual agreement between the grower and purchaser for a higher price is established.

Summary

The State of Tamil Nadu directed sugar factories to pay an amount in excess of the statutory minimum and additional cane price fixed under the Sugarcane (Control) Order, 1966, as an advance. Kothari Sugars and Chemicals Ltd. paid this excess amount and challenged the State's demand that purchase tax be levied on it. The issue was whether the excess advance, paid without a contractual agreement between the grower and purchaser, forms part of the price of sugarcane for tax purposes. The Supreme Court held that only the aggregate of the minimum price (Clause 3) and the additional price (Clause 5‑A) constitutes the statutory price, and any amount paid as advance does not become part of the price unless a clear agreement for a higher price is proved. Consequently, the State could not levy purchase tax on the excess amount, and the appeal was dismissed. The Court also remitted related Karnataka matters for fresh consideration.

Issues considered

Whether purchase tax under the State Sales Tax Act is payable on the amount paid by the purchaser to the cane grower in excess of the aggregate of the minimum and additional cane prices fixed under the Sugarcane (Control) Order, 1966.
Whether such excess amount forms part of the price of sugarcane for tax computation in the absence of a contractual agreement between the grower and purchaser.

Legislation cited

Subjects

purchase taxsugarcane control orderminimum priceadditional priceadvance paymentcontractual agreementessential commodities acttax liability

Judgment

STATE OF TAMIL NADU A
v.
... KOTHARI SUGARS AND CHEMICALS LTD .

FEBRUARY 8, 1996

[J.S. VERMA, AND K. VENKATASWAMI, JJ.] B

Sugarcane (Control) Order, 1966: Clauses 3 and 5-A.

Purchase tax--Over and above minimum and additional cane
p1ices-Paid by purchaser to cane grower as advance in anticipation of C
fixation of additional cane price-Held: such excess amount paid-Not part
of total price of sugarcane-Hence purchaser not liable to pay purchase tax
under State Sales Tax Act on such excess amount-Unless there was agree-
ment between grower and purchaser for payment of higher p1ice-Such agree-
ment must be proved as fact-Court must record a clear finding to the
effect-Essential Commodities Act, 1955. D
The Central Government was empowered under Clause 3 of the
Sugarcane (Control) Order, 1966 to fix the minimum price for sugarcane
for each season and different areas or different quantities of sugarcane.
The Central Government subsequently introduced Clause 5-A in the Con- E
trol Order whereby the State Government was authorised to determine and
fix "additional can price" over and above the "minimum can price" fixed by
the Central Government. The State Government duly exercised its power
and determined and fixed the additional cane price.

The occasion for payment by the respondents of the amount in excess F
of the aggregate of the minimum cane price and the additional cane price
so fixed arose on account of an order of the State Government purporting
to fix a higher revised minimum can price and directing the respondent -
sugar factory in the State to pay that price to the cane growers. Pursuant
to the direction, the respondents paid the excess amount as an "Advance" G
in anticipation of fixation of the additional cane price under Clause 5-A.

The respondents filed writ petition in the High Court challenging the
demand by the State Government of purchase tax on the excess amount,
which was allowed. Aggrieved by the High Court's J11:dgment the anellants
had preferred this appeal. H
275
276 SUPREME COURT REPORTS [1996] 2 S.C.R.

A On behalf of the appellants it was contended that the higher price
inclusive of the excess amount in the advance paid was deemed to have
been paid by an agreement between the grower and the appellant and,
therefore, the entire amount would be the price of sugarcane.

Dismissing the appeal, this Court
B
HELD : 1.1. On a perusal of the relevant provisions of the sugarcane
(Control) Order, 1966, particularly Clauses 3 and 5-A therein, it is clear
that the total price of sugarcane fixed there~nder is the aggregate of the
minimum cane price fixed under Clause 3 and the additional cane price
C fixed under Clause 5-A. Thus, unless there be an agreement between the
grower and the purchaser for purchase of the sugarcane at a higher price,
\
the obligation of the purchaser is to pay to the grower only the aggregate
of the amounts fixed under Clauses 3 and 5-A. Therefore, under the Statute
here is no liability of the purchaser to pay to the grower any amount in
excess of this aggregate amount. Thus, without any contractual or
D statutory basis fixing the sale price of sugarcane at an amount higher than
the minimum cane price fixed under Clause 3 and the additional cane price
fixed under Clause 5-A, any sum paid by the purchaser to the grower as
advance prior to fixation of the additional cane price under Clause 5-A
cannot form part of the price of sugarcane. (279-G-H; 280-A-B]
E 1.2. The amount paid as advance under the State advice also does
not have. any 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 under Clause 5-A was at
F 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 determining the price of sugarcane for
computation of the purchase tax, the only significant amount is the ag-
G
gregate of the minimum price fixed under Clause 3 and the additional cane
price fixed under Clause 5-A, unless a higher price is paid to the grower
by agreement between the purchaser and grower. (280-D-F]

1.3. For treating the entire amount paid by the purchaser as the price
H of sugarcane supplied, it must be found proved as a fact that the higher
STATE v. KOTIIARI SUGARS AND CHEMICALS LTD. [J.~. ~RMA, J.] 277

price including the excess amount was paid as the price of sugarcane under A
an agreement between the grower and the purchaser irrespective of a lower
amount being fixed as the aggregate of the price fixation under Clauses 3
and 5-A of the Control Order. Unless a clear finding to that effect is
recorded, the amount paid by the purchaser in excess of the aggregate of
the minimum price fixed under Clause 3 and the additional price fixed B
under Clause 5-A, as a part of the amount paid as advance prior to fixation
of the additional price under Clause 5-A, cannot be treated automatically
as a part of the total price of sugarcane. (281-F-H]

11iint Arooran Sugar Ltd. v. Deputy Commercial Tax Officer, Mannar-
gudi and Ors., (1988] 71 STC 444, approved. C

Pandavapura Sahakara Sakkare Kharkhane (P) Ltd. v. State of Mysore,
(1973) 32 STC 104 and Tungabhadra Sugar Works Ltd. v. State of Kamataka
& Ors., (1994] 93 STC 56, distinguished.

CIVIL APPELLATE J,URISDICTION: Civil Appeal Nos. 11083- D
11141 of 1995 Etc.

From the Judgment and Order dated 3.10.90 of the Madras High
Court in W.P. No. 497, 511-14, 742, 866-69 1257-62, 1284, 1511-16 &
2291/82 & 2460, 3542-43/86, 1705-06, 3397-400, 3426,3625, 1125, 1218-20, '
1813-14, 3986, 4854-55/88 & T.C. Nos. 196-204/81, 1329 & 1330/86, 3626, E
3720, 3721 and 6295 of 1987.

AK. Ganguli, Kapil Sibal R.F. Nariman, F.S. Nariman, Raja Ram
Agarwal, A. Mariarputham, Ajay Kapoor, Ms. Aruna Mathur, E.C. Vidya
Sagar, D.N.N. Reddy, P.H. Parekh, E.R. Kumar, A.T.M. Sampath, Praveen
F
Kumar, K.R. Nagaraja for the appearing parties.

The Judgment of the Court was delivered by

J.S. VERMA, J. The question for decision is : Whether for the
purchase of sugar-cane from the cane growers, a purchaser is liable to pay G
purchase t-ax under the State Sales Tax Act on the amount paid by the
purchaser to the cane grower over and above the price fixed under Clauses
3 and 5-A of the Sugarcane (Control) Order, 1966?

Clause 3 of the Control Order issued under the Essential Com-
modities Act, 1955 empowers the Central Government to fix the minimum H
278 SUPREME COURT REPORTS [1996) 2 S.C.R.

A price for sugar-cane for each season and different prices are permitted to
be fixed for different areas or different quantities or varieties of sugar-cane.
since 1.10.1974 pursuant to the acceptance of Bhargava Commission
Report, the Central Government introduced Clause 5-A in the Sugar-cane
(Control) Order, 1966, the material part of which is as under :
B "5-A. ADDITIONAL PRICE FOR SUGARCANE PURCHASED
ON OR AFTER JST OCTOBER, 1974

(1) Where a producer of sugar or his agent purchases sugarcane,
from a sugarcane grower during each sugar year, he shall, in
c addition to the minimum sugarcane price fixed under clause (3)
pay to the sugarcane grower an additional price, if found due in
accordance with the provisions of the Second Schedule annexed
to this Order.

(2) The Central Government or the State Government, as the case
-D
may be, may authorise any person or authority, as it thinks fit, for
the purpose of determining the additional price payable by a
producer of sugar under sub-clause (1) and the person or
authority, as the case may be, who determines the additional price,
shall intimate the same in writing to the producer of sugar and
E sugarcane grower connected with the supply of sugarcane to such
producer of sugar.

xxx xxx xxx"

F In Tamil Nadu, the State Government duly exercised its power by appoint-
ing the Director of Sugar and Cane Commissioner, who, by order dated
2.7.1983 determined the "additional cane price" under Clause 5-A at Rs.
28.15 per MT for the respondent i.e. Thiru Arroran Sugars Ltd., making
the final statutory cane price as per the Control Order at Rs. 179.55 per
MT, the "minimum cane price" fixed by the Central Government being Rs.
G 151.40 per MT. There is no dispute that this additional price fixed under
Clause 5-A attracts purchase tax which has already been paid. However,
the dispute is with regard to the claim of the State Government for payment
of purchase tax on the excess amount paid by the purchaser in addition to
the aggregate of the minimum cane price fixed under Clause 3 and the
H additional cane price fixed under Clause 5-A by the Central Government.
STATE v. KOTHARI SUGARS AND CHEMICALS LTD. [J.S. VERMA, J.] 279

The occasion for payment by the purchaser of the amount in excess A
of the aggregate of the minimum cane price and the additional cane price
so fixed, arises on account of an Order of the State Government dated
15.11.1980 purporting to fix a higher revised minimum cane price and

- directing the sugar factories in Tamil Nadu to pay that price to the cane
growers. Pursuant to the direction, each sugar factory was directed to make
that payment and in compliance thereof this sugar factory paid the excess
amount as an "Advance" described as under :
B

"........ being advance payment towards cane supply during 1980-81
Season, against probable additional cane price under Section SA
of the Sugarcane (Control) Order, 1966." C
This amount paid as "advance" by the sugar factory for purchase of
sugar-cane in anticipation of fixation of the additional cane price under
Clause 5-A was Rs. 52.40 per MT. Accordingly, on fixation of the addition-
al cane price at Rs. 28.15 per MT, the excess amount of advance came to
(Rs. 52.40 per MT minus Rs. 28.15 per MT) Rs. 24.25 per MT. While the D
sugar factory claim that this excess amount of Rs. 24.25 per MT paid by it
to the cane grower is towards advance and liable to adjustment or refund,
even if it remains with the cane grower, it cannot form part of the price of
sugar-cane which cannot exceed the aggregate of the minimum cane price
fixed under clause 3 and the additional cane price fixed under Clause 5-A. E
This is the common stand of all sugar factories, as purchasers of sugarcane
from the growers.

The purchasers filed writ petitions challenging the demand by the
State Government of purchase tax on the above excess amount of Rs. 24.25
per MT. They contested the demand on the ground that it could not form F
a part of the sale price of cane sugar which had been statutorily fixed under
Clauses 3 and 5-A of the Control Order. The Madras High Court rejected
the contention of the State Government and allowed the writ petitions of
the assessees. Hence, these appeals by way of special leave by the State of
Tamil Nadu.
G
On a perusal of the relevant provisions of the Sugar-cane (Control)
Order, 1966, particularly Clauses 3 and 5-A therein, it is clear that the total
price of sugar-cane fixed thereunder is the aggregate of the minimum cane
price fixed under Clause 3 and the additional cane price fixed under Clause
5-A. Thus, unless there be an agreement between the grower and the H
280 SUPREME COURT REPORTS [1996) 2 S.C.R.

A purchaser for purchase of the sugar-cane at a higher price, the obiigation
of the purchaser is to pay t_o the grower only the aggregate of the amounts
fixed under Clause 3 and 5-A. In other words, under the Statute there is
no liability of the purchaser to pay to the grower any amount in excess of
this aggregate amount. Thus, without any contractual or statutory basis
-
fixing the sale price of sugar-cane at an amount higher than the minimum
B
cane price· fixed under Clause 3 and the additional cane price fixed under
Clause 5-A, any sum paid by the purchaser to the grower as advance prior
to fixation of the additional cane price under Clause 5-A cannot from part
of the price of cane sugar.

C In these mattes there is admittedly no statutory basis since the 'State
advice' to the purchasers to pay a certain amount in addition to the
minimum can price fixed under Clause 3, in anticipation of fixation of the
additional cane price under Clause 5-A, does not have any statutory basis.
The amount paid as advance under the State advice also does not have any
D 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 can price under Clause 5-A
which means that in case the fixation 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
E excess, the purchaser would be entitled to refund of the excess. amouqt,
irrespective of the fact whether the refund was actually made or not. For
the purpose of determining the price of sugar-cane for computation of the
purchase tax, the only significant amount is the aggregate of the minimum
price fixed under Clause 3 and the additional can price fixed under Clause
F 5-A, unless a higher price is paid to the grower by agreement between the
purchaser and grower.

It was argued by learned counsel for the State that the higher price
inclusive of the excess amount included in the advance paid on State
advance is deemed to have been paid by an agreement between the grower
G and the purchaser and, therefore, the entire amount would be the price of
sugar-cane. This is a question of fact in each case. It is true that· if in a
given case it is found as a fact on the basis of evidence that the purchaser
had agreed with the grower to pay the higher price described as 'advance'
including the amount in excess of the additional price fixed under Clause
H 5-A then in that case the entire amount would be the price of sugar-cane.
SfATE v. KOTHARI SUGARS AND CHEMICALS LTD. [J.S. VERMA, J.] 281

However, there is no such basis found in the present case wherein the A
excess amount forming part of the advance was paid only under compulsion
\on the direction contained in the 'State advice. It is significant that a
provision for adjustment is clearly made in sub-clause (6) of Clause 5-A.
This provision supports the view we have taken. The decision of the
Madras High Court which is reported in Thim Aroonan Sugars Ltd. v.
Deputy Commercial Tax Officet; Mannargudi & Ors., (1988) 71 STC 444 is,
B
therefore, upheld and the appeals against the decision of the Madras High
Court are, therefore, dismissed.

In the connected matters arising out of the judgment of the Kar-
nataka High Court, similar writ petitions filed by the purchasers of sugar- c
cane wer~ dismissed. The two decisions of the Karnataka High Court which
require rel'erence are Pandavapura Sahakara Sakkare Kharekhane (P) Ltd.
v. State of Mysore, (1973) 32 STC 104 and Tungabhadra Sugar Works Ltd.
v. State of Kamataka & Ors., (1994) 93 STC 561. In Pandavapura it was
found pro1ed as a fact that the substance of the transaction between the D
purchaser and the cane growers was for payment of the enhan~for
the sugar-cane supplied and the amount paid in excess of the statutory
price was paid under the contract and not either as ex-gratia payment or
towards advance. In that situation the entire amount paid was treated as
the price. In our opinion, the nature or contract in that case being such,
the entire amount paid had to be treated as price of the sugar-cane E
supplied since the Statute does not prohibit an, agreement between the
grower and the purchaser for payment of a higher price for the sugar-cane
by the purchaser. In the later decision in Tungabhadra also it is noticed
there is no prohibition against the parties agreeing for the payment of a
higher price of the sugar-cane. In that situation no doubt the entire amount F
paid has to be treated as the price of the sugar-cane. However, as indicated
earlier, for treating the entire amount paid by the purchaser as the price
of sugar-cane supplied, it must be found proved as a fact that the higher
price including the excess amount was paid as the price of sugar-cane
under an agreement between the grower and the purchaser irrespective of
a lower amount being fixed as the aggregate of the of the price fixation G
under Clauses 3 and 5-A of the Control Order. Unless a clear finding to
that effect is recorded, the amount paid by the purchaser in excess of the
aggregate of the minimum price fixed under Clause 3 and the additional
price fixed under Clause 5-A, as a part of the amount paid as advance prior
to fixation of the additional price under Clause 5-A, cannot be treated H
282 SUPREME COURT REPORTS [1996) 2 S.C.R.

A automatically as a part of the total price of sugar-cane. In matters arising
· out of decisions of the Karnataka High Court, this aspect as not been
adverted to and the writ petitions have been dismissed without going into
this question. The Karnataka matters have, therefore, to be remitted to the
High Court for a fresh decision on the above basis.

B As a result of the aforesaid decision, the appeals of the State of Tamil
Nadu (Civil Appeal Nos. 10733-10735, 11083-11141, 11211, 11212 and
11213 of 1995) against the judgment of the Madras High Court are dis-
missed: The appeals against the decision of the Karnataka High Court by
the sugar factories (Civil Appeal Nos. 11605-U608 and 11214 of 1995) are
C allowed. The matters are remitted to the Karnataka High Court for a fresh
decision in accordance with law in the manner indicated after hearing both
sides.

v.s.s. Appeal dismissed.

f,_