E.I.D. PARRY (I) LTD. versus ASST. COMMR. OF COMMERCIAL TAXES AND ANR.

Citation: [1999] SUPP. 5 S.C.R. 466 · Decided: 17-12-1999 · Supreme Court of India · Bench: G.T. NANAVATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
E.I.D. PARRY (I) LTD. 
v. 
ASST. COMMR. OF COMMERCIAL TAXES AND ANR. 
DECEMBER 17, 1999 
B 
[G.T. NANAVATI AND V.N. KHARE, JJ.] 
SALES TAX: Tamil Nadu General Sales Tax Act, 1959- Section 2(r), 
Explanation (2)(ii)-Turnover-planting subsidy paid to sugarcane growers 
as an incentive by sugar company for growing good quality sugarcane-Part 
C of transport charges for bringing produce to factory gate borne by the 
company as per administrative instructions of State Government--whether 
part of taxable turnover-Held, Planting subsidy and transport charges 
constitute '"turnover"- Madras Sugar Factories Control Act, 1949-Sugarcane 
(C ontro/) Order, I 966. 
D 
Section 12(2), (5)-Penalty-Failure to include planting subsidy and 
transport charges as taxable turnover in returns filed by sugar company--
whether penalty under the Act can be levied--Held, penalty is not /eviable 
due to assessees · bona fide belief and the doubtful position in law. 
Appellant-sugar companies are governed by Madras Sugar Factories 
E Control Act, 1949 and Sugarcane (Control) Order, 1966. Under the Act, an 
area was reserved for a sugar company for a specified crushing season and 
sugarcane grower in the reserved area had to offer the company a specified 
quantity of sugarcane grown "at inspection and weighment at the factory". 
On such offer, the company had to enter into an agreement with the grower 
F for purchase of sugarcane. The Sugarcane (Control) Order fixes minimum 
price to be paid by the company to the grower for the produce delivered at 
factory gate. Besides the price, the company announces payment of planting 
subsidy on acre basis to the grower as an incentive to ensure sufficient 
supply of good quality sugarcane. The growers had to bear the transport 
charges for bringing the produce to the factory gate upto 30 kilometers and 
G the company to bear the excess charges for the distance beyond 30 kilometers 
under the administrative instructions of the State Government. In sales tax 
returns, the companies did not include the planting subsidy and transport 
charges in its taxable turnover which are held to be includible by sales tax 
authorities under Explanation 2(ii) to section 2 (r) of Tamil Nadu General 
H Sales Tax Act, 1959. Penalties in some cases were also levied under section 
466 
:i 
E.l.D.PARRY (!)LTD. 1•.ASSTI". COMMISSIONER OF COMMERCIAL TAXES 
467 
12(2) or (5) of the Act for failure to include the items in question. The A 
companies challenged in the High Court by filling Writ Petitions, section 
2(r) and the Explanation (2)(ii) thereto of the Tamil Nadu General Sales Tax 
Act as ultra vires Entry 54 of List II of the Seventh Schedule of the 
Constitution. High Court upheld the validity of the provisions and held that 
the amounts in question were to be included in the taxable turnover. 
In appeal to this Court, the companies contended that agreement for 
giving planting subsidy to the growers are entered much prior to agreements 
B 
of sale of the produce. Since the two agreements are independent though 
collateral, the inclusion of planting subsidy in the turnover is not tenable. 
The companies further contended that the transport charges were paid to C 
third party lorry owners and not to the growers and that the amounts are 
in the nature of post-sale expenses, which are not included in the taxable 
turnover. With regard to penalty, the companies contended that the law on 
inclusion of planing subsidy and transport charges in the taxable turnover 
was not clear as there were conflicting decisions of the court and therefore 
there was no justification for levying any penalty as the companies had bona D 
fide not included in the returns. 
The authorities, on the other hand, contended that the act of giving 
planting subsidy for growing sugarcane is followed by the agreement for 
sale of the produce and therefore constituted one single transaction and the 
planting subsidy being an amount paid in relation to the goods purchased had E 
been included in the taxable turnover. In regard to the transport charges, the 
authorities contended that as per the agreement, the growers should deliver 
the produce at factory gate and arrangements made by the growers by 
engaging lorries were for the purpose of enabling to deliver the produce on 
time. 
Partly allowing the appeals, this Court 
HELD : 1.1. The two agreements-one agreement in respect of planting 
subsidy and the other agreement for the sale of sugarcane-appear t

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