1. Since this batch of petitions raises a common question, they have been heard together. The petitioners are sugar manufacturers and they have been assessed to sales tax. Sale of sugarcane was chargeable to tax at a percentage, which has been varying, according to the amendment in force at the relevant time at the point of last purchase. This is provided for in entry 62 of Schedule I read with section:3(2) of the Madras General Sales Tax Act, 1959. To take a typical case, in W.P. No. 396 of 1970 the assessee is Cauvery Sugars and Chemicals Limited. The assessment year is 1968-69. Section 14(1) of the Madras Sugar Factories Control Act, 1949, as amended by Madras Act 1 of 1962, levies a cess at a certain rate on sugarcane brought into any local area specified in a notification for consumption, use or sale therein. The liability to pay cess is on the assessee. This appears from Rule 11 of the Madras Sugar Factories Control Rules, 1949. Under this rule within a fortnight of the close of each month, the occupier of a factory should pay into the treasury the amount due as cess on the quantity of sugarcane which had entered the factory during the previous month. The Joint Commercial Tax Officer, Esplanade Division I, considered the cess so paid by the assessee as part of the purchase turnover chargeable to tax. The price of sugarcane is, as empowered by Section 12 of the Sugar Factories Control Act, fixed by the Government from time to time. The price per tonne of sugarcane at the start of the year in question stood at Rs. 85, but in the course of the year with effect from a specified date, it was reduced to Rs. 80. The assessee having paid at the rate of Rs. 85 made debit entries against the relative producers-sellers as to the deficit. The Joint Commercial Tax Officer declined to allow deduction from the chargeable turnover the difference on account of the reduction in the purchase price.
2. The assessees contend that the cess paid, by no means, formed part of the purchase price and that the department was. in error in disallowing deduction of the difference in price as re-fixed for a part of the year. In three of the petitions a further contention is raised as to the validity of the levy of the cess itself under Section 14(1) of the Madras Sugar Factories Control Act, as amended by Madras Act 1 of 1962.
3. As to the first of these contentions, for the reasons to be presently stated, we are of opinion that it is valid and should be upheld. We have already mentioned that tax on sugarcane was payable at the point of the last purchase and by the buyer. 'Turnover' is denned in Section 2(r) of the Madras Genera] Sales Tax Act, 1959, to mean the aggregate amount for which goods are bought or sold for cash or for deferred payment or other valuable consideration. Turnover is, therefore, the totality of the price paid as consideration for each transaction of sale or purchase. The question whether cess paid by the buyer formed part of the purchase turnover would depend upon whether it was part of the consideration for the purchase. Such a consideration should of course be related integrally to the purchase transaction and must be to the benefit of the seller. But an examination of the Madras Sugar Factories Control Act as to the nature and incidence of the cess shows that it does not and is not intended to form part of the consideration for the purchase of sugarcane by the assessee. That Act provided for the licensing of sugar factories and regulating the supply and the prices of sugarcane used in such factories and for other incidental matters. The crushing of sugarcane is regulated by a system of licensing and the quantity that shall be crushed is part of the conditions of a licence issued under the Act. Certain obligations are cast on the occupier of every factory, a term defined as including the managing agent or other person responsible for the management of the factory, one of which is that the occupier should intimate the Sugarcane Commissioner before a specified date in the prescribed form the quantity of sugarcane which would be required for the factory during the crushing season. Every grower in a reserved area before the close of each planting season may offer to sell to the occupier of the factory sugarcane for crushing in the following crushing season. A form is prescribed for conveying this offer. The occupier should enter into an agreement with the grower for the purchase of all sugarcane offered by him in accordance with the terms of Section 10(1). As indicated earlier, in exercise of the powers under Section 12(1), the Government after consulting the Advisory Committee fixes by notification the price which the occupier of a factory shall be bound to pay for any sugarcane purchased by him during the season and the prescription ,by the Government would include also the method of calculation of such price. Under Section 14(1) the Government may, after consulting the Advisory Committee, by notification, levy a cess not exceeding the specified rate per standard maund on sugarcane brought into any local area specified in such notification for consumption, use or sale therein. The Government is empowered under that section to make rules again after consulting the Advisory Committee which may specify the authorities by which, the persons from whom, and the manner in which, the cess levied by the Government shall be collected. Rule 11 of the Rules framed requires the occupier of every factory to maintain in the form given in Appendix II of the Rules a current daily account of the sugarcane entering the factory for consumption or use by the factory and within a fortnight of the close of each month to pay into the treasury the amount due as cess on the quantity of sugarcane which had entered the factory during the previous month. The occupier is also required within a fortnight of the close of each month to submit to the Sugarcane Commissioner a return in the form given in Appendix III showing the quantity of sugarcane that has entered the factory during the month and the amount of cess paid by him into the treasury on account of the quantity of sugarcane together with the treasury receipt in support thereof. The rule makes further provision for verification of the correctness of the particulars furnished by the occupier and also for penalties for contravention of the directions contained in the rule. It will be seen from the scheme of the provisions of the Act and the Rules framed thereunder that the liability to pay cess on the sugarcane under Section 14( 1) is on the purchaser and it has nothing to do with the price fixed under Section 12(1) and paid by the assessee. The cess does not even form part of the transaction of purchase of sugarcane and is not, by any means, in any case, part of the consideration for the purchase of sugarcane. The cess paid is not taken into account in fixing the price under Section 12(1). The grower-seller has neither any liability for the cess, nor is it paid on his behalf. It is true that where a seller pays excise duty and includes it in the purchase price, such excise duty will undoubtedly form part of the consideration like sales tax or any other tax which he has included in the consideration. But that cannot be the case where cess, as in this case, is paid by the purchaser on his own liability and not on behalf of the seller. In fact the payment of cess under Section 14 read with the relevant rule is unconnected with the transaction of purchase and the price fixed under Section 12(1). The view of the department as well as the Tribunal that cess is an integral part of the purchase turnover of sugarcane cannot, therefore, be accepted as correct. In holding that excise duty paid by the purchaser of tobacco was not part of the purchase price the Mysore High Court in P. V. Beedies (Private) Ltd. v. State of Mysore  14 S.T.C. 139 observed :
If, as it is well settled, the consideration is a benefit which flows from the buyer to the seller, normally it would be impossible to suggest that the excise duty paid by the buyer in discharge of his own statutory liability involved any benefit to the seller, unless the duty was paid on behalf of the seller.
4. With respect, we agree with this observation. In the case before us, as we have already pointed out, the cess was paid by the assessees in compliance with the statutory liability which was on them. In fixing the price for the sugarcane, cess was not taken into account. There was also no stipulation between the assessees and the growers-sellers that the duty should, as between them, be borne by the seller and that when the buyer, on whom the liability was, paid the cess, it should be on behalf of the seller. The cess paid by the assessees in discharge of their own statutory liability and on their own account cannot therefore form part of the purchase price and therefore of the purchase turnover chargeable to tax. The inclusion of the cess in the chargeable purchase turnover was, therefore, illegal.
5. We are also of the view that the department as well as the Tribunal were not right in disallowing deduction of the difference in price arising out of reduction of the purchase price from Rs. 85 to Rs. 80 during a part of the assessment year in question. It may be granted that the assessees having paid price at the rate of Rs. 85 per tonne to the growers have not fully adjusted or recovered the difference from them. But that is no reason for disallowing deduction from the taxable turnover. A sale of goods can well be for deferred payment. It may be for credit. Where excess price has been paid and the excess is admittedly recoverable back by the payer in the light of the relevant statutory provisions, the department cannot insist that nevertheless the deductions claimed by the assessees cannot be allowed, which they are entitled to.
6. That takes us to the question of the validity of the levy of cess under Section 14, as amended by Madras Act 1 of 1962. That section as it stood before the amendment levied a cess on sugarcane brought into any area specified in the notification for consumption, use or sale therein. The argument before us on either side has proceeded on the assumption that the power to levy the cess is from entry 52 of List II of the Seventh Schedule to the Constitution. Diamond Sugar Mills v. State of Uttar Pradesh : 3SCR242 with reference to similar language employed by the United Provinces Sugarcane Cess Act, 1956, as in Section 14 of the Madras Act, held by a majority that the proper meaning to be attached to the words 'local area' in entry 52 of the State List in the Seventh Schedule of the Constitution was an area administered by a local body like a Municipality, a District Board, a Local Board, a Union Board, a Panchayat or the like and that the premises of a factory was, therefore, not a local area. By Central Act 38 of 1961 the levy of cess prior to the decision of the Supreme Court was validated. By Madras Act 1 of 1962 before the word 'area', the word 'local' was introduced in Section 14(1) of the Madras Act. The contention is that by such inclusion the desired purpose of legalising the levy under Section 14(1) has not been achieved, if regard is had to the scheme and tenor of the entire provisions of the Act and the Rules made thereunder,' particularly Rule 11. We are not satisfied that the contention is of any substance. Octroi is no doubt a duty imposed on the entry of goods or animals into some town, place or country. Its character was succinctly summarised by Stone, C.J., in District Local Board, Ratnagiri v. Shantaram : AIR1946Bom117 :.an octroi and customs duty though a tax, are limited in scope to a levy or duty on the import of goods or animals into some town, place or country or a levy or duty on the goods or animals.... There are obvious difficulties in imposing personal liability for such a duty, since it is the animals or goods in relation to location which causes the duty to arise and not property in relation to ownership. The 'octroi' is of French origin, and literally means 'to authorise'.
7. But the nature of the tax in entry 52 of List II as an octroi appears to be qualified, for it is not entry of goods for any purpose whatever that will attract tax, but only if the import or export is for purposes specified in the entry itself. The Supreme Court in Diamond Sugar Mills v. State of Uttar Pradesh : 3SCR242 elaborately went into the history of entry 52 in fixing its scope and it is hardly necessary for us to cover the same ground. The majority in that case concluded that a local area in the entry was equivalent to an area administered by a local body like a Municipality, a District Board, a Local Board, a Union Board, a Panchayat or the like and not to the premises of a factory. Rajagopala Ayyangar, J., differing from the majority view said:
In my judgment the real vice of the charging Section 3(1) lies not in that it confines the levy to cases where the entry is for purposes of consumption etc., in a factory but in equating the premises of a factory with 'a local area' entry of goods into which occasions the tax. Another way of expressing the same idea would be to say that, whereas under entry 52 the movement of goods from within the same local area in which the factory is situated into the premises of the factory, could not be the subject of tax liability, because there would in such cases be no entry of the goods 'into a local area', under Section 3(1) of the Act not merely is the movement of goods into the factory from outside the 'local area' in which the factory is situate made the subject of tax, but the words used are capable of imposing the tax even in those cases where the entry into the factory is from within the same local area.
What I have in mind may be thus illustrated : If factory A situated in Panchayat area B gets its supply of cane from outside that Panchayat area, the levy of the tax on the entry of the cane into the Panchayat area would clearly be covered by entry 52. The State is not bound to tax every entry of the cane into the area but might confine the levy to the entry of the cane for the purpose of consumption in a factory. The tax might be levied and collected at the border of the Panchayat area but there is no legal obligation to do so, and the place at which the entry of the goods is checked and the duty realised is a matter of administrative machinery which does not touch on the validity of the tax imposition. It would thus not detract from the validity of the tax if by reason of convenience for effecting collection, the tax was levied at the stage of entry into the premises of a factory.
8. Apparently inspiration by the State Legislature was derived from these observations in making Madras Act 1 of 1962. In the counter-affidavit filed by the State it is mentioned that hardly would any sugarcane enter into the local area specified in the revised notification dated 27th July, 1962, which was not for the use of the factory situated in that area. As pointed out by Rajagopala Ayyangar, J., in the excerpt above, even if some part of the sugarcane entering into the local area was left free of charge, that would not impinge on the validity of the levy of tax on the sugarcane which entered into the local area and the premises of the factory for its use. It is nobody's case that any sugarcane grown in the local area itself has been subjected to levy of cess on its entry into the factory situate within that area. All that is held by the Supreme Court is that a local area in entry 52 is equal to an area like the Panchayat, District Board and the like and if that local area is notified and the entry of the goods into that area is subject to levy of cess, its validity cannot be assailed merely because the entry of sugarcane into the factory was actually the point at which the cess was collected. The challenge on the validity of the levy of cess fails.
9. The tax case and all the writ petitions except W.P. Nos. 765, 939 and 940 of 1971 are allowed in so far as they relate to the inclusion of cess in the chargeable purchase turnover and the refusal of deduction we have dealt with. W.P. Nos. 765, 939 and 940 of 1971 are dismissed. We make it clear that though the assessees have raised other points they are not covered by this judgment and they will have to seek relief in the appeals which are said to be pending. In the circumstances there will be no order as to costs.