Food Corp Liable To Pay Tax On Grain Purchase

The Supreme Court on Wednesday ruled that the Food Corporation of India was liable to pay purchase tax to the state governments for buying foodgrain under the Essential Commodities Act. There was a difference of opinion on this point among the high courts. The Allahabad, Andhra Pradesh and Kerala high courts had held that FCI was liable to pay tax to the state governments, while some high courts like Punjab and Haryana took the opposite view.

The judgment, delivered after hearing several states, settled the issue and fixed the liability on FCI. The judgment was delivered by Chief Justice A M Ahmadi, Justice Sujata Manohar and Justice K Venkataswami.

 

The function of FCI, set up under a central legislation, is to maintain a national pool of foodgrain. States have to contribute to this pool. Therefore, states issue levy orders under the Essential Commodities Act to purchase part of the produce of farmers or millers. This is bought by FCI. The Uttar Pradesh sales tax department had sought to levy purchase tax on FCI at the point of purchase from the state government. FCI denied any liability to pay the tax. The facts were similar in case of appeals from other states.

FCIs main argument was the transaction did not amount to purchase and was actually compulsory acquisition. Rejecting this, the apex Court said the transaction amounted to sale/purchase.