Full Judgment Text
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PETITIONER:
SALAR JUNG SUGAR NULLS LTD. ETC.
Vs.
RESPONDENT:
STATE OF MYSORE & ORS.
DATE OF JUDGMENT01/11/1971
BENCH:
RAY, A.N.
BENCH:
RAY, A.N.
MITTER, G.K.
ROY, SUBIMAL CHANDRA
PALEKAR, D.G.
SIKRI, S.M. (CJ)
SHELAT, J.M.
DUA, I.D.
CITATION:
1972 AIR 87 1972 SCR (2) 228
1970 SCC (2) 23
CITATOR INFO :
R 1976 SC2478 (12)
APR 1978 SC 449 (46,52)
F 1985 SC1199 (6)
ACT:
Mysore Sales Tax Act, 1957 as amended by Mysore Act 11 of
1961--Levy of purchase tax on sugarcane purchased by
factories from growers--Purchase and supply of sugarcane
regulated by Central and State Control Orders--Transactions
whether amounted to sale within meaning of s. 2(f) of Mysore
Sales Tax Act--Mutual assent between purchaser and seller
whether Present--Factories whether dealer within meaning of
s. 2(k) of Act--Different rates of tax In different States
whether violative of Art. 14 of Constitution.
HEADNOTE:
By Mysore Act 11 of 1961 which came into force on October 1,
1961 sugarcane was included at Serial No. 11-A in the Third
Schedule to the Mysore Sales Tax Act, 1957. As a result of
the amendment the appellants were subjected to levy of tax
on purchase of sugarcane. Their writ petitions challenging
the levy were dismissed by the High Court. In appeals by
certificate the appellants contended before this Court that
: (i) on account of the Central & State Control Orders
applicable to the transactions there was no mutual assent by
and between the appellants and the growers of sugarcane in
regard to supply of sugarcane by the growers and the
acceptance by the factories and therefore there was no
purchase and sale of sugarcane-, (ii) the appellants were
not dealers within the meaning of s. 2(k) of the Mysore
Sales Tax Act; (iii) the levy of tax on purchase of
sugarcane at different rates in different States was dis-
criminatory and in violation of Art. 14.
HELD : (i) The decisions relating to ’compulsory sales’
establish that statutory orders regulating the supply and
distribution of goods by and between the parties under the
Control Orders in a State do not absolutely impinge on the
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freedom to enter into contract. Legislative measures or
statutory provisions fixing the price, delivery, supply,
restricting areas for transactions are all within the realm
of planning economic needs ensuring production and
distribution of essential commodities and basic necessities
of community. The recent trends in these legal rules
delimit the variety of structure of rights and duties which
individuals may create by such acts and transactions. The
complexity of modern activities and the consequent
difficulty of providing for every eventuality have shaken
fervour for freedom of contract as there was during the
nineteenth century. The economic environment has changed.
The individual freedom is to be reconciled with adequate
performance by the Government of its functions in a highly
organised society. Delimiting areas for transactions or
parties or denoting price for transaction are all within the
area of individual freedom of contract with limited choice
by reason of ensuring the greatest good for the greatest
number by achieving proper supply at standard or fair prices
to eliminate the evils of hoarding and scarcity on the one
hand and availability on the other. [244 G-Z45 B]
In the present case the Control Orders are to be kept in the
forefront for appreciating the true character of
transactions. It is apparent that the area is restricted.
The parties are’ determined by the order. The
229
minimum price is fixed. The minimum quantity of supply is
also regulated. These features do not complete the picture.
The entire transaction indicates that the parties agree to
buy and sell. The parties choose the terms. of delivery..
The parties have choice with regard to obtaining supply of a
quantity higher than 95 per cent of the yield. The parties
can stipulate for a price higher than the minimum. The
parties can have terms for payment in advance as well in
cash. A grower may not cultivate and there may not be any
yield. A factory may be closed or wound up and may not buy
sugarcane. A factory can reject goods after inspection.
Inspection and appropriation of goods, which in the present
case were unascertained goods indicates not only freedom in
the formation but also in the performance of contracts. The
combination of all these factors indicates that the parties
entered into agreement with mutual assent and with volition
for transfer of goods in consideration of price. [248 B-E;,
247 B]
The transactions accordingly amounted to sales within the
meaning of s. 2(t) of the Mysore Sales Tax Act.
Indian Steel & Wire Products Ltd. v. State of Madras [1968]
1 S.C.R. 479, Andhra Sugars Ltd. & Anr. v. State of Andhra
Pradesh, [1968] 1 S.C.R. 706 and State of Rajasthan & Anr.
v. M/s. Karam Chand Thappar & Bros. Ltd. [1969] 1 S.C.R.
861, relied on.
State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.
[1959] S.C.R. 379, M/s. New India Sugar Mills Ltd. v.
Commissioner of Sales Tax, Bihar, [1969] Supp. 2 S.C.R. 459,
M/s. Chitter Mal Narain Das v, Commissioner of Sales Tax,
[1971] 1 S.C.R. 671, Newcastle Breweries Ltd. v. Inland
Revenue Commissioners (1927) 96 L.J.K.B. 735, Kirkness
(Inspector of Taxes) v John Hudson & Co. Ltd., [1955] A.696
and Ridge Nominees Ltd. v. Inland Revenue Commissioners
[1962] Ch. 376, Considered.
(ii) If a person carries on the business of buying or
selling a commodity it is not necessary that he shall sell
the same commodity to become a dealer. The commodity may be
converted into another saleable commodity or it may be used
as an ingredient in the manufacture of a commodity.
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Therefore, the factories which bought sugarcane could be
said’ to carry on the business of buying and selling
sugarcane and the factories were ’dealer’ within the meaning
of s. 2(k) of the Mysore Sales Tax Act, [249 C]
State of Andhra Pradesh v. Abdul Bakshi & Bros. A.I.R. 1965
S.C. 531, relied on.
(iii) It was not disputed that all the factories in Mysore
had been treated equally. Different rates of purchase tax
in different States are applicable on various grounds. The
quantity available, the conditions of agriculturists, the
number of factories will all have distinctive features.
Therefore there could be no infraction of Art. 14 of the
Constitution.[249 E]
(iv) In view of the decision of this Court in Tata Iron &
Steel Co.’s case the appellants could not impeach the
imposition and levy of sale tax on the ground that the
appellants could not collect from the purchasers of sugar
the purchase tax paid by the appellants on purchase of
Sugarcane. [249 G-H]
Tata Iron & Steel Co. v. State of Bihar, [1958] S.C.R. 1355,
applied.
230
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2002 to
2005 and 2014 to 2017 of 1968.
Appeals from the judgment and order dated April 16, 1968 of
the Mysore High Court in Writ Petitions Nos. 2225 of 1967,
29 to 31, of 1968, 2208 of 1967 and 32 to 34 of 1969
respectively.
G.Vasanta Pai, G. L. Sanghi, P. C. Bhartari, B. Datta, J. B.
Dadachanji, O. C. Mathur and Ravinder Narain, for the appel-
lants (in all the appeals).
V. S. Desai, S. S. Javali and R. B. A tar, for the
respondents (in all the appeals).
The Judgment of the Court was delivered by
Ray, J. These appeals are by certificate against the
judgment and order dated 16 April, 1968 of the High Court of
Mysore dismissing the applications of the appellants under
Article 226 of the Constitution for writs, orders and
directions prohibiting the respondent-State of Mysore and
the Commissioner for Commercial Taxes at Bangalore from
levying or taking proceedings to levy any purchase tax on
purchase of sugarcane from the grower or from collecting or
taking any proceedings for recovery of any such tax with or
without penalty from the appellants. The appellants also
asked for orders, writs and directions for refund of several
sums of money collected as and for purchase tax.
The appellants are the India Sugars and Refineries Ltd. and
the Salar Jung Mills Ltd. The India Sugars and Refineries
Ltd. is situated at Hospet in Bellary District in Mysore and
the Salar Jung Sugar Mills Ltd. is situated at Munirabad in
Raichur District in Mysore.
The appellant, the India Sugars and Refineries Ltd. in four
applications now Civil Appeals No. 2015, 2016, 2017 and 2014
of 1968 impeached the demand and collection made against the
appellant for large sums of money as and for purchase tax
and penalty on the purchase of sugarcane from the growers
for the period 1 April, 1962 to 30 June, 1967 and further
asked for refund of large sum of money collected as purchase
tax.
The appellant Salar Jung Sugar Mills Ltd. in four
applications now Civil Appeals No. 2003, 2004, 2005, and
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2002 of 1968 asked for similar orders and directions in
respect of ’the period 1 July, 1963 to 30 June, 1967.
In the fifties practically all the States in which sugarcane
was grown for the purpose of manufacturing sugar used to
levy cess on sugarcane brought into the premises of sugar
factories. This
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Court in Diamond Sugar Mills v. State of U.P. (1) [1961] 3
S.C.R. 242 held that section 3 of the U.P. Sugarcane Cess
Act, 1956 which empowered the Governor of the State to
impose cess on entry of sugarcane into the premises of a
factory did not fall within Entry 52 of List II and as there
was no entry in the State List or in the Concurrent List in
which the said Act could fall, it was beyond the legislative
competence of the State Legislature. The decision of this
Court was given on 13 December, 1960. The Sugarcane Cess
(Validation) Act, 1961 was passed by Parliament validating
the imposition of collection of cess on sugarcane under
several State enactments before the commencement of the
Validation Act of 1961,
The Mysore State Legislature imposed tax on purchase of
sugarcane purchased by sugar factories. By Mysore Act No.
11 of 1961 which came into force on 1 October, 1961
sugarcane was included at Serial No. 11-A in the Third
Schedule to the Mysore Sales Tax Act, 1957. The relevant
provision in the Mysore Act is as follows
"11-A Sugarcane--Purchased by the last dealer in the State
liable to tax under this Act.-Fifteen per cent".
As a result of the amendment the appellants were subjected
to levy of tax on purchase of sugarcane.
The appellants raised three principal contentions. First,
there was no mutual assent by and between the appellants and
the growers of sugarcane in regard to supply of sugarcane by
the growers and the acceptance by the factories and
therefore there was no purchase and sale of sugarcane.
Secondly, the appellants are not dealers within the meaning
of section 2(k) of the Mysore Sales Tax Act. Third, the
levy of tax on purchase of sugarcane at different rates in
different States was discriminatory and in violation of
Article 14.
In order to appreciate the rival contentions on the first
ground as to whether there was a purchase or sale of
sugarcane the relevant legislation has to be looked into and
facts and circumstances have to be ascertained for finding
out as to what the actual transaction was.
In exercise of the powers conferred by section 3 of the
Essential Commodities Act, 1955 the Central Government on 27
August, 1955 made the Sugarcane Control Order, 1955. The
Central Government was empowered by clause 3 of the
Sugarcane Control Order, 1955 to fix the minimum price of
sugarcane to be paid by purchasers of sugar. Sale or
purchase of sugarcane at a price lower than the price fixed
under section 3 was prohibit-
232
ed. The Central Government, however, could fix an additional
price under certain circumstances and contingencies. Clause
4 of the Order of 1955 gave the Government power to prohibit
or restrict or otherwise regulate export of sugarcane from
any area for supply to different factories and also to
direct that no jaggery or sugar shall be manufactured from
sugarcane except under and in accordance with the conditions
specified in a licence issued in that behalf.
On 4 October, 1963 in exercise of the powers conferred by
section 3 of the Defence of India Act, 1962 the Central
Government introduced Rule 125-B to the Defence of India
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Rules. Rule 125-B inter alia stated that if the Central
Government was of opinion that it was necessary or expedient
for regulating or increasing the supply of sugarcane or for
securing the equitable distribution of sugarcane the Central
Government could pass orders to reserve areas where
sugarcane was grown for a factory; determine the quantity of
sugarcane which a factory would require for crushing during
a year; fix with respect to any specified sugarcane grower
in a reserved area the quantity or percentage of sugarcane
grown by such grower for supply to the factory concerned;
require a factory to enter into an agreement with the grower
to purchase the quantity of sugarcane so determined; and
further direct that no sugarcane shall be exported from a
reserved area except under and in accordance with a permit
issued by the Central Government.
On 26 September, 1963 sugar was notified under Rule 125-B of
the Defence of India Rules as a thing essential to the life
of the community. On 7 October, 1963 the Central Government
directed that the powers conferred by Rule 125-B of the
Defence of India Rules shall be exercised by the State
Government.
In this background the Mysore Government on 14 November,
1963 in exercise of the powers conferred by Rule 125-B of
the Defence of India Rules brought into existence the Mysore
Sugarcane (Regulation of Supply) Order, 1963. In Schedule I
of the Order factories were specified and reserved areas
were enumerated in the said Schedule for supply of sugarcane
to the specified factory and the sugarcane growers in the
reserved areas were to supply 95 per cent of sugarcane grown
to the factory concerned. Every factory to which supply of
sugarcane was to be made was required to enter into an
agreement with each sugarcane _grower to purchase the
quantity of sugarcane determined. Purchase of sugarcane by
power crusher or for manufacture of gur, shakkar, gul,
jaggery, rab or khandsari sugar was prohibited. Export of
sugarcane from
233
a reserved area was also prohibited except under permit.
Contravention of the Mysore Sugarcane Control Order was made
punishable by forfeiture of property in respect of which
there was a contravention. The Mysore Sugarcane Control
Order, 1963 specified the India Sugars and Refineries Ltd.
as the factory and enumerated the areas reserved for supply
of sugarcane to the specified factory. It may be stated
here that the Salar Jung Sugar Mills Ltd. was also specified
in the Schedule and it remained specified until 1965 when
the Mysore Sugarcane Munirabad Order, 1965 was made as
specially applicable to Salar Jung Sugar Mills Ltd.
On 14 February, 1964 in exercise of the powers conferred by
section 3 of the Essential Commodities Act, the Central
Government amended the Sugarcane Control Order, 1955.
Clause 4 of the Sugarcane Control Order, 1955 was amended
and substituted by a new clause. The new clause 4 conferred
powers on the Central Government to reserve areas where
sugarcane was grown for a factory, determine the quantity of
sugarcane which the factory would require for crushing
during the year, fix with respect to any specified sugarcane
grower in a reserved area the quantity or percentage of
sugarcane grown by such grower which such grower would
supply to the factory concerned; require the sugarcane
grower and the factory to enter into an agreement for supply
and purchase of the quantity of sugarcane so determined.
Clause 4 as amended further provided that every sugarcane
grower or factory to whom the order applied would be bound
to supply or purchase the quantity of sugar covered by the
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agreement entered into and wilful failure on the part of
anyone would constitute a breach of the provisions of the
said Order.
On 20 February, 1964 in exercise of the powers conferred by
clause 6 of the Sugarcane (Control) Order, 1955, the Central
Government directed that the powers conferred on the Central
Government by clause 4 of the said Order, shall be
exercisable by the State Governments of Andhra Pradesh,
Assam, Bihar, Gujarat, Kerala, Madhya Pradesh, Madras,
Maharashtra, Mysore, Orissa, Punjab, Rajasthan, Uttar
Pradesh and West Bengal and the Chief Commissioner of
Pondicherry.
On 15 January, 1965 the Mysore Government in exercise of the
Powers conferred by clause 4 of the Sugarcane Control Order,
1955 as amended and read with the notification dated 20
February, 1964 made the Mysore Sugarcane (Regulation of
Supply) (Munirabad) Order, 1965. The Mysore Sugarcane
(Munirabad) Order of 1965 in clause 2(c) defined factory to
mean the premises of the appellant Salar Jung Sugar Mills
Ltd. at Munirabad. In Schedule I of the Mysore Sugarcane
(Regulation of Supply) (Munira-
234
bad) Order, 1965 the area reserved for supply of sugarcane
to the factory was enumerated setting out the names of the
villages. The Mysore Sugarcane Order, 1955 determined the
crushing capacity of the appellant Salar Jung Sugar Mills
Ltd. to be 1000 tons per day and the quantity of sugarcane
required by the factory during the crushing season to be
1,50,000 tons. The Order further stated that the factory
was to secure the quantity of sugarcane from the area
specified in Schedule I and the quantity of sugarcane to be,
supplied by each grower was fixed at 95 per cent of the
sugarcane grown by the grower. Every sugarcane grower and
the factory’ concerned were required to enter into an
agreement to supply or purchase the quantity of sugarcane
determined under clause 4. Export of sugarcane from reserved
area was prohibited. The Sugarcane (Regulation of Supply)
Order, 1963 in so far as it related to matters provided for
in the Mysore Sugarcane (Munirabad) Order, 1965 was
repealed. Thereafter, the Mysore Sugarcane (Regulation of
Supply) Order, 1963 applied to the India Sugar and
Refineries Ltd. and the Mysore Sugarcane (Regulation of
Supply) (Munirabad) Order, 1965 applied to the Salar Jung.
Sugar Mills Ltd.
On 16 July, 1966 in exercise of the powers conferred by
section 3 of the Essential Commodities Act, 1955 the Central
Government made the Sugarcane (Control) Order, 1966 and
repealed the Sugarcane (Control) Order, 1955. Under the
Sugarcane (Control) Order, 1966 ’factory’ means any premises
including the precincts thereof in any part of which sugar
is manufactured by vacuum pan process, ’price’ means the
price or the minimum price fixed by the Central Government
from time to time delivered at the gate of the factory or
sugarcane purchasing centre and reserved area’ means any
area where sugarcane is grown and reserved for a factory in
terms of the Order. Clause 3 of the 1966 Sugarcane Control
Order dealt with minimum price of sugarcane fixed by the
Central Government having regard to (a) cost of, production
of sugarcane, (b) the return to the grower from alternative
crops on the general trend of prices of agricultural commo-
dities, (c) availability of sugar to the consumer at a fair
price, (d) the price at which sugar produced from sugarcane
is sold by producers’ of sugar, and (e) the recovery of
sugar from- sugarcane. Purchase and sale of sugarcane at a
price lower than that fixed was prohibited. The price of
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sugarcane became-payable 14 days from the date of delivery.
Additional price for sugarcane could also be fixed under
clause 5. Under clause 6 of the Order the Central Government
could reserve area where sugarcane is grown for the factory
having regard to the crushing capacity of the-, factory, the
availability of sugarcane in the reserved area and the
235
need for production of sugar and also determine the quantity
of sugarcane required by the factory for crushing during any
year and fix the quantity to be supplied by a grower to the
factory. The grower and the factory were required to enter
into an agreement for supply or purchase of sugarcane.
Export of sugarcane from any reserved area was prohibited.
In exercise of the powers conferred by clause 6 of the
Sugarcane (Control) Order, 1966 the Mysore Sugarcane
(Regulation of Distribution) (Munirabad) Order, 1966 was
made by the Government of Mysore repealing the Mysore
Sugarcane (Regulation of Supply) (Munirabad) Order, 1965.
The 1966 Sugarcane (Munirabad) Order was in relation to the
appellants Salar Jung Sugar Mills Ltd. Clause 3 of the
Order dealt with the crushing capacity of the factory being
1000 tons per day and the quantity of sugarcane required for
the factory during the year was determined to be 1,50,000
tons. The appellant’s factory was to secure the quantity of
sugarcane determined under clause 3(2) from the areas
specified in Schedule I being the reserved areas for supply
of sugarcane to the factory. The sugarcane growers in the
reserved area were to supply 95 per cent of the sugarcane
grown by them to the factory. The sugarcane grower and the
factory were required to enter into an agreement for supply
and purchase of sugarcane.
Counsel on behalf of the appellants contended that there was
no sale and purchase of sugarcane by reason of want of
mutual assent and further that the entire transaction was
only by operation of statutes, and at no stage there was any
element of freedom to buy or sell. It was said that under
the statutes these consequences emerged. First, the price
was fixed. Secondly, the sugarcane grower was required to
deliver sugarcane and the factory was required to receive
supply only from the sugarcane grower in the reserved area.
Thirdly, the quantity of supply by the sugarcane grower,
namely, 95 per cent of the produce was fixed. Fourthly, the
quantity of sugarcane required by the factory was fixed at
1,50,000 tons a year. Fifthly, the grower in the reserved
area could not export sugarcane to any place or person
outside the area. Sixthly, it was said that entering into
agreement between the grower and the factory for supply and
purchase of sugarcane was under the statute.
Counsel for the State on the other hand contended that the
transaction was in essence and substance purchase and sale
and there was mutual assent between the parties as to the
transactions. It was said that a grower after he had grown
sugarcane at the commencement of the cultivation season
might bargain for a price higher than the minimum price.
Again, if the factory did not L500Sup.CI/72
236
agree to pay higher price the grower might not elect to grow
sugarcane or even allow his land to lie fallow. The factory
might agree to pay a price higher than the minimum price in
order to provide sufficient inducement to growers for higher
yield. Strong reliance was placed by counsel for the State
on the agreement entered into between the growers and the
factory as decisive of purchase and sale. As to the
agreement it was said on behalf of the State that to ensure
a well phased supply of sugarcane to the factory the latter
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might enter into an agreement with the growers even before
they would plant sugarcane. The dates of delivery were to
be agreed upon between the parties. The growers according
to the State might ask for advance payment of price in cash
or in the form of seedlings, fertilisers and the like.
Factories could ask for more than 95 per cent of the yield.
At all relevant times sugarcane was declared to be an
essential commodity. The various orders were made for
regulating the supply of sugarcane to the factories having
regard to the crushing capacity of the factory, the
availability of sugarcane in the area and the need for
production of sugarcane. This co-ordination between
production and distribution of sugarcane on the one hand and
production and distribution of sugar on the other hung toge-
ther as complementary to each other in regard to the
requirements of basic ingredient. The carving out of areas
for production and distribution of sugarcane is necessary to
preserve continuity of supply and to prevent shortage and
defective distribution. The regulation of supply of
sugarcane by fixing the minimum price is an application of
the principle of utilitarianism which receives the
approbation and goodwill of both the grower and the factory
so that the grower is assured of an economic competitive
return and the factory is also assured of not being scared
by soaring and fluctuating price to thwart and impede
production and manufacture of sugar.
Counsel for the appellants extracted the famous dictum of
Sir Henry Maine and submitted that the orders in the present
case were retrograde step and the clock was put back by
reversing the historical evolution from status to contract.
What was emphasized by counsel for the appellants was as
follows : The various Orders had the effect of bringing into
existence the status of delivery by the growers and
acceptance by the factory of sugarcane as a result of the
statutory orders and there was no area of bargain. There
was no element of will. There was no aspect of assent. The
entire transaction was nothing but a regimentation of
pattern of automatic supply and acceptance. The grower was
bound to deliver. The factory was bound to accept. Neither
party could move out of the apron strings of the statutes.
237
This Court in State of Madras v. Gannon Dunkerley & Co.
(Madras) Ltd. [1959] S.C.R. 379 in dealing with the
assessment of Gannon Dunkerley & Co. to sales tax on the
value of the materials used in the execution of building
contracts within the taxable turnover of the company held
that the building contract was one entire and indivisible
transaction and there was no separate individual sale of the
building materials comprised in the construction. It was
said by this Court that in a building contract the agreement
between the parties was that the contractor should construct
the building according to the specifications contained in
the agreement ,and in consideration therefor receive payment
as provided therein, and in such an agreement there was
,neither a contract to sell the materials used in the
construction nor did the property pass therein as movable.
The reason why counsel for the appellants relied on the
decision in Gannon Dunkerley & Co. was in support of the
proposition that the word ’sale’ occurring in Entry 54 in
List II was to be interpreted in the sense in which the word
’sale’ is used in the Indian Sale of Goods Act. This Court
in Gannon Dunkerley & Co. referred to the meaning of the
word ’sale’ in various treatises like Blackstone’s
Commentary, Ben amin on Sale, Halsbury’s Laws of England and
held relying on the meaning given by Benjamin on Sale that
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the four elements required in a sale were; first, that the
parties must ’be competent to contract; secondly, there
should be mutual assent; thirdly, property in the thing is
to be transferred; and, fourthly, the price in money is to
be paid. Counsel for the appellants contended that the
element of mutual assent was lacking in the present cases.
In M/s New India Sugar Mills Ltd. v. The Commissioner of
Sales Tax, Bihar [1963] Suppl. 2 S.C.R. 459 a question arose
as to whether the despatches of sugar to the Province of
Madras by dealers in accordance with the directions issued
by the Controller under the Sugar and Sugar Products Control
Order, 1946 was liable to be taxed as a sale. This Court in
the majority opinion held that the despatches of sugar under
the directions of the Controller were not the result of any
contract of sale because there was no offer by the dealers
to the State and no acceptance by the State. The dealer was
held to be compelled to carry out the directions of the
Controller and there was no volition. Intimation by the
State of its requirement of sugar to the Controller or
communication of the allotment order to the dealer assessee
was held not to amount to an offer. The minority view in
that case was that there was a sale of sugar and consent
could be express or implied and as long as the parties
carried on trade under controls at fixed price they must be
deemed to have agreed to such a price; there must be an
amplied contract with an implied offer and an implied
acceptance. The decision of this Court in the case of
Gannon
238
Dunkerley & Co. (supra) was referred to in the New India
Sugar Mills (supra) case for the meaning of the word ’sale).
The majority view in the case of New India Sugar Mills Ltd.
was on the reasoning that the prerequisite to a sale was a
contract of sale which was to be had between the parties.
The Province of Madras intimated its requirements to the
Controller. The Controller called upon the manufacturing
units to supply sugar to the Province. It was held that the
Controller did not act as an a,-lent of the Province to
purchase goods but that he acted in exercise of his
statutory authority. Therefore, there was no offer by the
Province to purchase sugar and there was no acceptance of
offer by the manufacturer. The ratio was that there was no
privity between the manufacturer and the Province. The
minority view in that case was that there might be
compulsion in both buying and selling but a compelled sale
might nevertheless be a sale. Hidayatullah, J. for the
minority view said "the affairs of the world are very
complicated and sales are not always in their elementary
forms. Due to short supply or maldistribution of goods,
controls have to be imposed. There are permits, price
controls, rationing and shops which are licensed. Can it be
said that there was no sale because mutuality is lost on one
account or another ? It was not said in the case of Tata
Iron and Steel Co. Ltd. v. The State of Bihar [1958] S.C.R.
1355 which was a case of control, that there was no sale.
The entry should be interpreted in a liberal spirit and not
cut down by narrow technical considerations. The entry in
other words should not be shorn of all its content to leave
a mere husk of legislative power. For the purposes of
legislation such as on sales lax it is only necessary to see
whether there, is a sale express or implied. Such a sale
was not found in forward contracts and in respect of
materials used in building contracts. I am of opinion that
in these transactions there was a sale of sugar for a price
and the tax was payable".
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Could a company which supplied steel products to various
persons in the State of Madras at the instance of the Steel
Controller exercising powers under the Iron and Steel
(Control) of Production and Distribution Order, 1941 be
assessed to sales tax oil those transactions. This was the
question in. Indian Steel & Wire Products Ltd. v. State of
Madras [1968] 1 S.C.R. 479. Clause 5 of the Order in the
Madras case stated that "no producer or stockholder shall
dispose of or agree to dispose of or export or agree to
export from British India any iron or steel except in
accordance with the conditions contained or incorporated in
a general or special written order of the Controller".
Clause 10-B of the Order stated that "the Controller may, by
a written order require any person holding stock of iron and
steel, acquired by
239
him otherwise than in accordance with the provisions of
Clause 4 to sell the whole or any part of the stock to such
person or class of persons and on such terms and conditions
as may be specified in the Order". Clause 4 of the Order
dealt with acquisition and stated that "no person shall
acquire or agree to acquire any iron or steel from a
producer or a stockholder except under the authority of and
in accordance with the conditions contained or incorporated
in a general or special written order of the Controller".
The company contended that the parties to whom the goods
were to be supplied, the price which was to be paid, the
manner in which goods were to be transported and the mode in
which payment was to be made were all determined by the
Controller and therefore the transfers were not sales
because of compulsion and lack of agreement. Hegde, J.
speaking for the Court referred to the observations in
Cheshire and Fifoot Law of Contract (6th Ed.) at p. 22 and
said "Law invariably imposed some restrictions on freedom of
contract’ But due to change in political outlook and as a
result of economic compulsions, the freedom of contract is
now being confined gradually to narrower and narrower
limits. It would be incorrect to contend that because law
imposes some restrictions on freedom to contract, there is
no contract at all. So long as mutual assent is not
completely excluded in any dealing, in law it is a
contract". The transactions were held to be sales because
the date for supply of goods’, the time for payment and the
independent arrangement between the parties for transport
predicated the basis of mutual assent.
The Andhra Pradesh Sugarcane (Regulation of Supply and
Purchase) Act, 1961 came up for consideration before this
Court in Andhra Sugars Ltd. & Anr. etc. v. State of Andhra
Pradesh & Ors. [1968] 1 S.C.R. 706. A sugar factory had to
buy sugarcane from canegrowers in conformity with the
directions of the Cane commissioner. The State Government
by notification had power to tax purchases of sugarcane for
use, consumption or sale in a sugar factory. The sugar
factories challenged the validity of the Act empowering the
Government to tax purchases of sugarcane in those instances
because the factories were compelled to buy cane from the
sugarcane growers and they were bound to enter into
agreements in prescribed terms and conditions and to buy
sugarcane in conformity with instructions issued by the Cane
Commissioner under the Act and areas were declared as the
factory zone for supply of cane to a factory, the factory
was bound to purchase quantity of cane grown in that area
and offered for sale as might be determined by the Cane
Commissioner, the cane growers were prohibited from
supplying or selling cane to any factory or person otherwise
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than in accordance with the provisions of the Schedule.
This Court on reading the provisions of the Act and the
Rules framed thereunder found that a cane-grower in a
factory zone was
240
free to sell or not to sell his sugarcane to the factory.
The contention of the factories was that if the grower
offered to sell the factory was bound to enter into
agreement on prescribed terms and conditions and therefore
the factories were compelled by law to buy cane from the
growers and the purchases were not made under agreements.
Bachawat, J. speaking for the Court in the Andhra Sugars
case said that the decision in the New India Sugar Mills
Ltd. was not to be treated as an authority for the
proposition that there can be no contract of sale under
compulsion of a statute. The offer of a cane grower to sell
was a free consent and the compulsion of law was not
coercion as defined in section 15 of the Indian Contract
Act, 1892. The agreement in spite of the compulsion of law
was said to ’be neither void nor voidable. A canegrower
made an offer directly to the factories. The factory
accepted it. The parties signed an agreement. There was
privity of contract between the parties. It was therefore a
contract of sale and purchase though the buyer was obliged
to give his assent under compulsion of a statute.
In the case of Andhra Sugars Ltd. this Court referred to the
whittling down of the laissez faire concept in a social
Welfare State by emphasising the public interest to control
unfair competition and combination. It was said "The cane
growers scattered in the villages had no real bargaining
power. The factory owners or their combines enjoyed a near
monopoly of buying and could dictate their own terms. In
this unequal contest between the canegrowers and the factory
owners, the law stepped in. and compelled the factory to
enter into contracts of purchase of cane offered by the
canegrowers on prescribed terms and conditions".
The Colliery Control Order, 1945 empowered the Central
Government to fix price at which coal might be sold by
colliery owners. The colliery owners were prohibited from
selling or agreeing to sell or offering to sell coal at a
price different from the price fixed in that behalf. Where
a colliery owner signified to the Deputy Coal Controller
(Distribution) in writing his willingness to sell direct to
consumers and an allotment was made by the Deputy Controller
to a consumer for such direct sale, the coal was to be
delivered to the consumer at the price fixed under clause 4
of the Order. The Central Government was authorised to
issue from time to time such directions as it thought fit to
any colliery owner regulating the disposal of his stocks of
coal or of the expected output of coal in the colliery
during any period including directions as to the grade, size
and quantity of coal which might be disposed of and persons
or class or description of persons to whom coal should or
should not be disposed of. The order
241
further provided that no person shall acquire or purchase
any coal from a colliery, and no colliery owner or his agent
shall despatch or agree to despatch or transport any coal
from the colliery except under the authority and in
accordance with the conditions contained in a general or
special authority of the Central Government.
The Colliery Coal Control Order 1945 came up for considera-
tion in State of Rajasthan & Anr. v. M/s. Karam Chand
Thappar & Bros. Ltd. [1969] 1 S.C.R. 861. Under a contract
with Equitable Coal Company, Karam Chand Thappar and Bros.
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Ltd. acquired the monopoly right to supply coal on behalf of
the collieries in Rajasthan and sold as the agent of the
Equitable Coal Company. Karam Chand Thappar and Bros.
entered into an agreement with the State of Rajasthan to
supply coal to the Rajasthan Government. The company
contended that the supply of coal to the State of Rajasthan
did not constitute sale as the supply was controlled by the
Colliery Control Order, 1945 and even if there was a sale it
would be inter-State sale. It was held that the Colliery
Control Order super-imposed upon the agreement between the
parties the rate fixed and the elements necessary to render
turnover from sale of goods liable to sales tax, namely,
competency of parties, mutual assent of the parties, passing
of property in the goods supplied to the purchaser and
payment or promise of payment of price were present in the
transaction. In the Rajasthan case it was noticed that when
the goods supply of which is controlled by statutory orders
are delivered pursuant to contract of sale the principle of
die decision in the case of New, India Sugar Mills Ltd. has
no application. Shah, J. speaking for the Court in the
Rajasthan case said that there was an agreement of sale
between the parties competent to contract and in pursuance
of the agreement of sale property in the goods supplied
passed to the purchaser for price.agreed to be paid. The
transaction was, therefore, one of sale of goods within the
meaning of the Rajasthan Sales Tax Act.
The U.P. Wheat Procurement (Levy) Order, 1959 was made for
maintaining and securing equitable distribution and
availability of wheat at fair prices. By clause 3 (1) of
the Order ’every licensed dealer shall sell to the State
Government at the controlled prices 50 per cent of the wheat
held in stock by him at the commencement of this Order’.
Again by clause 3(2) licensed dealer ’is directed to sell to
the State Government 50 per cent of wheat purchased by him
every day with the date of the commencement of this Order
and until such time as the State Government otherwise
directs’. The Order enjoins the licensed dealer to deliver
the quantities specified in sub-clause (1 ) of clause 3
either to the Controller c. to such other person as may be
authorised by the Controller to take delivery on his behalf.
The Enforcement
242
Officer had power to find out whether the dealer was
carrying out the obligation. The U.P. Wheat Procurement
Order was challenged in M/s. Chitter Mal Narain Das v.
Commissioner of Sales Tax [1971] 1 S.C.R. 671 on the ground
that there was no contract between the licensed dealer and
the State pursuant to which goods were sold within the
meaning of the U.P. Sales Tax Act. It was held that the
obligation to deliver wheat arose out of the statute and
there was no volition of the licensed dealer. The source of
the obligations to deliver the goods and pay for them was
said to be not in consensus ’but in the statutory order. It
was said that the order did not ’envisage any consensual
agreement’ and it did ’not require the State to enter into
even an informal agreement’. It was said ’On the date of
the commencement of the U.P. Wheat Procurement (Levy) Order,
upon the licensed dealer was imposed a liability to deliver
half the quantity of wheat on hand, and he had also to
supply to the State Governmeat 50 per cent of the quantity
of wheat procured or purchased by him every day beginning
with the date of commencement of the Order. If he failed to
carry out the obligation he was liable to be penalised. To
ensure that he carried out his obligation his premises were
liable to be searched and his property sequestered (sic.)
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The Order ignored the volition of the dealer’.
The meaning of the word ’compulsory sale’ came up for consi-
deration in three English decisions. These are Newcastle
Breweries Ltd. v. Inland Revenue Commissioner [1927] 96
L.J.K.B. 735 and also reported in 43 T.L.R. 476, Kirkness
(Inspector of Taxes) v. John Hudson & Co. Ltd. [1955] A.C.
696 and Ridge Nominees Ltd. v. Inland Revenue Commissioners
[1962] Ch. 376.
In Newcastle Breweries Ltd. (supra) the question was whether
a sum awarded to the company by way of compensation for a
quantity of rum requisitioned by the Admirality under the
Defence of the Realm Regulations was a profit arising from
its trade or business. The company contended that it was
not, because the compensation represented the compulsory
taking by the Crown of a part of the capital of the company,
and, therefore, the compensation was not a profit from the
business. It was held by Rowlatt, J., the Court of Appeal
and the House of Lords that the cost of the rum was treated
as an outgoing of the business and if raw rum had been
voluntarily sold the price would have come into computation
of profits and the circumstance that the sale was compulsory
made no difference.
In the case of John Hudson & Co. Ltd. the wagons owned by
the company were on 1 January, 1948 under requisition by the
Minister of Transport under the powers contained in Regula-
243
tion 53 of the Defence Regulations 1939. On the same day
the property in these wagons was vested in the British
Transport Corporation by virtue of section 29 of the
Transport Act, 1947. Section 30 of the Transport Act
provided compensation to the owner of the wagons. The
amount of compensation determined in accordance with the
provisions of the Transport Act was substantially higher
than the. written down value of the wagons for the purposes
of income-,tax allowances in respect of wear and tear as
appearing in the company’s books. On these facts a
balancing charge under section 17 of the English Income Tax
Act, 1945 was made on the company. The amount represented
the excess of the original cost over the written down value.
The company appealed against the balancing charge to the
Commissioners for the special purposes of the Income-tax Act
who determined the question in favour of the Crown. Upjohn,
J. reversed their determination. The Court of Appeal and
the House of Lords upheld his decision.
The decisions in the case of John Hudson & Co. Ltd. turned
on the meaning of the provisions of sction 17 of the English
Income-tax Act, 1945 as to whether the company’s wagons were
sold within the meaning of that section. Viscount Simonds,
L.C. said that the wagons were not sold and it would be a
rave misuse of language to say that they were sold. Under
the English Lands Clauses Consolidation Act, 1845 central or
local authorities have powers of compulsory acquisition and
these powers are commonly referred to as powers of
compulsory purchase and the transaction is sometimes
referred to as a compulsory sale. The word sale’ in the
English Income-tax Act without some context to aid the
inclusion of compulsory sale within the meaning of the word
’sale’ in the Income-tax Act was hold not to apply to
include a case of compulsory acquisition. The operation of
the Transport Act in that case was held to be different from
that of the Lands Clauses Consolidation Act, 1845, because
the Transport Act did not have the elements which in some
degree assimilate a compulsory sale to a sale simpliciter.
These compulsory sales under the English Lands Clauses
Consolidation Act place the parties in a position to
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negotiate and apart from the power of compulsion in the
background they were like an ordinary vendor and purchaser.
The consensus between vendor and purchaser which is involved
in the natural meaning of the word ’sale’ came up for
consideration in the recent decision of the Court of Appeal
in the case of Ridge Nominees Ltd. Ridge Securities made an
offer to purchase from the stockholders of another company
Gresham the whole of the stock of that company. The offer
was conditional upon acceptance before a certain date. A
document of transfer of 440 shares in Gresham was made by
Mrs. Rita Bell in consideration of
244
pound 891 paid by Ridge. The question was whether the
document was properly described as a conveyance or transfer
on sale of any property within the meaning of the English
Stamp Act, 1891. Section 209 of the English Companies Act,
1948 conferred power on an agent to execute an instrument of
transfer on a dissenting shareholder’s behalf. The offer
made by Ridge Company to purchase shares in Gresham company
was conditional upon acceptance by the holders of not less
than 90 per cent of the issued capital of Gresham. In fact,
more than 90 per cent in value did accept the offer. Mrs.
Rita Bell was one of those who did not think it fit to
accept it. Thereupon Ridge Company invoked powers and
provisions of section 209 of the English Companies Act. The
transfer of the shares of Mrs. Bell was not executed by her
but pursuant to the powers given by section 209 of the
English Companies Act by some one on her behalf. Mrs. Bell
was not an assenting but a dissenting shareholder. Her
shares were transferred by virtue of the powers given to the
transferee company by the Act. It is in that context that
the question was whether the conveyance or transfer was sale
of any property. The contention was that there could not be
a sale because the essential element of mutual assent was
absent. The Court of Appeal held that the instrument must
be regarded as a transfer of sale. Lord Evershed, M.R. said
that by the machinery created by the Companies Act and the
statutory authority given by the Act to the agent to execute
transfer on Mrs. Bell’s behalf ’it has in truth brought into
being that which ex facie in all its essential charac-
teristics and effect is, and becomes, a transfer on sale of
Mrs. Bell’s stock. Danckwerts, L.J. in the same case said
about the transfer of shares. "It seems to me that a sale
may not always require the consensual element mentioned in
Benjamin on Sale. 8th ed. p. 2, and that there may, in
truth, be a compulsory sale of property with which the owner
is compelled to part for a price against his will. The
effect of the statute in such a case is to say that the
absence of the transferor’s consent does not matter and the
sale is to proceed without it".
These decisions establish that statutory orders regulating
the supply and distribution of goods by and between the
parties under Control Orders in a State do not absolutely
impinge on the freedom to enter into contract. Legislative
measures or statutory provisions fixing the price, delivery,
supply, restricting areas for transactions are all within
the realm of planning economic needs ensuring production and
distribution of essential commodities and basic necessities
of community. The recent trends in these legal rules delmit
the variety of structure of rights and duties which
individuals may create by such acts and transactions. The
complexity of modern activities and the consequent
difficulty of
245
providing for every eventuality have shaken fervour for
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freedom of contract as there was during the nineteenth
century. The economic environment has changed. The
individual freedom is to be reconciled with adequate
performance by the Government of its functions in a highly
organised society. Delimiting areas for transactions or
parties or denoting price for transactions are all within
the area of individual freedom of contract with. limited
choice by reason of ensuring the greatest good for the
greatest number by achieving proper supply at standard or
fair price to eliminate the evils of hoarding and scarcity
on the one band and availability on the other.
In the present case, the parties are certain. The parties
are defined, namely, that the sugarcane grower is delivering
and supplying and the factory is accepting the goods. The
property in the goods is transferred from the grower to the
factory. The transaction is not a gift nor an exchange nor
a hypothecation nor a loan. There is consideration for the
transfer. Counsel for the appellants contended that there
was no mutual assent because the price was fixed, the
quantity for supply and delivery was determined, the parties
had no choice to go to strangers or outsiders in the open
market. In Benjamin on Sale, 8th Ed. at page 68 the law as
to mutual assent is stated as this. "The assent need not as
a general rule be express. It may be implied from their
language or from their conduct; may be signified by a nod or
a gesture, or may even be inferred from silence in certain
cases; as if a customer takes up wares off a tradesman’s
counter and carried them away and nothing is said on other
side, the law presumes an agreement of sale for the
reasonable worth of the goods. But the assent must in order
to constitute a valid contract, be mutual and intended to
bind both sides. It must also co-exist on the same moment
of time". The assent must be mutual and bind both sides.
The proposal by one man must be accepted by another and this
acceptance must be unconditional. The assent must be
communicated to the other party or some act must be done
which the other party has expressly or impliedly offered to
treat as a communication. Judged by these standards in the
forefront exists the agreement between the parties in the
present case. The statutory orders required parties to
enter into agreement. The parties did in fact enter into
agreements. The agreement contains intrinsic evidence that
the growers agreed to sell and the factory to buy goods.
Counsel for the appellants contended that mutual assent in
the present case would not be free but compulsory and the
parties would have no choice in the matter and therefore
there would be no sale. The most common place illustration
of supply and acceptance of goods resulting in sale under
the present conditions.
246
is furnished by the present system of sale of rationed
goods. There are ration shops in particular areas. Ration
cards are distributed to residents in that area. The owners
of these cards are required to go to the particular shop
mentioned in the card for supply of rationed articles.
Price is also regulated by the Rationing Order. Therefore
the parties, the price, the shop, the supply and the
acceptance of goods in accordance with the provisions of the
Rationing Order are all regulated. When one presents a
ration card to the shop and the shop owner delivers the
rationed articles and the holder of the ration card accepts
them and pays the price, there is indisputably a sale.
Counsel for the appellants said that choice was left with
the ration card holder to co to the shop or not to go there
at all but the parties had no choice in the present case
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whether the factory would or would not enter into agreement.
In the present case both the factory and the sugarcane rower
have some choice in the matter. The factory owner and the
grower might not have occasion to enter into agreements at
all. The factory may be closed. The grower may not grow
sugarcane. The rower might not tender the goods. The
factory owners might not accept delivery. The choice of the
parties is there as in ordinary sales. The position of the
factory owner vis-a-vis the sugarcane grower is either that
factory will be shut and closed down or the factory will
have to be kept running and for that supply will have to be
taken from the sugarcane growers. This may be comparable to
undertaking a journey by rail or air with no choice as to
the medium.
The agreement between the factory owner and the sugarcane
,,rower furnishes the guide to ascertain the real character
of the transaction between the parties. These are the
features. The factory agrees to buy. The grower agrees to
sell. It is true that 95 per cent of the sugarcane will be
sold. The parties have the choice to increase the quantity
above 95 per cent. The quantity to he brought and sold is
cultivated or to be cultivated by the grower. The delivery
is to be at the factory. Delivery will be in such lots, on
such dates and at such time as shall be agreed upon. The
mode of delivery may also be within the scope of agreement.
The price will be the controlled price. The grower can
bargain for higher price. The sugarcane grower can ask for
payment in advance. Payment may be in cash or in kind. The
sugarcane will be accepted after inspection. There is scope
for rejection of goods. Various columns in the agreement
indicate the villages where sugarcane is to be cultivated,
the names of the varieties of sugarcane to be cultivated.
The last two columns are estimated quantity offered to be
delivered and the period of delivery. All these features
indicate, with unerring accuracy that there is offer,
inspection, and appropriation of goods to the con-
247
tract. The goods will be accepted by the factory after
inspections and price will be paid on delivery. The mutual
assent is not only implicit but is also explicit.
Another feature in the agreements in the present case is
that the goods are unascertained. The agreements speak of
inspection of goods. Inspection and appropriation of
unascertained goods indicates not only freedom in the
formation but also in the performance Of contracts.
Unascertained goods are distinct from specific or
ascertained goods in the sense that future goods include
goods not yet in existence or goods in existence but not yet
acquired by the seller. It is safe to say that future goods
for purposes of passing of property can never be specific.
Future goods if and when sufficiently identified might be
specific goods. Unascertained goods are not defined by the
Sale of Goods Act but they fall into three main categories.
First, goods to be manufactured or grown by the seller which
are necessarily future goods. Second, generic goods. for
example, 100 tons of sugarcane or the like which must also
be future goods where the seller does not own sufficient
goods of the description in question to appropriate to the
contract. The third category is an unidentified part of a
specific whole, for example 1000 tons of sugarcane out of a
particular lot of 5000 tons of sugarcane. In the present
case, sugarcane was to be grown by the grower. Delivery was
to be made thereafter. The goods were to be inspected and
then paid for. Therefore, in the present case, it would be
a sale of unascertained goods. Under section 23 of the
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Indian Sale of Goods Act when there is a contract of sale of
unascertained goods no property in the goods is transferred
to the buyer unless and until the goods are ascertained.
Then again. under section 23 of the Indian Sale of Goods Act
where there is a contract for the sale of unascertained or
future goods by description when the goods of that
description and in a deliverable state are unconditionally
appropriated to the contract, either by the seller with the
assent of the seller, the property in the goods thereupon
passes to the buyer. It is this unconditional appropriation
which will pass the property. Again, under section 23 of
the Indian Sale of Goods Act where the seller delivers the
goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer and does not reserve
the right of disposal he is deemed to have unconditionally
appropriated the goods to the contract. Therefore, in the
present case the goods were to be ascertained by
identification, delivery, inspection and unconditional
appropriation.
These foregoing features indicate that the transaction in
the present case constituted sale within the meaning of sale
in section 2(t) of the Mysore Sales Tax Act, 1957. Sale is
defined in section 2(t) as follows
248
"sale’ with all its grammatical variations and
cognate expressions means every transfer of
the property in goods by one person to another
in the course of trade or business for cash or
for deferred payment or other valuable
consideration, but does not include a
mortgage, hypothecation, charge or pledge".
The Control Orders are to be kept in the forefront for
appreciating the true character of transactions. It is
apparent that the area is restricted. The parties are
determined by the order. The minimum price is fixed. The
minimum quantity of supply is also regulated. These
features do not complete the picture.’ The entire
transaction indicates that the parties agree to buy and
sell. The parties choose the terms of delivery. The
parties have choice with regard to obtaining supply of a
quantity higher than 95 per cent of the yield. The parties
can stipulate for a price higher than the minimum. The
parties can have terms for payment in advance as well as in
cash. A grower may not cultivate and there may not be any
yield. A factory may be closed or wound up and may not buy
sugarcane. A factory can reject goods after inspection.
The combination of all these features indicates that the
parties entered into agreement with mutual assent and with
volition for transfer of goods in consideration of price.
Transactions of purchase and sale may be regulated by
schemes and may be liable to restrictions as to the manner
or mode of sale. Such restrictions may become necessary by
reason of co-ordination between production and distribution
in planning the economy of the country. The contention of
the appellants fails. The transactions amount to sales
within the meaning of the Mysore Sales Tax Act.
The second contention on behalf of the appellants was that
the factories were not dealers within the meaning of the
Mysore Sales tax Act. Dealer is defined in section 2(k) of
the Mysore Sales Tax Act of 1957 as follows :-
" ’Dealer" means any person who carries on the business of
buying, selling, supplying or distributing goods, directly
or otherwise, whether for cash or for deferred payment or
for commission remuneration or other valuable consideration
and includes :-
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(i) ............................
(ii) ............................
(iii)............................
(iv) ............................
(v) a person who sells goods produced by him
by manufacture or otherwise".
249
It was contended that the factory was a manufacturer of
sugar and paid excise duty on sugar to the Central
Government and sugar was item 34 of the Second Schedule and
therefore no tax was payable by a dealer who is a
manufacturer of sugar. The purchase of sugarcane was said
to be for manufacture of sugar and not for resale of
sugarcane and therefore the tax which is levied on the
dealer will not fall on the appellants on the purchase of
sugarcane. The High Court held relying on the decision of
this Court in State of Andhra Pradesh v. Abdul Bakshi &
Bros. A.I.R. 1965 S.C. 531 that if a person carries on the
business of buying or selling a commodity it is not
necessary that he should sell the same commodity to become a
dealer. The commodity may be converted into another
saleable commodity or it may be used as an ingredient in the
manufacture of a commodity. Therefore, the factories which
bought sugarcane could be said to carry on the business of
buying and selling sugarcane and the factories are dealer
within the meaning of the Mysore Sales Tax Act.
The third contention on behalf of the appellants was that
the levy of 15 per cent purchase tax on the sugarcane on the
appellants was in violation of Article 14 of the
Constitution inasmuch as the rates were different in
different States. It is an indisputable feature in the
present appeals that all the factories in Mysore have been
treated equally. Different rates in different States are
explicable on various grounds. The quantity available, the
conditions of agriculturists, the number of factories will
all have distinctive features. Therefore, there can be no
infraction of Article 14 of the Constitution.
It was also said on behalf of the appellants that tax on
purchase of sugarcane could not be collected by the
appellants as tax. The High Court relying on the decision
in Tata Iron & Steel Company v. State of Bihar [1958] S.C.R.
1355 said that the mere circumstances that the appellant
could not collect from the purchasers of the sugar the
amount the factories had paid as purchase tax on sugarcane
would not alter the nature or quality of tax. This Court in
the case of Tata Iron and Steel Company said ’This is
further made clear by the fact that the registered dealer
need not, if he so pleases or chooses, collect the tax from
the purchaser and sometimes by reason of competition with
other registered dealers he may find it profitable to sell
his goods and to retain his old customers even at the
sacrifice of the sales tax. This also makes it clear that
the sales tax need not be passed on to the purchasers and
this fact does not alter the real nature of the tax which,
by the express provisions of the law, is cast upon the
seller’. It therefore follows that the appellants cannot
impeach the imposition or
250
levy of sale tax on the ground that the appellants could not
collect from the purchasers of sugar the purchase tax paid
by the appellants on purchase of sugarcane.
Another contention was raised on behalf of the appellants
that the authorities had not taken into account the varying
rates of tax on purchase of sugarcane levied by different
States while computing the cost of production of sugar in
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different States and fixing different selling prices of
sugar. The High Court rightly did not entertain this
contention because there were no materials to support the
contention.
For these reasons, the appeals fail and are dismissed with
costs. There will be one set of hearing fees.
G.C. Appeals dismissed.
251