TMI Blog1967 (9) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 14. - W.P. No. 53, 100, 101, 105, 106 of 1967 - - - Dated:- 29-9-1967 - WANCHOO K.N., BACHAWAT R.S., RAMASWAMI V., MITTER G.K. AND HEGDE K.S. JJ. N.C. Chatterjee, Senior Advocate (A.V. Koteswara Rao, K. Rajendra Chaudhuri and K.R. Chaudhuri with him), for the petitioners in W.P. No. 100 of 1967. C.K. Daphtari, Attroney-General for India (A.V. Rangam with him), for the respondents in W.P. No. 53 of 1967. M.C. Setalval, Senior Advocate (A.V. Koteswara Rao, K. Rajendra Chaudhuri and K.R. Chaudhuri with him), for the petitioners in W.P. No. 53 of 1967. A.V. Koteswara Rao, K. Rajendra Chaudhuri and K.R. Chaudhuri, for the petitioners in W.P. No. 101 of 1967. P. Ram Reddy, Senior Advocate (A.V. Rangam with him), for the respondent in W.Ps Nos. 100, 101, 105 and 106 of 1967. K.R. Chaudhuri, K. Rajendra Chaudhuri, for the petitioners in W.P. No. 105 of 106 of 1967. Sachin Chaudhury, Senior Advocate (G.L. Sanghai and O.C. Mathur of J.B. Dadachanji and Co, with him), for the inverter in W.P. No. 53 of 1967. -------------------------------------------------- The judgment of the Court was delivered by BACHAWAT, J. -In all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of cane required for use, consumption or sale in a khandsari unit." Also the following sub-sections (kk) and (kkk) were inserted in section 2 of the principal Act: "(kk) 'khandsari sugar' means sugar produced by open-pan process in a khandsari unit from sugarcane juice, or from rab or gur or both, containing more than eighty per cent. sucrose; (kkk) 'khandsari unit' means a unit engaged or ordinarily engaged in the manufacture of khandsari sugar and includes a bel." It may be mentioned that sales and purchases of sugarcane are exempt from tax under the Andhra Pradesh General Sales Tax Act, 1957. The petitioners own sugar factories as defined in section 2(i). Their agents are the occupiers of the factories as defined in section 2(m). They purchased cane from cane growers within their respective factory zones. The State Government had issued notifications levying tax under section 21. For the last several years the petitioners have paid the tax on their purchase of sugarcane and further demands are being made on them for payment of the tax. They challenge the vires and the constitutionality of section 21 on various grounds. The principal submissions were made by Mr. M. C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reements of purchase and sale. It appears that the Cane Commissioner is empowered under section 15 of Act No. 45 of 1961 to declare any area as the factory zone for the purpose of supply of cane to a factory during a particular crushing season. Under section 16(1), on the declaration of the factory zone the occupier of the factory is bound to purchase such quantity of cane grown in that area and offered for sale to the factory as may be determined by the Cane Commissioner in accordance with the provisions of the schedule. Section 16(2) prohibits the cane growers in a factory zone from supplying or selling cane to any factory or other person otherwise than in accordance with the provisions of the schedule. Section 28(2)(1) empowers the Government to make rules providing for the form of agreement to be entered into under the provisions of the Act. Rule 20 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Rules, 1961, framed under the Act provides that a cane grower or a cane growers' co- operative society may within 14 days of the order declaring an area as the factory zone or such extended time as may be fixed by the Cane Commissioner, offer in Form No. 2 to supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.R. 379; 9 S.T.C. 353. This contention requires close examination. Under section 4(1) of the Indian Sale of Goods Act, 1930, a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. By section 3 of this Act, the provisions of the Indian Contract Act, 1872, apply to contract of sale of goods save in so far as they are inconsistent with the express provisions of the later Act. Section 2 of the Indian Contract Act provides that when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal when accepted becomes a promise. Every promise and every set of promises forming the consideration for each other is an agreement. There is mutual assent to the proposal when the proposal is accepted and in the result an agreement is formed. Under section 10, all agreements are contracts if they are made by the free consent of parties competent to contract f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eteenth century. Thereafter, there has been a gradual erosion of the laissez faire concept. It is now realised that in the public interest, persons exercising certain callings or having monopoly or near monopoly powers should sometimes be charged with the duty to serve the public, and, if necessary, to enter into contracts. Thus, section 66 of the Indian Railways Act,1890, compels the railway administration to supply the public with tickets for travelling on the railway upon payment of the usual fare. Section .22 of the Indian Electricity Act, 1910, compels a licensee to supply electrical energy to every person in the area of supply on the usual terms and conditions. Cheshire and Fifoot in their Law of Contract, 6th Edition, page 23, observe that for reasons of social security the State may compel persons to make contracts. One of the objects of Act No. 45 of 1961 is to regulate the purchase of sugarcane by the factory owners from the cane growers. 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 cane growers and the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The parties then execute and sign an agreement in writing. There is mutual assent and a valid contract, though the assent of the buyer is given under compulsion of statute. Mr. Setalvad relied on the following passage in the Law of Contract by G.H. Treitel, at page 5: "Where the legislation leaves no choice at all to one party, the transaction is not a contract." But the author does not cite any authority in support of the proposition. He adds that even a compulsory disposition of property may be treated as contract for the purpose of a particular statute and cites the case of Ridge Nominees v. Inland Revenue Commissioners [1962] 2 W.L.R. 3. There, the Court distinguishing Kirkness's case held that the compulsory transfer of shares of a dissenting shareholder by a person authorised to make the transfer on his behalf under section 209 of the Companies Act, 1948, corresponding to section 395 of our Companies Act, 1956, was having regard to the machinery created by the section a conveyance on sale within section 54 of the Stamp Act, 1891. The Lord Justices gave separate opinions. It is worth while quoting the opinion of Donovan, L.J., who said: "When the legislature, by sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to supply sugar, the Controller did not act as an agent of the State to purchase goods; he acted in exercise of his statutory authority. There was manifestly no offer to purchase sugar by the Province, and no acceptance of any offer by the manufacturer. The manufacturer was under the Control Order left no volition; he could not decline to carry out the order; if he did so he was liable to be punished for breach of the order and his goods were liable to be forfeited. The Government of the Province and the manufacturer had no opportunity to negotiate, and sugar was despatched pursuant to the direction of the Controller and not in acceptance of any offer by the Government." Divorced from the context, this passage gives some support to the contention that there can be no contract if the acceptance of the offer is made under compulsion of a direction given by a statutory authority. But the passage must be read with the facts of the case. By clause 3 of the Sugar and Sugar Products Control Order, 1946, producers of sugar were prohibited from disposing of sugar except to persons specially authorised in that behalf by the Controller to acquire sugar on behalf of certain Governments. Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealings whether the parties have entered into a contract of sale of goods. Under Act No. 45 of 1961, a cane grower makes an offer to the occupier of the factory directly and the latter accepts the offer. The parties then make and sign an agreement in writing. There is thus a direct privity of contract between the parties. The contract is a contract of sale and purchase of cane, though the buyer is obliged to give his assent under compulsion of a statute. The State Legislature is competent to tax purchases of canes made under such a contract. Mr. Setalvad submitted that there can be no levy of a purchase tax with reference to the tonnage of the cane. We cannot accept this contention. Usually the purchase tax is levied with reference to the price of the goods. But the Legislature is competent to levy the tax with reference to the weight of the goods purchased. The contention of Mr. Chatterjee that a purchase tax must be levied with reference to the turnover only is equally devoid of merit. Where the purchase tax is levied on a dealer, the levy is usually with reference to his turnover, which normally means the aggregate of the amounts of purchase prices. But the tax need not nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Explanation fixed the situs of certain sales. It did not confer upon the Legislature any power to levy a use tax. To appreciate another argument of Mr. Chatterjee, it is necessary to refer to a few facts. It appears that paragraph 21 of the Bill published in the Gazette on March 3, 1960, preliminary to the passing of Act No. 45 of 1961 provided for a levy of a cess on the entry of cane into the premises of a factory for use, consumption or sale therein. On December 13, 1960, this Court in Diamond Sugar Mills Ltd., and Another v. The State of Uttar Pradesh and Another [1961] 3 S.C.R. 242., struck down a similar provision in the U.P. Sugar- cane Cess Act, 1956, on the ground that the State Legislature was not competent to enact it under Entry 52, List II, as the premises of a factory was not a local area within the meaning of the entry. Having regard to this decision, paragraph 21 of the Bill was amended and section 21 in its present form was passed by the State Legislature. The Act was published in the Gazette on December 30, 1961. Mr. Chatterjee submitted that in this context the levy under section 21 was really a levy on the entry of goods into a factory for consumption, use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A non-discriminatory tax on goods does not offend Article 301 unless it directly impedes the free movement or transport of the goods. In Atiabari Tea Co. Ltd. v. The State of Assam and Others [1961] 1 S.C.R. 809, 860-861., Gajendragadkar, J., speaking for the majority said: "We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Article 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement?...It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Article 301, and its validity can be sustained only if it satisfies the requirements of Article 302 or Article 304 of Part XIII." This interpretation of Article 301 was not dissented from in Auto- mobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 S.C.R. 491, 533. Normally, a tax on sale of goods does not directly impede the free movement or transport of goods. Section 21 is no exception. It does not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f users of cane and their capacity to pay the tax. The Legislature could reasonably treat the three sets of users of cane differently for purposes of levy. It was next argued that the power under section 21(3) to exempt new factories and factories which in the opinion of the Government have substantially expanded was discriminatory and violative of Article 14. We are unable to accept this contention. The establishment of new factories and the expansion of the existing factories need encouragement and incentives. The exemption in favour of new and expanding factories is based on legitimate legislative policy. The question whether the exemption should be granted to any factory, and if so, for what period and the question whether any factory has substantially expanded and if so, the extent of such expansion have to be decided with reference to the facts of each individual case. Obviously, it is not possible for the State Legislature to examine the merits of individual cases and the function was properly delegated to the State Government. The Legislature was not obliged to prescribe a more rigid standard for the guidance of the Government. We hold that section 21 does not violate A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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