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TMI Blog1967 (9) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... enior 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 these writ petitions under Article 32 of the Constitution, the petitioners ask for an order declaring that section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 (Andhra Pradesh Act No. 45 of 1961), is unconstitutional and ultra vires and a direction prohibiting the respondents from levying tax under section 21 and to refund the tax already collected. Section 21 of the Act is in these terms: "21. (1) The Government may, by notification, levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use, consumption or sale in a factory. (2) The Government may, by notification, remit in whole or in part such tax in respect of cane used or intended to be used in a factory for any purpose specified in such notification. (3) The Government may, by notification, exempt from the payment of tax under this section- (a) any new factory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners 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. Setalvad who appeared in Writ Petition No. 53 of 1967 and his arguments were adopted by counsel appearing in the other petitions. Mr. N. C. Chatterjee who appeared in Writ Petition No. 100 of 1967 raised a few additional contentions. The submission of Mr. Setalvad is that section 21 so far as it levies a tax on the purchase of sugarcane by or on behalf of the petitioners from the cane growers in their respective factory zones is ultra vires the powers of the Legislature under Entry 54, List II, Schedule VII, of the Consti- tution in the light of the decision in State of Madras v. Gannon Dunkerley Co. [1959] S.C.R. 379; 9 S.T.C. 353.Now, in Gannon Dunkerley's case [1959] S.C.R. 379; 9 S.T.C. 353., the actual decision was that the Legislature had no power under List II, Entry 48, Schedule VII, of the Government of India Act, 1935, to impose a tax on the supply of materials under an entire and indivisible contract for construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 supply cane grown in that area to the occupier of the factory and such occupier of the factory within 14 days of the receipt of the offer shall enter into an agreement in Form No. 3 or Form No. 4 with the cane grower or the cane growers' co-operative society as the case may be for the purchase of the cane offered. Form No. 3 is the statutory form of agreement with a cane grower. By the agreement in Form No. 3 the occupier of the factory agrees to buy and the cane grower agrees to sell during the crushing season certain sugarcane crop grown in the area at the minimum price notified by the Government from time to time upon the terms and conditions mentioned in the agreement. The agreement contains an arbitration clause and is signed by or on behalf of the occupier of the factory and the cane grower. The agreement in Form No. 4 with a cane growers' co-operative society is on the same lines. All the terms and conditions of the agreements and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 for a lawful consideration and with a lawful object and are not by the Act expressly declared to be void. Section 13 defines consent. Two or more persons are said to consent when they agree upon the same thing in the same sense. Section 14 defines free consent. Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake as defined in sections 15 to 22. Now, under Act No. 45 of 1961 and the Rules framed under it, the cane grower in the factory zone is free to make or not to make an offer of sale of cane to the occupier of the factory. But if he makes an offer, the occupier of the factory is bound to accept it. The resulting agreement is recorded in writing and is signed by the parties. The consent of the occupier of the factory to the agreement is not caused by coercion, undue influence, fraud, misrepresentation or mistake. His consent is free as defined in section 14 of the Indian Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowers. 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 factory owners, the law stepped in and compelled the factory to enter into contracts of purchase of cane offered by the cane growers on prescribed terms and conditions. In The Indian Steel & Wire Products Ltd. v. The State of Madras Civil Appeals Nos. 1968-1970 of 1966 decided on September 11, 1967; [1968] 21 S.T.C. 138., the Court held that sales of steel products authorised by the Controller under clauses 4 and 5 of the Iron and Steel (Control of Production and Distribution) Order, 1941, were exigible to tax under Entry 54, List II. The Court found that the parties had entered into contracts of sale though in view of the Order the area of bargaining between the buyer and the seller was greatly reduced. Hegde, J., speaking for the Court said that as a result of economic compulsions and changes in the political outlook the freedom to contract was now being confined gradually to narrower and narrower limits. We have here a case where one part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 section 209 of the Companies Act, 1948, empowers the transferee-company to appoint an agent on behalf of a dissenting shareholder for the purpose of executing a transfer of his shares against a price to be paid to the transferor-company and held in trust for the dissenting shareholder, it is clearly ignoring his dissent and putting him in the same position as if he had assented. For the purpose of considering whether this results in a sale, one must, I think, bear that situation in mind, and regard the dissent of the shareholder as overriden by an assent which the statute imposes upon him, fictional though this may be. Thus, in the context of section 209 the transfer becomes in law a conveyance on sale. This conclusion, in my opinion, does not run counter to what was said in the House of Lords in Kirkness (Inspector of Taxes) v. John Hudson & Co. Ltd. [1955] A.C. 696., where, in terms of the statute there under consideration, property belonging to othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. Clause 5 required every producer or dealer to comply with the directions issued by the Controller regarding production, sales, stocks and distribution of sugar. Clause 6 authorised the Controller to fix the price of sugar. Clause 7(1) authorised the Controller to allot quotas of sugar for any Province and to issue directions to any producer or dealer for the supply of the sugar specifying the price, quantity and type or grade of the sugar and the time and manner of supply. Contravention of the directions entailed forfeiture of stocks under clause II of the Order and was punishable under rule 81(4) of the Defence of India Rules, 1939. The admitted course of dealings between the parties was that the Governments of the consuming States used to intimate to the Sugar Controller their requirement of sugar and the factory owners used to send to him statements of their stocks of sugar. On a consideration of the requisitions and the statements of stock, the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 necessarily be levied on a dealer or by reference to his turnover. It may be levied on the occupier of a factory by reference to the weight of the goods purchased by him. Mr. Chatterjee next submitted that a purchase tax must be levied on goods generally, and there can be no purchase tax with reference to their subsequent use, consumption or sale. He based his argument on paragraphs 17 to 20, Chapter III, Volume III of the Report of the Taxation Enquiry Committee. There, the Committee while discussing the comparative merits of sales tax in relation to customs, excise and octroi, pointed out that sales tax was a mojor source of revenue and could be applied to the generality of goods, while customs, excise and octroi could be applied to only a limited portion of the industrial output of the country. The Committee did not express any opinion on the scope of List II, Entry 54. Under that entry, the State Legislature is not bound to levy a tax on all purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 or sale therein. We are unable to accept this contention. As the proposed tax on the entry of goods into a factory was unconstitutional, paragraph 21 of the original Bill was amended and section 21 in its present form was enacted. The tax under section 21 is essentially a tax on purchase of goods. The taxable event is the purchase of cane for use, consumption or sale in a factory and not the entry of cane into a factory. As the tax is not on the entry of the cane into a factory, it is not payable on cane cultivated by the factory and entering the factory premises. Mr. Setalvad submitted that section 21 impeded free trade, commerce and intercourse and offended Article 301 of the Constitution and relied on the decision in Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] Supp. 2 S.C.R. 435; 14 S.T.C. 355. In that case, the Court held that rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, discriminated against impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 impede the free movement or transport of goods and is not violative of Article 301. Mr. Setalvad next submitted that section 21 offended Article 14 of the Constitution in several ways. It was argued that section 21 read with section 2(e) discriminated between producers of sugar using the vacuum pan and open pan processes. Under section 21, as it stood before its amendment by Act No. 4 of 1967, tax was levied on purchases of cane by factories producing sugar by means of vacuum pans but purchases of cane by khandsari units producing khandsari sugar by the open pan process were entirely exempt from the tax. Even the amended section 21 levies a lower rate of tax on the purchases of cane by khandsari units. It was also argued that there was discrimination in favour of producers of jaggery by exempting their purchases of cane from payment of the tax. But the affidavits filed on behalf of the respondents show that factories producing sugar by means of vacuum pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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