TMI Blog1971 (11) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... G. Vasanta Pai, G.L. Sanghi, P.C. Bhartari and B. Datta, Advocates, and J.B. Dadachanji, O.C. Mathur and Ravinder Narain, Advocates of J.B. Dadachanji Co., for the appellants. V.S. Desai, Senior Advocates (S.S. Javali and R.B. Datar, Advocates, with him), for the respondents. -------------------------------------------------- The judgment of the court was delivered by RAY, J.- These appeals are by certificate against the judgment and order dated April 16, 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 Sugar Mills Ltd. The India Suga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arcane 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. Thirdly, the levy of tax on purchase of sugar- cane 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 August 27, 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 sugarcane. Sale or purchase of sugarcane at a price lower than the price fixed under section 3 was prohibited. The Central Government, however, could fix an additional price under certain circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sugarcane by power crusher or for manufacture of gur, shakkar, gul, jaggery, rab or khandasari sugar was prohibited. Export of sugarcane from 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 sugar- cane 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 February 14, 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 sugarca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uantity 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 Sugars and Refineries Ltd. and the Mysore Sugarcane (Regulation of Supply) (Munirabad) Order, 1965, applied to the Salar Jung Sugar Mills Ltd. On July 16, 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 Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 minim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atus 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. This court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.); [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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 379., was referred to in the New India Sugar Mills case(2) for the meaning of the word "sale". The majority view in the case of New India Sugar Mills Ltd.[1963] 14 S.T.C. 316 (S.C.); [1963] Supp. 2 S.C.R. 459. 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 agent 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 impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nner 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 Edn.) at page 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. v. State of Andhra Pradesh [1968] 21 S.T.C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Andhra Sugars Ltd.[1968] 21 S.T.C. 212 (S.C.); [1968] 1 S.C.R. 705., this court referred to the whittling down of the laissez faire concept in a social welfare State by emphasising 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 enjoined 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." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petent 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 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 or to such other person as may be authorised by the Controller to take delivery on his behalf. The Enforcement Officers had power to find out whether the dealer was carrying out the obligation. The U.P. Wheat Procurement Order was challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce that the sale was compulsory made no difference. In the case of John Hudson Co. Ltd. [1955] A.C. 696., the wagons owned by the company were on January 1, 1948, under requisition by the Minister of Transport under the powers contained in regulation 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 on 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 characteristics and effect is, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivery was determined, the parties had no choice to go to strangers or outsiders in the open market. In Benjamin on Sale, 8th Edition 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . of the sugarcane will be sold. The parties have the choice to increase the quantity above 95 per cent. The quantity to be bought 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 and 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 contract. The goods will be accepted by the factory after inspection and price will be paid on delivery. The mutual assent is not only implicit but is also explicit. Another feature in the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent case the goods were to be ascertained by identification, delivery, inspection and unconditional appropriation. These foregoing features indicate that the transactions 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: "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 stipu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and selling sugarcane and the factories are dealers 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 and 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 and Steel Company v. State of Bihar [1958] 9 S.T.C. 267 (S.C.); [1958] S.C.R. 1355. said that the mere circumstance 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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