TMI Blog1975 (5) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in the nature of the issuance of a writ of mandamus commanding the respondents not to recover any sales tax either under the Punjab General Sales Tax Act, 1948, or the Central Sales Tax Act, 1956, in pursuance of the assessment orders (annexure F) and demand notices issued thereunder. The Food Corporation of India (hereinafter referred to as the corporation) was established under the Food Corporations Act, 1964 (Act No. 37 of 1964) (hereinafter referred to as the Act). On 27th October, 1958, the Governor of the then State of Punjab with the prior concurrence of the Central Government issued an order known as the Punjab Rice Procurement Levy Order, 1958 (hereinafter referred to as the Levy Order). It is stated in the petition that necessary funds for making the purchases under the Levy Order were made available by the corporation to the Director of Food and Supplies, State of Punjab, to the extent such funds were required for acquisition of rice to be delivered to the Central Pool, under the supervision and control of the corporation. The District Food and Supplies Controllers of the State of Punjab used to send to the Director of Food and Supplies, respondent No. 2 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... millers or the dealers to the State Government or to the corporation and no sales tax was payable on the transaction of procurement of rice from the millers and the dealers by the Punjab State by its officers and the corporation. The despatch of rice, which belonged to the corporation from the State of Punjab to depots outside the State of Punjab, was also not a taxable event because in effect the corporation transported its own goods from the State of Punjab to places outside the State of Punjab. A mere transfer of goods by the owner from one place to another does not amount to sale. It is further averred that the whole scheme of the Levy Order and the activities of purchase of rice for the Central Pool and its distribution in the deficit States in the country would show that neither the corporation nor the State Government had any profit-making motive. Prices were fixed by the State Government with the prior approval of the Central Government, at which rice had to be procured. The corporation was to procure rice from the surplus States for distribution in the deficit States to overcome the acute shortage of rice in those States. The activities undertaken by the State Governmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Writ No. 4065 of 1973 has been preferred against the State of Haryana. In the cases relating to the State of Punjab, the main stand on behalf of the State is that the corporation is liable to reimburse the State for the tax which it has to pay on the purchase of rice from the millers or dealers under the Levy Order and that the corporation is also liable to pay tax on the sales made by it to the other States after purchasing rice from the State of Punjab. So far as the State of Haryana is concerned, there is no dispute that rice was procured for the corporation but the incidence of tax is only in so far as it relates to inter-State sales, that is, after the procurement of the rice for the corporation, when the same is sold to the other States. Mr. Chagla, Senior Advocate, the learned counsel for the petitioners, contended that the procurement was made by respondents Nos. 2 and 3 as agents of the Food Corporation of India and hence the assessment, if at all, could have been made on the corporation and not on respondents Nos. 2 and 3. In the alternative, it was submitted by the learned counsel that if it is held that, in the strict legal sense, respondents Nos. 2 and 3 were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only in the orders of the Assessing Authority that the aforesaid stand was taken, but even while filing appeal against the order of the Assessing Authority, in the grounds of appeal, the plea of agency was specifically taken. The learned counsel drew our attention to the specific grounds, which read as under: "(i) That the assessee (appellant) is acting as an agent of the Food Corporation India for the procurement of rice for them under the Levy Order. Principal and necessary accounts thereof are rendered to them after making payments to the traders. For the services rendered as an agent, only administrative charges are got from the principal (FCI) and Government funds are not involved. (ii) That the procedure of issue of form ST XXII by the appellant using the registration numbers of the Food Corporation of India being the principal in respect of procurement of rice on their behalf of the traders covering such purchases was duly settled with the approval of the Excise and Taxation Department. Copies of the relevant papers are enclosed in this behalf. (iii)............... (iv).........Thus it is clear that the Punjab Government having no peculiar interest and investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping in view this tentative brief description of "agency", I pose a question to myself whether, on the alleged facts in the petition (though controverted by the contesting respondents), the test of "agency", as it is understood in the strict legal sense, is satisfied? In my view, the answer has to be in the negative. The State or its officers, while procuring rice, do not represent the Food Corporation of India. The procurement is on the basis of the Levy Order that was promulgated in exercise of the delegated power, by the State under section 5 of the Essential Commodities Act. While procuring rice, the State does not represent the corporation nor does it act as an agent of the corporation. The State during the course of procurement cannot in any manner affect the position of the corporation by making any contract with the strangers, that is, the dealers or the millers, nor can the dealers or the millers have any grouse against the corporation. It is correct that before the Assessing Authority the stand taken by the officers of the State was that the procurement was made by them as agents of the corporation and so also there is a positive admission on oath in the grounds of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to transfer the work relating to the storage, movement, distribution and sale of foodgrains, which was being performed by the Regional Directorate under the Food Department of India. By establishing the corporation, it was treated to be an essential and important subject in the implementation of Government food policy and the corporation was treated to be the first organised attempt to take up State trading in food-stuffs on an appreciable scale. Reference may also be made to the Essential Commodities Act, 1955 (10 of 1955). This Act was enforced in order to provide in the interest of general public for the control of the production, supply, distribution of, and trade and commerce in, certain commodities. Section 3 of this Act gives power to control, production, supply, distribution, etc., of essential commodities and, in order to carry out this purpose, power is given to the Central Government to issue an order if, in its opinion, it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices or for securing any essential commodity for the defence of India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hadi and Village Industries Board to be engaged in the production of hand-pounded rice. (3) The rice required to be sold to the State Government under subclauses (1) and (2) shall be delivered by the licensed miller or the licensed dealer to the Director or to such other person as may be authorised by the Director to take delivery on his behalf. (4) The State Government may, by general orders notified in the official Gazette, vary the percentage of rice required to be sold to the State Government under this order. (5) Notwithstanding anything contained in the foregoing sub-clauses the State Government may, by notification, specify the varieties of rice which are required to be sold to the State Government under this clause and may likewise specify the varieties of rice which are not required to be so sold." There is no dispute that the corporation has been registered as a "dealer". What was contended by Mr. Chagla was that the corporation had two capacities, viz., (1) when it makes purchases directly from the State Government or other persons and (2) when it acts as recipient of foodgrains acquired under the Levy Order, from the surplus States in pursuance of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straightaway arises for consideration is whether the corporation, while carrying out the policy of the Central Government in distributing foodgrains to the deficit States after receiving the same from the surplus States, is doing business with the object of making profits and, to my mind, the answer has to be in the negative. The State Government under the delegated power has issued the Levy Order. There can be no gainsaying that if the power had not been delegated, then the State Government had no jurisdiction to issue the Levy Order. The Central Government has delegated the power only in order to secure the fulfilment of their policy decision of distribution of foodgrains in the deficit States. After the procurement of rice, the corporation receives its share as agreed upon between the Government of India and the Government of the respective States. The corporation has no voice in the matter at all and is only a recipient of the foodgrains from the surplus States. The entire policy is determined at the highest level between the Central Government and the State Governments. Under that policy, the State Governments are required to part with the specific percentage of the procured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the provisions of the U.P. Wheat Procurement (Levy) Order, 1959?" The High Court of Allahabad answered the questions in the affirmative. Thereafter, the matter was taken up before their Lordships of the Supreme Court by special leave. Clauses 3 and 4 of the U.P. Wheat Procurement (Levy) Order, 1959, were in the following terms: "3. (1) Every licensed dealer shall sell to the State Government at the controlled prices: (a) Fifty (50) per cent of wheat held in stock by him at the commencement of this Order; and (b) Fifty (50) per cent of wheat procured or purchased by him every day beginning with the date of commencement of this Order and until such time as the State Government otherwise directs. (2) The wheat required to be sold to the State Government under sub-clause (1) shall be delivered by the licensed dealer to the Controller or to such other person as may be authorised by the Controller to take delivery on his behalf. 4.. (1) Any Enforcement Officer may, with a view to securing compliance with this Order or to satisfying himself that the Order has been complied with: (i) enter with such assistance as may be necessary any premises where he has reason to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even if the person supplying goods is declared entitled to the value of goods, which is determined or determinable in the manner prescribed. Assuming that between the licensed dealer and the Controller, there may be some arrangements about the place and manner of delivery of wheat, and the payment of 'controlled price', the operation of clause 3 does not on that account become contractual." Thereafter, reference was made to the various judicial pronouncements and, ultimately, it was held that there was no contract between the assessees and the State pursuant to which goods were sold within the meaning of the U.P. Sales Tax Act. Accordingly, the appeals were allowed and the order of the Allahabad High Court was set aside and the answer to the two questions, mentioned above, was returned in the negative. The facts of the case in hand are exactly similar to those of Chittar Mal's case[1970] 26 S.T.C. 344 (S.C.). and the ratio of that decision squarely applies to the facts of the present case. Applying the law laid down in Chittar Mal's case[1970] 26 S.T.C. 344 (S.C.)., I have no alternative but to hold that there was no contract between the millers or the dealers and the State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. State of Mysore[1972] 29 S.T.C. 246 (S.C.)., and that if it is held that Chittar Mal's case[1970] 26 S.T.C. 344 (S.C.). applied to this case, then the same stood overruled by their Lordships of the Supreme Court in Salar Jung's case(2). After giving my thoughtful consideration to the entire matter, I have not been able to persuade myself to agree with the contentions advanced by Mr. Phadke. The facts in Salar Jung's case(2) were as follows: 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 factory. The Supreme Court in Diamond Sugar Mills v. State of U.P.A.I.R. 1961 S.C. 652. 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 the Supreme Court was given on 13th December, 1960. The Sugarcane Cess (Validation) Act, 1961, was passed by Par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) The manner of transporting the goods from the dealer's place to the place of delivery is also to be mutually agreed between the parties. (6) There is also power of rejection on the part of the Government if rice does not conform to the quality prescribed in Schedule I. (7) The obligation of the miller and the dealer to sell the goods under the Levy Order is in essence not compulsory or statutory at all. When the licensed dealer applies and takes out the licence, he does so with eyes open and undertakes to comply with all the conditions of the licence, which include compliance with the conditions of any Levy Order, the State may promulgate under the Essential Commodities Act. (8) There is freedom for miller and dealer not to mill paddy and manufacture rice and for dealer not to buy any rice. From a perusal of the aforesaid points it would be clear that the similarity sought to be drawn is meaningless and a futile attempt was made in order to bring the present case within the four corners of Salar Jung's case[1972] 29 S.T.C. 246 (S.C.). It may be observed at the outset that there is no provision for entering into an agreement under the Levy Order and hence the points o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the State on the other and thereafter between the State and the corporation and then between the corporation and the other States is one composite process which owes its origin to the arrangement arrived at between the State Government and the Central Government under which the States are required to contribute to the Central Pool certain percentage of foodgrains which, in turn, is passed on to the deficit States through the agency of the corporation. In this transaction, there is no profitmotive at any stage nor do the goods vest in the State Government in the sense that it can bargain with the corporation and dictate its terms, nor does the corporation act as a dealer in the legal sense when it passes on these goods to the other States. In this view of the matter, I find that in the present case there is no freedom of contract within the meaning of Salar Jung's case[1972] 29 S.T.C. 246 (S.C.). , that the element of mutual assent, implicit or explicit, was non-existent and, hence, the transactions, in the present case, do not constitute "sales", that respondents Nos. 2 and 3 or the State were not liable to pay tax on the transactions, which came into being under the Levy Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
