1967 (9) TMI 121 - SC - VAT and Sales Tax

Whether the purchases by or on behalf of the petitioners from the cane growers in their respective factory zones were made under agreements of purchase and sale? Held that - Appeal dismissed. 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 Article 14.

Issues Involved:
1. Constitutionality and vires of Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961.
2. Levy of purchase tax under Entry 54, List II, Schedule VII of the Constitution.
3. Nature of the agreements between cane growers and factory occupiers.
4. Levy of purchase tax with reference to tonnage.
5. Alleged discrimination under Article 14 of the Constitution.
6. Alleged impediment to free trade under Article 301 of the Constitution.
7. Specific exemption claims under Section 21(3)(a).

Issue-wise Detailed Analysis:

1. Constitutionality and Vires of Section 21:
The petitioners challenged the constitutionality and vires of Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, claiming it was ultra vires and unconstitutional. The court examined whether the section was within the legislative competence under Entry 54, List II, Schedule VII of the Constitution. The court upheld the constitutionality of Section 21, stating that the State Legislature had the authority to levy a tax on the purchase of sugarcane.

2. Levy of Purchase Tax under Entry 54, List II, Schedule VII:
The petitioners argued that the tax levied under Section 21 was not a tax on the purchase of goods as understood under Entry 54, List II, Schedule VII of the Constitution. They relied on the precedent set in Gannon Dunkerley's case, which defined "sale of goods" in a legal sense. The court held that the agreements for the purchase of sugarcane between the cane growers and the factory occupiers were valid contracts of sale, thus falling within the ambit of Entry 54. The court noted that the compulsion of law does not negate the existence of a contract of sale.

3. Nature of the Agreements:
The court analyzed whether the agreements between cane growers and factory occupiers constituted genuine contracts of sale. Despite the statutory compulsion for factory occupiers to purchase cane, the court found that the agreements were valid contracts under the Indian Contract Act, 1872, as they involved mutual assent and were enforceable by law. The court concluded that these agreements were contracts of sale, taxable under Entry 54, List II.

4. Levy of Purchase Tax with Reference to Tonnage:
The petitioners contended that the purchase tax should be levied based on the turnover rather than the tonnage of cane. The court rejected this argument, stating that the Legislature was competent to levy the tax with reference to the weight of the goods purchased. The court emphasized that the tax need not necessarily be levied on a dealer or by reference to his turnover.

5. Alleged Discrimination under Article 14:
The petitioners argued that Section 21 discriminated between producers of sugar using different processes and between producers of sugar and jaggery. The court found that the differential treatment was reasonable and had a rational relation to the object of taxation. The court noted that factories using the vacuum pan process and khandsari units using the open pan process formed distinct classes with different capacities to pay the tax. The court also upheld the exemption for new and expanding factories as a legitimate legislative policy.

6. Alleged Impediment to Free Trade under Article 301:
The petitioners claimed that Section 21 impeded free trade, commerce, and intercourse, thus violating Article 301 of the Constitution. The court held that the tax under Section 21 did not discriminate against imported cane and did not directly impede the free movement or transport of goods. The court emphasized that a non-discriminatory tax on goods does not offend Article 301 unless it directly restricts the free movement of goods.

7. Specific Exemption Claims under Section 21(3)(a):
One petitioner claimed that it was a new factory and should have been exempted from the tax under Section 21(3)(a). The court did not express an opinion on this matter due to insufficient materials in the affidavits and the lack of a specific prayer for mandamus in the petition. The court left it open for the petitioner to raise this contention in other proceedings.

Conclusion:
The Supreme Court dismissed the petitions, upholding the constitutionality and vires of Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961. The court found that the agreements for the purchase of sugarcane were valid contracts of sale, taxable under Entry 54, List II. The court also rejected claims of discrimination and impediment to free trade, affirming the legislative competence to levy the tax with reference to the tonnage of cane. The petitions were dismissed with costs, and the court did not grant any specific relief regarding the exemption claims under Section 21(3)(a).

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