1969 (2) TMI 163 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the sales made to the Regional Food Controller under the U.P. Wheat Procurement (Levy) Order, 1959, are sales within the meaning of 'sales' under section 2(h) of the U.P. Sales Tax Act.
2. Whether the assessee is liable to pay sales tax on the sales made to the Regional Food Controller under the provisions of the U.P. Wheat Procurement (Levy) Order, 1959.

Issue 1: Definition of Sales under Section 2(h) of the U.P. Sales Tax Act

The primary question is whether supplies made under the U.P. Wheat Procurement (Levy) Order, 1959, qualify as "sales" as defined under section 2(h) of the U.P. Sales Tax Act. The assessee argued that these supplies were not sales since they were made under compulsion, without any contract of sale. The Commissioner contended that these supplies should be considered sales as they were made pursuant to an agreement between the assessee and the State Government.

The court examined several Supreme Court decisions to address this issue. In M/s. New India Sugar Mills v. Commissioner of Sales Tax, Bihar, the Supreme Court held that transactions made under the Sugar and Sugar Products Control Order, 1946, were not sales due to the absence of mutual assent. However, in Indian Steel & Wire Products Limited v. The State of Madras, the court found that transactions regulated by the Iron and Steel (Control of Production and Distribution) Order, 1941, were sales because the parties could negotiate certain terms despite the control order. Similarly, in Andhra Sugars Ltd. v. State of Andhra Pradesh, the court held that transactions under the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, were sales as they involved offer and acceptance, consideration, and free consent, despite the compulsion to enter into the contract.

The court concluded that the U.P. Wheat Procurement (Levy) Order, 1959, required licensed dealers to sell a specified percentage of wheat to the State Government. This implied a contract of sale, as the order targeted licensed dealers whose business was to sell foodgrains. The court emphasized that the Levy Order did not impair the essential contractual base, and the transactions retained the essential elements of a sale, including offer, acceptance, and consideration.

Issue 2: Liability to Pay Sales Tax

Given the court's determination that the transactions under the Levy Order were sales, the next issue was whether the assessee was liable to pay sales tax on these sales. The court noted that the U.P. Sales Tax Act imposes tax on sales as defined under section 2(h). Since the transactions in question met this definition, the assessee was liable to pay sales tax.

The court also addressed the argument that compulsion under the Levy Order negated the element of free consent. It referenced the Supreme Court's decision in Andhra Sugars Ltd., which held that compulsion by law does not equate to coercion under the Indian Contract Act. The court concluded that the Levy Order's compulsion did not vitiate the free consent required for a valid contract of sale.

Conclusion

The court answered both questions in the affirmative, holding that the sales made to the Regional Food Controller under the U.P. Wheat Procurement (Levy) Order, 1959, were indeed sales within the meaning of section 2(h) of the U.P. Sales Tax Act. Consequently, the assessee was liable to pay sales tax on these transactions. The court assessed the costs in favor of the Commissioner of Sales Tax at Rs. 200, with counsel's fee also assessed at the same figure.

Separate Judgments:

GULATI, J.: Agreed with the judgment delivered by Pathak, J.

BEG, J.: Concurred with the judgment delivered by Pathak, J., emphasizing that the transactions retained the essential elements of a sale, including offer, acceptance, and consideration, despite the compulsion under the Levy Order. Beg, J., highlighted that the regulated or restricted area of choice does not destroy the nature of the transactions as sales.

Final Decision: The court unanimously answered the questions in the affirmative, confirming the assessee's liability to pay sales tax on the transactions under the U.P. Wheat Procurement (Levy) Order, 1959.

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