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TMI Blog1997 (1) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... nch) was right in applying the same in the judgment under appeal. The transactions in question are all sale and exigible to tax under the State Sales Tax Act. The contention that the Explanation newly added was ultra vires entry No. 54, List II of the Seventh Schedule to the Constitution, on the assumption that the disputed transactions are not sales and, therefore, by a fiction the impugned Explanation cannot deem a sale which is not a sale, is without substance. The learned counsel fairly concedes that it is open to the State Legislature to shape a point at which tax is levied, if may be equally permissible to the Legislature to treat a particular sale or purchase as the first sale or purchase, but it cannot by legislative device or fiction of law make something as a sale/purchase which in fact is not. This argument has to fail in view of our answer to proposition No. 1 in favour of the Revenue. - Civil Appeal No. 675-678 of 1975, - - - Dated:- 6-1-1997 - AHMADI A.M. SUJATA V. MANOHAR AND VENKATASWAMI K. JJ. Civil Appeal No. 675-678 of 1975, Civil Appeal No. 890 of 1987, Civil Appeal No. 892, Civil Appeal No. 893 of 1987, Civil Appeal No. 1130 of 1987, Civil Appeal No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sudhansu and M.M. Sakhardande, Advocates, with him), for the State of U.P. Mrs. A.K. Verma and P.D. Thyagi, Advocates (For J.B. Dadachanji Co., Advocates), for the appellant (FCI) in Civil Appeals Nos. 675 to 678 of 1975, 99 of 1990 and 89 of 1990. K. Ram Kumar and C. Balasubramaniam, Advocates, for the State of Andhra Pradesh. Senior Advocates: U.N. Bachawat and O.P. Rana for other appearing parties. Other Advocates: Pradeep Agarwal, Vishwajit Singh, Niti Dikshit, Irshad Ahmed and T. Mahipal for other appearing parties. -------------------------------------------------- The judgment of the Court was delivered by VENKATASWAMI, J. -Leave granted in all the special leave petitions. In all these cases, common questions of law arise and arguments were also addressed on that footing and consequently, they are disposed of by this common judgment. The principal common question of law that arises for consideration can be broadly stated as follows: "Whether, the Food Corporation of India (hereinafter called, 'the FCI') is liable to pay sales/purchase tax to the States while purchasing foodgrains or in distributing fertilizers pursuant to orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to hold that the ratio laid down by this Court in Chittar Mal's case [1970] 26 STC 344; (1970) 3 SCC 809, holds the field. On the other hand, learned Senior Counsel appearing for the States, placing reliance on the subsequent decisions of larger benches of this Court, tried to persuade us to hold that the ratio laid down by this Court in Chittar Mal's case [1970] 26 STC 344; (1970) 3 SCC 809, is no longer good law. 4.. As illustrative of the cases, we would like to refer to the facts in the common judgment of the Lucknow Bench of the Allahabad High Court in Civil Misc. W.P. No. 2077/1986 (Food Corporation of India v. Commissioner of Sales Tax [1988] 69 STC 374) (corresponding to C.A. No. 2532/1987) and then apply the same to other cases. 5.. The facts as noticed by the High Court in the common judgment are given below in brief: The Food Corporation of India is a "Corporation" incorporated under the Food Corporation Act, 1964 (Central Act No. 37 of 1964). As one of its functions it maintains a national pool of foodgrains. The different States have to make their contributions to this pool. The States issued different orders under the Essential Commodities Act known by differen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate of additional tax payable by any dealer, the aggregate of whose turnover or turnover of purchases of both, as the case may be, liable to tax, exceeds rupees ten crores in an assessment year shall be five per cent." 8.. Since the turnover of the FCI has been more than ten crores, it was also required to pay additional tax for the period section 3-F remained in operation. 9.. The appellant has challenged the validity of Explanation II to section 3-D(1) of the U.P. Sales Tax Act as well as that of section 3-F of the Act on the ground that the said provisions are discriminatory, arbitrary and unreasonable. 10.. In addressing the arguments challenging the view taken by the Lucknow Bench of the Allahabad High Court, Mr. Thakur, learned Senior Counsel, placed before us the following six propositions for our decision: 1.. That levy procurement of foodgrains pursuant to levy orders issued under section 3 of Essential Commodities Act by the Government of Uttar Pradesh are not "sales" within the meaning of entry No. 54, List II of the Seventh Schedule to the Constitution of India. The legislation authorising such imposition, proceedings and recovery of sales tax is wholly ultra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not at all taxable under the U.P. Sales Tax Act. After referring to relevant provisions in the Essential Commodities Act, 1955, and the levy control orders, it was pointed out that the persons holding stocks of foodgrains are required compulsorily by force of the statutory orders to part with the foodgrains in favour of the State Government or its nominee and such procurement constitutes clearly a case of compulsory acquisition rather than a sale as popularly understood. Elaborating this aspect, it was submitted that there was absolutely no contract between the seller and buyer and failure to comply with the procurement orders will result in the prosecution and ultimate punishment at the hands of the law enforcing agency apart from the power to enter upon the premises, search, seize the foodgrains and confiscate the same. Under those circumstances, it was contended that the transactions of levy procurement cannot be treated as a sale within the purview of entry No. 54, List II of the Seventh Schedule. In the case of millers, they have to part with a specified portion of rice, milled from the paddy given by farmers though the millers have no right or title over the paddy, they ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrols were imposed for identification of a class of people who would be eligible either to sell or to purchase goods in keeping with the welfare policy of the State. Those are not the cases in which the failure to part with the goods results in the commission of an offence which is punishable nor does the failure give corresponding right to the authorities to seize and confiscate the goods and impose penalties as prescribed under the control orders. Therefore, it cannot be contended that a compulsory acquisition of foodgrains by Government in exercise of its sovereign powers should constitute a sale so as to attract the liability under the Sales Tax Act. The transactions entered into in exercise of the power under the levy order between the millers and the dealers on the one hand and the State on the other hand, and thereafter between the States and the Corporation, i.e., FCI and then between the Corporation and the States was one composite process which owed its origin to the arrangements arrived at between the State Governments and Central Government under which the States were required to contribute to the Central Pool which in turn passes on to the deficit States through the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Allahabad High Court in Commissioner of Sales Tax v. Ram Bilas Ram Gopal [1969] 24 STC 508; AIR 1970 All. 518. Though those observations did not find approval by the Bench which decided Chittar Mal's case [1970] 26 STC 344 (SC); (1970) 3 SCC 809 the same found approval by the later larger Bench which decided Vishnu Agencies case [1978] 42 STC 31 (SC); (1978) 1 SCC 520. We shall refer to the relevant portions of the abovesaid Full Bench passage at the appropriate place. In addition to that, reliance also was placed on certain portions in the pleadings (to which also we shall make reference at the appropriate place) to the effect that the FCI has not always accepted the foodgrains procured under levy orders and there were occasions when the FCI rejected certain stocks on the ground that they were not up to the quality prescribed. This also, according to the learned Senior Counsel negatives the contention of the learned Senior Counsel for the appellants that the entire transaction was a single integrated process. The learned Senior Counsel submitted that the Lucknow Bench of the Allahabad High Court (Food Corporation of India v. Commissioner of Sales Tax [1988] 69 STC 374) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as the State Government otherwise directs. The price at which the wheat is sold is the maximum price fixed in the Wheat (Uttar Pradesh) Price Control Order, 1959, as notified by the Government of India. Delivery of the wheat has to be given by the dealer to the Regional Food Controller or a person authorised by him in that behalf. The dealer has no option but to sell the specified percentage of wheat to the State Government. The State Government has also no option but to purchase fifty per cent of the wheat held in stock by the dealer at the commencement of the Levy Order. As regards the wheat procured or purchased daily by the dealer thereafter, it is open to the State Government to say that from any particular date it will not purchase any or all of the specified percentage of wheat. Therefore, as regards that wheat the Levy Order leaves it open to one of the parties, namely the State Government, to decide when it will stop purchasing wheat from the dealer. That in substance is clause 3 of the Levy Order and it embodies the total sum of obligations imposed on the dealer and the State Government. All other details of the transaction are left open to negotiation. It leaves it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1947. The taxpayer contended that the supplies of sugar, pursuant to the directions of the Controller, did not result in sales, and that no tax was exigible on such transactions. A majority of the court observed that despatches of sugar pursuant to the directions of the Controller were not made in pursuance of any contract of sale. There was no offer by the taxpayer to the State of Madras, and no acceptance by the latter; the taxpayer was under the Control Order compelled to carry out the directions of the Controller and it had no volition in the matter. Intimation by the State of its requirements of sugar to the Controller or communication of the allotment order to the assessee did not amount to an offer. Nor did the mere compliance with despatch instructions issued by the Controller, which the assessee had not the option to refuse to comply with, amount to acceptance of an offer or to making of an offer. A contract of sale of goods postulates a voluntary arrangement regarding goods between the contracting parties. It was held that in the case before the court there was no such voluntary arrangement." 17.. The above judgment came up for consideration, inter alia, in Vishn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , C.J., as he then was. The same reads as follows: "It is true that a considerable part of the field over which what are called 'sales' take place under either regulatory orders or levy orders passed or directions given under statutory provisions is restricted and controlled by these orders and directions. If, what is called a 'sale' is, in substance, mere obedience to a specific order, in which the so-called 'price' is only a compensation for the compulsory passing of property in goods to which an order relates, at an amount fixed by the authority making the order, the individual transaction may not be a 'sale' although the compensation is determined on some generally fixed principle and called 'price'. This was, for example, the position in New India Sugar Mills v. Commissioner of Sales Tax, Bihar [1963] 14 STC 316 (SC); [1963] Supp 2 SCR 459; AIR 1963 SC 1207. That was a case of a delivery according to an order given by the Government which could amount to a compulsory levy by an executive order although there was no legislative 'levy order' involved in that case. On the other hand, in Commissioner of Sales Tax, U.P. v. Ram Bilas Ram Gopal [1969] 24 STC 508 (All.) [FB]; AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id decisions are New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar [1963] 14 STC 316 (SC); [1963] Supp. 2 SCR 459 and Chittar Mal Narain Das v. Commissioner of Sales Tax, U.P. [1970] 26 STC 344 (SC); [1971] 1 SCR 671. In the case of Vishnu Agencies [1978] 42 STC 31 (SC); [1978] 2 SCR 433; AIR 1978 SC 449, the former case was considered in paragraphs 37 to 39 of AIR volume at pages 463-464 (pages 51-52 of 42 STC) and it was held that the view expressed in the majority judgment was not good law and the one contained in the minority judgment was approved. Chittar Mal's case [1970] 26 STC 344 (SC); [1971] 1 SCR 671 was also considered in paragraphs 44-45 at page 467 (pages 56-57 of 42 STC) and it was distinguished on the ground that the said decision 'can be justified only on the view that clause 3 of the Wheat Procurement Order envisages compulsory acquisition of wheat by the State Government from the licensed dealer'. But then the criticism in that case of the Full Bench decision of the Allahabad High Court in Commissioner of Sales Tax, U.P. v. Ram Bilas Ram Gopal [1969] 24 STC 508; AIR 1970 All. 518 'which held while construing clause 3 that so long as there was freedom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in proportion to the value of such coffee to the total realisations in the pool [section 34(2)]. (g) Sale or contracts to sell coffee by growers in the years in which internal sale quota was not allotted were prohibited by section 17 of the Act. All contracts for the sale of coffee at variance with the provisions of the Act were declared as void by section 47 of the Act." 21.. The contention in that case was that there was no sale and it was nothing but a compulsory acquisition of the coffee by the Coffee Board. In repelling that contention, this Court in the said case observed as follows: "18. In 1966 this Court in the case of State of Kerala v. Bhavani Tea Produce Co. [1966] 2 SCR 92 (a unanimous decision of a Bench of five learned Judges), which arose under the Madras Plantations Agricultural Income-tax Act, 1955, held that when growers delivered coffee under section 25 of the Act to the Board all their rights therein were extinguished and the coffee vested exclusively in the Board. This Court observed that when growers delivered coffee to the Board, though the grower 'does not actually sell' the coffee to the Board, there was a 'sale' by operation of law. This was in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r became punishable with imprisonment or fine or both. Under the A.P. Procurement (Levy and Restriction on Sale) Order, 1967 (Civil Appeals Nos. 2488 to 2497 of 1972), every miller carrying on rice-milling operation was required to sell to the agent or an officer duly authorised by the Government, minimum quantities of rice fixed by the Government at the notified price, and no miller or other person who gets his paddy milled in any rice-mill can move or otherwise dispose of the rice recovered by milling at such rice-mill except in accordance with the directions of the Collector. Breach of these provisions became punishable. It was held dismissing the appeals that sale of cement in the former case by the allottees to the permit-holders and the transactions between the growers and procuring agents as well as those between the rice-millers on the one hand and the wholesalers or retailers on the other, in the latter case, were sales exigible to sales tax in the respective States. It was observed by Beg, C.J., that the transactions in those cases were sales and were exigible to tax on the ratio of Indian Steel and Wire Products Ltd. [1968] 21 STC 138 (SC); [1968] 1 SCR 479, Andhra Sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in the paddy and rice was transferred for cash consideration by the appellants. When the essential goods are in short supply, various types of orders are issued under the Essential Commodities Act, 1955, with a view to making the goods available to the consumer at a fair price. Such orders sometimes provide that a person in need of an essential commodity like cement, cotton, coal or iron and steel must apply to the prescribed authority for a permit for obtaining the commodity. Those wanting to engage in the business of supplying the commodity are also required to possess a dealer's licence. The permit-holder can obtain the supply of goods, to the extent of the quantity specified in the permit and from the named dealer only and at a controlled price. The dealer who is asked to supply the stated quantity to the particular permit-holder has no option but to supply the stated quantity of goods at the controlled price. Then the decisions in State of Madras v. Gannon Dunkerley Co. Ltd. [1958] 9 STC 353 (SC); [1959] SCR 379 and New India Sugar Mills v. Commissioner of Sales Tax [1963] 14 STC 316 (SC); [1963] Supp 2 SCR 459 were discussed and the correctness of the view taken i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price and the other party consents to accept the goods on the terms and conditions mentioned in the permit or the order of allotment issued in its favour by the concerned authority. ......................... 46.. Because coffee is grown on the estate, the owner of the land can be presumed to have consented to surrender his produce to the Board it was submitted. But the surrender is thus clearly an act of volition. The planting of the seeds of a coffee plant by a grower can be regarded as his act of volition in respect of the surrender to the Board of the coffee yielded by the plant." 23.. In Oil and Natural Gas Commission's case [1976] 38 STC 435; [1977] 1 SCR 354, this Court referred the arguments similar to the one advanced before us and repelled the same in the following manner: "The Commission is described by the Solicitor-General to be a statutory body which has no option either with regard to the production or supply and the directions and decisions of the Government leave no choice with the commission in regard to supplies. This Court in Salar Jung Mills Ltd. v. State of Mysore [1972] 29 STC 246 (SC); [1972] 2 SCR 228, laid down the following propositions: First, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agencies case [1978] 42 STC 31 (SC); (1978) 1 SCC 520, dealt with West Bengal Cement Control Act by the same reasonings, this Court has rejected similar arguments relating to transactions under the A.P. Paddy Procurement (Levy) Order. In other words, the ratio laid down by this Court in respect of Control Orders were applied to the issues raised under Levy Orders. Therefore, the distinction sought to be made by the learned counsel appearing for the appellant that the subsequent judgment of larger Benches of this Court are relating to Control Orders and they do not apply to Levy Orders is without substance. We have noticed the latter trend in the judgments of this Court in particular the Coffee Board's case [1988] 70 STC 162; (1988) 3 SCC 263, was not making out any serious distinction between the transactions under the Control Orders on the one hand and Levy Orders on the other. 25.. We would also like to emphasise one other relevant factor at this stage which has also been noticed by the High Court. Placing reliance on the averments in paragraph 13 of the counter-affidavit filed on behalf of the FCI, learned counsel appearing for the State before the High Court pointed out that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of later larger Bench decisions of this Court referred to above. 28. Now coming to the second proposition regarding the constitutionality of Explanation II added to section 3-D(1) of the U.P. Sales Tax Act, it must be answered against the assessee following our answer to proposition No. 1 and in favour of the Revenue. We have held that the transactions in question are all sale and exigible to tax under the State Sales Tax Act. The contention that the Explanation newly added was ultra vires entry No. 54, List II of the Seventh Schedule to the Constitution, on the assumption that the disputed transactions are not sales and, therefore, by a fiction the impugned Explanation cannot deem a sale which is not a sale, is without substance. The learned counsel fairly concedes that it is open to the State Legislature to shape a point at which tax is levied, if may be equally permissible to the Legislature to treat a particular sale or purchase as the first sale or purchase, but it cannot by legislative device or fiction of law make something as a sale/purchase which in fact is not. This argument has to fail in view of our answer to proposition No. 1 in favour of the Revenue. We, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In future also if Food Corporation of India gives the proof that it has paid further tax to Food Department (RFCs) and its agencies and they have deposited that tax to Sales Tax Department (excluding the period between 15-11-1971 to 18-5-1973 because in this period tax was not at all points of purchases) the above procedure will be followed and after verification benefit of the deposit of tax will be given to Food Corporation of India. Thus, there is no question of multiple taxation for any period other than 15-11-1971 to 18-5-1973." 30. In view of the above, the appellants can work out their remedy before the concerned authorities in accordance with law. There is nothing to be decided by this Court. 31. Now coming to the fourth proposition, the grievance appears to be that the appellant has been singled out for harsh treatment and there was no other dealer in foodgrains in the State of U.P. whose annual turnover would exceed Rs. 10 crores. It is now well-settled that it is within the competency of the State Legislature to classify the dealers and to impose surcharge upon those who were placed in one category taking into consideration their economic superiority. A class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or purchase of fertilizers and parties are left to enter into consensual contractual agreement in the exercise of their volition subject only to the restrictions regarding price fixation, quota requirements, etc. 35.. We have in the earlier paragraphs noticed that the appellants have conceded that there are sales in the transactions falling under Control Orders. The challenge was only regarding transaction falling under Levy Orders. We have held that the transaction falling under Levy Orders would amount to sales. Therefore, we have no difficulty or hesitation in approving the view taken by the High Court that the activity of distribution of fertilizers amounts to sale exigible to sales tax. 36.. We have noticed in the course of the discussion that the Punjab and Haryana High Court has taken a different view and we have also held that the view taken by the Punjab and Haryana High Court was not the correct one. The State of Punjab aggrieved by the decision of the Punjab and Haryana High Court has filed appeals. Our discussion concerning the six propositions would equally apply to the appeals filed by the State of Punjab and one additional point arises in the appeals file ..... X X X X Extracts X X X X X X X X Extracts X X X X
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