Purchase tax on sugarcane upheld as valid state taxation, with no violation of trade freedom or equality guarantees.

Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act imposed a purchase tax on cane bought by factory occupiers, and the levy was treated as falling within State power under Entry 54 of List II because the taxable event was the purchase of goods under a contract of sale. The tax was also held not to offend Article 301, as it applied uniformly and did not directly restrain trade or movement of goods. The differential rates and exemption provisions were upheld under Article 14 because the affected units formed distinct classes and the classification had a rational basis.

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Issues: (i) whether the levy under section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, on purchases of cane by factory occupiers was beyond the legislative power under Entry 54 of List II; (ii) whether the levy offended Article 301 of the Constitution of India; (iii) whether the differential treatment and exemption provisions under section 21 violated Article 14 of the Constitution of India.

Issue (i): whether the levy under section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, on purchases of cane by factory occupiers was beyond the legislative power under Entry 54 of List II.

Analysis: The taxable event was the purchase of cane and not its entry into the factory or its subsequent use. Under the statutory scheme, a cane grower in the factory zone could make an offer, the factory occupier was bound to accept it, and the parties executed a written agreement on prescribed terms. The Court treated this as a contract of sale within the meaning of section 4 of the Indian Sale of Goods Act, 1930, because there was offer, acceptance, mutual assent and free consent in law, even though acceptance was compelled by statute. The levy therefore fell within the State power to tax purchases of goods under Entry 54 of List II.

Conclusion: The challenge based on lack of legislative competence failed and the levy was upheld.

Issue (ii): whether the levy offended Article 301 of the Constitution of India.

Analysis: The tax operated uniformly on purchases of cane required for use, consumption or sale in a factory and did not discriminate between cane grown within the State and cane brought from outside. A non-discriminatory tax on purchases does not, by itself, amount to a direct or immediate restriction on trade, commerce or intercourse. The levy was held not to impede the free movement of goods in the constitutional sense.

Conclusion: The levy was held not to violate Article 301.

Issue (iii): whether the differential treatment and exemption provisions under section 21 violated Article 14 of the Constitution of India.

Analysis: The Court held that factories using the vacuum pan process, khandsari units using the open pan process, and cane growers making jaggery formed distinct classes with different capacities and industrial characteristics. The lower rate for khandsari units and the exemption policy for new or substantially expanded factories were found to rest on legitimate legislative policy and rational classification. The delegation to the Government to decide individual exemption cases was also upheld as appropriate.

Conclusion: Section 21 was held not to offend Article 14.

Final Conclusion: The statutory levy on purchases of cane by factory occupiers was upheld as a valid purchase tax, and the constitutional challenges under Articles 301 and 14 failed, leaving the petitions liable to dismissal.

Ratio Decidendi: A transaction remains a contract of sale for purposes of Entry 54 when the seller makes an offer and the buyer accepts it under a statutory compulsion, provided there is mutual assent in law and the levy is on the purchase of goods rather than on their entry or use.

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