1975 (5) TMI 82 - HC - VAT and Sales Tax

Court quashes tax assessment on rice procurement under Levy Order, exempts from sales tax.

The court allowed the writ petitions, quashing the assessment orders and demand notices. It held that the procurement of rice under the Levy Order did not ... - Issues Involved:1. Whether the procurement of rice was made by the State Government as agents of the Food Corporation of India (FCI).2. Whether the procurement of rice under the Levy Order is a taxable event.3. Whether the Food Corporation of India is a 'dealer' under the relevant tax laws.4. Whether the transaction between the State Government and the corporation constitutes a 'sale' and is thus taxable.5. The jurisdiction of the authorities to impose tax and the liability of the petitioner to pay the same.Issue-Wise Detailed Analysis:1. Agency Relationship:The court examined whether the State Government and its officers acted as agents of the Food Corporation of India (FCI) in procuring rice. The petitioners argued that the State acted as an agent for FCI, citing admissions made during assessment proceedings and in appeals. However, the court concluded that the State, while procuring rice, did not represent FCI. The procurement was based on the Levy Order issued under the Essential Commodities Act and not on any agency relationship. The court stated, 'The State or its officers, while procuring rice, do not represent the Food Corporation of India.' Therefore, the contention that there was an agency relationship was repelled.2. Taxable Event:The court considered whether the procurement of rice under the Levy Order constituted a taxable event. It was argued that the procurement was not a sale and thus not taxable. The court referred to the Supreme Court's decision in Chittar Mal Narain Das v. Commissioner of Sales Tax, U.P., which held that compulsory acquisition under a statutory order does not constitute a sale. The court found that 'the act of procuring rice under the Levy Order does not constitute 'sale'.' Therefore, the transaction between the millers or dealers and the State Government was not a taxable event.3. Definition of 'Dealer':The petitioners contended that FCI, while distributing foodgrains to deficit states, did not act with a profit motive and thus should not be considered a 'dealer.' The court agreed, stating that 'the corporation, while carrying out the policy of the Central Government in distributing foodgrains to the deficit States, is not doing business with the object of making profits.' The court emphasized that the activities were welfare-oriented and did not involve any profit motive, thus excluding FCI from the definition of a 'dealer.'4. Transaction Constituting 'Sale':The court analyzed whether the transaction between the State Government and FCI constituted a sale. The court found that the transactions under the Levy Order were not sales but compulsory acquisitions. The court stated, 'The transaction between the State Government or its officers and the corporation is not a sale and is merely a transfer of rice procured under the Levy Order.' Therefore, these transactions were not taxable events.5. Jurisdiction and Liability:The court addressed the preliminary objection regarding the jurisdiction of the authorities to impose tax and the liability of the petitioner to pay the same. The court found that the assessment orders and demand notices were issued without jurisdiction. The court stated, 'The question of jurisdiction of the authorities to impose tax and the liability of the petitioner to pay the same is involved and the same has been decided on the basis of the admitted or patent facts.' Consequently, the court quashed the assessment orders and demand notices.Conclusion:The court allowed the writ petitions, quashing the assessment orders and demand notices. The court held that the procurement of rice under the Levy Order did not constitute a sale and was not a taxable event. The court also found that FCI was not a dealer for the purposes of these transactions and that the State Government did not act as an agent for FCI. The court emphasized that the transactions were welfare-oriented and lacked a profit motive, thus excluding them from the purview of sales tax. The petitions were allowed with costs, and the court awarded counsel's fee of Rs. 500 in each case.