TaxTMI 
TaxTMI 
1971 (11) TMI 140
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....e 226 of the Constitution for writs, orders and directions prohibiting the respondent, State of Mysore and the Commissioner for Commercial Taxes at Bangalore from levying or taking proceedings to levy any purchase tax on purchase of sugarcane from the grower or from collecting or taking any proceedings for recovery of any such tax with or without penalty from the appellants. The appellants also asked for orders, writs and directions for refund of several sums of money collected as and for purchase tax. The appellants are the India Sugars and Refineries Ltd. and the Salar Jung Sugar Mills Ltd. The India Sugars and Refineries Ltd. is situated at Hospet in Bellary District in Mysore and the Salar Jung Sugar Mills Ltd. is situated at Munirabad in Raichur District in Mysore. The appellant, the India Sugars and Refineries Ltd. in four applications now Civil Appeals Nos. 2015, 2016, 2017 and 2014 of 1968 impeached the demand and collection made against the appellant for large sums of money as and for purchase tax and penalty on the purchase of sugarcane from the growers for the period April 1, 1962, to June 30, 1967, and further asked for refund of large sums of money collected as p....
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....cts and circumstances have to be ascertained for finding out as to what the actual transaction was. In exercise of the powers conferred by section 3 of the Essential Commodities Act, 1955, the Central Government on August 27, 1955, made the Sugarcane Control Order, 1955. The Central Government was empowered by clause 3 of the Sugarcane Control Order, 1955, to fix the minimum price of sugarcane to be paid by purchasers of sugarcane. Sale or purchase of sugarcane at a price lower than the price fixed under section 3 was prohibited. The Central Government, however, could fix an additional price under certain circumstances and contingencies. Clause 4 of the Order of 1955 gave the Government power to prohibit or restrict or otherwise regulate export of sugarcane from any area for supply to different factories and also to direct that no jaggery or sugar shall be manufactured from sugarcane except under and in accordance with the conditions specified in a licence issued in that behalf. On October 4, 1963, in exercise of the powers conferred by section 3 of the Defence of India Act, 1962, the Central Government introduced rule 125-B to the Defence of India Rules. Rule 125-B inter ali....
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....alar Jung Sugar Mills Ltd. was also specified in the schedule and it remained specified until 1965 when the Mysore Sugarcane (Munirabad) Order, 1965, was made as specially applicable to Salar Jung Sugar Mills Ltd. On February 14, 1964, in exercise of the powers conferred by section 3 of the Essential Commodities Act, the Central Government amended the Sugarcane Control Order, 1955. Clause 4 of the Sugarcane Control Order, 1955, was amended and substituted by a new clause. The new clause 4 conferred powers on the Central Government to reserve areas where sugarcane was grown for a factory, determine the quantity of sugarcane which the factory would require for crushing during the year, fix with respect to any specified sugarcane grower in a reserved area the quantity or percentage of sugarcane grown by such grower which such grower would supply to the factory concerned; require the sugarcane grower and the factory to enter into an agreement for supply and purchase of the quantity of sugarcane so determined. Clause 4 as amended further provided that every sugarcane grower or factory to whom the order applied would be bound to supply or purchase the quantity of sugarcane covered by ....
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....ction 3 of the Essential Commodities Act, 1955, the Central Government made the Sugarcane (Control) Order, 1966, and repealed the Sugarcane (Control) Order, 1955. Under the Sugarcane (Control) Order, 1966, "factory" means any premises including the precincts thereof in any part of which sugar is manufactured by vacuum pan process, "price" means the price or the minimum price fixed by the Central Government from time to time delivered at the gate of the factory or sugarcane purchasing centre and "reserved area" means any area where sugarcane is grown and reserved for a factory in terms of the Order. Clause 3 of the 1966 Sugarcane Control Order dealt with minimum price of sugarcane fixed by the Central Government having regard to- (a) cost of production of sugarcane, (b) the return to the grower from alternative crops on the general trend of prices of agricultural commodities, (c) availability of sugar to the consumer at a fair price, (d) the price at which sugar produced from sugarcane is sold by producers of sugar, and (e) the recovery of sugar from sugarcane. Purchase and sale of sugar- cane at a price lower than that fixed was prohibited. The price of sugar- can....
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....required by the factory was fixed at 1,50,000 tons a year. Fifthly, the grower in the reserved area could not export sugarcane to any place or person outside the area. Sixthly, it was said that entering into agreement between the grower and the factory for supply and purchase of sugarcane was under the statute. Counsel for the State, on the other hand, contended that the transaction was in essence and substance purchase and sale and there was mutual assent between the parties as to the transactions. It was said that a grower after he had grown sugarcane at the commencement of the cultivation season might bargain for a price higher than the minimum price. Again, if the factory did not agree to pay higher price the grower might not elect to grow sugarcane or even allow his land to lie fallow. The factory might agree to pay a price higher than the minimum price in order to provide sufficient inducement to growers for higher yield. Strong reliance was placed by counsel for the State on the agreement entered into between the growers and the factory as decisive of purchase and sale. As to the agreement it was said on behalf of the State that to ensure a well-phased supply of sugarcane....
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....); [1959] S.C.R. 379, in dealing with the assessment of Gannon Dunkerley & Co. to sales tax on the value of the materials used in the execution of building contracts within the taxable turnover of the company held that the building contract was one entire and indivisible transaction and there was no separate individual sale of the building materials comprised in the construction. It was said by this court that in a building contract the agreement between the parties was that the contractor should construct the building according to the specifications contained in the agreement and in consideration therefor receive payment as provided therein, and in such an agreement there was neither a contract to sell the materials used in the construction nor did the property pass therein as movables. The reason why counsel for the appellants relied on the decision in Gannon Dunkerley & Co. [1958] 9 S.T.C. 353 (S.C.); [1959] S.C.R. 379 was in support of the proposition that the word "sale" occurring in entry 54 in List II was to be interpreted in the sense in which the word "sale" is used in the Indian Sale of Goods Act. This court in Gannon Dunkerley Co. [1958] 9 S.T.C. 353 (S.C.); [1959]....
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....gent of the Province to purchase goods but that he acted in exercise of his statutory authority. Therefore, there was no offer by the Province to purchase sugar and there was no acceptance of offer by the manufacturer. The ratio was that there was no privity between the manufacturer and the Province. The minority view in that case was that there might be compulsion in both buying and selling but a compelled sale might nevertheless be a sale. Hidayatullah, J., for the minority view, said: "The affairs of the world are very complicated and sales are not always in their elementary forms. Due to short supply or maldistribution of goods, controls have to be imposed. There are permits, price controls, rationing and shops which are licensed. Can it be said that there is no sale because mutuality is lost on one account or another. It was not said in the case of Tata Iron and Steel Co. Ltd. v. The State of Bihar [1958] 9 S.T.C. 267 (S.C.); [1958] S.C.R. 1355., which was a case of control, that there was no sale. The entry should be interpreted in a liberal spirit and not cut down by narrow technical considerations. The entry in other words should not be shorn of all its content to leave ....
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....ing confined gradually to narrower and narrower limits. It would be incorrect to contend that because law imposes some restrictions on freedom to contract, there is no contract at all. So long as mutual assent is not completely excluded in any dealing, in law it is a contract." The transactions were held to be sales because the date for supply of goods, the time for payment and the independent arrangement between the parties for transport predicated the basis of mutual assent. The Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, came up for consideration before this court in Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 S.T.C. 212 (S.C.); [1968] 1 S.C.R. 705. A sugar factory had to buy sugarcane from cane-growers in conformity with the directions of the Cane Commissioner. The State Government by notification had power to tax purchases of sugar- cane for use, consumption or sale in a sugar factory. The sugar factories challenged the validity of the Act empowering the Government to tax purchases of sugarcane in those instances because the factories were compelled to buy cane from the sugarcane growers and they were bound to enter into agreements....
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.... the law stepped in and compelled the factory to enter into contracts of purchase of cane offered by the cane-growers on prescribed terms and conditions." The Colliery Control Order, 1945, empowered the Central Government to fix price at which coal might be sold by colliery owners. The colliery owners were prohibited from selling or agreeing to sell or offering to sell coal at a price different from the price fixed in that behalf. Where a colliery owner signified to the Deputy Coal Controller (Distribution) in writing his willingness to sell direct to consumers and an allotment was made by the Deputy Controller to a consumer for such direct sale, the coal was to be delivered to the consumer at the price fixed under clause 4 of the Order. The Central Government was authorised to issue from time to time such directions as it. thought fit to any colliery owner regulating the disposal of his stocks of coal or of the expected output of coal in the colliery during any period including directions as to the grade, size and quantity of coal which might be disposed of and persons or class or description of persons to whom coal should or should not be disposed of. The order further provide....
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....ent. of wheat held in stock by him at the commencement of this Order." Again by clause 3(2) licensed dealer "is directed to sell to the State Government 50 per cent. of wheat purchased by him every day with the date of the commencement of this Order and until such time as the State Government otherwise directs." The Order enjoins the licensed dealer to deliver the quantities specified in sub-clause (1) of clause 3 either to the Controller or to such other person as may be authorised by the Controller to take delivery on his behalf. The Enforcement Officers had power to find out whether the dealer was carrying out the obligation. The U.P. Wheat Procurement Order was challenged in Chittar Mal Narain Das v. Commissioner of Sales Tax [1970] 26 S.T.C. 344 (S.C.); [1971] 1 S.C.R. 671., on the ground that there was no contract between the licensed dealer and the State pursuant to which goods were sold within the meaning of the U.P. Sales Tax Act. It was held that the obligation to deliver wheat arose out of the statute and there was no volition of the licensed dealer. The source of the obligation to deliver the goods and pay for them was said to be not in consensus but in the statutory....
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..... The amount of compensation determined in accordance with the provisions of the Transport Act was substantially higher than the written down value of the wagons for the purposes of income tax allowances in respect of wear and tear as appearing in the company's books. On these facts a balancing charge under section 17 of the English Income Tax Act, 1945, was made on the company. The amount represented the excess of the original cost over the written down value. The company appealed against the balancing charge to the Commissioners for the Special Purposes of the Income Tax Act who determined the question in favour of the Crown. Upjohn, J., reversed their determination. The Court of Appeal and the House of Lords upheld his decision. The decision in the case of John Hudson & Co. Ltd. [1955] A.C 696., turned on the meaning of the provisions of section 17 of the English Income Tax Act, 1945, as to whether the company's wagons were sold within the meaning of that section. Viscount Simonds, L.C., said that the wagons were not sold and it would be a grave misuse of language to say that they were sold. Under the English Lands Clauses Consolidation Act, 1845, central or local a....
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....areholder. Her shares were transferred by virtue of the powers given to the transferee company by the Act. It is in that context that the question was whether the conveyance or transfer was sale of any property. The contention was that there could not be a sale because the essential element of mutual assent was absent. The Court of Appeal held that the instrument must be regarded as a transfer on sale. Lord Evershed, M.R., said that by the machinery created by the Companies Act and the statutory authority given by the Act to the agent to execute transfer on Mrs. Bell's behalf "it has in truth brought into being that which ex facie in all its essential characteristics and effect is, and becomes, a transfer on sale of Mrs. Bell's stock." Danckwerts, L.J., in the same case said about the transfer of shares: "It seems to me that a sale may not always require the consensual element mentioned in Benjamin on Sale, 8th Ed., p. 2, and that there may, in truth, be a compulsory sale of property with which the owner is compelled to part for a price against his will. The effect of the statute in such a case is to say that the absence of the transferor's consent does not matter and the sale i....
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....n other side, the law presumes an agreement of sale for the reasonable worth of the goods. But the assent must in order to constitute a valid contract, be mutual and intended to bind both sides. It must also co-exist on the same moment of time." The assent must be mutual and bind both sides. The proposal by one man must be accepted by another and this acceptance must be unconditional. The assent must be communicated to the other party or some act must be done which the other party has expressly or impliedly offered to treat as a communication. judged by these standards in the forefront exists the agreement between the parties in the present case. The statutory orders required parties to enter into agreement. The parties did in fact enter into agreements. The agreement contains intrinsic evidence that the growers agreed to sell and the factory agreed to buy goods. Counsel for the appellants contended that mutual assent in the present case would not be free but compulsory and the parties would have no choice in the matter and therefore there would be no sale. The most common-place illustration of supply and acceptance of goods resulting in sale under the present conditions is f....
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....or payment in advance. Payment may be in cash or in kind. The sugarcane will be accepted after inspection. There is scope for rejection of goods. Various columns in the agreement indicate the villages where sugarcane is to be cultivated and the names of the varieties of sugarcane to be cultivated. The last two columns are estimated quantity offered to be delivered and the period of delivery. All these features indicate with unerring accuracy that there is offer, inspection, and appropriation of goods to the contract. The goods will be accepted by the factory after inspection and price will be paid on delivery. The mutual assent is not only implicit but is also explicit. Another feature in the agreements in the present case is that the goods are unascertained. The agreements speak of inspection of goods. Inspection and appropriation of unascertained goods indicates not only freedom in the formation but also in the performance of contracts. Unascertained goods are distinct from specific or ascertained goods in the sense that future goods include goods not yet in existence or goods in existence but not yet acquired by the seller. It is safe to say that future goods for purposes of ....
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.... trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge." The Control Orders are to be kept in the forefront for appreciating the true character of transactions. It is apparent that the area is restricted. The parties are determined by the order. The minimum price is fixed. The minimum quantity of supply is also regulated. These features do not complete the picture. The entire transaction indicates that the parties agree to buy and sell. The parties choose the terms of delivery. The parties have choice with regard to obtaining supply of a quantity higher than 95 per cent. of the yield. The parties can stipulate for a price higher than the minimum, The parties can have terms for payment in advance as well as in cash. A grower may not cultivate and there may not be any yield. A factory may be closed or wound up and may not buy sugarcane. A factory can reject goods after inspection. The combination of all these features indicates that the parties entered into agreement with mutual assent and with volition for transfer of goods in consideration of price. Transactions of purchase and s....