PETITIONER:
FOOD CORPORATION OF INDIA ETC. ETC.
Vs.
RESPONDENT:
STATE OF KERALA
DATE OF JUDGMENT: 06/01/1997
BENCH:
CJI, SUJATA V. MANOHAR, K. VENKATASWAMI
ACT
HEADNOTE
JUDGMENT
THE 6 AND 28TH DAY OF JANUARY, 1997 Present:
Hon’ble the Chief Justice
Hon’ble Mrs. Justice Sujata V.Manohar
Hon’ble Mr. Justice K. Venkataswami D.D. Thakur, B.D. Agarwal, A.S. Nambiar, Dr. A.M. Singhvi, H.L. Aggarwal, U.N. Bachawat, A.N. Jayaram, H.N. Salve, O.P. Rana, Sr. Advs., (A.K. Verma, P.D. Tyagi) Advs for M/s. JBD & Co., G.I. Gopalkrishnan, Y. Prabhakara Rao, N.N. Bhatt, Sunil Ambwani, Prashant Kumar, M.T. George, Sunil Gupta, Ms. Nisha Bagchi, Ms Indu Malhotra, G.K. Bansal, Sanjay Bansal, A. Misra, Mukul Mudgal, R.B. Misra, Sudhanshu, N.M. Sakharadande, K.Ram Kumar, C. Balasubramaniam, Pradeep Misra, Vishwajit Singh, Ms. Niti Dikshit, T. Mahipal, Irshad Ahmad, Advs. with them for the appearing parties.
JUDGMENT
The following Judgment of the Court was delivered: (With Civil Appeal Nos. 897/87. 892-93/87. 991/90. 1130/87. 1995/87. 2532/87. S.L.P.(C) Nos. 10126/87 10137/87. 10161/87. 10162/87, 10248/87, 10508/87. C.A No. 894/90, S.L.P. (C) No. 10150/87, 10157/87, 10152/87, 10153/87, 10154/87, 8772-74/87, 6775/91, 7477/91, 7478/91, 8541/91, 15719/94 and 13131/91) C.A. Nos. 544-554/97 @ S.L.P.(C) Nos. 10126/87, etc. and C.A. Nos. 555-563/97 @ S.L.P.(C) Nos. 8772-74/87, etc.
JUDGMENT 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 issued under Section 3 of
the Essential Commodities Act,
1955?"
There is a difference of opinion among the High Courts on this question. A division Beach of the Allahabad High Court (Lucknow Bench) has taken the view that the FCI is liable to pay purchase tax in the light of the provisions of the U.P. Sales Tax Act, 1948 (hereinafter called "the Act"). A Division Beach of the Punjab and Haryana High Court, however, has taken a view that the FCI is not liable to pay tax, on the purchase of foodgrains. We may at once state here that the Lucknow Bench of the Allahabad High Court in taking the view that the FCI is liable to pay tax after elaborately dealing with the case law up to the date of the judgment has come to a conclusion that the decision of this Court in M.s Chitter Mai Narain Das vs. Commissioner of Sales Tax (1970 (3) SCC 809) in view of subsequent decisions of larger benches of this Court does not hold good. The Division Bench of the Punjab and Haryana High Court, however, has taken exactly the opposite view holding that the decision of this Court in Chitter Mal’s case holds good notwithstanding subsequent decisions of this Court and on that basis held that the FCI was not liable to pay tax. The Andhra Pradesh and Kerala High Courts while dealing with the liability of the FCI to pay tax on the distribution of fertilizers have taken the view that the FCI is liable to pay tax. It is under this background, arguments were advanced before us supporting and opposing the view taken by this Court in Chitter Mal’s case.
Undoubtedly this Court in Chitter Mal’s case positively has taken a view that there was no sale within the meaning of the definition of the word ‘sale’ under Section 2(h) of the U.P. Sales Tax Act, 1948, when the stocks of wheat supplied by the appellants (in that case dealers in foodgrains) in compliance with the provisions of U.P. Wheat Procurement (Levy) Order, 1959 to the Regional Food Controller. Armed with that decision of this Court, Mr. Thakur, learned Senior Counsel addressed elaborate arguments distinguishing the subsequent decision of larger benches of this Court projection a ‘liberal interpretation’ of the definition of ‘sale’ occurring in various State statutes and tried to persuade us to hold that the ratio laid down by this Court in Chitter Mal’s case 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 Chitter Mal’s case is no longer good law.
As an 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 W.P. 2077/1986 (corresponding to C.A. No. 2532/1987) and then apply the same to other cases.
The facts as notices 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 State issued different orders under the Essential Commodities Act known by different names as Levy Orders, Procurement Orders or Requisition Orders, for purchasing part of the produce or stocks of the foodgrains in question from farmers or millers. The procurement is made through different agencies. On obtaining the required quantity of the goodgrains, it is purchased by the Food Corporation of India from the State Governments for the purpose of maintaining the national pool of foodgrains. The Sales Tax Department of U.P. sought to levy purchase tax upon the Food Corporation of India on the point it makes purchases from the State of U.P. The Food Corporation of India denied its liability to pay the said tax.
Although the purchase made by the FCI from the State is a second sale or purchase in view of Explanation II to Section 3-D(i) of the U.P. Sales Tax Act, it is deemed to be the first purchase. The Explanation II was added with retrospective effect by the U.P. Act No. 23 of 1976. It is specifically in respect of purchase of foodgrains in pursuance of orders made under Section 3 of the Essential Commodities Act. The Explanation II reads as follows:
"Explanation II:-
For the purpose of this sub-
section, in relation to purchases
of foodgrains in pursuance of any
orders made under Section 3 of the
Essential Commodities Act, 1955
including any purchase in excess of
the levy share, the purchase first
made by a dealer from the State
Government or its purchasing agent
shall be the first purchase of such
foodgrains and the tax shall
accordingly be levied at the point
on such dealer.’
An additional tax was also payable at the rate of five per cent over the turnover by the dealer whose yearly turnover exceeded rupees ten crores as provided under Section 3-F of the U.P. Sales Tax Act, which now stands omitted by the U.P. Act No. 4 of 1982 with effect from 7th September, 1981. Section 3-F as it existed was as follows:-
"3-F. Every dealer liable to pay
tax under this Act. the aggregate
of whose total turnover of
purchases of goods notified under
sub-section (1) of section 3-D, the
turnover of sales liable to tax
under sub-section (2) of section 3-
D and the total turnover of sales
of all other goods in any
assessment year exceeds rupees two
lakhs, shall, in addition to the
said tax, pay for that assessment
year an additional tax at the rate
of one per cent, of his turnover
liable to tax:
Provided that in case of
foodgrains, the date of additional
tax payable by any dealer, the
aggregate of whose turnover or
turnover of purchases or both, as
the case may be, liable to tax,
exceeds rupees ten crores in an
assessment year shall be five
percent."
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.
The appellant has challenged the validity of Explanation II to Section 3-D(i) 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.
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 54,
List II of Seventh schedule to the
Constitution of India. The
legislation authorising such
imposition, proceedings and
recovery of Sales Tax is wholly
ultra vires the said Entry 54 of
Constitution of India. Levy
procurement in effect is compulsory
acquisition by State in exercise of
powers of the State under "Eminent
Domain".
2. That Explanation II added to
Section 3D (i) of the U.P. Sales
Tax Act by Act No. 23 of 1976 is
ultra vires the Entry No.54 since
it assumed, by fiction of law, the
existence of sale, even when there
is none, by the State of U.P. and
its nominees in favour of Food
Corporation of India and thereafter
declare that fictional sale to be
the first sale for the purpose of
levy of sales tax.
3. That Food Corporation of India
for the procurement from 1968 to
1976 had been bearing the burden of
Sales Tax on the first purchase
made by the Regional Food
Controller by reimbursing the same
to them. The Tax being single point
tax, the same could not be levied
twice. Explanation II
retrospectively levies sales tax at
more than one point. It is
impermissible under the provisions
of U.P. Sales Tax Act.
4. That Section 3(F) which levied
surcharge of 5% on dealers whose
turnover in foodgrains exceeding
Rs. 10 crores was arbitrary and
discriminatory and hit by Article
14, particularly when the same was
made effective retrospectively from
1st April 1975.
5. That the 46th Constitutional
Amendment which came into force
from 2nd February 1983 was made
retrospective only in a limited
sphere and not covering the
legislation affection the
appellants.
6. That the interest calculated by
the respondents is not payable and,
therefore, in any case the
respondents have no right to
recover the same.
From the judgment of the High Court, we do not find any discussion on the proposition No.6. We, therefore, presume no such plea was taken or if taken no such plea was argued before the High Court. Therefore, we do not propose to deal with that proposition. Regarding proposition No.5, this was not seriously pursued by either side warranting any decision on that.
The principal argument appears to be that levy procurement did not amount to a sale and, therefore, the same was not taxable under the U.P. Sales Tax Act, 1948. To put it differently the argument was that the levy procurement is a compulsory acquisition and therefore, falls outside the purview of Entry 54 of List II of 7th Schedule to the Constitution of India. Consequently, the levy procurement 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 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 cannot resist the procurement pursuant to the levy order. In the absence of any volition on the part of the miller, no sale could be attracted to such transaction. It is also contended that there is no consensus in levy procurement. After referring to the decision of this Court in M/s New India Sugar Mills India Ltd, vs. Commissioner Oil Sales Tax Bihar (Air 1963 SC 1207) and Chitter Mal’s case (supra) the learned Senior Counsel submitted that the cases subsequent to these two decisions taking different view are all under regulatory orders and as such distinguishable and the ratio laid down therein will have no application to the procurement under Levy Orders which amounts to compulsory acquisition. According to the learned counsel, there is nothing left to be decided for the parties and everything is determined in the levy orders. Even the place of delivery of the foodgrains if fixed by the control orders. Even if there is any small matter left to the discretion of the parties, the same being unimportant, insignificant and peripheral, cannot be said to be determinative of the existence of the consensus. According to the learned Senior Counsel, it is the consensus, which is vital aspect for determining the character of the transaction. The levy orders leave no option to the seller but to sell compulsorily to the State Government or its nominee. There is no discretion left to the parties in regard to price or any other matter and, therefore no area is left out for the parties to operate unlike matters coming under regulatory orders. According to the learned Senior Counsel. Chitter Mall’s case has rightly laid down the law when it held that the levy procurement is a compulsory acquisition and not a sale. After referring to the transactions under regulatory orders and transactions under levy control orders, the learned Senior Counsel has summarised his submissions on the first proposition as follows:-
"That the transaction of levy
procurement are a class by themself
and are wholly distinguishable from
the cases where the sale and
purchase is regulated by statutory
authorities in exercise of the
power available to them under
respective legislations. Whereas in
the case of levy orders, there is
absolutely no area left for
consensual agreement in the case of
regulatory orders, only statutory
controls 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 agency of the Corporation. As
such, the process was an integrated
process and was not at all
bifurcable or divisible into one or
other transaction. Totality of the
acts clearly established that it
was not a case where there were any
sale of foodgrains. It was a case
of compulsory taking over of a
particular percentage of foodgrains
from licenced dealers and millers
on payment of an amount of
compensation which too was fixed by
the Central Government and not by
the State Government although the
same is notified by the State
Government. Not only centres at
which the foodgrains were
deliverable, were prescribed by the
State Government, the payment of
compensation was also pre-
determined by the orders
themselves. Centres for each area
were also fixed. There was,
therefore, no area where the
parties could have any volition."
Learned Senior Counsel appearing for the States in support of the common judgment under appeal and other judgments submitted that the transactions under levy orders are definitely ‘sales’ and there was no compulsory acquisition of property as contended by the learned Senior Counsel for the appellants. According to them, there is an area of consensual arrangement between the parties and the element of volition is not completely excluded under the levy orders. It is their further submission that the decision in Chitter Mal’s case stands practically overruled and, therefore, it is not more good law in view of latter decisions of larger benches of this Court. Though an argument referring to 46th Amendment of the Constitution was faintly raised, it was not pursued seriously. To support the contention, reliance was placed on the following judgments:-
M/s Vishnu Agencies (Pvt.) Ltd. vs.
Commercial Tax Officer and Others
((1978) 1 SCC 520); Salar Jung
Sugar Mills Ltd. etc. vs State of
Mysore and others (1972) 2 SCR
228); State of Punjab and Others
vs. Dewan’s Modern Breweries Ltd.
(43 STC 454); Coffee Board,
Karanataka, Bangalore vs.
Commissioner of Commercial Taxes,
Karanataka and other ((1988) 3 SCC
262): Oil and Natural Gas
Commission vs State of Bihar and
Others (1977) 1 SCR 34).
To substantiate the argument that there was an element of volition though minimal between the parties in the transactions under consideration, reliance was placed on the observations of the full Bench of the Allahabad High Court in Commissioner of Sales Tax vs. Ram Bilas Ram Gopal (AIR 1970 Allahabad 518). Though those observations did not find approval by the Bench which decided Chitter Mal’s case, the same found approval by the later larger Bench which decided Vishnu Agencies case. We shall refer to the relevant portions of the above-said 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 upto the quality prescribed. This also, according to the learned Sr. Counsel negatives the contention of the learned Sr. Counsel for the appellants that the entire transaction was single integrated process. The learned Sr. Counsel submitted that the Lucknow Bench of the Allahabad High Court was fully justified in holding that the transactions are exigible to tax under the State Sales Tax Act and also in holding that the judgment of this Court in Chitter Mal’s case stands practically overruled.
We will first deal with this principal point as the other points depend upon the answer to this principal point.
We prefer to take up the decision in Chitter Mal’s case of consideration. As pointed out already in Chitter Mal’s case, the issue was whether the supplies made to the Regional Food Controller under the U.P Wheat Procurement (Levy) Order, 1959 are sales within the meaning of ‘sale’ under Section 2(h) of the U.P. Sales Tax Act and. if so, are the assessees liable to pay sales tax on the price for wheat supplied to the Regional Food Controller" We must at once, point out that the Food Corporation of India was not a party in that case. The assessee in that case was a dealer in foodgrains who supplied wheat to the Regional Food Controller, a nominee of the U.P. Government for procuring wheat under the Levy Order. The learned Judges, it is apparent from the judgment, were very much influenced by the view expressed in New India Sugar Mills case (supra) in arriving at a decision that those supplies were not sales and, consequently, not exigible to tax. It is pertinent to point out that in the Chitter Mal’s case itself, the learned Judges have noticed that certain amount of volition was left between the parties. However, it was felt that that volition was not sufficient to make the transaction contractual. While referring to a full bench judgment of the Allahabad High Court in Commissioner of Sales Tax vs. Ram Bilas Ram Gopal (AIR 1970 Allahabad 518), this Court in Chitter Mal’s case has observed in paras 8 and 9 as follows:-
"8. The High Court relied upon the
following observations in Ram Bilas
Ram Gopal’s case, 1969 All 1.1.424:
1970 All. 518:
"Analysing Clause 3 of the Levy
Order it is clear that a licensed
dealer is obliged to sell to the
State Government fifty per cent, of
he wheat held in stock by him at
the commencement of the Order, and
thereafter fifty per cent, of the
wheat daily procured or purchased
by him beginning with the date of
commencement of the Order until
such time 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 of 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 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 obligations imposed
on the dealer and the State
Government. All other details of
the transaction are left open to
negotiation. It leaves it open to
the parties to negotite in respect
of the time and mode of payment of
the price, the time and mode of
delivery of wheat, and other
conditions of the contract."
Clause 3 of the Order compels the
licensed dealer to deliver to the
controller or his authorised agent
every day 50 per cent, of the wheat
procured or purchased by him. There
is no scope for negotiations there.
Assuming that the Controller may
designate the place of delivery and
the place of payment of price at
the controlled rate, and the
licensed dealer acquiesces therein,
or even when in respect of those
two matters there is some
consensual arrangement, in our
judgment, supply of wheat pursuant
to Clause 3 of the Order and
acceptance thereof do not result in
a contract of sale. The High Court
observed that:
"......whatever compulsive or
coercive force is used to bring
about a transaction under Clause 3
of the Levy Order, it must be
traced to legislation. It cannot be
attributed to the State Government
as a party to the transaction.
This, then, is clear. There is
nothing in the Levy Order which can
be accused of vitiating the free
consent of the parties as defined
under Section 14 of the Indian
Contract Act, when entering into
the contract of sale."
But these observations assume a
contract of sale which the Order
does not contemplate. If there be a
contract, the restrictions imposed
by statute may not vitiate the
consent. But the contract cannot be
assumed.
9. We may refer to certain
decisions of this Court on which
reliance was placed at the Bar. In
M/s New India Sugar Mill’s case,
1963 SC 1207 under the Sugar and
Sugar products Control Order. 1946,
a scheme was devised for equitable
distribution of sugar. The
consuming States intimated to the
Sugar Controller of India their
requirements of sugar and the
factory owners sent statements of
stocks of sugar held by them. The
Controller made allotments to
various States in question in
accordance with the despatch
instructions from the State in
question in accordance with the
despatch instructions from the
State Governments. Under the
allotment orders, M/s New India
Sugar Mills Ltd. in Bihar,
despatched stocks of sugar to the
State of Madras. The State of Bihar
treated the transaction as a sale
and levied tax thereon under the
Bihar Sales Tax Act, 1947. The tax-
payer 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
the despatches 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 tax-payer
to the State of Madras, and no
acceptance by the latter; the tax
payer 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."
The abvoe judgment came up for consideration inter alia in Vishnu Agencies case. That decision was given by a bench of seven learned Judges. The learned Judges in the first place did not approve the ratio laid down in New India Sugar Mill case and further did not approve the view taken in the Chitter Mal’s case disagreeing with the observations of Allahabad full bench case. The learned Judges observed as follows :-
"We would, however, like to clarify
that though compulsory acquisition
of property would exclude the
element of mutual assent which is
vital to a sale, the learned Judges
were, with respect, not right in
holding in Chitter Mal that even if
in respect of the place of delivery
and the place of payment of price,
there could be a consensual
arrangement, the transaction will
not amount to a sale (p.677) (SCC
p.314). The true position in law is
as stated above, namely, that so
long as mutual assent, express or
implied, is not totally excluded
the transaction will amount to a
sale. The ultimate decision in
Chitter Mal 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. Viewed from this
angle, we cannot endorse the
Court’s criticism of the Full Bench
decision of Allahabad High Court in
Commissioner. Sales Tax, U.P. vs.
Ram Bilas Ram Gopal which held
while construing Clauses 3 that so
long as there was freedom to
bargain in some areas the
transaction could amount to a sale
though effected under compulsion of
a statute. Looking at the scheme of
the U.P. Wheat Procurement Order,
particularly Clause 3 thereof, this
Court in Chitter Mal seems to ave
concluded that the transaction was
in truth and substance, in the
nature of compulsory acquisition,
in the nature of compulsory
acquisition, with no real freedom
to bargain in any area. Shah, J.
expressed the Court’s
interpretation of clause 3 in no
uncertain terms by saying that "it
did not envisage any consensual
arrangement".
We may also usefully extract a passage from the separate but concurring judgment of Beg C.J. as he then was. The same reads ad 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 vs.
Commissioner of Sales Tax, Bihar.
That was a case of 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, Sales Tax, U.P. vs.
Ram Bilas Ram Gopal the Order under
consideration was actually called a
levy order, but the case was
distinguishable from New India
Sugar Mills vs. Commissioner of
Sales Tax, Bihar (supra) on facts.
It was held in the case of Ram
Bilas (supra) that the core of what
is required for a "sale" was not
destroyed by the so-called "levy"
order which was legislative. It is
true that passages from the
judgment of Pathak, J. in the case
of Ram Bilas Ram Gopal (supra) were
cited and specifically disapproved
by a bench of this Court in Chitter
Mal Narain Das vs. Commissioner of
Sales Tax. But, perhaps the view of
this Court in Chitter Mal Narain
Das (Supra) goes too far in this
respect. It is not really the
nomenclature of the order involved,
but the substance of the
transaction under consideration
which matters in such cases."
In Dewan’s Breweries case (supra), the question for consideration was whether the supplies of Indian made foreign liquor by distilleries and brewery company from its wholesale depots to permit holders on the permit issued by the Excise and Taxation Officer are sales and liable to sale tax under the Punjab General Sales Tax Act, 1948. The contention was that there was no sale at all as the prices were fixed by the competent authorities and dealers had to charge the fixed price from its retailers holding licences and there was no volition in the distribution of liquor which was received from the manufacturing concern at Jammu. This contention was negatived by the Court. In the course of the argument, attention of the learned Judges was invited to Chitter Mal’s case. In that connection, the learned Judges observed as follows:-
"This case, in our opinion, is
squarely covered by a recent
decision of this Court delivered by
a Bench of seven Judges in Vishnu
Agencies (Pvt. Ltd.) vs. Commercial
Tax Officer. The High Court in the
case of Jagatjit Distilling and
Allied Industries Ltd. had mainly
relied upon the decision of this
Court to hold that the transactions
in that case were not sales. The
said decisions are New India Sugar
Mills Ltd. vs. Commissioner of
Sales Tax, Bihar and Chittar Mal
Narain Das vs. Commissioner of
Sales Tax, U.P. In the case of
Vishnu Agencies, 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 was also
considered in paragraphs 44-45 at
pages 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 Allahabad High Court in
Commissioner of Sales Tax, U.P. vs.
Ram Bilas Ram Gopal, "which held
while construing clause 3 that so
long as there was freedom to
bargain in some areas the
transaction could amount to a sale
though effected under compulsion of
a statute’ was not endorsed. It is,
therefore, plain that to that
extent Chitter Mal’s case is no
longer good law." (Emphasis
supplied)
In Coffee Board, Karnataka, Bangalore, vs. Commissioner of Commercial Taxes, Karnataka and others (1983 (3) SCC 263), this Court had occasion to consider more or less an identical issue. In that case also arguments identical to the one advanced before us on behalf of the appellants, were advanced. This Court repelled such arguments. As this case dealt with an issue more or less similar to the one on hand, we propose to extract liberally form this judgment. The question involved in that case was as to the exigibility of tax on sale, if there be any, by the growers of coffee to the Board. The principal features of the legislation connected therewith as noticed in that judgment were :-
"(a) Compulsory registration of all
lands plated with coffee (Section
14 of the Coffee Act). (b)
Mandatory delivery of all coffee
grown in the registered estates
except the quantities permitted by
the Board to be retained for
domestic consumption and for seed
purposes, (see section 25 (1) of
the Coffee Act). Estates situated
in remote areas specified in the
notification issued by the Central
Government under the proviso to
Section 25(1) of the Coffee Act are
exempt from this provision, (c)
Seizure by the Board of Coffee
wrongly withheld from the pool.
Prosecution for failure to deliver
and confiscation of quantity not
delivered.
(d) Delivery to be effected at such
times and at such places as
designated by the Board (section
25(2) : the extinguishment on
delivery of all rights of the
growers in respect of the coffee
delivered to the Board excepting
the right to receive payment under
Section 34 of the Act (section
25(6)). (e) Sale of coffee in the
pool by the Board in the domestic
market and for export through
auctions and other channels in
regulated quantities and at
convenient intervals (section
26(1). (f) Payment to growers in
such amounts and at such times as
decided by the Board (section 34).
The payment o be made on the basis
of the value as determined by the
price differential scale (section
24(4)), and 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 coffees
at variance with the provisions of
the Act were declared as void by
Section 47 of the Act."
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 vs. Bhavani Tea
Produce Co. (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
connection with section 25 of the
Act. The Court, however, did not
hold that there was a taxable
‘sale’ by the grower to the Board
in the year in question. The sale,
according to this Court in that
case took place in earlier years in
which the Agricultural Income Tax
Act did not operate. All the States
in which coffee is grown and all
the persons concerned with the
coffee industry, it is asserted on
behalf of the Additional Solicitor
General, understood this decision
as laying down that the ‘sale by
operation of law’ mentioned therein
only meant the ‘compulsory
acquisition’ of the coffee by the
‘Coffee Board. (Emphasis supplied)
19. We are, however, bound by the
clear ratio of this decision. The
Court considered this question:
‘was there a sale to the Coffee
Board?" at page 99 of the Report
and after discussing clearly said
the answer must be in the
affirmative. It was rightly argued,
in our opinion, by Dr. Chitale on
behalf of the respondents that the
question whether there was sale or
not or whether the Coffee Board was
a trustee or an agent could not
have been determined by this Court,
as it was done in this case unless
the question was specifically
raised and determined. We cannot
also by-pass this decision by the
argument of the learned Additional
Solicitor General that Section 10
of the Act had not been considered
or how it was understood by some.
This decision in our opinion
concludes all the issues in the
instant appeal."
While referring to the Vishnu Agencies case (supra), the following was observed in that case :-
"26. All parties drew our attention
to the decision in the case of
Vishnu Agencies Pvt. Ltd. There the
Court was concerned with the Cement
Control Order and the transactions
taking place under the provisions
of that control order. The Cement
Control order was promulgated under
the West Bengal Cement Control Act,
1948 which prohibited storage for
sale and sale by a seller and
purchase by a consumer of cement
except in accordance with the
conditions specified in accordance
with the conditions specified in
licence issued by a designated
officer. Its also provided that no
person should sell cement at a
higher price than the notified
price and no person to whom a
written order had been issued shall
refuse to sell cement "at a price
not exceeding the notified price".
any contravention of the order
became punishable with imprisonment
or fine or both. Under the A.P.
Procurement (Levy and Restrictions
on Sale) Order 1967. (Civil appeal
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 Controller. 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 transaction
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., Andhra Sugars Ltd., and Karam
Chand Thapar. In cases like New
India Sugar Mills, the substance of
the concept of a sale itself
disappeared because the transaction
called price did not amount to a
sale when all that was done was to
carry out an order so that the
transaction was substantially a
compulsory acquisition. On the
other hand, a merely regulatory
law, even if it circumscribed the
area of free choice, did not take
away the basic character or core of
sale from the transaction. Such a
law which governs a class obliges a
seller to deal only with parties
holding licenses who may buy
particular or allotted quantities
of goods at specified prices, but
an essential element of choice was
still left to the parties between
whom agreements took place. The
agreement, despite considerable
compulsive elements regulating or
restricting the area of his choice,
might still retain the basic
character of a transaction arose
from the a general order or law
applicable to a class. In the
latter type of cases, the legal tie
which binds the parties to perform
their obligations remains
contractual. The regulatory law
merely adds other obligations, such
as the one to enter into such a tie
between the parties. Although the
regulatory law high specify the
terms, such a price, the
regulations is subsidiary to the
essential character of the
transaction which is consensual and
contractual. The parties to the
contract must agree upon the same
thing the same sense. Agreement on
mutuality of consideration,
ordinarily arising form an offer
and acceptance, imports to it
enforceability in courts of law.
Mere regulation or restriction of
the field of choice does not take
away the contractual or essentially
consensual binding core or
character of the transaction.
Analysing the Act, it was observed
that according to the definition of
"sale" in the two Acts the
transactions between the appellants
in that case and the allottees or
nominees, as the case may be, were
patently sales because in one case
the property in the cement and in
the other property in the paddy and
rice was transferred for case
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 quantity
specified in the permit and from
the named dealer only and at a
controller 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 vs. Gannon Dunkerley &
Co. Ltd. and New India Sugar Mills
vs. CST, were discussed and the
correctness of the view taken in
the former case was doubted and the
majority opinion in the latter case
was overruled.
28. Since all persons including the
Coffee Board are prohibited from
purchasing/selling coffee in law,
there could be no sale or purchase
to attract the imposition of sales;
purchase tax it was urged. Even if
there was compulsion there would be
a sale as was the position in
Vishnu Agencies. This Court therein
approved the minority opinion of
Hidayatullah, J. in New India Sugar
Mills vs. CST. In the nature of the
transactions contemplated under the
Act mutual assent either express or
implied is not totally absent in
this case in the transactions under
the Act. Coffee growers have a
violation or option, though minimal
or nominal to enter into the coffee
growing trade. coffee growing was
not compulsory. If any one decides
to grow coffee or continue to grow
coffee, he must transact in terms
of the regulations imposed for the
benefit of the coffee growing
industry. Section 25 of the Act
provides the Board with the right
to reject coffee if it is not up to
the standard. Value to be paid as
contemplated by the Act is the
price of the coffee. Fixation of
price is regulation but is a matter
of dealing between the parties.
There is no time fixed for delivery
of coffee either to the board or
the curer. These indicate
consensuality which is not totally
absent in the transaction.
43. The true principle or basis in
Vishnu Agencies case applies to
this case. Offer and acceptance
need not always be in an elementary
form, nor does the law of contract
or of sale of goods require that
consent to a contract must be
express. Other and acceptance can
be spelt out from the conduct of
parties which cover not only their
acts but omissions as well. the
limitations imposed by the Control
Order on the normal right of
dealers and consumers to supply and
obtain goods, the obligations
imposed on the parties and the
penalities prescribed by the order
do not militate against the
position that eventually, the
parties must be deemed to have
competed the transaction under an
agreement by which one party binds
itself to supply the stated
quantity of goods to the other at a
price not higher than the notified
price and the other party consents
to accept the goods on the terms
and conditions mentioned in the
permit or the order of the
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
violation. 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."
In Oil and Natural Gas Commission’s case (supra), 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 the
directions and decisions of the
Government leave no choice with the
Commission in regard to supplies
This Court in Salar Jung Mills Ltd.
etc. vs. State of Mysore and Others
laid down the following
propositions : first, statutory
orders regulating the supply and
distribution of goods by and
between the parties under control
orders in a State do not absolutely
impinge on the freedom to enter
into contract. Second, directions,
decisions and orders of agencies of
the Government to control
production and supply of
commodities, may fix the parties to
whom the goods are to be supplied,
the price at which these are to be
supplied, the time during which
these are to be supplied and the
persons who have to carry out these
directions. In such cases at cannot
be said that compulsive directions
rob the transactions of the
character of agreement. The reason
is that the transfer of property
which constitutes the agreement in
spite of the compulsion of law is
neither void nor voidable. It is
not as a result of coercion. The
state supplies the consensus and
the modality of consensus is
furnished by the statutes. There is
privity of contract between the
parties.
The other third, fourth, fifth and
sixth propositions are these.
Third, such a transaction is
neither a gift nor a loan. It is a
transfer of property from one
person to another. There is
consideration for the transfer.
There is assent. The law presumes
the assent when there is transfer
of goods from one to the other.
Fourth, a sale may not require the
consensual element and that there
may, in truth, be a compulsory sale
of property with which the owner is
compelled to part for a price
against him will and the effect of
the statute in such a case is to
say that the absence of the sale is
to proceed without it, in truth,
transfer, is brought into being
which ex facie in all its essential
characteristics is a transfer of
sale. Fifth, delimiting areas for
transactions or denoting parties or
denoting price for transactions are
all within the area of individual
freedom of contract with limited
choice by reason of ensuring the
greatest good for the greatest
number of achieving proper supply
at standard or fair price to
eliminate the evils of boarding and
scarcity on the one hand and
ensuring availability on the other.
Sixth, after all the transactions
in substance represent the out-
going of the business and the price
would come into computation of
profits."
One other important aspect to be noted is that though the main judgment of this Court in Vishnu Agencies case 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 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 (supra) was not making out any serious distinction between the transactions under the Control Orders on the one hand and Levy Orders on the other.
We would also like a 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 it was open to the FCI to reject the foodgrains offered by the State Government it the FCI thought that the foodgrains did not conform to the standard of quality as required by it. The relevant averment made in para 13 of the counter affidavit was to the effect that the FCI had rejected 142 MT of wheat which was offered by the State Government. This shows that the FCI had reserved the right to accept or reject the offer of the State. This also negatives the contention of the learned counsel appearing for the appellants that the transaction in question is one single integrated process and there is no break in it.
On facts and in the light of observations of Full Bench of the Allahabad High Court (supra) we are satisfied that some area of consensual arrangement and some field for volition is left untouched by the Legislation in all disputed transactions. The disputed transactions are sales, may be, under the compulsion of a statue. Nevertheless, they are sales exigible to tax. Whatever coersive force is used to bring about the transactions, the same must be traced to legislation and not to the State Government as a party to such transactions.
We, therefore, answer the principal common point holding that the levy procurement is a sale/purchase and therefore, falls within the purview of Entry 54. List II of Seventh Schedule to the Constitution. The States were competent to levy sales/purchase tax on such transactions. In the light of the rulings of this Court referred to above in detail, we are unable to agree with the submission of the learned Senior Counsel for the appellants that there was no area left for consensual agreement in the parties to the procurement transactions. The view taken by the Full Bench of the Allahabad High Court in Ram Bilas Ram Gopal case is the correct view, and the High Court of Allahabad (Lucknow Bench) was right in applying the same in the judgment under appeal. We also hold that the view of the Punjab and Haryana High Court challenged before us in some of these cases taking a different view does not lay down the correct law. To put the matter beyond controversy, we hold, with respect, that the decision in Chitter Mal’s case is no longer good law in the light of later larger Bench decisions of this Court referred to above.
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 questions are all sale and exigible to tax under the State Sales Tax Act. The contention that the Explanation newly added was ultra vires Entry 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, therefore, do not find any substance in the proposition No.2 advanced by the learned Senior counsel for the appellants.
Regarding the third proposition concerning retrospective effect and consequently, compelling the appellants to pay tax twice on the same transaction, the learned counsel appearing for the State has filed a written note explaining the position in the following manner:-
"2. From 15.11.1971 to 18.5.1973,
on the one hand State Government
and its agencies were liable to pay
tax on their purchase and on the
other hand Food Corporation of
India was also liable to pay tax on
his purchase as tax on Foodgrains,
was at all points of purchases.
Therefore, Explanation-II of
Section 3D(i) of U.P. Sales Tax Act
which deals only with first
purchase, does not affect this
period.
From 2.9.1976 to 30.4.1977 tax on
foodgrains was at the point of sale
to consumer. The Explanation II of
Section 3D(i) of U.P. Sales Tax
Act, which deals only with first
purchase does not affect this
period. However, if any tax has
been levied upon Food Corporation
of India for this period, it is on
account of their failure to supply
the requisite forms etc., whereupon
the liability, under the law,
devolves on them. There is no
challenge specifically to any such
assessment.
3. For the period commencing from
1968-69 and afterwards (excluding
the period 15.11.71 to 18.5.73 and
2.9.76 to 30.4.77) provision of
Explanation-II of section 3D(i) is
applicable because this
Explanation-II in section 3D(i) has
been inserted with complete
retrospective effect by the U.P.
Sales Tax (Amendment and
validation) Act, 1976 (U.P. Act
No.23 of 1976) published on
20.5.76. Therefore, Food
Corporation of India had been taxed
rightly because under the provision
of Explanation-II of section 3D(i),
the tax is collected only at one
point viz. from the Food
Corporation of India. Credit is
however given where Food
Corporation of India furnishes
proof that it has already paid the
tax to Food Department (RFCs) and
its agencies and they (Food
department and its agencies) have
deposited that tax. By this
procedure assessing authority has
given credit of the following
sums:- ________________________________________
Year Amount of Tax
1969-70 Rs. 931249.92
1971-72 Rs. 2132428.63
1972-73 Rs. 8059065.00 ----------------------------------
Total Rs. 11122743.55 ________________________________________
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 15.11.71 to 18.5.73
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."
In view of the above, the appellants can work out remedy before the concerned authorities in accordance with law. There is nothing to be decided by this Court.
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 classification on the basis of gross turnover was held by this Court in the earlier case as reasonable one vide M/s Hoechst Pharmaceuticals Ltd. vs. State of Bihar (AIR 1983 SC 1019).
We do not think that we should spend more time on this as the High Court had dealt with fairly elaborately on this issue and we see no reason to differ from the view taken by the High Court. Accordingly, the fourth proposition also is answered against the appellant. We have already dealt with the fifth and sixth propositions.
There is a group of special leave petitions preferred by millers. They challenged before the High Court the demand of market fee under the U.P. Krishi Utpadan Mandi Adhiniyam. 1964 on rice. The basis of their challenge was that there was no safe to demand the market fee when the rice was procured under the levy orders. According to the appellants in these matters there was compulsory acquisition of stocks under the levy orders and therefore, there was no safe. In the earlier paragraphs, we have dealt with and have arrived at a finding that the disputed transactions are sales. The same view was taken by the High Court and consequently, the writ petitions filed by the millers were dismissed. We affirm the view of the High Court.
The Food Corporation of India have distributed fertilizers to the State Governments/their nominees under Fertilizer (Control) Order. The levy of sales tax on such distribution of fertilizers was challenged by the food Corporation of India. The High Courts of Andhra Pradesh and Kerala upheld the levy and aggrieved by that, the Food Corporation of India have filed civil appeals. The argument advanced before the High Court on behalf of the FCI was discharging a statutory obligation vested in it under the Control Order and there is no element of volition or consensus of agreement in those transactions. This was negatived by the High Courts holding that there is no provision in the Control Order excluding the exercise of violation of the freedom of contract totally. Only the price of fertilizers was controlled, quoted standard has been prescribed for mixture of fertilizers and persons carrying on the business of selling fertilizers are required to obtain licences. It was also noticed by the High Court that there was no statutory compulsion in the matter of 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.
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. Wee 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 sale tax.
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 filed by the State of Punjab, namely, whether the gunny bags used in the course of the disputed transactions as a packing material are liable to be included in the taxable turnover or not? The Punjab and Haryana High Court held that the gunny bag in these transactions are not exigible to tax as the contents, namely, rice/paddy are not liable to tax as there was no sale at all. An additional ground given by the High Court was that there was nothing to show whether there was any agreement between the parties for the sale of gunny bags. Now that we have held that the disputed transactions are exigible to tax, one reason given by the High Court as mentioned above, cannot be supported. Further, the facts are not clear regarding the agreement. In the circumstances, we consider that the matter has to be left open to be decided by the Assessing Officer while finalising the assessment in the light of the judgment.
In the result all the civil appeals except Civil Appeal Nos. 890, 892, 893 and 1995 of 1978 filed by the State of Punjab and Haryana are dismissed. The appeals filed by the States of Punjab and Haryana are allowed as indicated above. There will be no order as to costs.
The issue as to who has to pay the market fee has been argued and answered by the High Court but was not argued before us. Hence, it was not decided. Therefore, the civil appeals arising out of S.L.P.(C)Nos. 8772-74/87, 6775/91, 747/91, 7478/91, 8541/91, 15719/94 and 13131/91 preferred by the Rice Miller will be posted for further arguments on this issue in Court.