(1) In these eight petitions under Article 226 of the Constitution, the validity of the levy of tax on purchase of sugarcane, has been challenged by two Sugar Factories
(2) In W. Ps. 2208 of 1967 and 32 to 34 of 1968, the petitioner is Indian Sugar and Refineries Ltd, having its Factory at Hospet in Bellary District, and the impugned tax and penalty relate to the period 1-4-1962 to 30-6-1967. In W. Ps. Nos. 2225 of 1967 and 29 to 31 of 1968, the petitioner is Salarjung Sugar Mills Ltd, having its Factory at Munirabad in Raichur District, and the impugned tax and penalty relate to the period 1-7-1963 to 30-6-1967.
(3) We may briefly refer to the historical background of the levy of purchase tax on sugarcane. Practically all the States in which sugarcane was grown for the purpose of manufacturing sugar, used to levy a cess on sugarcane brought into the premises of Sugar Factories. The proceeds of such levy were utilised for the purpose of development and improvement of cultivation of sugarcane and for development of the sugarcane growing areas
(4) In the former State of Madras sugarcane cess was levied under Section 14 of the Madras Sugar Factories Control Act, 1949 (hereinafter referred to as the Madras Act). Under Section 53 of the Andhra State Act, 1953, the Madras Act continued to be in force in the part of Bellary District which came over to Mysore State on the formation of Andhra State, Indian Sugar and Refineries Ltd., situate in Bellary District continued to be governed by the Madras Act after 1-10-1953.
(5) In the former State of Hyderabad, sugarcane cess was levied under the Hyderabad Sugarcane Cess Act, 1953 (hereinafter referred to as the Hyderabad Act). Under Section 119 of the States Reorganisation Act, the Hyderabad Act continued to be in force in the Hyderabad area of the new State of Mysore even after 1-11-1956. Salarjung Sugar Mills Ltd, situate in the Hyderabad area, continued to be governed by the Hyderabad Act.
(6) The New State of Mysore enacted the Mysore Sugarcane Cess Act, 1958. which provides for levy of sugarcane cess in the entire State. This Act repealed the Hyderabad Act and those provisions of the Madras Act which related to sugarcane cess.
(7) In Diamond Sugar Mills Ltd. v. State of U. P., : 3SCR242 the majority of the Bench of the Supreme Court held that the proper meaning to be attached to the term 'local area' in Entry 52 of List II of Schedule VII to the Constitution, is an area administered by a local body like a Municipality, a District Board, a Panchayat or the like, that Section 3 of the U. P. Sugarcane Cess Act, 1956, empowering the Governor to impose a cess on entry of sugarcane into the premises of a Factory, did not fall within Entry 52 of the State List, and that as there is no Entry in either State List or Concurrent List in which the said Act could fall, it was beyond the Legislative competence of the State Legislature.
(8) This decision of the Supreme Court was rendered on 13-12-1960. The levy of cess under State Legislative enactments, having been declared void, the State Governments could, not only, not levy and collect the cess, but had to refund the cess already collected. To save such a situation, Parliament passed the Sugarcane Cess (Validation) Act, 1961, validating the imposition and collection of cess on sugarcane under several State enactments before the commencement of this Act. This Act received the assent of the President and came into force on 11-9-1961. But this Act did not enable the State to levy sugarcane cess after 11-9-1961 though arrears of cess levied before that day, could be collected.
(9) In place of sugarcane cess, the Mysore State Legislature sought to impose tax on purchase of sugarcane by Sugar Factories. By Act No. II of 1961 which came into force on 1-10-1961, sugarcane was included at Serial No. 11-A in the Third Schedule to the Mysore Sales Tax Act, 1957. This Schedule comprises of goods in respect of which a Single point Purchase Tax only is leviable under Section 5(3)(b) of this Act. The point of levy of tax is purchase by the last dealer in the State liable to tax under this Act. The rate of tax is 15 per cent of the taxable turnover of purchase of such dealer relating to such goods in each year. Since a Sugar Factory which purchases sugarcane converts it into sugar, it will be the last dealer in the State purchasing sugarcane, and hence it becomes liable to pay the tax under the Mysore Sales Tax Act, 1957 on its turnover of purchase of sugarcane.
(10) The main ground on which the petitioners have assailed the levy of tax on their purchase of sugarcane, is that the transaction of supply of sugarcane to them (on which the tax is sought to be levied) is not a sale or purchase, and hence the said transaction is not exigible to purchase tax.
(11) The legislative competence for levy of tax on sale of purchase, is derived from Entry 54 in List II of Schedule VII to the Constitution. That entry reads:
54. Tax on sale or purchase of goods other than newspapers.
(12) In Madras State v. Gannon Dunkerley & Co. Ltd., : 1SCR379 the expression 'sale of goods', occurring in Entry 48 in List II of Schedule VII to the Government of India Act, 1935, came up for interpretation. Venkatarama Iyer, J., who spoke for the Court, said that 'sale in Entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act, 1930.
(13) In Bhopal Sugar Industries Ltd. v.D. P. Dube, : 1SCR481 , the Supreme Court observed that in a transaction of sale of goods which is liable to tax, there must be concurrence of the four elements, namely.
i) parties competent to contract;
ii) mutual assent;
iii) a thing the absolute or general property in which is transferred from the seller to the buyer; and
iv) the price in money paid or promised; and that a transaction which does not conform to this traditional concept of sale, cannot be regarded as one in respect of which the State Legislature is competent to enact an Act imposing liability for payment of tax. The Supreme Court also pointed out that the scheme of division of legislative power under the Constitution, has remained unaltered and that the principle in Gannon Dunkerley's case. : 1SCR379 applies in adjudging the validity of the provisions of State Legislative enactments seeking to levy tax on sale or purchase of goods.
(14) Mr. Vasantha Pai, learned counsel for the petitioners, urged that on account of numerous and drastic restrictions imposed on supply of sugarcane by the growers thereof to the Sugar Factories, and control of the price of sugarcane by several regulating and controlling statutory provisions, the element of mutual assent or agreement between the parties is absent in the transaction of supply of sugarcane by the growers to the petitioners' factories, and that that transaction does not amount to a sale or purchase so as to attract levy of purchase tax.
(15) In order to appreciate this contention, it is necessary to set out the laws imposing restrictions on transactions in sugarcane.
(16) Section 9 of the Madras Act provides that the sugarcane Commissioner appointed under the Act, may by notification declare any area to be a 'reserved area' for a Sugar Factory for any crushing season. Sub-section (1) of Section 10 of the Act provides that before each planting season any sugarcane grower in a reserved area, may offer to sell such quantity as he may specify of sugarcane which may be grown by him in the crushing season, to the management of such factory shall enter into an agreement with the sugarcane grower for the purchase of all the sugarcane offered by him in accordance with sub-section (1), unless the management has already entered into agreement with other sugarcane growers in the reserved area for the purchase of a quantity of sugarcane equal to the maximum consumption of the factory during such period.
Section 11 prohibits sale of sugarcane grown in any reserved area to any person other than the management of the Sugar Factory specified for that area, except in certain circumstances. This section also prohibits export of sugarcane out of the reserved area or import of sugarcane into the reserved area, except under permission from the authorities.
(17) Section 12 empowers the Government to fix after consultation with the Advisory Committee constituted under the Act, the price which the management of a Sugar Factory shall be bound to pay for any sugarcane purchased by it during the season.
(18) On 1-4-1955, Parliament enacted the Essential Commodities Act, 1955 (Act 10 of 195) to provide in the interest of the general public, for the control of production, supply and distribution of, and trade and commerce in, certain commodities, 'Essential Commodity' there is defined to mean any of the following classes of the commodities:
i)... ... ... ... ...
(v) any other class of commodity which the Central Government may, by notified order, declare to be an essential commodity for the purpose of this Act, being a commodity with respect to which Parliament has power to make laws by virtue of Entry 3 in List III in the Seventh schedule to the Constitution.
(19) Food crops are defined in the Act as inclusive of sugarcane. Section 3(1) empowers the Central Government, if it is of opinion that it is necessary or expedient to do so for maintaining or increasing supply of any essential commodity or for securing its equitable distribution and availability at fair prices, to provide, by order, for regulating or prohibiting the production, supply and distribution thereof, and trade and commerce therein. Section 16 of the Act purports to repeal, inter alia, any law in force in any State before the commencement of this Act in so far as such law controlled or authorised the control o the production, supply and distribution of, and trade and commerce in, any essential commodity.
(20) In exercise of the powers conferred by Section 3 of the Essential Commodities Act, 1955, the Central Government promulgated on 27-8-1955 the Sugar (Control) Order, 1955, and the Sugarcane (Control) Order, 1955. Clause 3 of the latter order empowered the Central Government after consultation with such authorities, bodies or associations, as it may deem fit, by notification in the official gazette from time to time, to fix the price of sugarcane and direct payment thereof and also to regulate movement of sugarcane. By notification dated 1-11-1962, Clause 3-A was inserted providing for payment of additional price for sugarcane where a grower has been paid for sugarcane the minimum price fixed under sub-clause (1) of Section 3. Such additional price had to be determined according to a formula set out in the Schedule to Clause 3-A.
(21) Clause 5 empowered the Central Government by notification in the official Gazette, to delegate its powers to the State Government or any officer or authority of the State Government.
(22) In exercise of the powers conferred by Rule 125-B of the Defence of India Rules, 1962, read with Order No. G. S. R. 1619 dated 7-10-1963, issued by the Government of India, the Governor of Mysore promulgated on 14-11-1963 the Mysore Sugarcane (Regulation of Supply) Order, 1963. Clause 3 of this Order provided that in respect of Factories specified in the First Schedule to this order, areas specified against each such Factory, should be a reserved area for supplying sugarcane to such Factory, Clause 4 provided that all sugarcane growers in a reserved area should supply to the Factory concerned 95 per cent of sugarcane grown by such grower, Clause 5 provided that every Factory to which supply of sugarcane should be made under clause 4, should enter into an agreement to purchase the quantity of sugarcane determined under the said clause, with each sugarcane grower, or each co-operative Society of sugarcane growers, as the case may be, required to make such supply.
(23) Clause 7, inter alia, prohibited any person from purchasing in a reserved area, sugarcane for crushing by a power-crusher except under the authority of, and in accordance with the conditions of, a permit issued by the Deputy Commissioner in this behalf. Clause 8 prohibited export of sugarcane from a reserved area except under the authority of, and in accordance with, the conditions of a permit issued by the Deputy Commissioner.
(24) In exercise of the powers conferred by clause 4 of the Sugarcane (Control) Order, 1955, the Government of Mysore promulgated on 15-1-1965 the Mysore Sugarcane (Regulation of Supply) (Munirabad) Order, 1965. This Order, inter alia, specified the areas reserved for supply of sugarcane to Salarjung Sugar Mills at Munirabad and provided that 95 per cent of sugarcane grown by growers in the reserved area should be supplied to the said Factory and that every sugarcane grower should enter into an agreement with that Factory for supply of sugarcane. The growers were prohibited for exporting sugarcane from the reserved area except under a permit issued by the Deputy Commissioner. This Order repealed the Mysore Sugarcane (Regulation of Supply) Order 1963, in so far as it related to matters provided for in this order.
(25) A similar Order was issued by the Government in the year 1965 regulating supply of sugarcane to the Factory of Indian Sugar & Refineries Ltd., at Hospet.
(26) In exercise of the powers conferred by Sec.3 of the Essential Commodities Act 1955, the Central Government promulgated on 16-7-1966 the Sugarcane (Control) Order 1966. The provisions in this order relating to minimum price, additional price, and power to prohibit or restrict export and to prohibit manufacture of gur (jaggery), are very similar to those in the earlier Order of 1955. Clause 6 empowers the Central Government to reserve any area where sugarcane is grown, for a factory, to fix the quantity or percentage of sugarcane grown by any grower in reserved area which shall be supplied by him to the Factory, and to direct a sugarcane grower and the respective Factory to enter into an agreement for supply and purchase of the quantity of sugarcane so fixed.
(27) Under Clauses 6 to 9 of the sugarcane (Control) Order, 1966, the Mysore Government issued Regulation and Distribution Orders in respect of different Sugar Factories in the State and these Orders are similar to the corresponding Orders issued under the Sugarcane (Control) Order, 1955.
(28) Mr.Vasantha Pai argued that movement and supply of sugarcane, could be regulated under clause 4 of the Sugarcane (Control) Order, 1955, only by an order published in the official Gazette; that regulation of supply of sugarcane in Mysore State was made for the first time by the Mysore Sugarcane (Regulation of Supply) Order 1963, promulgated by the Governor of Mysore on 14-11-1963, in exercise of the powers conferred by Rule 125-B of the Defence of India Rules, 1962, read with Order No. GSP 1619 dated 7-10-1963; and that the provisions of the Madras Act regulating supply of sugarcane, continued to operate till 14-11-1963.
(29) On the other hand, the learned Special Government Pleader argued that the provisions of the Madras Act regulating supply of sugarcane, became void and ceased to operate as soon as the Sugarcane (Control) Order, 1955, was enacted by the Parliament.
(30) As pointed out by the Supreme Court in Tika Ramji v. State of U. P. : 1SCR393 , the Essential Commodities Act, 1955, was enacted by the Parliament in exercise of the concurrent legislative power in Entry 33 of List III of the Seventh Schedule to the Constitution. The relevant part of Entry 33, as amended by the Constitution Third Amendment Act, 1954, reads:
(31) Trade and commerce in, and the production supply, and distribution of,-
(a) The products of any industry where the control of such industry by the Union is declared by the Parliament by law to be expedient in the public interest......'
(b) foodstuffs including edible oilseeds and oil:
(32) In Tika Ramji's case, : 1SCR393 the Supreme Court observed that the regulation of the production of sugarcane and controlling the price at which sugarcane may be brought and sold, would come within the scope of the Essential Commodities Act.
(33) The learned Special government Pleader argued that the provisions of the Madras Act regulating supply o sugarcane and controlling its price, would fall within one of the matters enumerated in the Concurrent List, and hence the provisions of the Essential Commodities Act, 1955, enactment by Parliament should prevail over the said provisions of the Madras Act. The learned Special government Pleader also relied on Section 16 of the Essential Commodities Act which provided that any law in force in any State immediately before the commencement of this Act in so far as such law controls or authorises the control of the production, supply and distribution of and trade and commerce in, any essential commodity was thereby repealed. The learned Special Government Pleader referred tot he following statement of law by the Supreme Court in Deepchand v. State of U. P., : AIR1959SC648 :
'Repugnancy between two statutes may be ascertained on the basis of the following three principles:
(i) Whether there is direct conflict between the two provisions;
(ii) Whether Parliament intended to lay down as exhaustive code in respect of the subject matter replacing the Act of State Legislature; and
(iii) Whether the law made by Parliament and the law made by the State Legislature occupy the same field.'
The learned Special Government Pleader argued that in enacting the Essential Commodities Act, 1955. parliament enacted an exhaustive code in respect of regulation of production and distribution of, and trade and commerce in, essential commodities of which sugarcane is one, that this law made by Parliament occupied the same field which had been occupied by the said provisions of the Madras Act regulating supply and price of sugarcane, and hence the said provisions of the Madras Act, being repugnant to those of the Essential Commodities Act, became void on the latter Act coming into force.
(34) Mr. Vasantha Pai invited our attention to the decision of the Supreme Court in Tika Ramji's case. : 1SCR393 holding as void Section 16(1)(b) of the Essential commodities Act, which purports to repeal any other law in force in any State controlling production, supply and distribution of and trade and commerce in any essential commodity.
Mr. Vasantha Pai also referred to the following observations of the Supreme Court in Tika Ramji's case. : 1SCR393 ;
'Even assuming that sugarcane was an Article or class or Articles relatable to the sugar industry within the meaning of Section 18-G of Act 65 of 1951, it is to be noted that no order was issued by the Central Government in exercise of the powers vested in it under that section and no question of repugnancy could ever arise because, as has been noted above, repugnancy must exist in fact and not depend merely on a possibility. The possibility of an order under section 18-G being issued by the Central Government would not be enough. The existence of such an order would be the essential prerequisite before any repugnancy could ever arise.'
35. On the basis of the above observations of the Supreme Court Mr. Vasantha Pai urged that till Order regulating supply of sugarcane was made on 14-11-1963 under Rule 125-B of the Defence of India Rules, there was merely a possibility of repugnancy and not actual repugnancy as a matter of fact, between the provisions of the Essential Commodities Act and the said provisions of the Madras Act, and hence those provisions of the Madras Act continued to operate till 14-11-1963.
36. As shall be seen presently, for the purpose of these petitions, we think it is not necessary to decide whether the said provisions of the Madras Act became void on 1-4-1955 or on 27-8-1955, or on 14-11-1963, or when orders regulating supply of sugarcane were made in 1965 under Clause 4 of the Sugarcane (Control) Order 1955.
37. Mr. Vasantha Pai conceded, and we think rightly that the restrictions and the control imposed by the said provisions of the Madras Act, were not so wide or drastic as to destroy the idea of volition necessary for a contract of sale, and consequently supply of sugarcane by the grower to India Sugar and Refineries Ltd. during the period when the said provisions of the Madras Act were in operation, could not be regarded as not amounting to sale.
38. But Mr. Vasantha Pai contended that both under the provisions of the Mysore Sugarcane (Regulation of Supply) Order, 1963, and under the subsequent Orders regulating supply of sugarcane made in exercise of the powers conferred by Clause 4 of the Sugarcane (Control) Order, 1955, and by Clauses 5, 7, 8 and 9 of the Sugarcane (Control) Order, 1966, the legal compulsions on both growers of sugarcane and on management of Sugar Factories, were so drastic s to eliminate totally the element of mutual assent between the parties, i.e., such growers and the Factory, and that since supply of sugarcane by the growers in a reserved area to the specified Factory, was not in pursuance of any contract between them, any transfer of title in sugarcane from the growers to the management of such Factory would not amount to a sale within the meaning of the Sale of Goods Act, 1930, and therefore would not attract levy of tax on purchase of sugarcane under the Mysore Sales Tax Act, 1957.
39. Amplifying his contention, Mr. Vasantha Pai submitted that under these Order regulating supply of sugarcane the growers in a reserved area had no choice whether to sell or not to sell sugarcane grown by them (except to the extent of only 5 per cent of the crop which is normally required for seedlings to raise the next crop) nor any choice as to the seller or sellers to whom they would sell; that they had to sell sugarcane only to the specified Factory and to no other, that likewise the management of such Factory had no choice whether to buy or not to buy sugarcane offered by growers in the respective reserved area, nor any choice as to the growers from whom it would buy, as it had to buy only from the growers in such reserved area and could not import from outside the reserved area except with the permission of the authorities. According to Mr. Vasantha Pai, both the growers and the management of the specified Factory were under a legal compulsion to enter into the transaction for sale of sugarcane.
40. It was also contended by Mr. Vasantha Pai, that though the Sugarcane (Control) Orders of 1955 and 1966 provided for fixing only the minimum price for sugarcane, in reality that price would become the only price at which transactions between growers and the specified Factory, would take place and that even as regards the price, the parties would have no scope for negotiation or mutual assent. The ground on which Mr.Vasantha Pai based this contention was briefly thus: The management of the Factory would not be interested in offering any price higher than such minimum price because it was aware that the grower was bound to sell practically his entire crop of sugarcane grown in a reserved area, only to the management of such Factory, and that the grower who was so compelled to sell, had no bargaining power to compel the management of such Factory to pay a higher price because even if the management of such Factory refused to pay the higher price demanded by him he had no option but to sell to the Factory.
41. On the other hand, the learned Special Government Pleader contended that in spite of the restrictions imposed by the two Sugarcane (Control) Orders and the Orders issued thereunder regulating supply and distribution, which left no choice to both parties to sell or not to sell, to buy or not to buy, or as to the person to whom to sell, or from whom to buy, there was still a considerable area of volition between the parties and the scope for mutual assent between the parties as to some of the material terms of the contract of sell, still existed.
According to the learned Special Government Pleader, some of those terms are the price, the mode and time of payment, and the date and time of delivery. The learned Special Government Pleader also laid stress on the circumstance that the Orders regulating supply of sugarcane required the growers and the management of the Factory, to enter into agreements for supply and purchase of sugarcane, and that agreement between the parties was not eliminated by these Order. Clause 5 of the Mysore Sugarcane (Regulation of Supply) Order, 1963 reads:
5. Agreement to purchase the determined quantity of sugarcane:--Every Factory to which the supply of sugarcane shall be made under clause 4 shall enter into agreement to purchase the quantity of sugarcane determined under the said clause, with each co-operative society of sugarcane growers, as the case may be, required to make such supply.
42. These Orders regulating supply did not prohibit the grower and the Factory to enter into an agreement at the commencement of the cultivating season for sugarcane. It is a matter of common knowledge that growers and management of Factories generally did enter into agreements at the commencement of such season. The learned Special Government Pleader produced a specimen form of such agreement between the Mysore Sugar Co. Ltd., and the growers in Mandya Area. Mr. Vasantha Pai also produced a similar specimen form got printed by India Sugar and Refineries Ltd.
43. Though a grower had not much bargaining power as to price, after he had grown sugarcane, he might at the commencement of the cultivating season, bargain for a price higher than the minimum price. Unless the management of the Factory agreed for such price, he might elect not to grow sugarcane but to grow some other crop or even to allow his land to lie fallow. The management of the Factory might agree to pay a price higher than the minimum price in order to provide sufficient inducement to growers to grow adequate quantity of sugarcane, so that the Factory might work to its full crushing capacity.
44. It was contended by Mr. Vasantha Pai that the growers who had their lands in a reserved area, were bound to grow only sugarcane and no other crop, and could not also allow their lands to lie fallow, and hence they had no choice in the matter of growing sugarcane. Though section 3(2) of the Essential Commodities Act, 1955, empowered the Government to make an order for bringing under cultivation any waste or arable land and for growing thereon of food crops generally or of specified food crops, neither the Sugarcane (Control) Order of 1955 nor of 1966, nor the Regulation of Supply Orders made thereunder, empowered the authorities to compel growers in any reserved area to cultivate their lands, or to grow only sugarcane on their ands. The only compulsion imposed by these orders on the growers in a reserved area, was to sell 95 per cent of sugarcane grown by them, to the management of the specified sugar Factory. The growers' choice to grow sugarcane or any other crop or not to grow any crop at all, was not affected by these orders.
45. One of the factors which would induce the management of a Factory to enter into agreements with growers of sugarcane at the commencement of the cultivating season, was the need for supply of sugarcane being spread out evenly during the crushing season. The crushing season might last for 4 to 7 months. It all, or most of, the sugarcane grown in a reserved area, should be delivered to the factory, on any particular day, or in a particular week or in any particular month, much of the cane would remain uncrushed within a reasonable time and would get spoiled while the Factory had to remain idle for most part of the crushing season. To ensure a well phased supply of sugarcane, the management of the Factory would enter into agreement with growers even before they plant sugarcane. The parties would generally agree about the dates of delivery. In such agreements, the growers would bargain for a price higher than the minimum price and the Factory might have to agree to such higher price to ensure a well phased supply of sugarcane. The parties might also agree that the management of the Factory should advance to the growers part of the price either in cash or in the form of seedlings, fertilizers and the like.
46. We are unable to accept the contention of Mr. Vasantha Pai that in reality the minimum price would be the only price at which transactions would take place between the growers and the management of the Factory. We think the learned Special Government Pleader was right in contending that some of the material terms of the contract of sale, like the price (not below the minimum), the mode of payment of price, and the date of delivery of sugarcane, were still left to be determined by agreement between the growers and the management of the Factory, and that area of volition between the parties was still not inconsiderable.
47. But Mr. Vasantha Pai argued that that price is not an essential term of a contract of sale, that the essential element of a sale consists in transfer of title in goods from the seller to the buyer in pursuance of a contract and that so long as the transfer of title in sugarcane from the growers to the Factory, was not the result of an agreement, the mere fact that the price might be settled by agreement between the parties would not render the supply of sugarcane a sale within the meaning of the Sale of Goods Act. Mr. Vasantha Pai relied on the following observations of the Supreme Court in Venkata Mallayya v. T. Rama Swami & Co., : AIR1964SC818 :
'It was said that once it is found that there was a contract of sale it must necessarily be held to be for a price and that price also must ordinarily be said to have been agreed upon when the contract was made. That may be so, but it would not be correct to say that it is an invariable rule that where a contract of sale has taken place the price must necessarily have been agreed upon. In this connection we may refer to sub-sections (1) and (2) of section 9 of the Indian Sale of Goods Act, 1930 (3 of 1930) which run thus:
' (1) The price in a contract of sale may be fixed by the contract or may be left to be fixed by the contract or may be left to be fixed in manner thereby agreed or may be determined by the course of dealing between the parties.
(2) Where the price is not determined in accordance with the foregoing provisions, the buyer shall pay the seller a reasonable price. What is a reasonable price, is a question of fact dependent on the circumstances of each particular case.'
By enacting sub-section (2) the legislature has itself accepted the existence of contracts wherein price is not fixed is not an unusual phenomenon.'
48. We are unable to read the above observations as laying down that the price is not an essential element of a contract of sale. In our opinion, all that has been stated in the above observations, is that a contract of sale may come into existence even where the price is not fixed by contract between the parties. But that is not to say that price is not an essential element of a contract of sale, as is clear from the following observations of the Supreme Court in Poppatlal Shah v. State of Madras, : 1953CriLJ1105 .
'The expression 'sale of goods' is a composite expression consisting of various ingredients or elements. Thus, there are elements of bargain or contract of sale, the payment or promise of payment of price, the delivery of goods, and the actual passing of the title, and each one of them is essential to transaction of sale though the sale is not completed or concluded unless the purchaser becomes the owner of the property......'
49. Though there was a compulsion on the growers to sell to the management of the Factory and on the latter to purchase from the former, we think the title in sugarcane passed from the growers to the management of the Factory under a contract of sale between them, however narrow might have been the scope of such contract, and not be hors such contract. Neither the Sugarcane (Control) Order nor the Regulation of Supply Order nor any direction issued by the authorities would itself transfer title in sugarcane from the grower to the management of the sugar Factory.
50. We shall now advert to the decision cited by the learned counsel bearing on the question whether the regulations and control on a transaction would take it out of the ambit of sale within the meaning of the Sale of Goods Act.
51. In New India Sugar Mills Ltd. v. Commissioner of Sales Tax. : AIR1963SC1207 the validity of levy of sales tax on sugar supplied by a Sugar Factory to the Government of Madras, was challenged by that Factory. The course of dealings between the Factory and the State of Madras has been set out in the judgment of the Supreme Court thus at page 1210:
'The admitted course of dealing between the parties was that the Government of various consuming States used to intimate to the Sugar Controller of India from time to time their requirement of sugar, and similarly the factory owners used to send to the Sugar Controller of India statements of stock of sugar held by them. On a consideration of the requisitions received from the various State Governments and the statements of stock received from the various factories, the Sugar Controller used to make allotments. The allotment order was addressed by the Sugar Controller to the factory owner, directing him to supply sugar to the State Government in question in accordance with the despatch instructions received from the competent Officer of the State Government. A copy of the allotment order was simultaneously sent to the State Government concerned, on receipt of which the competent authority of the State Government sent to the Factory concerned detailed instructions about the destinations to which the sugar was to be despatched as also the quantities of sugar to be despatched to each place. In the case of the Madras Government it is admitted that it also laid down the procedure of payment, and the direction was that the draft should be sent to the State Bank and it should be drawn on Parry and Company or any other party which had been appointed as Stockist importer on behalf of the Madras Government.' There, the assesses Factory contended that sugar despatched pursuant to the directions of the Controller was not sold by it to the Government of Madras and sales tax under the Bihar Sales Tax, was therefore not exigible on sugar so despatched.
After analysing the concepts of contract of sale, and sale under section 4 of the Sale of Goods Act, 1930, the majority of the Bench (Hidayatullah J. dissenting) said thus at page 1212:
'According to section 4 of the Sale of Goods Act to constitute a sale of goods, property in goods must be transferred from the seller to the buyer under a contract of sale. A contract of sale between the parties is therefore a prerequisite to a sale. The transactions of dispatches of sugar by the assessees pursuant to the directions of the Controller were not the result of any such contract of sale. It is common ground that the province of Madras intimated its requirements of sugar to the Controller, and the Controller called upon the manufacturing units to supply the whole or part of the requirement to the province. In calling upon the manufacturing units to supply sugar, the Controller did not act as an agent of the State to purchase goods; he acted in exercise of his statutory authority. There was manifestly no offer to purchase or any offer by the manufacturer. The manufacturer was under the Control Order left no volition; he could not decline to carry out the order; if he did so he was liable to be punished for breach of the order and his goods were liable to be forfeited. The Government of the Province and the manufacturer had no opportunity to negotiate, and sugar was despatched pursuant to the direction of the Controller and not in acceptance of any offer by the Government.'
52. The next decision referred to was Indian Steel and Wire Products Ltd. v. State of Madras : 1SCR479 . There, the assessee supplied steel products to various persons in the State of Madras during the period April, 1, 1953 to September 6, 1955. The sale or purchase of iron and steel products was throughout that period controlled by the Iron and Steel (Control of Production and Distribution Order, 1941) issued under the Defence of India Act, 1939, which was administered by the Iron and Steel Controller in Calcutta. The procedure adopted was that the purchaser placed the order for materials according to the specifications given by him through the Iron and Steel Controller, the purchaser agreeing that the indent w as placed subject to the provisions of the sale price schedule regarding prices etc and the terms and conditions of business (including payment) of the registered producer (in this case, the assessee) on whom the order would be placed by the Iron and Steel Controller.
The indent was forwarded to the assessee or delivery of the material in accordance with any general or special directions of the Iron and Steel Controller. There was no evidence regarding any general or special order issued by the Controller excepting that fixing the base price. The works order issued by the assessee provided that all orders booked were subject to the assessee's terms of business and general understanding in force at the time of booking the orders and despatch of goods. It was left to the assessee to supply the goods ordered at its convenience and the buyers were willing to change by mutual agreement even the specifications of the goods to be supplied. It was open to the assessee to fix the time and mode of payment of the price of the goods supplied. The question was whether the transactions resulting in the supply of the steel products to persons in the Madras State amounted to sales and were liable to sales tax.
53. The Supreme Court rejected the contention of the assessee that the dealings in question were controlled at every stage, leaving no room for consensus. The Supreme Court stated that the Controller fixed the base price of the steel products and determined the buyers and that in other respects the parties were free to decide their own terms by consent Hegde J. who spoke for the Court said:
'It was true that in view of the order, the area within which there can be bargaining between a prospective buyer and an intending seller of steel products is greatly reduced. Both of them have to conform to the requirements of the order and to comply with the terms and conditions in the order of the Controller. Therefore they have to negotiate only in respect of matters not controlled by the Order or prescribed by the Controller......
Full freedom to contract was never there at any time. Law invariably imposed some restrictions on the freedom to contract. But due to change in political outlook and as a result of economic compulsion the freedom to contract is now being 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' ' (Underlining (here in ' ') is ours).
54. His Lordship distinguished the earlier decision of the Supreme Court in : AIR1963SC1207 and explained that on the basis of the facts of that case, the Court came to the conclusion that there was no room for mutual assent in those transactions. His Lordship added that whether in a given case there was mutual assent or not, is a matter to be decided on the facts o that case.
55. In the next decision of the Supreme Court, Andhra Sugar Ltd. v. State of Andhra Pradesh : 1SCR705 , the question that arose for determination was whether the purchases by or on behalf of the assessee Sugar Factory from cane growers in its respective factory zone were made under agreements of purchase and sale and attracted tax on purchase.
56. On examining the provisions of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, and the Rules thereunder, the Supreme Court found that a cane grower in a factory zone that a cane grower in a factory zone was free to sell or not to sell his sugarcane to the Factory: That he might consume it or may process it into jaggery and then sell the finished product: but if he offered to sell his cane, the occupier of the Factory was bound to enter into an agreement with him on the prescribed terms and conditions and to buy can pursuant to the agreement in conformity with the instructions issued by the Cane Commissioner.
57. Bachawat, J. speaking for the Court said:
'Under Act No. 45 of 1961, a cane grower makes an offer to the occupier of the factory directly and the latter accepts the offer. The parties then make and sign an agreement in writing. There is thus privity of contract between the parties. The contract is a contract of sale and purchase of cane, though the buyer is obliged to give his assent under the compulsion of a statute,'
58. Referring to the earlier decision of the Supreme Court in New India Sugar Mills Ltd, case : AIR1963SC1207 His Lordship said:
'On the special facts of that case the majority decision was that there was no offer and acceptance and no contract resulted. 'That decision should not be treated as an authority for the proposition that there can be no contract of sale under compulsion of law.' It depends on the facts of each case and the terms of the particular statute regulating the dealings whether the parties have entered into a contract of sale of goods.'
(underlining (herein ' ') is ours)
59. In Bagalkot Cement Co. Ltd. v. State of Mysore (1967) 10 LR 613 (Mys) one of the questions that arose for decision was whether in view of the Mysore Cement Rationing and Licensing Order, 1957, sale of cement to consumers would attract levy of sales tax. The said order did not compel any dealer to sell to a specified person, whether or not the dealer was willing to sell the goods to him, nor did it compel or oblige a named person to buy cement whether or not he was willing to buy the same; all that it did was to provide that if a person wished to sell cement as a dealer, he should take a licence and comply with the terms thereof, and that if a person wished to purchase cement, he must obtain an authorisation from the prescribed authority; neither of them was compelled to enter into a transaction of sale, but if they wanted to enter into a contract of sale, their contract was controlled by the provisions of the Order.
60. Narayana Pai, J, who spoke for the Court held:
'It is not a case therefore of there being no contract at all or of a compulsory sale without volition on the part of either the seller or the buyer. 'What makes the formation of the contract impossible is the total absence of consent and not regulation of such consent or specification of the manner in which, and the conditions subject to which, such consent should be given'. There is no total absence of consent in the case of sales of cement by the Corporation through its selling agent to third parties but only a regulation of the terms of the contract entered into with mutual consent of the parties thereto.
(Underlining (here into ' ') is ours).
61. From the aforesaid decisions, the principles that can be gathered are, that if the transfer of title in goods from one person to another is brought about by compulsion of a statute and there is total absence of consensus between the parties, there is no sale within the meaning of the Sale of Goods Act. But when if there is some compulsion of law which imposes restrictions of freedom of contract, so long as mutual assent between the parties is not completely excluded, a sale within the meaning of the Sale of Goods Act is still possible.
62. But Mr. Vasantha Pai argued that from the decision of the Supreme Court in : 1SCR705 it can be gathered that where there is legal compulsion both on the seller to sell only to a particular person and also legal compulsion on the buyer to buy from a particular person, the idea of volition necessary for a contract of sale, is clearly destroyed. Mr. Vasantha Pai relied on the circumstance in that case that a cane grower in a factory zone was free to sell or not to sell his sugarcane to the factory. Mr. Vasantha Pai relied also on the following passage in the judgment of the Supreme Court.
'We have here a case where one party to a contract of sale if compelled to enter into it on rigidly prescribed terms and conditions and has no freedom of bargaining. But the contract is nonetheless a contract of sale.'
63. From the mere circumstances in that case that only one of the parties was under a legal compulsion to buy, while the other party was free to sell or not to sell, it does not follow that the Supreme Court laid down that it is only where the legal compulsion is on only one of parties, there is still room for a contract of sale and that where the legal compulsion is on both parties to enter into a transaction, mutual assent must be taken to have been completely excluded from that dealing.
64. As stated earlier, in the present petitions, in spite of the compulsion on a grower in a reserved area to sell sugarcane to the respective Factory only, and in spite of a like compulsion on the Factory to buy sugarcane grown by such grower, the control and regulation orders left several material ingredients of the contract of sale to be determined by mutual agreement between the parties. Hence we must reject the contention of Mr. Vasantha Pai that the supply of sugarcane to the petitioners, was not under any contract of sale.
65. Another ground on which Mr. Vasantha Pai contended that there was no sale within the meaning of the Sale of Goods Act, was the existence of the provision in the Sugarcane (Control) Orders of 1955 and 1966, for payment of additional price over and above the minimum price fixed by the authorities.
66. Such additional price is calculated according to a formula set out in the schedules to these Orders. Some of the factors for such determination are the percentage of the cost of sugarcane to the total cost of sugar, the average ex-factory price of sugar, and the amounts realised by the sale of by-products of sugar manufacture. According to Mr. Vasantha Pai, the aggregate price of sugarcane depends, to some extent, on the activity of the management of the Factory which buys sugarcane, and if the determination of price depends upon what the buyer does after purchase, there is a quasi-partnership between the buyer and the seller and the transaction is not a sale within the meaning of the Sale of Goods Act.
67. Mr. Vasantha Pai has not pointed out any provision of law or any legal principle which forbids the price in a contract of sale, being dependent on any activity of the buyer subsequent to the delivery of goods. Section 9 of the Sale of Goods Act provides that the price in a contract of sale may be fixed by the contract or may be left to be fixed in the manner thereby agreed or may be determined by the course of dealing between the parties. Under Section 9, it is open to the parties to agree that the price may be fixed on the basis of a formula, containing some factors depending upon what the buyer does with the goods after the completion of the sale. If such a price structure was provided by the Sugarcane Control order, we do not see any reason why the transaction should on that ground not be regarded as a sale within the meaning of the Sale of Goods Act.
68. Another ground on which Mr. Vasantha Pai contended that the petitioners are not liable to pay tax under the Mysore Sales Tax Act, 1957 on purchase of sugarcane, is that they are not dealers as defined in section 2(k) of the Act. Under section 5 (3)(b) of the Mysore Sales Tax Act, 1957, the levy of the tax is on a dealer on his taxable turnover of purchases in each year relating to the goods specified in the Third Schedule to that Act. Unless a person is a dealer in such goods, he is not liable to pay tax on sale or purchase of those goods by him.
69. The relevant part of section 2(k) of the Mysore Sales Tax Act, 1957, which defines 'Dealer', reads:
(k) 'Dealer' means any person who carries on business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration, or for valuable consideration and includes-
** ** ** ** **
70. Mr. Vasantha Pai argued that the petitioners were engaged only in buying sugarcane for manufacturing and selling sugar, and not in selling sugarcane as such.
71. To come within the definition of 'dealer', we think it is sufficient if a person carries on the business of buying or selling a commodity. It is not necessary that he should both buy and sell the same commodity. If the sugar Factory buys sugarcane regularly (and not casually) for the purpose of manufacturing sugar, it can be said to carry on the business of buying sugarcane. That it does not also sell sugarcane as such, which it buys, does not detract from the fact that it is engaged in the business of buying sugarcane, and that is sufficient to bring it within the definition of 'dealer' under the Mysore Sales Tax Act 1957.
72. A contention similar to that advanced by Mr. Vasantha Pai was considered by the Supreme Court in State of Andhra Pradesh v. H. A. Bhaki & Bros., : 7SCR664 . the definition of the term 'dealer' in Section 2(3) of the Hyderabad General Sales Tax Act (which came up for interpretation before the Supreme Court), is practically the same as that in the Mysore Sales Tax Act, 1957. Repelling the contention of the assessee (that he was not a dealer), this is what the Supreme Court said at page 532:
'A person to be a dealer must be engaged in the business of buying or selling or supplying goods. The expression 'business' though extensively used is a word of indefinite import, in taxing statute it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity; mere buying for personal consumption i.e. without a profit motive will not make a person dealer within the meaning of the Act but a person who consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer. The Legislature has not made sale of the very article bought by a person a condition for treating him as a dealer; the definition merely requires that the buying of the commodity mentioned in Rule 5(2) must be in the course of business i.e. must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. The commodity may itself be converted into another saleable commodity, or it may be used as an ingredient or in aid of a manufacturing process leading to the production of such saleable commodity.'
73. The next ground on which Mr. Vasantha Pai impugned the tax on purchase of sugarcane, was that the petitioners could not collect, as tax, what they had paid or were liable to pay under the Mysore Sales Tax Act, 1957, on purchase of Sugarcane.
74. Mr. Vasantha Pai argued that under Section 18 of the Mysore Sales Tax Act read with Rule 12 of the Mysore Sales Tax Rules, a registered dealer has a right to collect from his customers, by way of tax, what he has paid or is liable to pay under that Act, and that if in any particular case he is prevented by law from so collecting from his customers, then the levy of tax on him would be illegal in that case.
75. Mr. Vasantha Pai sought to rely on Section 64-A of the Sale of Goods Act as conferring a right on the petitioners to collect from their purchasers of sugar what they (the petitioners) had paid, or were liable to pay, as tax on purchase of sugarcane. As rightly pointed out by the learned Special Government Pleader, that section applies only when any tax on sale or purchase of goods which was not in existence when a contract for sale was made, is subsequently imposed or when the rate of such tax is increased or decreased subsequent to making of such contract. That section has clearly no application to the facts of these cases.
76. Mr. Vasantha Pai complained that as the maximum selling prices of sugar had been fixed under the Sugar (Control) orders, the petitioners could not collect, by way of tax, from purchasers of Sugar what they (the petitioners) had paid as tax on purchase of sugarcane.
77. The relevant part of Section 18 of the Mysore Sales Tax Act, 1957 reads:
18. Collection of tax by registered dealers--
(1) No person who is not a registered dealer shall collect any amount by way of tax or purporting to be by way of tax under this Act, nor shall a registered dealer make any such collection except in accordance with such conditions and restrictions, if any, as may be prescribed:
78. This Section merely prohibits a person who is not a registered dealer from collecting any amount by way of tax.
79. The relevant part of Rule 12 of the Mysore Sales Tax Rules, 1957, reads:
12. Collection of taxes by dealers--
(1) A registered dealer other than a dealer who has been permitted to pay any amount by way of composition under Section 17, may collect amount by way of tax or taxes under the Act subject to the following conditions:
* * * * *
80. No doubt Rule 12 empowers a registered dealer to collect from his customers by way of tax what he has paid or is liable to pay, to the State as tax, under the Act. But the liability of a dealer to pay tax under the Mysore Sales Tax Act, is not dependent on whether he collects or is able to collect from his customers, by way of tax, what he has paid or is liable to pay under that Act.
81. In Tata Iron & Steel Co. v. Bihar State, : 1SCR1355 , the validity of retrospective levy of sales tax by amending Section 4(1) of the Bihar Sales Tax Act, 1947, was challenged on the ground that transactions had been completed before the amendment and that the sellers were unable to pass on such tax to purchasers to collect it from them. This is what the Supreme Court said in repelling that contention, at pages 462 and 463:
'From the point of view of the economist and as an economic theory, sales tax may be an indirect tax on the consumers but legally it need not be so. Under the 1947 Act the primary liability to pay the Sales Tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 1947 Act by the Amending Act, the Sellers had no authority to collect the Sales Tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales tax as such from the purchaser. That circumstance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of goods. The circumstances that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax. This is further made clear by the fact that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and sometimes by reason of competition with other registered dealers he may find it profitable to sell his goods and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. See Love v. Normal Wright (Builders(ltd., 1944-1 KB 484. If that be the true view of the Sales Tax Act then the Bihar Legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively. We do not think that there is any substance in this contention either.'
82. From the above pronouncement of the Supreme Court, it is clear that the mere circumstance that the petitioners could not collect from purchasers of sugar, what they had paid as purchase tax on Sugarcane, either by way of tax or by putting up the price of sugar, will not affect their liability to pay tax on purchase of sugarcane.
83. Lastly, it was contended by Mr. Vasantha Pai that the levy o tax on purchase of sugarcane at different rates in different States, was discriminatory and violative of Art. 14 of the Constitution. Elucidating this contention, Mr. Vasantha Pai argued that under the Sugarcane (Control) Orders, the authorities fixed minimum prices of sugarcane in different areas having regard to the content of sucrose and the quality of sugarcane, that under the Sugar (Control) Order the authorities fixed the maximum selling prices of sugar in different regions and that the levy of tax on purchase of sugarcane by different States at different rates, would operate unequally on Sugar Factories in different States. Mr. Vasantha Pai pointed out that while in Mysore State, tax on purchase of sugarcane was levied at 15 per cent of the value thereof, in many other States the rates of such tax were considerably lower. According to Mr. Vasantha Pai, Sugar Factories in Mysore States had to pay a larger slice of their margin between the selling price of sugar and cost of production thereof, and were thus subjected to hostile discrimination.
84. Mr. Vasantha Pai did not dispute that when the Constitution has conferred legislative power on the States to levy tax on sale or purchase of goods there is no obligation on these States to exercise their legislative power in a uniform manner or to levy tax at uniform rates. it was also conceded by Mr. Vasantha Pai that any disparity in the rates of tax on sale or purchase under different State enactments, would not by itself amount to violation of equality guaranteed by Art. 14 of the Constitution. But he contended that when prices of sugar and sugarcane were regulated by the Central Government or the State Government acting as the delegate of the Central Government, there was a duty cast on the State not to impose tax on purchase of sugarcane at a higher rate than in other States, and not to place on Sugar Factories in Mysore State a more onerous burden than in other States.
85. It is seen from what the petitioners have stated in their affidavits that the selling price of Sugar fixed under the Sugar (Control) Order was not uniform throughout the country, that it varied from State to State and from area to area and that cost of production of sugar in different States was taken into consideration in fixing such maximum prices. The petitioners have not placed any materials to establish that the authorities had not taken into account the varying rates of tax on purchase of sugarcane levied by different States, while computing the cost of production of sugar in different States and fixing different selling prices.
86. Even assuming for the sake of argument that the authorities under the Sugar (Control) Order did not take into account the varying rates of tax on purchase of sugarcane, in fixing the maximum selling prices of sugar, we do not see how any act or omission on the part of the Central Government or its delegates, can render a legislative enactment of the State Legislature invalid on the ground of discrimination prohibited by Art. 14. It is not the case of Mr. Vasantha Pai that the provisions of the Mysore Sales Tax Act are per se discriminatory. The Act imposes tax at uniform rate on all purchases of sugarcane in the State, and does not discriminate as between purchases of sugarcane in Mysore State.
If the provisions of the Mysore Sales Tax Act levying tax on purchase of sugarcane, are not per se discriminatory, and even if it is assumed for the sake of argument that fixation of maximum selling prices of sugar by the maximum selling prices of sugar by the authorities under the Sugar (Control) Orders, without regard to varying rates of tax on purchase of sugarcane has brought about discrimination and denial or equal protection guaranteed by Art. 14, what may be open to attack as offending. Art. 14 would be the act or omission of the authorities under the Sugar (Control) Orders and not the provisions of the Mysore Sales Tax Act or any assessment or order made thereunder.
87. As rightly pointed out by the learned Special Government Pleader, the petitioners have not asked for any relief against the authorities under the Sugar (Control) Order. The petitioners have not asked for quashing any order of the authorities under the Sugar (Control) Order. Nor have the petitioners asked for issue of any mandamus directing those authorities to do or to forbear from doing any act. What the petitioners have sought for, are a declaration that the levy of tax on purchase of sugarcane is void, and a direction that the said levy should not be collected from them and that any amount collected from them towards the said tax, should be refunded. As the provisions of the Mysore Sales Tax Act are not discriminatory and do not offend Art. 14 of the Constitution, the assessment made thereunder and the collection of amounts assessed, do not suffer from any infirmity. Therefore, the reliefs sought for by the petitioners cannot be granted.
88. All the contentions of the petitioners fail and we dismiss these petitions with costs. Each of the petitioners shall pay one set of Advocate's fee Rs. 500/-
90. Petition dismissed