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Brooke Bond India Limited Vs. State of Gujarat - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtGujarat High Court
Decided On
Case NumberSales Tax Reference No. 18 of 1983
Judge
Reported in(1991)2GLR1225
ActsCentral Sales Tax Act, 1956 - Sections 14; Gujarat Sales Tax Act, 1969 - Sections 69(1)
AppellantBrooke Bond India Limited
RespondentState of Gujarat
Appellant Advocate R.D. Pathak, Adv.
Respondent Advocate Kamal M. Mehta, Adv. for H.V. Chatrapati & Co.
Cases ReferredHindustan Aeronautics Ltd. v. State of Karnataka
Excerpt:
sales tax - assessment - section 14, of central sales tax act, 1956 and entry 8 and 23 of schedule i and section 69 (1) of gujarat sales tax act, 1969 - whether tribunal justified in holding that goods in dispute purchased by applicant not covered either under entry 8 or 23 of schedule i and agreement between applicant and farmer was agreement of sale and purchase of goods - if agreement read in its entirety and in proper context - cultivator bound not to sell goods in disputes to anyone except to assessee-company - no corresponding obligation on part of company to accept goods in whatever form it may be - object and intention of agreement is not transfer of property in favour of assessee-company - apex court decision relating to same facts prescribes that there is no standard formula by.....s.d. dave, j.1. a set of questions referred to us runs thus : '(1) whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the chicory roots, purchased by the applicant, were not covered either under entry 8 or under entry 23 of schedule i to the gujarat sales tax act, 1969 (2) whether, on the facts and in the circumstances of the case, the tribunal was correct in holding that the agreement between the applicant and the farmers was not a contract of work and labour of growing chicory roots but was an agreement of sale and purchase of chicory roots ?' 2. the gujarat sales tax tribunal, ahmedabad, has referred to this court the abovesaid two questions at the instance of the assessee, acting under section 69(1) of the gujarat sales tax act, 1969......
Judgment:

S.D. Dave, J.

1. A set of questions referred to us runs thus :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the chicory roots, purchased by the applicant, were not covered either under entry 8 or under entry 23 of Schedule I to the Gujarat Sales Tax Act, 1969

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the agreement between the applicant and the farmers was not a contract of work and labour of growing chicory roots but was an agreement of sale and purchase of chicory roots ?'

2. The Gujarat Sales Tax Tribunal, Ahmedabad, has referred to this Court the abovesaid two questions at the instance of the assessee, acting under section 69(1) of the Gujarat Sales Tax Act, 1969.

3. The assessee, M/s. Brooke Bond India Ltd., is a public limited company having its registered office situated at Calcutta and the main office in Gujarat at Ahmedabad. The assessee-company has got a factory at Jamnagar and a number of depots at various business centres in Gujarat. The assessee is registered as a dealer under the Gujarat Sales Tax Act, 1969 and under the Central Sales Tax Act, 1956, in respect of both the principal office at Ahmedabad and factory at Jamnagar and the depots situated at various business centres in Gujarat. The assessee-company has been permitted to file a consolidated periodical return before the Sales Tax Officer at Ahmedabad, and has been assessed by the Sales Tax Officer, Ahmedabad, for the periods from June 1, 1973 to June 30, 1974; July 1, 1974 to June 30, 1975 and July 1, 1975 to June 30, 1976, under both the Acts. It appears that in the course of the business, the assessee-company had entered into agreements with certain farmers in Jamnagar district for the purpose of growing and supplying the chicory roots to the company. The assessee-company turns the chicory roots into chicory powder at its factory at Jamnagar and thereafter sends the chicory powder, obtained in the abovesaid fashion to the factories of the assessee-company at Ghatkesar (Andhra Pradesh) and Coimbatore (State of Tamil Nadu) for the purpose of blending of the same with the coffee powder. Later on the blended coffee powder is being sold throughout India, including Gujarat, through the marketing organisation of the company.

4. The assessee-company had claimed that on a misapprehension that the chicory roots purchased by them in the three accounting years from the farmers were liable to tax under the Act, they had paid the purchase tax on the purchases made from the farmers. The periodical returns were submitted to the Sales Tax Officer at Ahmedabad but later on at the time when the matters were taken up for the assessment by the Sales Tax Officer, Ahmedabad, the assessee-company had claimed that the transactions were works contracts, and therefore they did not attract any tax whatsoever under the Act. The assessee-company therefore had requested that the amount of purchase tax already paid by them should be refunded. In the alternative, the assessee-company had claimed that since chicory was a tuber, it would fall within either under entry No. 8 relating to 'fresh vegetables and edible tubers' or under entry No. 23 relating to 'flower, fruit and vegetable seed; seeds of lucerne grass and sann hemp; bulbs, tubers and plants other than orchids', falling within the Schedule I to the Act, and therefore the sale or purchase thereof was totally exempt from tax. The abovesaid claim made by the assessee-company on dual grounds could not be accepted by the Sales Tax Officer and, therefore, the Sales Tax Officer had passed three separate assessment orders saying that the transactions entered into by the assessee-company with the agriculturists and farmers would not constitute the works contract. The alternative contention raised by the assessee-company, that the sales of chicory roots in the instant case would be tax-free under entry No. 8 or 23 of Schedule I to the Act of 1969 also could not be accepted and therefore the purchase tax paid by the assessee-company was ordered not to be refunded. Later on the matter was carried before the Assistant Commissioner, Sales Tax, Ahmedabad, but the abovesaid authority also by the orders dated October 11, 1979, while deciding the first appeal in respect of the assessment orders for the year 1974-75 came to the conclusion that the abovesaid contentions raised by the assessee-company could not be accepted. The same reasons were incorporated in the other orders in respect of two other appeals. Thus all the three appeals came to be dismissed by the learned Assistant Commissioner, Sales Tax. Therefore the assessee-company had carried the matter before the Sales Tax Tribunal by filing three separate appeals, which came to be decided and disposed of by the common orders dated November 3, 1981. The Tribunal had also reached the conclusion that the contentions raised by the assessee-company could not be recognised, thus the three appeals filed by the assessee-company came to be dismissed by the Tribunal, vide orders dated November 3, 1981. Thereafter three reference applications were submitted along with a common statement of the said order. The Tribunal has ordered the reference of the abovesaid two questions to this Court by the orders dated November 3, 1981. It is in these facts and circumstances, that the abovesaid two questions have been referred to us for our reply and answer.

5. Mr. R. D. Pathak, the learned counsel appears on behalf of the assessee-company, while the Revenue have been represented by the learned counsel Mr. K. M. Mehta. Mr. Pathak, the learned counsel who appears on behalf of the assessee-company, has urged that, admittedly, chicory would be an edible tuber within the meaning of the entries Nos. 8 and 23 of Schedule I of the Act, 1969, and therefore no tax could have been levied on the alleged purchase of the chicory roots. The alternative contention raised by the learned counsel Mr. Pathak is that the transaction as evidenced by the agreement between the assessee-company on one hand and the growers on the other hand cannot be said to be the transaction of sale or purchase but the transactions are in nature of the works contract, and therefore the abovesaid transactions are not liable to be taxed on the basis of sale and purchase under the Act. Thus, on the basis of the abovesaid two contentions the learned counsel Mr. Pathak has urged that we should answer the abovesaid two questions in favour of the assessee-company.

6. But Mr. Mehta, the learned counsel who appears on behalf of the Revenue, has urged that sliced, sized, dried and graded chicory roots are the subject-matter of the transaction and applying the popular parlance test it cannot be said that the chicory roots purchased by the assessee-company would fall within entry No. 8 or entry No. 23. Mr. Mehta therefore has urged that there is no substance in the contention raised by the assessee that no tax could have been levied upon the chicory roots. Replying to the second contention raised by the learned counsel Mr. Pathak, Mr. Mehta has urged that the agreements entered into between the assessee-company on the one hand and the farmers or the growers of the chicory roots on the other hand, clearly amount to sale and purchase transactions and that this position becomes clear on a bare perusal of the agreement entered into between the parties. Mr. Mehta has also urged that the agreement itself would go to show that the same cannot be described or construed as the works contract. Arguing in the same line, Mr. Mehta has urged that while the court is taking up the question of the interpretation of the entry under the taxing statute, the form of the transaction also would be a relevant and material consideration and that, looking to the form of the agreement also, it becomes clear that the transactions are of sale and purchase and not of works contract. It is on this basis that, Mr. Mehta, the learned counsel who appears on behalf of the Revenue, has urged that the questions referred to us should be decided and replied in favour of the revenue.

7. Before proceeding further to examine the rival contentions raised by the learned counsel for the assessee and the Revenue, a reference requires to be made to the relevant entries in Schedule I under the local Act, that is the Gujarat Sales Tax Act, 1969. Entry No. 8 under the abovesaid Schedule talks of 'fresh vegetables and edible tubers'. No tax whatsoever is payable on the abovesaid commodities. Entry No. 23 is in respect of 'flower, fruit, vegetable seed; seeds of lucerne grass and of sann hemp; bulbs, tubers and plants other than orchids.'

8. It is on the basis of the abovesaid two entries that the contention has been advanced on behalf of the assessee that the chicory roots purchased by the assessee-company would fall within the purview of the abovesaid two entries. It is vehemently urged by the learned counsel Mr. Pathak appearing on behalf of the assessee-company that chicory roots would be edible tubers failing within entry No. 8. It is also urged that at any rate chicory roots would fall within entry No. 23 because they are tubers as described under entry 23.

9. The same contentions were raised by the assessee-company before the Tribunal but it has not recognised the abovesaid contentions raised by the assessee. While coming to the abovesaid conclusion, the Tribunal has taken into consideration several aspect of the case. Ultimately the Tribunal has summed up the conclusion as under :

'In this connection the question arises as to whether the association of the words 'fresh vegetables' with the words 'edible tubers' in entry 8 has any bearing on the latter expression and, similarly whether in entry 23 the association of the various words occurring there before the word 'tubers' affects the meaning for the purpose of exemption from tax, of the latter expression. In the case of entry 8 the expression 'edible tubers' occurs together with the expression 'fresh vegetables'; by the principle of association, tuber which has been sliced into specified sizes and dried, should be held to have ceased to belong to this entry, since the normal and principal use of the same nature as fresh vegetables would seem to be the criterion for edible tubers to belong to the said entry 8. Similarly, the question arises as to whether in entry 23, where the preceding words clearly indicate that the commodities exempted under this entry from tax are meant for growing plants therefrom, after the chicory roots, undoubtedly tubers, have been sliced to specified lengths and dried and, therefore, have ceased to be able to germinate, they still continue to belong to this entry.'

10. The Tribunal has also further stated thus :

'From the two relevant entries, we cannot but conclude that a tuber, to be exempted from tax under the said Act, should be either an edible tuber principally or normally used in like manner as fresh vegetables or a tuber fit for the growing of a fresh plant therefrom. In the present case, viz., that of chicory roots, the principal and normal use is clearly that of being used in a powder form, after having been sliced and dried, or mixing with coffee powder, in order to enable the manufacturer to market coffee at a price cheaper than it would have otherwise been possible. Chicory roots, therefore, clearly do not fall under either of the two exempted entries when it is clear from the records of the present case that their normal and principal use is as stated above.'

11. Looking to the abovesaid observations of the Tribunal it becomes abundantly clear that the Tribunal has taken the view that the dried chicory roots which is the subject-matter of transaction could not said to be an edible tuber, which principally or normally could be used in the like manner as fresh vegetables. The Tribunal has also taken a view that it cannot be said that dried chicory roots would be a tuber fit for growing fresh plant therefrom.

12. The agreement between the assessee-company and the growers which has been provided to us at annexure V requires to be perused at this juncture. Clause 23 of the abovesaid agreement clearly speaks of the commodity, namely, 'dried roots' to be delivered to the company according to the standards at its Jamnagar godown. Clause 23(c) also speaks very clearly that the company shall have to purchase the entire yield from the acreage cultivated in terms of the agreement. Therefore if we look to the intent and the form, both of the abovesaid agreement, annexure V, it becomes clear that the transaction envisaged by the parties was in respect of the sale and purchase of the dried chicory roots. It also requires to be pertinently noticed that, what the assessee-company had agreed to purchase, was not the tuber but the dried roots of chicory. This position becomes clear from clauses Nos. 8, 9 and 11 of the agreement at annexure V. Clause 8 provides that the roots of chicory shall have to be sliced into a certain length and that the cultivator shall have to arrange for the drying of the roots. The same position becomes clear from clause 9 and clause 11 of the agreement. The chicory roots are required to be dried and thereafter graded according to the sizes stipulated or required by the company. It, therefore, becomes clear that under the agreement, annexure V, what the assessee-company wanted to purchase was not the tuber but the chicory roots duly cut, sliced, sized and graded according to the samples to be provided by the company.

13. It has been urged by the assessee-company that irrespective of the abovesaid position the chicory roots, to be purchased by the assessee-company, would remain to be the tuber which could fall within the abovesaid entries. But this is the juncture where the principle of doctrine of the popular parlance would come into play.

14. The doctrine of popular parlance pronounced by the Supreme Court of India in early sixties and reiterated, time and again up to this date, in a clear and emphatic terminology, amidst a variety of cases having a wide range of facts and circumstances, appear to have been based upon a common knowledge criteria that what a fiscal legislation intends to do is to classify the concerned commodities with a view to tax them at different rates or in some cases not to tax them at all. The fiscal statutes cannot work well on any other basis of classification. Knowing full well this basic characteristic, the courts of law have, during all these years, from early sixties to early nineties, declined in no uncertain terms, to be guided by or to be swayed away with the technical, scientific and botanical considerations. The technical, scientific or botanical works, even though of the renowned authors and experts in the respective fields are not allowed to outweigh the meaning, which is attributed to a particular entry or item of a fiscal statute, by the people who are conversant with the concerned commodity. The courts of law have, it appears, always said 'well this is the meaning according to technology, science or botany; but now do the people know and reckon it ?'

15. When the meaning of a particular commodity or article in a fiscal statute, may it be the excise legislation or sales tax legislation, could have also been construed in a strictly scientific manner along with the other possible construction based upon the meaning ascribed to it by the people conversant with it in the area in which the said legislation is to be applied, the latter has been recognised with favour. It has been emphasised that even though the term in a fiscal statute is capable of two constructions, one under a particular branch of science and the other one according to the ordinary meaning ascribed to it in 'common parlance' the latter meaning should be adopted in the process of construction of that term. The meaning in which a particular term is being understood by the people conversant with it has been always accepted as a guide. The frame of the question always is 'what is the meaning in which a term in a fiscal statute has been understood by the people in general, the growers, cultivators, consumers, dealers and suppliers of a particular commodity ?'. The courts of law after having framed such a question prefer to embark upon the requisite enquiry into the examination of the facts and circumstances of each case with a view to find out the correct answer. But while in the process of such an exercise the courts have been, thus far, guided by the 'meaning in the mind of the people' which is being signified as a doctrine of popular parlance.

16. Coming to the case law, it requires to be recalled that way back in the year 1961 the Supreme Court of India had the occasion to apply the doctrine of popular parlance in Ramavatar Budhaiprasad v. Assistant Sales Tax Officer [1961] 12 STC 286, applying the abovesaid principle which is also known as 'common parlance'. The Supreme Court of India had reached the conclusion that 'betel leaves' are not vegetables and would not be exempt from sales tax under item 6 of Schedule II of the C.P. and Berar Sales Tax Act, 1947. In Commissioner of Sales Tax v. Jaswant Singh Charan Singh : [1967]2SCR720 the Supreme Court has said very clearly that, instead of scientific or technical meaning the popular meaning should be adopted while interpreting a taxing statute. In the light of the abovesaid principle the Supreme Court has ordained that 'charcoal' would be included in the term 'coal'. It has been impressed upon that the sales tax statute being one levying a tax on goods must, in the absence of a technical term or a term of science or art, be presumed to have used an ordinary term. The same question had arisen once again before the Supreme Court of India in the context of the Central Excises and Salt Act, 1944 in Union of lndia v. Gujarat Woollen Felt Mills : 1977(1)ELT24(SC) . It has been reiterated by the Supreme Court that the well-known rule in interpreting items in statutes like the Central Excises and Salt Act, 1944, is that 'resort should be had not to the scientific or the technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense.' In Annapurna Biscuit . v. State of Rajasthan [1980] 46 STC 256, the Supreme Court has said that '.......... if there is one principle, fairly well-settled, it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it, and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted'. While dealing with the relevant rules under the Central Excise Rules, 1944, and certain notifications thereunder in Collector of Central Excise v. Parle Exports (P.) Ltd. [1989] 75 STC 105 (SC); (1988) 4 JT 454, the Supreme Court has said that 'the words used in the provision, imposing taxes or granting exemption should be understood in the same way in which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them'. In Collector of Central Excise v. Krishna Carbon Paper Co. : 1988(37)ELT480(SC) , while speaking on the question of the interpretation of taxing statutes and words used thereunder, the Supreme Court has categorised the position by saying that, where the word has a scientific or technical meaning and also an ordinary meaning according to common parlance, it is in the latter sense that in a taxing statute the word must be held to have been used, unless contrary intention is clearly expressed by the Legislature. In Deputy Commissioner of Sales Tax v. Coco Fibres : 1991(53)ELT515(SC) , it was pointed out on the basis of the principle of commercial parlance that coconut husk would be entirely different from coconut fibre and no one in the market would sell or supply husk when fibre was asked for. In Plasmac Machine . v. Collector of Central Excise : 1991(51)ELT161(SC) , in the context of the Central Excises and Salt Act of 1944, the Supreme Court has stated that resort should not be to scientific and technical meaning of the terms or expressions but it should be to their popular meaning. It is on this basis that the finding of the Technical Member of the Tribunal that tie bar nuts are not fastening nuts was held not to be tenable.

17. Thus applying in the instant case also, the abovesaid principle of popular parlance it becomes clear that the dried chicory roots could not have been said to be tubers within the meaning of the abovesaid two entries. Anyhow, before reaching a final conclusion in this respect, reference shall have to be made to certain case law on which learned counsel Mr. Pathak has placed reliance. Firstly our attention has been drawn to the Supreme Court decision in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827. The question before the Supreme Court was in respect of rule 5(1)(k) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Under rule 18, deduction under clause (k) of sub-rule (1) of rule 5 was required to be given in respect of the ground-nut from which the ground-nut oil was manufactured. The question was as to whether the same principle would apply in respect of that quantity of the ground-nuts from which the hydrogenated oil, commonly known as vanaspati could have been obtained. While considering this question the Supreme Court has stated that while manufacturing the hydrogenated oil which is usually known as vanaspati, some procedure was required to be carried out for the removal of impurity by certain process and that the said process could have been said to be a process of refining. But merely because of this, the hydrogenated oil cannot be said not to be the ground-nut oil, and therefore, the quantity of ground-nuts which had the relation with the abovesaid hydrogenated oil would be the same. The second decision on which Mr. Pathak has placed reliance is also the Supreme Court decision in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319. The Supreme Court was considering certain entries in section 14 of the Central Sales Tax Act, 1956. The question was as to whether certain steel articles like steel rounds, etc., can be taxed again even if the material out of which they were made, was already subjected to sales tax, once as iron and steel scrap. On the facts and circumstances of the case, the Supreme Court had taken the view that the sales tax law is intended to tax sales of different commercial commodities and as soon as a separate commercial commodity emerge or comes into existence they become separately taxable goods. While reaching to the abovesaid conclusion the Supreme Court has indeed stated as under :

'Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are merely joined together, they may remain commercially the goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type.'

18. On the basis of the abovesaid observation made by the Supreme Court, Mr. Pathak has urged that in the instant case also though some process has been applied to the tubers, the tubers remain the tubers commercially and essentially. But as noticed above the assessee-company has not purchased tubers; what came to be purchased by the assessee-company are the dried chicory roots which have been processed in the manner as stated above. Looking to this position, this decision rendered by the Supreme Court and in previous one also, would not assist Mr. Pathak in his submission before us in the instant case.

19. Mr. Pathak has also taken us to one more decision rendered by the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63. The question before the Supreme Court was in respect of the consumption of pineapple fruit, while making the pineapple slices and canning them. The Supreme Court has said that, although a degree of processing was involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity. It is also pointed out that when there is no essential difference in identity between the original commodity and the processed article, it is not possible to say that one commodity has been consumed in the manufacture of another. But it requires to be appreciated pertinently that the question before the Supreme Court was as to whether the pineapple fruits could have been said to be consumed in the process of manufacture. The facts in the case on hand, are entirely different and, therefore, once again we say that the abovesaid Supreme Court decision is of no avail to the learned counsel Mr. Pathak in his submission before us.

20. One more Supreme Court decision, which requires a careful consideration is in the case of Commissioner of Sales Tax v. D. S. Bist [1979] 44 STC 392 (SC). In that case before the Supreme Court the question was as to tea-leaves which were subjected to some formal process could be said to be a process because of which, the tea-leaves would cease to be the agricultural produce. It has been pointed out that the tea-leaves were subjected to certain process and ultimately they were made ready for the delivery to the customers. The Supreme Court has said that the tea-leaves sold by the assessee, substantially retained the character of an agricultural produce and that the sales effected by the assessee would not be exigible to sales tax. The question therefore was as to whether the tea-leaves which were subjected to a small process would remain an agricultural produce and whether the abovesaid process would be said to be a manufacturing process. As the facts go to show elaborately, we are not concerned with such a case and, therefore, the abovesaid principle which is in fact in respect of an agricultural produce undergoing some small process, would not render any assistance to us in deciding the question referred to us.

21. Mr. Pathak has also invited our attention to this High Court decision in State of Gujarat v. Push Colour & Chemical Co. [1982] 49 STC 158. In that case, there was addition of gobar salt, etc., to the dyes of diverse quality and concentration. It was pointed out that the abovesaid addition of gobar salt, etc., was not an act of manufacturing. Again here we are not concerned with the question of manufacturing something from some other commodity, and therefore, we feel that the abovesaid Bench decision of this Court would not be useful in resolving the controversy with which we are concerned.

22. Lastly, Mr. Pathak has pressed into service the Supreme Court decision in Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124. In that case before the Supreme Court, the facts show that there was blending of different qualities of ore, possessing differing chemical and physical composition so as to produce ore of the contractual specifications. The Supreme Court had said that it could not be said to involve the process of manufacture. For the reasons which we have indicated above, this decision also would not be of any assistance to Mr. Pathak in his submission before us.

23. Therefore looking to the test provided by the Supreme Court regarding the popular parlance, we feel no hesitation in coming to the conclusion that the chicory roots which were the subject-matter of the agreement between the assessee-company and the farmers would not fall within the abovesaid two entries.

24. The alternative contention raised by the assessee before the Tribunal was, that the transaction between the assessee-company and the growers cannot be said to be a sale and purchase contract. It was also urged that the transactions would be in the nature of works contract. The same contentions have been raised before us also. This would therefore take us to the other question regarding the real nature of the transaction between the assessee-company and the growers.

25. Before proceeding further to appreciate the fine distinction between a 'works contract' and a 'contract for sale and purchase' one has to be clear as to from where one collects the real intent of the parties to the contract. Where the parties to the contract have preferred to reduce the terms into writing, one has obviously to look to the terms and conditions of the contract which is reduced into writing. The covenants, covenanted by the parties shall have to be examined and analysed with the prime object of ascertaining the spirit and the true, correct and real character of the transaction entered into by the contracting parties. The nomenclature assigned to a transaction by the parties to the contract may sometimes be illusory or deceptive. If one is going to be guided only by the 'name' baptised to a particular transaction by the contracting parties, without taking upon one's shoulders the necessary exercise of making an intelligent probe into the real meaning of the relationship between the parties, one is likely to be heading towards a wrong track which may ultimately land one in a precarious situation. It is precisely for the abovesaid reasons that the courts of law even while sitting as a tax court have sent clear messages ordaining 'look to covenants and look to the form too'.

26. The Tribunal making a reference to certain Supreme Court decisions has pointed out that, when there is the written contract it will be necessary for the court to find out therefrom, the intention of the parties executing a particular contract. After saying so, the Tribunal has proceeded further to analyse various clauses of the agreement, one by one, with a view to come to the conclusion that the transaction was never in the nature of the works contract. But as pointed out, the submission made by the learned counsel Mr. Mehta appearing on behalf of the Revenue is that in a taxing statute the form of the transaction is also determinative of its taxability. While invoking the principle that the intention of the parties executing a particular contract is to be carved out from the written contract, the Tribunal had firstly placed reliance upon the Supreme Court decision in the case of Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat [1972] 29 STC 105. The abovesaid decision says that the true nature of a transaction evidenced by written agreement has to be ascertained from the covenants and not merely from what the parties choose to call it. The second decision on the same line, on which the Tribunal had placed reliance is the Supreme Court decision in the case of Hafiz Din Mohammad Haji Abdulla v. State of Maharashtra [1962] 13 STC 292. In this decision it has been observed that relation between the parties, was manifestly to be ascertained in the light of the terms incorporated in the document which was in the form of a letter and from the attendant circumstances. The third decision, on which the reliance was placed by the Tribunal, also happens to be a Supreme Court decision in State of Gujarat v. Variety Body Builders [1976] 38 STC 176. From this decision the Tribunal had satisfied itself that whenever there is a written contract it will be necessary for the court to find out therefrom the intention of the parties executing a particular contract. The intention has to be gathered from the terms and conditions which are agreed upon by the parties.

27. After narrating the principles laid down by the Supreme Court in the abovesaid three decisions the Tribunal has proceeded further to analyse the relevant clauses from the agreement. As noticed above Mr. Mehta has urged that in a taxing statute the strict legal position as disclosed by the form and not the substance of the transaction is determinative of its taxability. Mr. Mehta appears to be perfectly justified in his submission, regard being had to the Supreme Court decision in Joint Commercial Tax Officer v. Young Men's Indian Association : [1970]3SCR680 . The abovesaid principle has been expressed by the Supreme Court and it has been precisely put forward at page 248 of STC (para 16 of page 1217 of AIR).

28. In view of this position it appears that we should like to read clause after clause to obtain the intention of the parties while executing the agreement. At the same time, as pointed out by the Supreme Court due importance shall have to be given to the form of the agreement. Firstly taking the question regarding the form of the agreement, we would like to point out at once, that the form of the agreement is clearly of a transaction of buying and selling or of purchasing and vending. The agreement at annexure V says very clearly that the company have agreed to buy the chicory so grown on the terms and conditions which are set out in the agreement. Moreover, clause 23 of the agreement also says that the company purchases dried chicory roots to its standard to be delivered at company's Jamnagar godown. Clause 23(c) further says that the company will purchase the entire yield from the acreage cultivated in terms of the agreement. Therefore so far as the question of the form of agreement or transaction is concerned we feel no difficulty in coming to the conclusion that the transaction between the parties, is in the nature of the purchase and sale and not in the form of a works contract. Even if, looking to the abovesaid Supreme Court decisions, the intention of the parties is to be carved out from the reading of the agreement, then also, it is clear that the transaction can never be said to be a works contract. On the other hand it appears that the transaction is for the sale and purchase of the dried chicory roots. Clauses 8, 9, 10 and 11 of the agreement at annexure V would go to show that after the harvesting, the cultivator has to wash the roots and has to slice them in the prescribed length according to the instructions to be provided to the cultivator by the company from time to time and thereafter the cultivator has to grade the dried roots according to the stipulated sizes as required by the company. Later on the cultivator has to deliver the company such quantity of the chicory yield grown in his field with the seeds supplied by the company so as to meet the company's total demand or requirement. Clause 14 of the agreement is of utmost importance because the assessee-company thereunder has reserved a right to reject, wholly or in part the quantity to be provided by the cultivator if it were not up to the standard prescribed by the assessee-company. Clause 21 of the agreement further says that the company reserves the right to claim damages which may extend to the amount of the price of the estimated chicory yield according to the rate to be mentioned by the company. Clause 21 says that the cultivator undertakes to pay the dues and taxes to be levied by the Government or the local bodies and the agreement would be for the delivery of the dried chicory roots at the godowns of the company.

29. The abovesaid clauses would go to show very clearly that the company had reserved their rights of rejection either in whole or in part of the chicory roots if they are found, not to be up to a particular standard. Moreover all the taxes and duties levied by the Government or the local bodies were also to be borne and paid by the cultivator. Moreover the assessee-company would be entitled to claim damages from the cultivator/grower of chicory roots. All these clauses go to show very clearly that the agreement between the parties is, in essence and in reality, the agreement for the sale and purchase of dried chicory roots.

30. It was urged before the Tribunal that the property in the commodity would be of the company right from the beginning. The same contention has been urged before us also by the learned counsel Mr. Pathak. The relevant portion of clause 16 of the agreement says that the chicory yield shall be the property of the company. But it requires to be appreciated that the abovesaid words are followed by the significant words, namely, 'for the purpose of delivering them to the company in the manner and in terms of the agreement and the cultivator shall take proper care and keep safe custody thereof until it is delivered to the company as per the company's direction'. The abovesaid words would go to signify, without any manner of doubt, that the property in the commodity would be the property of the company only for the purpose of delivering the same to the company. Moreover, this part of clause 16 also makes it abundantly clear that the cultivator is required to take proper care and keep safe custody thereof until the same is delivered to the company. Moreover clause 16 further says in express terms that the company has reserved the one-sided right under the agreement and the corresponding right to the grower has not been given by which he would say that he would not sell the prepared commodity to the assessee-company. This would also go to show very clearly that the property in the commodity in question remained with the grower and it passes to the assessee-company only when the dried prepared roots were supplied to the assessee-company.

31. If the agreement is read in its entirety and if clause 16 is read in proper context, it becomes evident that the cultivator has been bound down not to sell chicory to anyone except to the assessee-company. There is no corresponding obligation on the part of the company to accept the chicory in whatever form it may be from the stage of sowing, harvesting, sizing and slicing. On the contrary clause 14 of the agreement provides that the company may reject or accept on assessment any sliced roots which may not be clean and which may contain foreign or extraneous matters, chicory leaves, etc., or which may not be dry up to the standard required, or may not be properly graded or in any way considered unacceptable or unusable.

32. Thus in essence the object and intention of clause 16 of the agreement is not the transfer of property in goods in favour of the assessee-company, but it is inserted with a view to create security in favour of the assesee-company. The cultivator would not be in a position to sell chicory to anyone else. On the other hand there is no corresponding obligation on the company to accept the same in whatever form it may be. For accepting the submission made by the learned counsel for the petitioner, one will have to take out clause 16 from the entire agreement, again one will have to dissect the clause and take out some sentences therefrom and construe them in isolation from the other provisions of the agreement. In such manner no document can be interpreted. Therefore, the contention that by clause 16 of the agreement, the property in goods stood transferred in favour of the company has no merits and the same is hereby rejected.

33.Thus on the overall consideration of the agreement at annexure V we feel that when either we look to the form or to the intent of the parties, one thing is clear that the transaction is in respect of the sale and purchase of the dried chicory roots. This transaction can therefore never be said to be the transaction of works contract.

34. The question regarding the nature of the transaction came to be examined by the Supreme Court in the case of State of Gujarat v. Variety Body Builders [1976] 38 STC 176. In this decision the Supreme Court of India has pointed out that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour, and it will depend upon the facts and circumstances of each case. The Supreme Court has also pointed out that the abovesaid question is not always easy and had for all time vexed jurists all over. To quote the words of the Supreme Court, it has been said thus :

'It can be treated as well-settled that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in particular context, and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over.'

35. In the abovesaid case the Supreme Court in the light of the abovesaid principle had proceeded further to examine the agreement, clause by clause, but ultimately the clauses also came to be examined in view of what has been stated in Halsbury's Laws of England, Third Edition, Volume 34, at page 6, which is with regard to the distinction between a contract of sale and a contract for work and labour. The Supreme Court decision reproduces the relevant passage from the Halsbury's Laws of England, thus :

'A contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel.'

36. The question regarding the nature of transaction as to whether it was in the form of a works contract of service or in the nature of the contract for sale of goods, had once again arisen before the Supreme Court of India in the case of Hindustan Aeronautics Ltd. v. State of Karnataka : [1984]2SCR248 . In this decision while putting the significant difference, between the works contract of service and contract for sale of goods, very succinctly, the Supreme Court has observed thus at page 320 of STC (para 13 at page 748 of AIR) :

'It is well-settled that the difference between contract of service and contract for sale of goods, is, that in the former, there is in the person performing work or rendering service no property in the things produced as a whole notwithstanding that a part or even the whole of materials used by him had been his property. In the case of a contract for sale, the thing produced as a whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passed only under the contract relating thereto to the other party for price. It is necessary, therefore, in every case for the courts to find out whether in essence there was any agreement to work for a stipulated consideration. If that was so, it would not be a sale because even if some sale may be extracted that would not affect the true position. Merely showing in the bills or invoices, it was contended on behalf of the appellant, the value of materials used in the job would not render the contract as one of sale. The nature and type of the transactions are important and determinative factors. What is necessary to find out, in our opinion, is the dominant object.'

37. Examining the agreement between the assessee-company and the growers in the instant case it becomes abundantly clear that the main object of the parties was to transfer the property in the goods, namely, the dried chicory roots and it would be a transfer of a chattel as a chattel to the buyer. It cannot be said that it was a contract in substance, one for work, against the price to be paid at a deferred juncture. Moreover, in the instant case the thing produced, namely, the dried chicory roots, had remained the sole property of the growers, who produced it some time before the delivery of the same to the company. Merely because the seeds were to be supplied by the assessee-company and merely because the supervision, etc., were to be provided by the assessee-company it cannot be said that the property in the commodity, namely, the dried chicory roots, had passed into the assessee-company at the time of entering into the agreement between the assessee-company and the growers.

38. It also requires to be borne in mind very clearly that on the one hand there is the assessee-company - a multinational limited organisation having a net work of factories, depots and sales organisation and on the other hand are the growers of the rural areas of the district of Jamnagar in the State of Gujarat. Abundant caution and care have been utilised by the assessee-company while drafting and preparing the agreement. At a first glance on the agreement at annexure V one can say without any hesitation that unilateral rights have been reserved in favour of the assessee-company with a view to safeguard their interests at all the levels. The assessee-company has reserved their rights to claim the damages in certain circumstances without giving any such corresponding right to the growers. Even then reading the agreement at annexure V as a whole, it becomes abundantly clear that the transaction in substance and in reality is the transaction of sale and purchase of the dried chicory roots to be supplied by the growers to the assessee-company.

39. Therefore looking to the abovesaid principle we feel no difficulty in coming to the conclusion that the transaction between the parties, i.e., the growers and the assessee-company as evidenced in the agreement at annexure V, is in the nature of sale and purchase agreement. In view of this position the contention raised by learned counsel Mr. Pathak for the assessee that the transaction is in the form of a works contract cannot be accepted.

40. Looking to the abovesaid position it becomes clear that both the abovesaid questions referred to us require to be answered and replied in affirmative, against the assessee and in favour of the Revenue. We, hereby, do answer the abovesaid questions accordingly with no order as to costs.

41. Reference answered in the affirmative.


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