itions Nos 53 100 101 105 and 106 of 1967
Petitions under article 32 of the Constitution of India for the enforcement of the fundamental rights
M C Setalvad A V Koteswara Rao K Rajendra Chaudhuri and K R Chaudhuri for the petitioners in W P No 53 of 1967
N C Chatterjee A V Koteswara Rao K Rajendra Chau dhuri and K R Chaudhuri for the petitioners in WP No 100 of 1967
A V Koteswara Rao K Rajendra Chaudhuri and K R Chaudhuri for the petitioners in WP No101 of 1967
K R Chaudhuri and K Rajendra Chaudhuri for the peti tioners in WP Nos 105 and 106 of 1967
C K Daphtary Attorney General and A V Rangam for he respondents in WP No 53 of 1967
P Ram Reddy and A V Rangam for the respondents in V Ps
No 100 101 105 and 106 of 1967
Sachin Chaudhury G L Sanghi and O C Mathur for the intervener in WP No 53 of 1967
The Judgment of the Court was delivered by Bachawat J
In all these writ petitions under article 32 of the the petitioners ask for an order declaring that section 21 of the Andhra Pradesh Sugarcane Regulation of Supply and Purchase Act 1961 Andhra Pradesh Act No 45 of 1961 is unconstitutional and ultra vires and a direction prohibiting the respondents from levying tax under section 21 and to refund the tax already collected
Section 21 of the Act is in these terms 211 The Government may by notification levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use consumption or sale in a factory
2 The Government may by notification remit in whole or in part such tax in respect of cane used or intended to be used in a factory for any purpose specified in such notification
3 The Government may by notification exempt from the payment of tax under this section a any new factory which in the opinion of the Government has substantially expanded to the extent of such expansion for a period not exceeding two years from the date of completion of the expansion
PN7SCI 6 708 4 The tax payable under sub section 1 shall be levied and collected from the occupier of the factory in such manner and by such authority as may be prescribed
5 Arrears of tax shall carry interest at the rate of nine per cent per annum
6 If the tax under this section together with the interest if any due thereon is not paid by the occupier of a factory within the prescribed time it shall be recoverable from him as an arrear of land revenue Section 21 defines a factory which means any premises including the precincts thereof wherein twenty or more workers are working or were working on any day during the preceding twelve months and in any part of which any manufacturing process connected with the production of sugar by means of vacuum pans in being carried on or is ordinarily carried on with the aid of mechanical power
Section 2m defines the occupier of a factory
B Ordinance No 1 of 1967 which was replaced by Act No 4 on 1967 the following new sub section I A was inserted and other consequential amendments were made in section 21 of the principal Act 1 A The Government may by notification levy a tax at such rate not exceeding three
rupees and fifty paise per metric tonne as may be prescribed on the purchase of cane required for use consumption or sale in a khandsari unit
Also the following sub sections kk and kkk were inserted in section 2 of the principal Act kk khandasari sugar  means sugar produced by open pan process in a khandasari unit from sugarcane juice or from rab or gur or both containing more than eighty per cent sucrose kkk khandasari unit  means a unit engaged or ordinarily engaged in the manufacture of khandasari sugar and includes a bel It may be mentioned that sales and purchases of sugarcane a exempt from tax under the Andhra Pradesh General Sales Tax Act 1957
The petitioners own sugar factories as defined in 21
Their agents are the occupiers of the factories as defined in section 2m
They purchased cane from canegrowers within their respective factory zones
The State Government had issued notifications levying tax under section 21
For the last several years the petitioners have paid the tax on their purchases of sugarcane and further demands are being made on them for payment of the tax They challenge the vires and the  constitutionality of section 21 of various grounds
The principal submissions were made by M M C Setalvad who appeared in Writ Petition No 53 of 196 709 and his arguments were adopted by counsel appearing in the other petitions
Mr N C Chatterjee who appeared in Writ Petition No 100 of 1967 raised a few additional contentions
The submission of Mr Setalvad is that section 21 so far as it levies a tax on the purchases of sugarcane by or on behalf of the petitioners from the canegrowers in their respective factory zones is ultra vires the powers of the legislature under Entry No 54 List 11 Sch
VII of the Constitution in the light of the decision in State of Madras vs Gannon Dunkerley  Co1
Now in Gannon Dunkerley s case1 the actual decision was that the legislature had no power under List II Entry 48 Sch
VII of the Government of India Act 1935 to impose a tax on the supply of materials under an entire and indivisible contract for construction of buildings
But the Court also held that the phrase sale of goods in the Entry must be interpreted in the legal sense which it had in the Indian Sale of Goods Act that the Provincial Legislature had no power to tax a transaction which was not a sale of goods in that sense and that in order to constitute a sale there must be an agreement for sale of goods for a price and the passing of property therein pursuant to such an agreement
Ventakarama Aiyar J laid at pp
397 398 Thus according to the law both of England and of India in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which of course presupposes capacity to contract that it must be supported by money consideration and that as a result of the transaction property must actually pass in the goods
Unless all these elements are present there can be no sale
 in the light of this decision the expression sale of goods in Entry 54 List II Sch
VII of the Constitution must be given the ame interpretation
On a parity of reasoning to constitute a purchase of goods within this Entry there must be an agreement for purchase of goods and the passing of property therein pursuant to such an agreement
The question therefore is whether the purchases by or on behalf of the petitioners from the cane growers in their respective factory zones were made under agreements of purchase and sale
It appears that the Cane Commissioner is empowered under s15 of Act No 45 of 1961 to declare any area as the factory one for the purpose of supply of cane to a factory during a particular crushing season
Under section 161 on the declaration of the factory zone the occupier of the factory is bound to purchase such quantity of cane grown in that area and offered for sale to the factory 1  710 as may be determined by the Cane Commissioner in accordance with the provisions of the schedule
Section 162 prohibits the the canegrowers in a factory zone from supplying or selling cane to any factory or other person otherwise than in accordance with the provisions of the schedule
Section 2821 empowers the Government to make rules providing for the form of agreement to be entered into under the provisions of the Act
Rule 20 of the Andhra Pradesh Sugarcane Regulation of Supply and Purchase Rules 1951 framed under the Act provides that a canegrower or a canegrower s co operative society may within 14 days of the order declaring an area as the factory zone or such extended time as may be fixed by the Cane Commissioner offer in Form No 2 to supply cane grown in that area to the occupier of the factory and such occupier of the factory within 14 days of the receipt of the offer shall enter into an agreement in Form No 3 or Form No 4 with the canegrower or the canegrower s co operative society as the case may be for the purchase of the cane offered
Form No 3 is the statutory form of agreement with a canegrower
By the agreement in Form No 3 the occupier of the factory agrees to buy and the canegrower agrees to sell during the crushing season certain sugarcane crop grown in the area at the minimum price noticed by the Government from time to time upon the terms and conditions mentioned in the agreement
The agreement contains an arbitration clause and is signed by or on behalf of the occupier of the factory and the canegrower
The agreement in Form No 4 with a canegrower s co operative society is on the same lines
All the terms and conditions of the agreements and the mode of their performance are fixed and regulated by the Act the Rules and orders made under the Act
Contravention of the provisions of the Act or of any rule or order made under the Act is punishable under section 23
The minimum price of sugarcane is fixed under the Sugarcane Control Order 1966
The learned Attorney and Mr Ram Reddy attempted to argue that the occupier of the factory has some option of not buying from the canegrower and some freedom of bargaining about the terms and con ditions of the agreements
But after having read all the relevant provisions of the Act and the Rules they did not pursue this point
We are satisfied that under the provisions of Act No 45 of 1961 And the Rules framed thereunder a canegrower in a factory zone is free to sell or not to sell his sugarcane to the factory
He may consume it or may process it into jaggery and then sell the finished product
But if he offers to sell his cane the occupier of the factory is bound to enter into an agreement with him on the prescribed terms and conditions and to buy cane pursuant to he agreement in conformity with the instructions issued by the Cane Commissioner
The submission of the petitioners is that as hey or their agents are compelled by law to buy cane from the 711 canegrowers their purchases are not made under agreements and are not taxable under Entry No 54 List 11 having regard to Gannon Dunkerley s case1
This contention requires close examination
Under section 41 of the Indian  a con tract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price
By section 3 of this Act the provisions of the apply to contracts of sale of goods save in so far as they are inconsistent with the express provisions of the later Act
Section 2 of the provides that when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence he is said to make a proposal
When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted
A proposal when accepted becomes a promise
Every promise and every set of promises forming the consideration for each other is an agreement
There is mutual assent to the proposal when the proposal is accepted and in the result an agreement is formed
Under section 10 all agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not by the Act expressly declared to be void
Sec tion 13 defines consent
Two or more persons are said to consent when they agree upon the same thing in the same sense
Section 14 defines free consent
Consent is said to be free when it is not caused by coercion undue influence fraud misrepresentation or mistake as defined in sections 15 to 22
Now under Act No 45 of 1961 and the Rules framed under it the canegrower in the factory zone is free to make or not to make an offer of sale of cane to the occupier of the factory
But if he makes an offer the occupier of the factory is bound to accept it
The resulting agreement is recorded in writing and is signed by the parties
The consent of the occupier of the factory to the agreement is not caused by coercion undue influence fraud mis representation or mistake
His consent is free as defined in section 14 of the though he is obliged by law to enter into the agreement
The compulsion of law is not coercion as defined in section 15 of the Act
In spite of the compulsion the agreement is neither void nor voidable
In the eye of the law the agreement is freely made
The parties are competent to contract The agreement is made for a lawful consideration and with a lawful object and is not void under any provisions of law
The agreements are enforceable by law and are contracts of sale of sugarcane as defined in section 4 of the Indian 
The purchases of sugarcane under the agreement can be taxed by the State legislature under Entry 54 List 11
1  712 Long ago in 1702 Holt CJ said in Lane vs Cotton1 When a man takes upon himself a public employment he is bound to serve the public as far as this employment goes or an action lies against him for refusing
 The doctrine that one who takes up a public employment is bound to serve the public was applied to innkeepers and common carriers
Without lawful excuse an innkeeper cannot refuse to receive guests at his inn and a common carrier cannot refuse to accept goods offered to him for carriage
See Halsbury s Laws of England 3rd Edn Vol 4 article 375 and Vol
21 article 938
A more general application of the doctrine was arrested by the growth of the principle of laissez faire which had its heyday in the
midnineteenth century
Thereafter there has been a gradual erosion of the laissez faire concept
It is now realised that in the public interest persons exercising certain callings or having monopoly or near monopoly powers should sometimes be charged with the duty to serve the public and if necessary to enter into contracts
Thus section 66 of the Indian Railways Act 1890 compels the railway administration to supply the public with tickets for travelling on the railway upon payment of the usual fare
Section 22 of the compels a licensee to supply electrical energy to every person in the area of supply on the usual terms and conditions
Cheshire and Fifoot in their Law of Contract 6th Edn p 23 observe that for reasons of social security the State may compel persons to make contracts
One of the objects of Act No 45 of 1961 is to regulate the purchase of sugarcane by the factory owners from the canegrowers
The canegrowers scattered in the villages had no real bargaining power
The factory owners or their combines enjoyed a near monopoly of buying and could dictate their own terms
In this unequal contest between the canegrowers and the factory owners the law stepped in and compelled the factory to enter into contracts of purchase of cane offered by the canegrowers on prescribed terms and conditions
In The Indian Steel  Wire Products Ltd vs The State of Madras2 the Court held that
sales of steel products authorised by the Controller under cls
4 and 5 of the Iron and Steel Control of Production and Distribution Order 1941 were eligible to tax under Entry 54 List 11
The Court found that the parties had entered into contracts of sale though in view of the Order the area of bargaining between the buyer and the seller was greatly reduced
Hegde J speaking for the Court said that as a result of economic compulsions and changes in of the political outlook the freedom to contract was now being confined gradually to narrower and narrower limits
We have here a case where one party 1  2  713 to a contract of sale is compelled to enter into it on rigidly prescribed terms and conditions and has no freedom of bargaining
But the contract nonetheless is a contract of sale
In Kirkness vs John Hudson  Co Ltd1 the House of Lords by a majority held that a compulsory vesting of title of the company s railway wagons in the British Transport Commission under section 29 of the Transport Act 1947 was not a sale within the meaning of the phrase is sold in section 17 of the Income tax Act 1945
Under section 29 there was a compulsory taking of property
The assent of the company to the taking was not required by statute
By force of law the property of the company was taken without its assent
There was no offer no acceptance and no mutual assent and no contract resulted
The House of Lords held that mutual assent was an element of a transaction of sale
In Gannon Dunkerley s case1 the Court approved of this principle and rejected the argument of counsel that an involuntary transfer of title as in Kirkness s case2 was a sale within the meaning of the legislative Entry
But the Court did not say that if one party was free to make an offer of sale and the other party was obliged by law to accept it and to enter into an agreement for purchase of the goods a contract of sale did not result
In the present case the seller makes an offer and the buyer accepts it
The parties then execute and sign an agreement in writing
There is mutual assent and a valid contract though the assent of the buyer is given under compulsion of statute
Setalvad relied on the following passage in the Law of Contract by GH Treitel at p 5 Where the legislation leaves no choice at all to one party the transaction is not a contract
 But the author does not cite any authority in support of the proposition
 He adds that even a compulsory disposition of property may be treated as contract for the purpose of a particular statute and cites the case of Ridge Nominees vs IRC3
There the Court distinguishing Kirkness s case3 held that the compulsory transfer of shares of a dissenting shareholder by a person authorised to make the transfer on his behalf under section 209 of the Companies Act 1948 corresponding to section 395 of our was having regard to the machinery created by the section a conveyance on sale within section 54 of the Stamp Act 1 91
The Lord Justices gave separate opinions
It is worthwhile quoting the opinion of Donovan L J who said When the legislature by section 209 of the Companies Act 1948 empowers the transferee company to appoint an agent on behalf of a dissenting shareholder for the purpose of executing a transfer of his shares 1 2  3 714 against a price to be paid to the transferor company and held in trust for the dissenting shareholder it is clearly ignoring his dissent and putting him in the same position as if he had assented
For the purpose of considering whether this results in a sale one must I think bear that situation in mind and regard the dissent of the shareholder as overridden by an assent which the statute imposes upon him fictional though this may be
in the context of section 209 the transfer becomes in law a conveyance on sale
This conclusion in my opinion does not run counter to what was said in the House of Lords in Kirkness Inspector of Taxes vs John Hudson  Co Ltd1 where in terms of the statute there under consideration property belonging to other persons was declared to vest on a specified date in the Transport Commission against payment of compensation
This may be no more than a difference of machinery but machinery may make the very difference between a sale and a mere expropriation against compensation Lord Simonds I venture to think implies as much when he says he gets no assistance from the cases decided under the Stamp Acts
 In Ms New India Sugar Mills Ltd vs Commissioner of Sales Tax Bihar2 the Court by a majority held that the supply of sugar by a sugar factory to a Provincial Government in obedience to the directions of the Sugar Controller given under the Sugar and Sugar Products Control Order 1946 was not a sale taxable under List II Entry 48 Sch
VII of the Government of India Act 1935
Mr Setalvad placed strong reliance on the fol lowing passage in the judgment of Shah J at pp
469 470 A contract of sale between the parties is therefore a pre requisite to a sale
The transactions of despatches 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 mani festly no offer to purchase sugar by the Province and no acceptance of 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 1 2 1963 Supp 2 SCR 459 469
715 did so he was liable to be punished for breach of the order and his goods were liable to be forefeited
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 Divorced from the context this passage gives some support to the contention that there can be no contract if the acceptance of the offer is made under compulsion of a direction given by a statutory authority
But the passage must be read with the facts of the case
By cl 3 of the Sugar and Sugar Products Control Order 1946 producers of sugar were prohibited from disposing of sugar except to persons specially authorised in that behalf by the Controller to acquire sugar on behalf of certain Governments
Clause 5 required every producer or dealer to comply with the directions issued by the Controller regarding production sales stocks and distribution of sugar
Clause 6 authorised the Controller to fix the price of sugar
Clause 71 authorised the Controller to allot quotas of sugar for any Province and to issue directions to any producer or dealer for the supply of the sugar specifying the price quantity and type or grade of the sugar and the time and manner of supply
Contravention of the directions entailed forfeiture of stocks under cl 11 of the Order and was punishable under r 814 of the Defence of India Rules 1939
The admitted course of dealings between the parties was that the Governments of the consuming States used to intimate to the Sugar Controller their requirement of sugar and the factory owners used to send to him statements of their stocks of sugar
On a consideration of the requisitions and the statements of stock the Controller used to make allotments
The allotment order used to be addressed by the Controller to the factory owner directing him to supply sugar to the Government in question in accordance with the latter s despatch instructions
A copy of the allotment order used simultaneously to be sent to the Government concerned and the latter then used to send to the factory detailed despatching instructions
In these circumstances Kapur and Shah JJ
Hidayatullah J dissenting held that by giving intimation of its requirement of sugar to the Controller and applying for allotment of sugar the Government of Madras did not make any offer to the manufacturer
The direction of the Controller to the manufacturer to supply sugar to the Government was given in the exercise of his statutory authority and was not the communication of any offer made by the Government
The despatch of the goods in compliance with the directions of the Controller was not the acceptance by the manufacturer of any offer nor could it be deemed to be an offer by the manufacturer to supply goods
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 716 treated as an authority for the proposition that there can be no contract of sale under compulsion of a statute
It depends upon 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
Under Act No 45 of 1961 a canegrower 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 a direct privily of contract between the parties
The contract is a contract of sale and pur chase of cane though the buyer is obliged to give his assent under compulsion of a statute
The State Legislature is competent to tax purchases of canes made under such a contract
Mr Setalvad submitted that there can be no levy of a pur chase tax with reference to the tonnage of the cane
We cannot accept this contention
Usually the purchase tax is levied with reference to the price of the goods
But the legislature is competent to levy the tax with reference to the weight of the goods purchased
The contention of Mr Chatterjee that a purchase tax must be levied with reference to the turnover only is equally devoid of merit
Where the purchase tax is levied on a dealer the levy is usually with reference to his turnover which normally means the aggregate of the amounts of purchase prices
But the tax need not necessarily be levied on a dealer or by reference to his turnover
It may be levied on the occupier of a factory by reference to the weight of the goods purchased by him
Mr Chatterjee next submitted that a purchase tax must be levied on goods generally and there can be no purchase tax with reference to their subsequent use consumption or sale
He based his argument on paragraphs 17 to 20
III Vol
III of the Report of the Taxation Enquiry Committee
There the Committee while discussing the comparative merits of sales tax in relation to customs excise and octroi pointed out that sales tax was a major source of revenue and could be applied to the generality of goods while customs excise and octroi could be applied to only a limited portion of the industrial output of the country
The Committee did not express any opinion on the scope of List II Entry 54
Under that Entry the State legislature is not bound to levy a tax on all purchases of cane
It may levy a tax on purchases of cane required for use consumption or sale in a factory
The legislature is competent to tax and also to exempt from payment of tax sales or purchases of goods required for specific purposes
Other instances of special treatment of goods required for particular purposes may be given
Section 6 and Sch
1 item 23 of the Bombay Sales Tax Act 1946 levy tax on fabrics and articles for personal wear
Section 2jaii of the CP and Berar Sales Tax Act 1947 exempts sales of goods intended for use by a registered dealer as raw materials for the manufacture of goods
717 Mr Chatterjee submitted that the tax levied under section 21 was a use tax and referred to McLeod vs Dilworth  Co1 and C G Naidu  Co The State of Madras2
He argued that the State legislature could not levy a use tax which was essentially different from a purchase tax
The assumption of counsel that section 21 levies a use tax is not well founded
The taxable event under section 21 is the purchase of goods and not the use or enjoyment of what is purchased
The constitutional implication of a use tax in American law is entirely irrelevant
The observation in the Madras case that the Explanation to article 2861a of the Constitution conferred a power on the State legislature to levy a use tax is erroneous
The Explanation fixed the situs of certain sales
It did not confer upon the legislature any power to levy a use tax
To appreciate another argument of Mr Chatterjee it is necessary to refer to a few facts
It appears that paragraph 21 of the Bill published in the Gazette on March 3 1960 preliminary to the passing of Act No 45 of 1961 provided for a levy of a cess on the entry of cane into the premises of a factory for use consumption or sale therein
On December 13 1960 this Court in Diamond Sugar Mills Ltd and Another vs The State of Uttar Pradesh and Another3 struck down a similar provision in the UP Sugarcane Cess Act 1956 on the ground that the State legislature was not competent to enact it under Entry 52 List II as the premises of a factory was not a local area within the meaning of the Entry
Having regard to this decision paragraph 21 of the Bill was amended and section 21 in its present form was passed by the State Legislature
The Act was published in the Gazette on December 30 1961
Mr Chatterjee submitted that in this context the levy under section 21 was really a levy on the entry of goods into a factory for consumption use or sale therein
We are unable to accept this contention
As the proposed tax on the entry of goods into a factory was unconstitutional paragraph 21 of the original Bill was amended and section 21 in its present form was enacted
The tax purchase of goods
The taxable event is the purchase of cane for use consumption or sale in a factory and not the entry of cane into a factory
As the tax is not on the entry of the cane into a factory it is not payable on cane cultivated by the factory and entering the factory premises
Mr Setalvad submitted that section 21 impeded free trade com merce and intercourse and offended article 301 of the Constitu tion and relied on the decision in Firm A T Mehtab Majid  1  2 AIR 1953 Mad
116 127 128 3  718 Co vs State of Madras1
In that case the Court held that r 162 of the Madras General Sales Tax Turnover and Assessment Rules 1939 discriminated against imported hides or skins which had been purchased or tanned outside the State by levying a higher tax on them and contravened article 304a of the Constitution
At p 442 Raghubar Dayal J said It is therefore now well settled that taxing laws can be restrictions on trade commerce and intercourse if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures
Sales tax of the kind under consi deration here cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities
Sales tax which has the effect of discriminating between goods of one State and goods of another may affect the free flow of trade and it will then offend against article 301 and will be valid only if it comes within the terms of article 304a
 That case decides that a sales tax which discriminates against goods imported from other States may impede the free flow of trade and is then invalid unless protected by article 304a
But the tax levied under section 21 does not discriminate against any imported cane
Under section 21 the same rate of tax is levied on purchases of all cane required for use consumption or sale in a factory
There is no discrimination between cane grown in the State and cane imported from outside
As a matter of fact under the Act the factory can normally buy only cane grown in the factory zone
A non discriminatory tax on goods does not offend article 301 unless it directly impedes the free movement or transport of the goods
In Atiabari Tea Co Ltd vs The State of Assam and others2
Gajendragadkar J speaking for the majority said We are therefore satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be Does the impugned restriction ope rate directly or immediately on trade or its movement
It is the free movement of the transport of goods from one part of the country to the other that is intended to be saved and if any Act imposes any direct res trictions on the very movement of such goods it attracts the provisions of article 301 and its validity can be sustained only if it satisfies the requirements of article 302 or article 304 of Part XIII
 1 1963 Supp
2 SCR 435
2   860 861 719 This interpretation of article 301 Was not dissented from in Automobile Transport Rajasthan Ltd vs State of Rajasthan1
Normally a tax on sale of goods does not directly impede the free movement or transport of goods
Section 21 is no exception
It does not impede the free movement or transport of goods and is not violative of article 301
Mr Setalvad next submitted that section 21 offended article 14 of the Constitution in several ways
It was argued that section 21 read with section 2e discriminated between producers of sugar using the vacuum pan and open pan processes
Under section 2 1 as it stood before its amendment by Act No 4 of 1967 tax was levied on purchases of cane by factories producing sugar by means of vacuum pans but purchases of cane by khandasari units producing khandasari sugar by the open pan process were entirely exempt from the tax
Even the amended section 21 levies a lower rate of tax on the purchases of cane by khandsari units
It was also argued that there was discrimination in favour of producers of jaggery by exempting their purchases of cane from payment of the tax
But the affidavits filed on behalf of the respondents show that factories producing sugar by means of vacuum pans and khandasari units producing sugar by the open pan processes form distinct and separate classes
The industry using the vacuum pan process is in existence since 1932 33
No tax was levied on this industry until 1949
In 1949 when the industry became well established tax was levied on it for the first time by section 14 of the Madras Sugar Factories Control Act 1949
The khandasari units carry on a small scale industry
They are of recent origin in the State of Andhra Pradesh
Until 1967 this industry was exempt from the levy
When the industry came to be somewhat established by 1967 a smaller rate of tax was levied on it
In 1965 66 factories adopting the vacuum pan process bought over 32 lakh tonnes of cane while the khandasari sugar units in the State bought about 270 lakh tonnes of cane
The manufacture of jaggery has no resemblance to the manufacture of sugar by the vacuum pan or the open pan system
It is a cottage industry wherein individual canegrowers process their cane into jaggery and market it as a finished product
Having regard to the affidavits we are satisfied that the differential treatment of the factories producing sugar by means of vacuum pans khandasari units producing sugar by
the open pan process and cane growers using cane for the manufacture of jaggery is reasonable and has a rational relation to the object of taxation
There are marked differences between the three classes of users of cane and their capacity to pay the tax
The legislature could reasonably treat the three sets of users of cane differently for purposes of levy
1 1963 1 SCR 491 533 702 It was next argued that the power under section 213 to exempt new factories and factories which in the opinion of the Government have substantially expanded was discriminatory and violative of article 14
We are unable to accept this contention
The establishment of new factories and the expansion of the existing factories need encouragement and incentives
The exemption in favour of new and expanding factories is based on legitimate legislative policy
The question whether the exemption should be granted to any factory and if so for what period and the question whether any factory has substantially expanded and if so the extent of such expansion have to be decided with reference to the facts of each individual case
Obviously it is not possible for the State legislature to examine the merits of individual cases and the function was properly delegated to the State Government
The legislature was not obliged to prescribe a more rigid standard for the guidance of the Government
We hold that section 21 does not violate article 14
The petitioner in Writ Petition No 101 of 1967 raised the contention that it was a new factory and that the Government of Andhra Pradesh should have exempted it from payment of tax under section 213a
The contention was controverted by the respondents
The affidavits do not give sufficient materials on the point nor is there any prayer in the petition for the issue of a mandamus directing the State Government to grant the exemption
In the circumstances we do not think it fit to express any opinion on the matter
It will be open to the petitioner in Writ Petition No 101 of 1967 to raise this contention in other proceedings
In the result the petitions are dismissed with costs one hearing fee
GC Petitions dismissed


Summary:
Under the Andhra Pradesh Regulation of Supply and Purchase Act 1961 the occupier of a sugar factory had to buy sugarcane from canegrowers in conformity with the directions of the Cane Commissioner
Under section 21 of the Act the State Government had power by notification to tax purchases of sugarcane for use consumption or sale in a sugar factory
The tax was leviable subject to a maximum rate per metric tonne
The maximum rate for khandsari units was less than that for factories sugarcane purchased for production of jaggery was not taxed at all
The petitioners were sugar factories in Andhra Pradesh
They filed writ petitions under article 32 of the Constitution challenging the validity of section 21 mainly on the ground that as the petitioners or their agents were compelled by law to buy cane from the canegrowers their purchases were not made under agreements and were not taxable under Entry 54 List II having regard to Gannon Dunkerley s case
It was further urged that the tax leviable under section 21 was not truly a purchase tax as it was levied with reference to weight of the goods that it was levied with reference to use and was therefore a use tax and that it was the entry of the goods into the factory that was sought to be taxed Articles 14 and 301 of the Constitution were also said to be contravened
Held 1 There has been a gradual erosion of the laissez faire concept which prevailed in the nineteenth century
It is now realised that in the public interest persons exercising certain callings or having monopoly or near monopoly Powers should sometimes be charged with the duty to serve the public and if necessary to enter into contract The canegrowers scattered in the villages had no real bargaining power
In the unequal contest between the canegrowers and the factory owners the law stepped in and compelled the factory to enter into contracts of purchase of cane offered by the canegrowers on prescribed terms and conditions
713 CF
Under Act 45 of 1961 and the Rules framed under it the canegrower in the factory zone is free to make or not to make an offer of sale of cane to the occupier of the factory
But if he makes an offer the occupier of the factory is bound to accept it
The resulting agreement is recorded in writing and is signed by the parties
The consent of the occupier of the factory is free as defined in section 14 of the Indian Contract Act
The compulsion of law is not coercion as 706 defined in section 15 of the Act
The agreements are enforceable by law and are contracts of sale as defined in section 4 of the Indian Sale of Goods Act
The purchases of sugarcane under the agreement can be therefore taxed by the State Legislature under Entry 54 List II
Section 21 of the Andhra Pradesh Sugarcane Regulation of Supply and Purchase Act 1961 is accordingly not ultra vires
712 F H
State of Madras vs Gannon Dunkerley  Co  and New India Sugar Mills Ltd vs Commissioner of Sales Tax Bihar 1963 Supp 2 SCR 459 distinguished and explained
Lane vs Cotton  ER 17 Kirkness vs John Hudson  Co Ltd and Ridge Nominees vs IRC  referred to
The Indian Steel  Wire Products Ltd vs The State of Madras   relied on
ii Purchase tax need not always be levied with reference to price of goods or with reference to turnover
It may be levied on the occupier of a factory by reference to the weight of the goods purchased by him
717 C E
It cannot he accepted that a purchase tax must be always levied on goods generally and never with reference to their use consumption or sale
Under List II Entry 54 the State Legislature is not bound to levy a tax on all purchases of cane
It may levy a tax on purchases of cane required for use consumption or sale in a factory
The tax so levied is not a use tax
717 F 718 B
McLeod vs Dilworth  Co  and C G Naidu  Co vs State of Madras AIR 1953 Mad
116 referred to
The tax under section 21 is not a levy on the entry of goods into the factory
Cane cultivated by the factory and entering it cannot be taxed under the section
718 G
Diamond Sugar Mills Ltd and Anr
vs State of Uttar Pradesh and Anr
   referred to
iii Section 21 does not impede free trade commerce and intercourse and therefore does not offend article 301 of the Constitution
The tax levied under section 21 does not discriminate against any imported cane
719 E 720 A
A T Mehtab Majid and Co vs State of Madras 1963 Supp
2 SCR 435 Atiabari Tea Co  Ltd vs State of Assam Rajasthan Ltd vs State of Rajasthan 1963 1 SCR 491 referred to
iv The differential treatment of factories producing sugar by means of vacuum pans khandsari units producing sugar by the open pan process and canegrowers using cane for the manufacture of jaggery is reasonable and has a rational relation to the object of the Act
There is thus no violation of article 14 of the Constitution
720 G H
Nor does discrimination result from the exemption under section 213 of factories which are new or which in the opinion of the Government have substantially expanded
The exemption is based on legitimate legislative policy
The question whether the exemption should be granted to a factory and if so for what period and the question whether a factory has substantially expanded and if so the extent of such expansion have to be decided with reference to the facts of each individual case
It is not possible for the State 707 Legislature to examine the merits of individual cases and the function was properly delegated to the State Government
The legislature was not obliged to prescribe a more rigid standard for the guidance of Government
721 A C