Case: Salar Jung Sugar Nulls Ltd. Etc Vs. State Of Mysore &amp; Ors

Section 2 (t) of the Mysore Sales Tax Act, 1957.Sale is defined in Section 2 (t) as follows:-"sale with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge". 49. The Control Orders are to be kept in the forefront for appreciating the true character of transactions. It is apparent that the area is restricted. The parties are determined by the order. The minimum price is fixed. The minimum quantity of supply is also regulated. These features do not complete the picture. The entire transaction indicates that the parties agree to buy and sell. The parties choose the terms of delivery. The parties have choice with regard to obtaining supply of a quantity higher than 95 per cent of the yield. The parties can stipulate for a price higher than the minimum. The parties can have terms for payment in advance as well as in cash. A grower may not cultivate and there may not be any yield. A factory may be closed or wound up and may not buy sugarcane. A factory can reject goods after inspection. The combination of all these features indicates that the parties entered into agreement with mutual assent and with volition for transfer of goods in consideration of price. Transactions of purchase and sale may be regulated by schemes and may be liable to restrictions as to the manner or mode of sale. Such restrictions may become necessary by reason of co-ordination between production and distribution in planning the economy of the country. The contention of the appellants fails. The transactions amount to sales within the meaning of the Mysore Sales Tax Act. 50. The second contention on behalf of the appellants was that the factories were not dealers within the meaning of then Mysore Sales Tax Act. Dealer is defined in Section 2 (k) of the Mysore Sales Tax Act of 1957 as follows:-"Dealers means any person who carries on the business of buying , selling, supplying or distributing goods, directly or otherwise whether for cash or for deferred payment or for commission remuneration or other valuable consideration and includes :- (v) a person who sells goods produced by him by manufacture or otherwise". It was contended that the factory was a manufacturer of sugar and paid excise duty on sugar to the Central Government and sugar was item 34 of the Second schedule and therefore, no tax was payable by a dealer who is a manufacturer of sugar. The purchase of sugarcane was said to be for manufacture of sugar and not for resale of sugarcane and therefore the tax which is levied on the dealer will not fall on the appellants on the purchase of sugarcane. The High Court held relying on the decision of this Court in State of Andhra Pradesh v. Abdul Bakshi and Bros., AIR 1965 SC 531 that if a person carried on the business of buying or selling a commodity it is not necessary that he should sell the same commodity to become a dealer. The commodity may be converted into another saleable commodity or it may be used as an ingredient in the manufacture of a commodity. Therefore, the factories which bought sugarcane could be said to carry on the business of buying and selling sugarcane and the factories are dealer within the meaning of the Mysore Sales Tax Act. 51. The third contention on behalf of the appellants was that the levy of 15 per cent purchase tax on the sugarcane on the appellants was in violation of Article 14 of the Constitution inasmuch as the rates were different in different States. It is an indisputable feature in the present appeals that all the factories in Mysore have been treated equally. Different rates in different States are explicable on various grounds. The quantity available, the conditions of agriculturists, the number of factories will all have distinctive features. Therefore, there can be no infraction of Article 14 of the Constitution. 52. It was also said on behalf of the appellants that tax on purchase of sugarcane could not be collected by the appellants as tax. The High Court relying on the decision on 1958 SCR 1355 = (AIR 1958 SC 452 ) said that the mere circumstance that the appellants could not collect from the purchasers of the sugar the amount the factories had paid as purchase tax on sugarcane would not alter the nature or quality of tax. This Court in the case of Tata Iron and Steel Co., 1958 SCR 1355 = (AIR 1958 SC 452 ) said 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 sale 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. It therefore follows that the appellants cannot impeach the imposition or levy of sales tax on the ground that the appellants could not collect from the purchasers of sugar the purchase tax paid by the appellants on purchase of sugarcane. 53. Another contention was raised on behalf of the appellants 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 and different States and fixing different selling prices of sugar. The High Court rightly did not entertain this contention because there were no materials to support the contention.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]21. At all relevant times sugarcane was declared to be an essential commodity. The various orders were made for regulating the supply of sugarcane to the factories having regard to the crushing capacity of the factory, the availability of sugarcane in the area and the need for production of sugarcane. This co-ordination between production and distribution of sugarcane on the one hand and production and distribution of sugar on the other hung together as complementary to each other in regard to the requirements of basic ingredient. The carving out of areas for production and distribution of sugarcane is necessary to preserve continuity of supply and to prevent shortage and defective distribution. The regulation of supply of sugarcane by fixing the minimum price is an application of the principle of utilitarianism which receives the approbation and goodwill of both the grower and the factory so that the grower is assured of an economic competitive return and the factory is also assured of not being scared by soaring and fluctuating price to thwart and impede production and manufacture of sugarThese decisions establish that statutory orders regulating the supply and distribution of goods by and between the parties under Control Orders in a State do not absolutely impinge on the freedom to enter into contract. Legislative measures or statutory provisions fixing the price, delivery, supply, restricting areas for transactions are all within the realm of planning economic needs ensuring production and distribution of essential commodities and basic necessities of community. The recent trends in these legal rules delimit the variety of structure of rights and duties which individuals may create by such acts and transactions. The complexity of modern activities and the consequent difficulty of providing for every eventuality have shaken fervour for freedom of contract as there was during the nineteenth century. The economic environment has changed42. The individual freedom is to be reconciled with adequate performance by the Government of its functions in a highly organised Society. Delimiting areas for transactions or parties or denoting price for transactions are all within the area of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number by achieving proper supply at standard or fair price to eliminate the evils of hoarding and scarcity on the one hand and availability on the other43. In the present case, the parties are certain. The parties are defined, namely, that the sugarcane grower is delivering and supplying and the factory is accepting the goods. The property in the goods is transferred from the grower to the factory. The transaction is not a gift nor an exchange nor a hypothecation nor a loan. There is consideration for the transfer. Counsel for the appellants contended that there was no mutual assent because the price was fixed, the quantity for supply and delivery was determined, the parties had no choice to go to strangers or outsiders in the open market. In Benjamin on Sale, 8th Edn. at page 68 the law as to mutual assent is stated as this"The assent need not as a general rule be express. It may be implied from their language or from their conduct; may be signified by a nod or a gesture, or may even be inferred from silence in certain cases; as if a customer takes up wares off a tradesmans counter and carried them away and nothing is said on other side, the law presumes an agreement of sale for the reasonable worth of the goods. But the assent must in order to constitute a valid contract, be mutual and intended to bind both sides. It must also co-exist on the same moment of time."The assent must be mutual and bind both sides. The proposal by one man must be accepted by another and this acceptance must be unconditional. The assent must be communicated to the other party or some act must be done which the other party has expressly or impliedly offered to treat as a communication. Judged by these standards in the forefront exists the agreement between the parties in the present case. The statutory orders required parties to enter into agreement. The parties did in fact enter into agreements. The agreement contains intrinsic evidence that the growers agreed to sell and the factory agreed to buy goodsThe most commonplace illustration of supply and acceptance of goods resulting in sale under the present conditions is furnished by the present system of sale of rationed goods. There are ration shops in particular areas. Ration cards are distributed to residents in that area. The owners of these cards are required to go to the particular shop mentioned in the card for supply of rationed articles. Price is also regulated by the Rationing Order. Therefore the parties, the price the shop, the supply and the acceptance of goods in accordance with the provisions of the Rationing Order are all regulated. When one presents a ration card to the shop and the shop owner delivers the rationed articles and the holder of the ration card accepts them and pays the price, there is indisputably a sale. Counsel for the appellants said that choice was left with the ration card holder to go to the shop or not to go there at all but the parties had no choice in the present case whether the factory would or would not enter into agreement. In the present case both the factory and the sugarcane grower have some choice in the matter. The factory owner and the grower might not have occasion to enter into agreements at all. The factory may be closed. The grower may not grow sugarcane. The grower might not tender the goods. The factory owners might not accept delivery. The choice of the parties is there as in ordinary sales. The position of the factory owner vis-a-vis the sugarcane grower is either that factory will be shut and closed down or the factory will have to be kept running and for that supply will have to be taken from the sugarcane growers. This may be comparable to undertaking a journey by rail or air with no choice as to the medium46. The agreement between the factory owner and the sugarcane grower furnishes the guide to ascertain the real character of the transaction between the parties. These are the features. The factory agrees to buy. The grower agrees to sell. It is true that 95 per cent, of the sugarcane will be sold. The parties have the choice to increase the quantity above 95 per cent. The quantity to be bought and sold is cultivated or to be cultivated by the grower. The delivery is to be at a factory. Delivery will be in such lots, on such dates and at such time as shall be agreed upon. The mode of delivery may also be within the scope of agreement. The price will be the controlled price. The grower can bargain for higher price. The sugarcane grower can ask for payment in advance. Payment may be in cash or in kind. The sugarcane will be accepted after inspection. There is scope for rejection of goods. Various columns in the agreement indicate the villages where sugarcane is to be cultivated, the names of the varieties of sugarcane to be cultivated. The last two columns are estimated quantity offered to be delivered and the period of delivery. All these features indicate with unerring accuracy that there is offer, inspection, and appropriation of goods to the contract. The goods will be accepted by the factory after inspection and price will be paid on delivery. The mutual assent is not only implicit but is also explicit47. Another feature in the agreements in the present case is that the goods are unascertained. The agreements speak of inspection of goods. Inspection and appropriation of unascertained goods indicates not only freedom in the formation but also in the performance of contracts. Unascertained goods are distinct from specific or ascertained goods in the sense that future goods include goods not yet in existence or goods in existence but not yet acquired by the seller. It is safe to say that future goods for purposes of passing of property can never be specific. Future goods if and when sufficiently identified might be specific goods. Unascertained goods are not defined by the Sale of Goods Act but they fall into three main categories. First, goods to be manufactured or grown by the seller which are necessarily future goods. Second, generic goods, for example, 100 tons of sugarcane or the like which must also be future goods where the seller does not own sufficient goods of the description in question to appropriate to the contract. The third category is an unidentified part of a specific whole, for example, 1000 tons of sugarcane out of a particular lot of 5000 tons of sugarcane. In the present case, sugarcane was to be grown by the grower. Delivery was to be made thereafter. The goods were to be inspected and then paid for. Therefore, in the present case, it would be a sale of unascertained goods. Under Section 23 of the Indian Sale of Goods Act when there is a contract of sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained. Then again, under Section 23 of the Indian Sale of Goods Act where there is a contract for the sale of unascertained or future goods by description when the goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller, with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. It is this unconditional appropriation which will pass the property. Again, under Section 23 of the Indian Sale of Goods Act where the seller delivers the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer and does not reserve the right of disposal he is deemed to have unconditionally appropriated the goods to the contract. Therefore, in the present case the goods were to be ascertained by identification, delivery, inspection and unconditional appropriation48. These foregoing features indicate that the transactions in the present case constituted sale within the meaning of sale in Section 2 (t) of the Mysore Sales Tax Act, 1957.Sale is defined in Section 2 (t)The Control Orders are to be kept in the forefront for appreciating the true character of transactions. It is apparent that the area is restrictedThe parties are determined by the order. The minimum price is fixed. The minimum quantity of supply is also regulated. These features do not complete the picture. The entire transaction indicates that the parties agree to buy and sell. The parties choose the terms of delivery. The parties have choice with regard to obtaining supply of a quantity higher than 95 per cent of the yield. The parties can stipulate for a price higher than the minimum. The parties can have terms for payment in advance as well as in cash. A grower may not cultivate and there may not be any yield. A factory may be closed or wound up and may not buy sugarcane. A factory can reject goods after inspection. The combination of all these features indicates that the parties entered into agreement with mutual assent and with volition for transfer of goods in consideration of price. Transactions of purchase and sale may be regulated by schemes and may be liable to restrictions as to the manner or mode of sale. Such restrictions may become necessary by reason of co-ordination between production and distribution in planning the economy of the country. The contention of the appellants fails. The transactions amount to sales within the meaning of the Mysore Sales Tax ActThe High Court held relying on the decision of this Court in State of Andhra Pradesh v. Abdul Bakshi and Bros., AIR 1965 SC 531  that if a person carried on the business of buying or selling a commodity it is not necessary that he should sell the same commodity to become a dealer. The commodity may be converted into another saleable commodity or it may be used as an ingredient in the manufacture of a commodity. Therefore, the factories which bought sugarcane could be said to carry on the business of buying and selling sugarcane and the factories are dealer within the meaning of the Mysore Sales Tax ActIt is an indisputable feature in the present appeals that all the factories in Mysore have been treated equally. Different rates in different States are explicable on various grounds. The quantity available, the conditions of agriculturists, the number of factories will all have distinctive features. Therefore, there can be no infraction of Article 14 of the ConstitutionThe High Court relying on the decision on 1958 SCR 1355   = (AIR 1958 SC 452  ) said that the mere circumstance that the appellants could not collect from the purchasers of the sugar the amount the factories had paid as purchase tax on sugarcane would not alter the nature or quality of tax. This Court in the case of Tata Iron and Steel Co., 1958 SCR 1355   = (AIR 1958 SC 452  ) said 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 sale 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. It therefore follows that the appellants cannot impeach the imposition or levy of sales tax on the ground that the appellants could not collect from the purchasers of sugar the purchase tax paid by the appellants on purchase of sugarcaneThe High Court rightly did not entertain this contention because there were no materials to support the contention33. The Colliery Coal Control Order 1945 came up for consideration in State of Rajasthan v. M/s. Karam Chand Thappar and Bros. Ltd., (1969) 1 CR 861 = (AIR 1969 SC 343  ). Under a contract with Equitable Coal Company, Karam Chand Thappar and Bros. Ltd. acquired the monopoly right to supply coal on behalf of the collieries in Rajasthan and sold coal as the agent of the Equitable Coal Company. Karam Chand Thappar and Bros. entered into an agreement with the State of Rajasthan to supply coal to the Rajasthan Government. The company contended that the supply of coal to the State of Rajasthan did not constitute sale as the supply was controlled by the Colliery Control Order, 1945 and even if there was a sale it would be inter-State sale. It was held that the Colliery Control Order super-imposed upon the agreement between the parties the rate fixed and the elements necessary to render turnover from sale of goods liable to sales tax, namely, competency of parties, mutual assent of the parties, passing of property in the goods supplied to the purchaser and payment or promise of payment of price were present in the transaction. In the Rajasthan case it was noticed that when the goods supply of which is controlled by statutory orders are delivered pursuant to contract of sale the principle of the decision in the case of New India Sugar Mills Ltd., 1963 Supp. (2) SCR 459 = (AIR 1963 SC 1207  ) has no application. Shah, J. speaking for the Court in the Rajasthan case said that there was an agreement of sale between the parties competent to contract and in pursuance of the agreement of sale property in goods supplied passed to the purchaser for price agreed to be paid. The transaction was, therefore, one of sale of goods within the meaning of the Rajasthan Sales Tax Act35. The U. P. Wheat Procurement Order was challenged in M/s. Chitter Mal Narain Das v. Commissioner of Sales Tax, (1971) 1 SCR 671   = (AIR 1970 SC 2000  ) on the ground that there was no contract between the licensed dealer and the State pursuant to which goods were sold within the meaning of the U. P. Sales Tax Act. It was held that the obligation to deliver wheat arose out of the statute and there was no volition of the licensed dealer. The source of the obligations to deliver the goods and pay for them was said to be not in consensus but in the statutory order. It was said that the order did not envisage any consensual agreement and it did "not require the State to enter into even an informal agreement. It was said  On the date of the commencement of the U. P. Wheat Procurement (Levy) Order, upon the licensed dealer was imposed a liability to deliver half the quantity of wheat on hand, and he had also to supply to the State Government 50 per cent of the quantity of wheat procured or purchased by him every day beginning with the date of commencement of the Order. If he failed to carry out the obligation he was liable to be penalised. To ensure that he carried out his obligation his premises were liable to be searched and his property sequestered (sic). The Order ignored the volition of the dealer40. The consensus between vendor and purchaser which is involved in the natural meaning of the word sale came up for consideration in the recent decision of the Court of Appeal in the case of Ridge Nominees Ltd., 1962 Ch. 376. Ridge Securities made an offer to purchase from the stockholders of another company Gresham the whole of the stock of that company. The offer was conditional upon acceptance before a certain date. A document of transfer of 440 shares in Gresham was made by Mrs. Rita Bell in consideration of 891 paid by Ridge. The question was whether the document was properly described as a conveyance or transfer on sale of any property within the meaning of the English Stamp Act, 1891. Section 209 of the English Companies Act, 1948 conferred power on an agent to execute an instrument of transfer on a dissenting shareholders behalf. The offer made by Ridge Company to purchase shares in Gresham company was conditional upon acceptance by the holders of not less than 90 per cent, of the issued capital of Gresham. In fact, more than 90 per cent, in value did accept the offer. Mrs. Rita Bell was one of those who did not think it fit to accept it. Thereupon Ridge Company invoked powers and provisions of Section 209 of the English Companies Act. The transfer of the shares of Mrs. Bell was not executed by her but pursuant to the powers given by Section 209 of the English Companies Act by some one on her behalf. Mrs. Bell was not an assenting but a dissenting shareholder. Her shares were transferred by virtue of the powers given to the transferee company by the Act. It is in that context that the question was whether the conveyance or transfer was sale of any property. The contention was that there could not be a sale because the essential element of mutual assent was absent. The Court of Appeal held that the instrument must be regarded as a transfer of sale. Lord Evershed, M. R. said that by the machinery created by the Companies Act and the statutory authority given by the Act to the agent to execute transfer on Mrs. Bells behalf it has in truth brought into being that which ex facie in all its essential characteristics and effect is, and becomes, a transfer on sale of Mrs. Bells stock. Danckwerts, L. J. in the same case said about the transfer of shares"It seems to me that a sale may not always require the consensual element mentioned in Benjamin on sale, 8th edn. p.2, and that there may, in truth, be a compulsory sale of property with which the owner is compelled to part for a price against his will. The effect of the statute in such a case is to say that the absence of the transferors consent does not matter and the sale is proceed without it."