Case: Food Corporation Of India Etc. Etc Vs. State Of Kerala

Leave granted in all the special leave petitions.In all these cases. common questions of law arise and arguments were also addressed on that footing and consequently, they are disposed of by this common judgment. The principal common question of law that arises for consideration can be broadly stated as follows:-"Whether the Food Corporation of India (hereinafter called "the FCI") is liable to pay sales/purchase tax to the States while purchasing foodgrains or in distributing fertilizers pursuant to orders issued under Section 3 of the Essential Commodities Act,e is a difference of opinion among the High Courts on this question. A division Beach of the Allahabad High Court (Lucknow Bench) has taken the view that the FCI is liable to pay purchase tax in the light of the provisions of the U.P. Sales Tax Act, 1948 (hereinafter called "the Act"). A Division Beach of the Punjab and Haryana High Court, however, has taken a view that the FCI is not liable to pay tax, on the purchase of foodgrains. We may at once state here that the Lucknow Bench of the Allahabad High Court in taking the view that the FCI is liable to pay tax after elaborately dealing with t he case law up to the date of the judgment has come to a conclusion that the decision of this Court in M.s Chitter Mai Narain Das vs. Commissioner of Sales Tax in view of subsequent decisions of larger benches of this Court does not hold good. The Division Bench of the Punjab and Haryana High Court, however, has taken exactly the opposite view holding that the decision of this Court in Chitter Mals case holds good notwithstanding subsequent decisions of this Court and on that basis held that the FCI was not liable to pay tax. The Andhra Pradesh and Kerala High Courts while dealing with the liability of the FCI to pay tax on the distribution of fertilizers have taken the view that the FCI is liable to pay tax. It is under this background, arguments were advanced before us supporting and opposing the view taken by this Court in Chitter Mals case.

Reasoning:
"This case, in our opinion, is squarely covered by a recent decision of this Court delivered by a Bench of seven Judges in Vishnu Agencies (Pvt. Ltd.) vs. Commercial Tax Officer. The High Court in the case of Jagatjit Distilling and Allied Industries Ltd. had mainly relied upon the decision of this Court to hold that the transactions in that case were not sales. The said decisions are New India Sugar Mills Ltd. vs. Commissioner of Sales Tax, Bihar and Chittar Mal Narain Das vs. Commissioner of Sales Tax, U.P. In the case of Vishnu Agencies, the former case was considered in paragraphs 37 to 39 of AIR volume at pages 463-464 (pages 51-52 of 42 STC) and it was held that the view expressed in the majority judgment was not good law and the one contained in the minority judgment was approvedtherefore, answer the principal common point holding that the levy procurement is a sale/purchase and therefore, falls within the purview of Entry 54. List II of Seventh Schedule to the Constitution. The States were competent to levy sales/purchase tax on such transactionsIn the light of the rulings of this Court referred to above in detail, we are unable to agree with the submission of the learned Senior Counsel for the appellants that there was no area left for consensual agreement in the parties to the procurement transactions. The view taken by the Full Bench of the Allahabad High Court in Ram Bilas Ram Gopal case is the correct view, and the High Court of Allahabad (Lucknow Bench) was right in applying the same in the judgment under appeal. We also hold that the view of the Punjab and Haryana High Court challenged before us in some of these cases taking a different view does not lay down the correct law. To put the matter beyond controversy, we hold, with respect, that the decision in Chitter Mals case is no longer good law in the light of later larger Bench decisions of this Court referred tow coming to the second proposition regarding the constitutionality of Explanation (II) added to Section 3(D)(1) of the U.P. Sales Tax Act, it must be answered against the assessee following our answer to proposition No.1 and in favour of the Revenue. We have held that the transactions in questions are all sale and exigible to tax under the State Sales Tax Act. The contention that the Explanation newly added was ultra vires Entry 54 List II of the Seventh Schedule to the Constitution, on the assumption that the disputed transactions are not sales and, therefore, by a fiction the impugned Explanation cannot deem a sale which is not a sale, is without substance. The learned counsel fairly concedes that it is open to the State Legislature to shape a point at which tax is levied, if may be equally permissible to the legislature to treat a particular sale or purchase as the first sale or purchase, but it cannot by legislative device or fiction of law make something as a sale/purchase which in fact is not. This argument has to fail in view of our answer to proposition No.1 in favour of the Revenue. We, therefore, do not find any substance in the proposition No.2 advanced by the learned Senior counsel for the appellantsRegarding the third proposition concerning retrospective effect and consequently, compelling the appellants to pay tax twice on the same transaction, the learned counsel appearing for the State has filed a written note explaining the position in the following manner:-"2. From 15.11.1971 to 18.5.1973, on the one hand State Government and its agencies were liable to pay tax on their purchase and on the other hand Food Corporation of India was also liable to pay tax on his purchase as tax on Foodgrains, was at all points of purchasesTherefore, Explanation-II of Section 3D(i) of U.P. Sales Tax Act which deals only with first purchase, does not affect this period. From 2.9.1976 to 30.4.1977 tax on foodgrains was at the point of sale to consumer. The Explanation II of Section 3D(i) of U.P. Sales Tax Act, which deals only with first purchase does not affect this period. However, if any tax has been levied upon Food Corporation of India for this period, it is on account of their failure to supply the requisite forms etc., whereupon the liability, under the law, devolves on them. There is no challenge specifically to any such assessment3. For the period commencing from 1968-69 and afterwards (excluding the period 15.11.71 to 18.5 .73 and 2.9.76 to 30.4.77) provision of Explanation-II of section 3D(i) is applicable because this Explanation-II in section 3D(i) has been inserted with complete retrospective effect by the U.P. Sales Tax (Amendment and validation) Act, 1976 (U.P. Act No.23 of 1976) published on 20.5.76. Therefore, Food Corporation of India had been taxed rightly because under the provision of Explanation-II of section 3D(i), the tax is collected only at one point viz. from the Food Corporation of India. Credit is however given where Food Corporation of India furnishes proof that it ha s already paid the tax to Food Department (RFCs) and its agencies and they (Food department and its agencies) have deposited that tax. By this procedure assessing authority has given credit of the following sums:-Year Amount of Tax 1969-70 Rs. 931249.92 1971-72 Rs. 2132428.63 1972-73 Rs. 8059065.00---------------------------------- Total R s. 11122743.55In future also if Food Corporation of India gives the proof that it has paid further tax to Food Department (RFCs) and its agencies and they have deposited that tax to sales tax department (excluding the period between 15.11.71 to 18.5.73 because in this period tax was not at all points of purchases) the above procedure will be followed and after verification benefit of the deposit of tax will be given to Food Corporation of India. Thus, there is no question of multiple taxation for any period other than 15.11.1971 to 18.5.1973."In view of the above, the appellants ca n work out remedy before the concerned authorities in accordance with law. There is nothing to be decided by this Court.Now coming to the fourth proposition, the grievance appears to be that the appellant has been singled out for harsh treatment and there was no other dealer in foodgrains in the State of U.P. whose annual turnover would exceed Rs.10 crores. It is now well-settled that it is within the competency of the State Legislature to classify the dealers and to impose surcharge upon those who were placed in one category taking into consideration their economic superiority. A classification on the basis of gross turnover was held by this Court in the earlier case as reasonable one vide M/s Hoechst Pharmaceuticals Ltd. vs. State ofe do not think that we should spend more time on this as the High Court had dealt with fairly elaborately on this issue and we see no reason to differ from the view taken by the High Court. Accordingly, the fourth proposition also is answered against the appellant. We have already dealt with the fifth and sixth propositionsThere is a group of special leave petitions preferred by millers. They challenged before the High Court the demand of market fee under the U.P. Krishi Utpadan Mandi Adhiniyam. 1964 on rice. The basis of their challenge was that there was no safe to demand the market fee when the rice was procured under the levy orders. According to the appellants in these matters there was compulsory acquisition of stocks under the levy orders and therefore, there was no safe. In the earlier paragraphs, we have dealt with and have arrived at a finding that the disputed transactions are sales. The same view was taken by the High Court and consequently, the writ petitions filed by the millers were dismissed. We affirm the view of the High CourtThe Food Corporation of India have distributed fertilizers to the State Governments/their nominees under Fertilizer (Control) Order. The levy of sales tax on such distribution of fertilizers was challenged by the food Corporation of India. The High Courts of Andhra Pradesh and Kerala upheld the levy and aggrieved by that, the Food Corporation of India have filed civil appeals. The argument advanced before the High Court on behalf of the FCI was discharging a statutory obligation vested in it under the Control Order and there is no element of volition or consensus of agreement in those transactions. This was negatived by the High Courts holding that there is no provision in the Control Order excluding the exercise of violation of the freedom of contract totally. Only the price of fertilizers was controlled, quoted standard has been prescribed for mixture of fertilizers and persons carrying on the business of selling fertilizers are required to obtain licences. It was also noticed by the High Court that there was no statutory compulsion in the matter of sale or purchase of fertilizers and parties are left to enter into consensual contractual agreement in the exercise of their volition subject only to the restrictions regarding price fixation, quota requirementse have in the earlier paragraphs noticed that the appellants have conceded that there are sales in the transactions falling under Control Orders. The challenge was only regarding transaction falling under Levy Orders. Wee have held that the transaction falling under Levy Orders would amount to sales. Therefore, we have no difficulty or hesitation in approving the view taken by the high Court that the activity of distribution of fertilizers amounts to sale exigible to sale taxWe have noticed in the course of the discussion that the Punjab and Haryana high Court has taken a different view and we have also held that the view taken by the Punjab and Haryana High Court was not the correct one, the State of Punjab aggrieved by the decision of the Punjab and Haryana High Court has filed appeals. Our discussion concerning the six propositions would equally apply to the appeals filed by the State of Punjab and one additional point arises in the appeals filed by the State of Punjab, namely, whether the gunny bags used in the course of the disputed transactions as a packing material are liable to be included in the taxable turnover or not? The Punjab and Haryana High Court held that the gunny bag in these transactions are not exigible to tax as the contents, namely, rice/paddy are not liable to tax as there was no sale at all. An additional ground given by the High Court was that there was nothing to show whether there was any agreement between the parties for the sale of gunny bags. Now that we have held that the disputed transactions are exigible to tax, one reason given by the High Court as mentioned above, cannot be supported. Further, the facts are not clear regarding the agreement. In the circumstances, we consider that the matter has to be left open to be decided by the Assessing Officer while finalising the assessment in the light of then the result all the civil appeals except Civil Appeal Nos. 890, 892, 893 and 1995 of 1978 file d by the State of Punjab and Haryana are dismissed. The appeals filed by the States of Punjab and Haryana are allowed as indicated above. There will be no order as to costsThe issue as to who has to pay the market fee has been argued and answered by the High Court but was not argued before us. Hence, it was not decided. Therefore, the civil appeals arising out of S.L.P.(C)Nos. 8772-74/87, 6775/91, 747/91, 7478/91, 8541/91, 15719/94 and 13131/91 preferred by the Rice Miller will be posted for further arguments on this issue in Court.