Case: Andhra Sugars Limited &amp; Another Vs. State of Andhra Pradesh &amp; Others

1. In all these writ petitions under Article 32 of the Constitution, the petitioners ask for an order declaring that Section 21 ofthe Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 (Andhra Pradesh Act No.45of 1961) is unconstitutional and ultravires 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(1) 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.(4) The tax payable under sub-sec. (1) shall he 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 2 (i) 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 is being carried on or is ordinarily carried on with the aid of mechanical power. Section 2 (m) defines the occupier of a factory. By Ordinance No. 1 of 1967 which was replaced by Act No. 4 of 1967, the following new sub-section (I-A) was inserted and other consequential amendments were made in Section 21 of the principalThe 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 Khandsarithe following sub-sections (kk) and (kkk) were inserted in Section 2 of the principal Actkhandasari sugar means sugar procured 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 amay be mentioned that sales and purchases of sugarcane are exempt from tax underthe Andhra Pradesh General Sales Tax Act, 1957. The petitioners own sugar factories as defined in Section 2 (i). Their agents are the occupiers of the factories as defined in Section 2 (m). 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 purchase 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 on various grounds. The principal submissions were made by Mr. M. C. Setalvad who appeared in Writ Petition No. 53 of 1967 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.

Court's reasoning:
In the light of this decision, the expression "sale of goods" in Entry 54, List II, Schedule VII of the Constitution must be given the same 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 anpromise 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. Section 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 1981 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, misrepresentation or mistake. His consent is free as defined in Section 14 of the Indian Contract Act though he is obliged by law to enter into the agreement. The compulsion of law is not coercion as defined in Sec. 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 Sale of Goods Act. The purchases of sugarcane under the agreement can be taxed by the State Legislature under Entry 54, Listdecision should not be 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 privity of contract between the parties. The contract is a contract of sale and purchase of cane, though the buyer is obliged to give his assent under compulsion of a statute. The State Legislature is competent to tax purchases of canes made under such athat 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 Schedule I, Item 23 of the Bombay Sales Tax Act, 1946 levy tax on fabrics and articles for personal wear. Section 2 (j) (a) (ii) of the C. P. and Berar Sales Tax Act, 1947 exempts sales of goods intended for use by a registered dealer as raw materials for the manufacture ofDecember 13, 1960, this Court in Diamond Sugar Mills Ltd. v. State of Uttar Pradesh, 1961-3 SCR 242   = (AIR 1961 SC 652  ) struck down a similar provision in the U. P. 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 division, 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, l961. 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 under Section 21 is essentially a tax on 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 factorycase 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 304 (a).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, an under the Act the factory can normally buy only cane grown in the factory zone. A non-discriminatory tax on goods does not offend Articleunless it directly impedes the free movement or transport of theinterpretation of Article 301 was not dissented from in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, 1963 (1 SCR 491     at p. 533 : (AIR 1962 SC 1406   at p. 1424). 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 Articlemanufacture 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.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 Sate 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 S. 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 S. 21 (3) (a). 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.