FOOD CORPORATION OF INDIA v.

STATE OF KERALA

JANUARY 6 AND 28, 1997

(AM. AHMADI, CJ., SUJATA V. MANOHAR AND K.

VENKATASWAMI, JJ.]

Sales Tax: U.P. Sales Tax Act, 1948:

C Sales Ta:t~Sale-<:ompuls01y or Statut01y--Purchase of food grains-By Food C01poration of lndia-Pursua11t to levy orders issued under

S. 3 of Essential Commodities Act-Held : amounted to sale as there was scope for co11sensual agreement in the pa1ties to the procurement transactio11s-He11ce, withi11 the pwview of E11t1y 54 List II of Schedule VII and liable to sales/purchase tax levied by States-Essential Commodities Act, D 1955, S. 3--Constitutio11 of 111dia, 1950, Sch. VII List II Ent1y 54.

Sales Tfil~Section 3D(I) Explanation II-Held : intra vires Enlly 54-<:011stitution of b; dia 1950, Sch VII List II Entl)' 54.

Section 3D(l)-Sales Ta:t~Sale-First sale-Provision in statute-- Treated paiticular sale or purchase as first sale for pwpose of sales tax within competence of State Legislature-Held : Valid-Constitution of India, A1ts. 245 & 246 and Sch. VII List II Ent1y 54.

Constitution of India, 1950 : AJticle 14.

Sales Tfil~Taxing Statutes-Proviso to S. 3-F of U.P. Sales Tax Act subjected dealers whose tumover exceeded the limit mentioned therein to an additional tfilnly a si11gle dealer in the entire State fell withi11 that

clas.1~Held : Classification of dealers on basis of gross tumover was valid--t:ontention that proviso was arbitrary and discriminato1y as only one G dealer was affected thereby, rejected-{}.?. Sales Tax Act, 1948, S. 3-F.

Essential Commodities Act, 1955 : Section 3.

Sales Ta.i~Sale-Compulso1y or Statut01y--Dist1ibutio11 of fe1tilizers to State Govemments/nominees by Food Co1poratio11 of India under Fe1tilizer H (Co11trol) Orde1~High Cowt 1ightly held sale exigible to sales ta:t~Fenilizer

24 \.

F.C.L v. STATE 25

(Control) Orde1; 1957.

Sale Tax-Twnove1-Food grains-Purchase of-By Food C01poration of India pursuant to ley orders under S. 3 of E.C. Act-Gunny bags used as packing matelials-includibility of-In taxable tumover of said C01poration-Questio11 left open.

U.P. IVishi Utpadan Mandi Adhiniyam, 1964:

Awicultural Produce-CompulsiNy procurement of 1ice under lery orders under E..C. Act-Demand of market fee-Held : amounted to sale-Hence, demand of market fee was valid.

Words and Phrases :

"Sale''-Meaning of-In the context of S.17(iii)(b) of the U.P. Klishi Utpadan Mandi Adhiniyam, 1964.

The appellant-Corporation purchased food grains from the State D Governments for the purpose of maintaining the national pool of food grains. The Sales Tax Department of the State sought to levy purchase tax upon the appellant on the point it made purchases from the State vide Explanation II added to Section 3-D(l) of the U.P. Sales Tax Act, 1948. An additional surcharge of five per cent was also payable by the appellant E since its turnover was more than Rs. 10 crores vide Section 3F of the U.P.

Sale Tax Act, 1948. The appellant filed a writ petition before the High Court challenging the aforesaid levies. The High Court dismissed the writ petition. Hence this appeal.

On behalf of the appellant it was contended that the levy procure- F ment of food grains issued under Section 3 of the Essential Commodities Act, 1955 by the State Government, being a compulsory acquisition, were not 'sales' within the meaning of Entry 54 of List II of Schedule VII to the Constitution ol' India and were not taxable under the U.P. Sales Act, 1948; that the transactions entered into in exercise of the power under the levy orders between the millers and the dealers on the one hand and the State G on the other hand and thereafter between the States and the appellant and then between the appellant and the States was one composite process which owed its origin to the arrangements arrived at between the State Governments and the Central Government under which the States were required to contribute to the Central Pool which in turn passed on to the H

A deficit States through the agency of the appellant; that there was, therefore, no area where the parties could have any volition; that the Explanation II added to Section 3-D(l) of the U.P. Sales Tax Act was ultra vires Entry 54 as the same assumed, by a fiction oflaw, the existence of sale, even when there was none; that Section 3F of the U.P. Sales Tax Act which levied a

B surcharge of5% on dealers whose turnover in food grains exceeded Rs. 10 crores was rbitrary and discriminatory and hit by Article 14 as there was no other dealer in food grains in the State whose annual turnover exceeded Rs. 10 Crores; that the distribution of fertilizers to State Governments/their nominees did not amount to sale and was not subject to sales tax; that the gunny bags used as packing materials were not includible in C the taxable turnover of the appellant; and that the demand of market fee under the U.P. Krishi Mandi Adhiniyam, 1964 was not valid.

Dismissing the appeal, this Court

HELD : 1.1. The facts of the case show that the Food Corporation D of India (FCI) had reserved the right to accept or reject the offer of the State. This negatives the contention that the transaction in question was one single integrated process and there was no break in the same. [ 49-B] :

1.2. On facts and in the light of the observation of the Full Bench of E the Allahabad High Court in Ram Bilas Ram Gopal's case, some area of consensual arrangement and some field for volition was left untouched by the legislation in all disputed transactions. The disputed transactions were sales, may be, under the compulsion of a statute. Nevertheless, they were sales exigible to tax. Whenever coercive force was used to bring about the transactions, the same must be traced to legislation and not to the State F Government as a party to such transactions. [ 49-C]

CST v. Ram Bilas Ram Gopal, AIR (1970) All 518, referred to.

13. The levy procurement is a sale/purchase and, therefore, falls G within the purview of Entry 54 of List II of Seventh Schedule to the Constitution. The State3 w1!re competent to levy sales/purchase tax on such transactions. In the light of the rulings of this Court it cannot be held that there was no area left for consensual agreement in the parties to the procurement transactions. [ 49-D-E]

H CSTv. Ram Bi/as.Ram GopaJ, AIR (1970) All 518, approved.

f "\

F.C.I. v. STATE 27

Jagjit Distilleries and Allied Industries v. State, (1971) 24 STC 709 A (P&H), overruled.

Chitter Mal Narain Das v. CST, [1970] 3 SCC 809, held no longer good law.

Vishnu Agencies (P) Ltd. v. CTO, [1978] 1 SCC 520; Satar Jung Sugar B Mills Ltd. v. State of Mysore & Ors., [1972] 2 SCR 228; State of Punjab & Ors.

v. Dewan's Modem Breweries Ltd., 43, STC 454; Coffee Board v. Commissioner of Commercipl Taxes, [1988] 3 SCC 262 and Oil and Natural Gas Commission v. State of Bihar, [1977] 1 SCR 34, relied on.

New India Sugar Mills India Ltd. v. CST, Bihar, [1963] Suppl. 2 SCR C 459; State of Kerala v. Bhavani Tea Produce Co. Ltd., AIR (1966) SC 677; fndian Steel & Wire Products Ltd. v. State of Madras, AIR (1968) SC 478; Andhra Sugars Ltd. v. State of A.P., AIR (1968) SC 599; State of Rajasthan v •.

Karam Chand Thappar & Bros. (Coal Sales) Ltd., AIR (1969) SC 343 and State of Madras v. Gannon Dankerley & Co., AIR (1958) SC 560, referred to. D

. 2. The appellant's contention that the newly added Explanation II to Section 3-D(l) of the U.P. Sales Tax Act, 1948 was ultra vires Entry 54 List II of the Seventh Schedule to the Constitution is without substance as in the instant case, the transactions in question are all sales and exigible to ·tax under the State Sales Tax Act. [SO-A, 49-H]

3.1. It is open to the State Legislature to shape a point at which tax is levied anil it may be equally permissible to the legislature to treat a parti:ular sale or purchase as the first sale or purchase for the purpose of sales tax. [50-E]

32. It is weff 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. [51-H]

G Hoechst Phamiaceuticals Ltd. v. State of Bihar, AIR (1983) SC 1019, relied on.

4.1. The Food Corporation of India have distributed fertilizers to the State Governments .their nominees under the .Fertilizer (Control) Order, 1957. The High Court rightly held that the activity of distribution H

A of fertilizers amounted to sale exigible to sales tax. [52-E, 53-B]

4.2. The Food Corporation oflndia had used gunny bags as packing materials in the course of purchase of food grains pursuant to orders under Section 3 of the Essential Commodities Act, 1955. The question whether such gunny bags were includible in the taxable turnover of the said Cor- B porationn has to be left open to be decided by the Assessing Officer while finalising the assessment in the light of this judgment. [53-E-F]

4.3. The compulsory procurement of rice under the levy orders issued under the Essential Commodities Act, 1955 nonetheless amounted C to sale. Hence demand of market fee under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 is valid. [52-C]

CIVIL APPELLATE JURISDICTION : CiVil Appeal Nos. 675-78 of 1975 Etc. Etc.

D From the Judgment and Order dated 10.4.74 of the Kerala High Court in T.R.C. Nos. 53, 54, 69-70 of 1973. •

D.D:' Thakur, B.D. Agarwal, A.S. Nambiar, Dr. A.M. Singhvi, H.L.

Aggarwal, U.N. Bachawat, A.N. Jayaram, H.N. Salve, O.P. Rana, A.K.

-~ E Verma, P.D. Tyagi for M/s. JBD & Co., G.I. Gopalkrishna'n, Y. Prabhakara Rao, N.N. Bhatt, Sunil Ambwani, Prashant Kumar, M.T. George, Sunil Gupta, Ms. Nisha Bagchi, Ms. Indu Malhotra, G.K. Bansal, Sanjay Bansal, A. Misra, Mukul Mudgal, R.B. Misra, Sudhanshu, N.M. Sakharadande, K.

Ram Kumar, C. Balasubramaniam, Pradeep Misra, Vishwajit Singh, Ms.

Niti Dikshit, T. Mahipal, lrshad Ahmed for the appearing parties.

The Judgment of the Court was delivered by

VENKATASWAMI, J. Leave granted in all the special leave peti tioris. •

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

FC.I. v. STATE [VENKATASWAMI, J.] 29

"the FCI") is liable to pay sales/purchase tax to the States while A purchasing foodgrains or in distributing fertilizers pursuant to orders issued under section 3 of the Essential Colflmodities Act, 1955?"

There is a difference of opinion among the High Courts on this question. A Division Bench of the Allahabad High Court (Lucknow Bench) B has taken the view that the FCI is liable to pay purchase tax in the light of the povisions of the U.P. Sales Tax Act, 1948 (hereinafter called "the Act"). A Division Bench 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 C Allahabad High Court in taking the view that the FCI is liable to pay tax after elaborately dealing with the case law up to the date of the judgment has come to a conclusion that the decision of this Court in M/s. Chitter Mal Narain Das v. Commissioner of Sales Tax, [1970) 3 SCC 809 in view of subsequent decisions of larger benches of this Court does not old good.

The Division Bench of the Punjab and Haryana High Court however, has D taken exactly the opposite view holding that the decision of this Court in Chitter Mal's 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 E advanced before .us supporting and opposing the view taken by this Court in Chitter Mal's case. ·"

Undoubtedly this Court in Chitter Mal's case positively has taken a view that there was no sale within the meaning of the definition of the word p 'sale' under Section 2(h) of the U.P. Sales Tax Act, 1948, when the stocks of wheat supplied by the appellants (in that case dealers in foodgrains) in compliance with the provisions of U.P. Wheat Procurement (Levy) Order, 1959 to the Regional Food Controller. Armed with hat decision of this Court, Mr. Thakur, learned Senior Counsel addressed elaborate arguments distinguishing the subsequent decisions of larger benches of this Court G projecting a 'liberal interpretation' of the definition of 'sale' occuring in various State statutes and tried to persuade us to hold that the ratio laid down by this Court in Chitter Mal's case holds the field. On the other hand, learned Senior Counsel, appearing for the States, placing reliance on the subsequent decisions of larger benches of this Court tried to persuade us H

A to hold that the ratio laid down by this Court in Chitter Mal's case is no ~.

longer good law.

As an illustrative of the cases, we would like to refer to the facts in the common judgment of the Lucknow Bench of the Allahabad High Court in W.P. 2077/1986 (corresponding to C.A. No. 2532/1987) and then apply the same to other cases.

The facts as noticed by the High Court in the common judgment are given below in brief.

C The Food Corporation of India is a 'Corporation' incorporated under the Food Corporation Act. 1964 (Central Act No. 37 of 1964). As one of its functions it maintains a national pool of foodgrains. The different States have to make their contributions to this pool. The States issued different orders under the Essential Commodities Act known by different names as Levy Orders, Procurement Orders or Requisition Orders, for D purchasing part of the produce or stocks of the foodgrains in question from farmers or millers. The procurement is made through different agencies.

On obtaining the required quantity of the foodgrains, it is purchased by the Food Corporation of India from the State Governments for the purpose of maintaining the national pool of foodgrains. The Sales Tax Department E of U.P. sought to levy purchase tax upon the Food Corporation of India on the point it makes purchases from the State of U.P. The Food Corporation of India denied its liability to pay the said tax.

Although the purchase made by the FCI from the State is a second sale or purchase in view of Explanation II to Section 3-D(i) of the U.P. . ...

F Sales Tax Act, it is deemed to be the first purchase. The Explanation II was added with retrospective effect by the U.P. Act No. 23 of 1976. It is specifically in respect of purchase of foodgrains in pursuance of orders made under Section 3 of the Essential Commodities Act. The Explanation II reads as follows :

"Explanation II :

For the purpose of this sub-section, in relation to purchases of foodgrains in pursuance of any orders made under Section 3 of the Essential Commodities Act, 1955 including any purchase in excess of the levy share, the purchase first made by a dealer from

....

F.C.I. v. STATE [VENKATASWAMI, J.] 31

the State Government or its purchasing agent shall be the first A .purchase of such foodgrains and the tax shall accordingly be levied at the point on such dealer."

An additional tax was also payable at the rate of five per cent over the turnover by the dealer whose yearly turnover exceeded rupees ten ciores as provided under Section 3-F of the U.P. Sales Tax Act, which now B stands omitted by the U.P. Act No. 4 of 1982 with effect from 7th September, 1981. Section 3-F as it existed was as follows :

"3-F. Every dealer liable to pay tax under this Act, the aggregate of whose total turnover of purchases of goods notified under C sub-section (1) of section.3-D, the turnover of sales liable to tax under sub-section (2) of section 3-D and the total turnover of sales of all other goods in any assessment year exceeds rupees two lakhs, shall, in addition to the said tax, pay for that assessment year an additional tax at the rate of one per cent, of his turnover liable to tax:

Provided that in case of foodgrains, the rate of additional tax payable by any dealer, the aggregate of whose turnover or turnover of purchases or both, as the case may be, liable to tax, exceeds rupees ten crores in an assessment year shall be five percent."

Since the turnover of the FCI has been more than ten crores, it was also required to pay additional tax for the period Section 3- F remained in operation.

The appellant has challenged the validity of. Explanation II to Section 3-D(i) of the U.P. Sales Tax Act as well as that of Section 3-F of the Act F on the ground that the said provisions are discriminatory, arbitrary and unreasonable.

In addressing the arguments challenging the view taken by the Lucknow Bench of the Allahabad High Court, Mr. Thakur, learned Senior G Counsel placed before us the following six propositions for our decision :

1. That levy procurement of foodgrains pursuant to levy orders issued under Section 3 of Essential Commodities Act by the Government of Uttar Pradesh are not "sales" within the meaning of Entry 54. List II of Seventh Schedule to the Constitution of H

A India. The legislation authorizing such imposition, proceedings and recovery of Sales Tax is wholly ultra vires the said Entry 54 of Constitutiol). of India. Le\iy procurement in effect is compulsory acquisition by State in exercise of powers of the State under "Eminent Domain".

2. That Explanation II added to Section 3D(i) of the U.P. Sales Tax Act by Act No. 23 of 1976 is ultra vires the Entry No. 54 since it assumed, by fiction of law, the existence of sale, even when there is none, by the State of U.P. and its nominees in favour of Food Corporation of India and thereafter declare that fictional sale to be the first sale for the purpose of levy of sales tax.

3. That Food Corporation of India for the procurement from 1968 to 1976 had been bearing the burden of Sales Tax on the first purchase made by the Regional Food Controller by reimbursing the same to them. The Tax being single point tax, the same could not be levied twice. Explanation II retrospectively levies sales tax more than one point. It is impermissibie under the provisions of U.P. Sales Tax Act.

4. That Section 3(F) which levied surcharge of 5% on dealers whose turnover in foodgrains exceeding Rs. 10 crores was arbitrary and discriminatory and hit by Article 14, particularly when the same was made effective retrospectiveJy from 1st April, 1975.

5. That the 46th Constitutional Amendment which came into force from 2nd February 1983 was made retrospective only in a limited

sphere and not covering the legislation affecting the appellants.

6. That the interest calculated by the respondents is not payable and, therefore, in any case the respondents have no right to recover the same.

From the judgment of the High Court, we do not find any discussion on the proposition No. 6. We, therefore, presume no such plea was taken or if taken no such plea was argued before the High Court. Therefore, we do not propose to deal with that proposition. Regarding proposition No. 5, this was not seriously pursued by either side warranting any decision on H that.

. .

F.C.I. v. STATE [VENKATASW AMI, J.] 33

The principal argument appears to be that levy procurement did not A amount to a sale and, therefore, the same was not taxable under the U.P. Sales

Tax Act, 1948. To put it differently the argument was that the levy procurement is a compulsory acquisition and therefore, falls outside the purview of Entry 54 of List II of 7th Schedule to the Constitution of Inrlia. Consequently,

the levy procurement is not at all taxable under the U.P. Sales Tax Act. After B

referring to relevant provisions in the Essential Cmodities Act, 1955 and •· the levy control orders, it was pointed out that the persons holding stocks of foodgrair{s are required compulsorily by force of the statutory orders to part

with the foodgrains in favour of the State Government or its nominee and such procurement constitutes clearly a case of compulsory acquisition rather than C

a sale as popularly understood. Elaborating this aspect, it was submitted that there was absolutely no contract between the seller and buyer and failure to comply with the procurement orders will result in the prosecution and ultimate punishment at the hands of the law enforcing agency apart from the power to enter upon the premises, search, seize the foodgrains and confiscate the same. D Under those circumstances, it was contended that the transactions of levy procurement cannot be treated as a sale within the purview of Entry 54 List

._.,,_

II of the Seventh Schedule. In the case of millers, they have to part with a specified portion of rice, milled from the paddy given by farmers though the millers have no right or title over the paddy, they cannot resist the procure- E ment pursuant to the levy order. In the absence of any volition on the part of the miller, no sale could be attracted to such transaction. It is also contended • that there is no consensus in levy procurement. After referring to the decision of this Court in Mis. New India Sugar Mills India Ltd. v. Commissioner of

Sales Tax, Bihar, AIR (1963) SC 1207 and Chitter Mal's case (supra) the F learned Senior Counsel submitted that the cases subsequent to these two decisions taking differeht view are all under regulatory orders and as such

distinguishable and the ratio laid down therein will have no application to the procurement under Levy Orders which amounts to compulsory acquisition.

According to the learned counsel, there is nothing left to be decided for the G parties and everything is determined in the levy orders. Even the place of delivery of. the foodgrains is fixed by the control orders. Even if there is any small matter left to the discretion of the parties, the same being unimportant, insignificant and peripheral, cannot be said to be determinative of the existence of the consensus. According to the learned Senior Counsel, it is the H

A consensus, which is vital aspect for determining the character of the transaction. The levy orders leave no option to the seller but to sell compulsorily to the State Government or its nominee. There is no discretion left to the parties in regard to price or any other matter and, therefore, no area is left out for the parties to operate unlike matters coming under B regulatory orders. According to the learned Senior Counsel, Chitter Mal's case has rightly laid down the law when it held that the levy procurement is a compulsory acquisition and not a sale. After referring to the transactions under n, gulatory orders and transactions under levy control orders, the learned Senior Counsel has summarised his submissions on the first C proposition as follows :

"That the transactions of levy procurement are a class by themself and are wholly distinguishable from the cases where the sale and purchase is regulated by statutory authorities in exercise of the powers available to them under respective legislations. Whereas in the case of levy orders, there is absolutely no area left for consensual agreement in the case of regulatory orders, only . statutory controls were imposed for identification of a class of people who would be eligible either to sell or to purchase goods in keeping with the welfare policy of the State. Those are not the cases in which the failure to part with the goods results in the commission of an offence which is punishable nor does the failure give corresponding right to the authorities to seize and confiscate the goods and impose penalties as prescribed under the control order.

Therefore, it cannot be contended that a compulsory acquisition of foodgrains by Government in exercise of its sovereign powers should constitute a sale so as to attract the liability under the Sales Tax Act. The transactions entered into in exercise of the power under the levy order between the millers and the dealers on the one hand and the State on the other hand, and thereafter between the States and the Corporation i.e. FCI and then between the Corporation and the State was one composite process which owed its origin to the arrangements arrived at between the State Governments and Central Government under which the States were required to contribute to t11e Central Pool which in turn passes on to the deficit States through the agency of the Corporation. As such, the. process was an integrated process and was not at all

) _,

F.C.I. v. STATE [VENKATASW AMI, J.] 35

bifurcable or divisible into one or other transaction. Totality of the A facts clearly established that it was not a case where there were any sale of foodgrains. It was a case of compulsory taking over of a particular percentage of foodgrains from licenced dealers and millers on payment of an amount of compensation which too was fixed by the Central Government and not by the State Government B although the same is notified by the State Government. Not only centres at which the foodgrains were deliverable, were prescribed by the State Government, the payment of compensation was also pre-determined by the orders themselves. Centres for each area were also fixed. There was, therefore, no area where the parties could have any volition." C

Learned Senior Counsel appearing for the States in support of the common judgment under appeal and other judgments submitted that the transactions under levy orders are definitely 'sales' and there was no compulsory acquisition of property as contended by the learned Senior D Counsel for the appellants. According to them, there is an area of consensual arrangement between the parties and the element of volition is not completely excluded under the levy orders. It is their further submission that the decision in Chitter Mal's case stands practically overruled and, therefore, it is no more good law in view of latter decisions of larger benches of this Court. Though an argument referring to 46th Amendment E of the Constitution was faintly raised, it was not pursued seriously. To support the contention, reliance was placed on the following judgments :

M/s. Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer and Others, [1978] 1 SCC 520; Satar Jung Sugar Mills Ltd. Etc. v. State of Mysore and Others, (1972] 2 SCR 228; State of Punjab and Others

v. Dewan's Modern Breweries Ltd., 43 (STC) 454; Coffee Board, Karnataka, Bangalore v. Commissioner of Commercial Taxes, Karnataka and Others, [1988] 3 SCC 262; Oil and Natural Gas Commission v. State of Bihar and Others, [1977] 1 SCR 34.

To substantiate the argument that there was an element of volition though minimal between the parties in the transactions under consideration, reliance was placed on the observations of the full Bench of the Allahabad High Court in Commissioner of Sales Tax v. Ram Bilas Ram

Gopa~ AIR (1970) Allahabad 518. Though those observations did not find H

A approvl by the Bench which decided Chitter Mal's case, the same found approval by the later larger Bench which decided Vishnu Agencies case.

We shall refer to the relevant portions of the above-said full Bench passage at the apropriate place. In addition to that, reliance also was placed on certain portions in the pleadings (to which also we shall make reference at

B the appropriate place) to the effect that the FCI has not always accepted the foodgrains procured under levy orders and there were occasions when the FCI rejected certain stocks on the ground that they were not upto the quality prescribed. This also, according to the learned Sr. Counsel negatives the contention of the learned Sr. Counsel for the appellants that the entire transaction was single integrated process. The learned Sr. Counsel C submitted that the Lucknow Bench of the Allahabad High Court was fully justified in holding that the transactions are exigible to tax under the State Sales Tax Act and also in holding that the judgment of this Court in Chitter Mal's case stands practically overruled.

D We will first deal with this principal point as the other points depend upon the answer to this principal point.

We prefer to take up the decision in Chitter Mal's case for consideration. As pointed out already in Chitter Mal's case, the issue was whether the supplies made to the Regional Food Controller under the U.P. Wheat Procurement (Levy) Order, 1959 are sales within the meaning of 'sale' under Section 2(h) of the U.P. Sales Tax Act and, if so, are the assessees liable to pay sales tax on the price for wheat supplied to the Regional Food Controller. We must at once, point out that the Food Corporation of India was not a party in that case. The assessee in that case was a dealer in foodgrains who supplied wheat to the Regional Food Controller, a nominee of the U.P. Government for procuring wheat under the Levy Order. The learned Judges, it is apparent from the judgment, were very much influenced by the view expressed in New India Sugar Mills case

(supra) in arriving at a decision that those supplies were not sales and, consequently, not exigible to tax. It is pertinent to point out that in the G Chitter Mal's case itself, the learned Judges have noticed that certain amount of volition was left between the parties. However, it was felt that that volition was not sufficient to make the transaction contractual. While referring to a full bench judgement of the Allahabad High Court in Commissioner of Sales Tax v. Ram Bilas Ram Gopal, AIR (1970) Al- H lahabad 518, this Court in Chitter Mal's case has observed in paras 8 and

9 as follows :

F.C.I. v. STATE [VENKATASWAMI, J.] 37

"8. The High Court relied upon the following observations in Ram Bilas Ram Gopal's case, 1969 All L.J. 424: AIR 1970 All 518 :

"Analysing Clause 3 of the Levy Order it is clear that a licensed B dealer is obliged to sell to the State Government fifty per cent, of the wheat held in stock by him at the commencement of the Order, and thereafter fifty per cent, of the wheat daily procured or purchased by him beginning with the date of commencement of the Order until such time as the State Government otherwise directs. The price at which the wheat is sold is the maximum price fixed in the Wheat C

(Uttar Pradesh) Price Control Order, 1959, as notified by the Government of India. Delivery of the wheat has to be given by the dealer to the Regional Food Controller or a person authorised by him in that behalf. The dealer has no option but to sell the specified percentage of wheat to the State Government. The State Government has also D no option but to purchase fifty per cent, of the wheat held in stock by the dealer at the commencement of the Levy Order. As regards the wheat procured or purchased daily by the dealer thereafter, it is open to the State Government to say that from any particular date it will not purchase any or all the specified percentage of wheat.

Therefore, as regards that wheat the Levy Order leaves it open to E one of the parties, namely, the State Govermnent to decide when it will stop purchasing wheat from the dealer. That in substance is Clause 3 of the LeV)' Order and it embodies the total sum of obligations imposed on the dealer and the State Government. All other details of the transaction are left open to negotiation. It leaves p it open to the parties to negotiate in respect of the time and mode of payment of the price, the Time and mode of delivery of wheat, and other conditions of the contract."

) Clause 3 of the Order compels1 the licensed dealer to deliver to the Controller or his authorised agent every day 50 per cent, of G the wheat procured or purchased by him. There is no scope for negotiations there. Assuming that the Controller may designate the place of delivery and the place of payment of price at the controlled rate, and the licensed dealer acquiesces therein, or even when in respect of those two matters there is some consensual arrangement, H

in our judgment, supply of wheat pursuant to Clause 3 of the Order and acceptance thereof do not result in a contract of sale. The High Court observed that :

" ....... whatever compulsive or coercive force is used to bring about a transaction under Clause 3 of the Levy Order, it must be traced . to legislation. It cannot be attributed to the State Government as a party to the transaction. This, then, is clear. There is nothing in • the Levy Order which can be accused of vitiating the free consent of the parties as defined under Section 14 of the Indian Contract Act, when entering into the contract of sale." .

But these observations assume a contract of sale which the Order does not contemplate. If there be a contract, the restrictions imposed by statute may not vitiate the consent. But the contract cannot be assumed.

9. We may refer to certain decisions of this Court on which reliance was placed at the Bar. In M/s. New India Sugar Mill's case, [1963] Suppl. 2 SCR 459 : AIR (1963) SC 1207 under the Sugar and Sugar Products Control Order, 1946, a scheme was devised for equitable distribution of sugar. The consuming States intimated to the Sugar Controller of India their requirements of sugar and the factory owners sent statements of stocks of sugar held by them.

The Controller made allotments to various States and addressed orders to the factory owners directing them to supply sugar to the States in question in accordance with the despatch instructions from the State Governments. Under the allotment orders, M/s.

New India Sugar Mills Ltd. in Bihar, despatched stocks of sugar to the State of Madras. The State of Bihar treated the transaction as a sale and levied tax thereon under the Bihar Sales Tax Act,

1947. The tax-payer contended that the supplies of sugar, pursuant to the directions of the Controller, did not result in sales and that no tax was exigible on such transactions. A majority of the Court observed that despatches of sugar pursuant to the directions of the Controller were not made in pursuance of any contract of sale.

There was no offer by the tax-payer to the State of Madras, and no acceptance by the latter; the tax payer was under the Control Order compelled to carry out the directions of the Controller and

.l...

F.C.I. v. STATE[VENKATASWAMI, J.) 39

)...

it had no volition in the matter. Intimation by the State of its A requirements of _sugar to the Controller or communication of the allotment order to the assessee did not amount to an offer. Nor did the mere compliance with despatch instructions issued by the Controller, which the assessee had not the option to refuse to comply with, amount to acceptance of an offer or to making of an B offer. A contract of sale of goods postulates a voluntary arrange- ... ment regarding goods between the contracting parties. It was held that in the case before the Court there was no such voluntary l arrangement."

' The above judgment came up for consideration inter alia in Vishnu c Agencies case. That decision was given by a bench of seven learned Judges.

The learned Judges in the first place did not approve the ratio laid down in New India Sugar Mill's case and further did not approve the view taken in the Chitter Mal's case disagreeing with the observations of Allahabad full bench case. The learned Judges observed as follows : D r

"We would, however, like to clarify that though compulsory acquisition of property would exclude the element of mutual asent '

which is vital to a sale, the learned Judges were, with respect, not right in holding in Chitter Mal that even if in respect of the place of delivery and the place of payment of price, there could be a E

consensual arrangement, the transaction will not amount to a sale (p. 677) (SCC p.314). The true position in law is as stated above, namely, that so long as mutual assent, express or implied is not ... totally excluded the transaction will amount to a sale. The ultimate decision in Chitter Mal can be justified only on the view that Clause F 3 of the Wheat Procurement Order envisages compulsory acquisition of wheat by the State Government frcm the licensed dealer.

Viewed from this angle, we cannot endorse the Court's criticism of the Full Bench decision of Allahabad High Court in Commissioner, Sales Tax, U.P. v. Ram Bilas Ram Gopal which held while G construing Clause 3 that so long as there was freedom to bargain

, J... in some areas the transaction could amount to a sale though effected under compulsion of a statute. Looking at the scheme of the U.P. Wheat Procurement Order, particularly Clause 3 thereof, this Court in Chitter Mal seems to have concluded that the transaction was in truth and substance, in the nature of compulsory , H .,

' A acquisition. with no real freedom to bargain in any area, Shah, J. expressed the Court's interpretation of Clause 3 in no uncertain terms by saying that "it did not envisage any consensual arrangement".

B We may also usefully extract a passage from the separate but concurring judgment of Beg C.J. as he then was. The same reads as follow :

"It is true that a considerable part of the field over which what are called 'sales' take place under either regulatory orders or levy orders passed or directions given under statutory provisions is c restricted and controlled by these orders and directions. If, what is called a "sale" is, in substance, mere obedience to a specific order, in which the so-called "price" is only a compensation for the compulsory passing of property in goods to which an order relates, at an amount fixed by the authority making the order, the individual

D transaction may not be a "sale" although the compensation is determined on some generally fixed principle and called "price".

This was for example, the position in New India Sugar Mills v.

Commissioner of Sales Tax, Bihar. That was a case of delivery according to an order given by the Government which could amount to a compulsory levy by an executive order although there E was no legislative '1evy order" involved in that case. On the other hand, in Commissioner, Sales Tax, U.P. v. Ram Bilas Ram Gopal the Order under consideration was actually called a levy order, but the case was distinguishable from New India Sugar Mills v. Com-

:<- missioner of Sales Tax, Bihar (supra) on facts. It was held in the

F case of Ram Bilas (supra) that the core of what is required for a "sale" was not destroyed by the so-called "levy" order which was legislative. It is true that passages from the judgment of Pathak, J. in the case Ram Bilas Ram Gopal-(supra) were cited and specifi- cally disapproved by a bench of this Court in Chitter Mal Narain

G Das v. Commissioner of Sales Tax. But, perhaps the view of this Court in Chitter Mal Narain Das (supra) goes too far in this respect. It is not really the nomenclature of the order involved, but A the substance of the transaction under consideration which matters in such cases.' (

H In Dewan's Breweries case (supra), the question for consideration was /

F.C.I. v. STATE[VENKATASWAMI, J.] 41

whether the, supplies of Indian made foreign liquor by distilleries and' A brewery company from its wholesale depots to permit holders on the permit issued by the Excise and Taxation Officer are sales and liable to sales tax under the Punjab General Sales Tax Act, 1948. The contention was that there was no sale at all as the prices were fixed by the competent authorities and dealers had to charge the fixed price from its retailers B holding licences and there was no volition in the distribution of liquor which was received from the manufacturing concern at J ammu. This contention was negatived by the Court. In the course of the argument, attention of the learned Judges was invited to Chitter Mal's case. In that connection, the learned Judges observe~ as follows :

"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.) v. 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 D transa<; tions in that case were not sales. The said decisions are New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar and Chittar Mal Narain Das v. 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 E judgment was not good law and the one contained in the minority judgment was approved. Chittar Mal's case was also considered in paragraphs 44-45 at pages 467 (pages 56-57 of 42 STC) and it was distinguished on the ground that the said decision can be justified only on the view that clause 3 of the Wheat Procurement Order F envisages compulsory acquisition of wheat by the State Government from the licensed dealer". But then the criticism in that case of the Full Bench decision of Allahabad High Court in Commissioner of Sale Tax, U.P. v. Ram Bi/as Ram Gopal, "which held while constming clause 3 that so long as there was freedom to bargain in G some areas the transaction could amount to a sale though effected under compulsion of a statute was not endorsed. It is, therefore, plain that to that extent Chitter Ma l's case is no longer good law."

(Emphasis supplied) H

A In Coffee Board, Kamataka, Bangalore v. Commissioner of Commercial Taxes, Kamataka and Othm~ [1988) 3 SCC 262, this Court had occasion to consider more or less an identical issue. In that case also arguments identical to the one advanced before us on behalf of the appellants, were advanced. This Court repelled such arguments. As this case dealt with an B issue more or less similar to the one on hand, we propose to extract liberally from this judgment. The question involved in that case was as to the exigibility of tax on sale, if there be any, by the growers of coffee to the Board. The principal features of the legislation connected therewith as noticed in that judgment were : c

. "(a)' Compulsory registration of all lands planted with coffee (Section 14 of the Coffee Act). (b) Mandatory delivery of all coffee grown in the registered estates except the quantities permitted by the Board to be retained for domestic consumption and for seed purposes, (see section 25(1) of the Coffee Act). Estates situated in remote areas specified in the notification issued by the Central Government under the proviso to Section 25(1) of the Coffee Act are exempt from this provision. (c) Seizure by the Board of Coffee wrongly withheld from the pool. Prosecution for failure to deliver and confiscation of quantity not delivered. ( d) Delivery to be effected at such times and at such places as designated by the Board (section 25(2) : the extinguishment on delivery of all rights of the growers in respect of the coffee delivered to the Board excepting the right to receive payment under Section 34 of the Act (section 25(6). (e) Sale of coffee in the pool by the Board in the domestic market and for export through auctions and other channels in regulated quantities and at convenient intervals (section 26(1). (f) Payment to growers in such amounts and at such times as decided by the Board (section 34). The payment to be made on the basis of the value as determined by the price differential scale (section 24( 4), and in proportion to the value of such coffee to the total realisations in the pool (section 34(2). (g) Sale or contracts to sell coffee by growers in the years in which internal sale quota was not allotted were prohibited by Section 17 of the Act. All contracts for the sale of coffees at variance with the provisions of H the Act were declared as void by Section 47 of the Act."

F.C.I. v. STATE [VENKATASWAMI, J.] 43

....

The contention in that case was that there was no sale and it was A nothing but a compulsory acquisition of the coffee by the Coffee Board. In repelling that contention, this Court in the said case observed as follows :

"18. In 1966 this Court in the case of State of Kera/a v. Bhavani Tea Produce Co. (unanimous decision of a Bench of five learned B Judges) which arose under the Madras Plantations Agricultural Income Tax Act. 1955 held that when growers delivered coffee under section 25 of the Act to the Board all their rights therein were extinguished and the coffee vested exclusively in the Board.

This Court observed that when growers delivered coffee to the Board, though the grower "does not actually sell" the coffee to the c Board, there was a sale by operation of law. This was in connection with section 25 of the Act. The Court, however, did not hold that there was a taxable 'sale' by the grower to the Board in the year in question. The sale, according to this Court in that case took place in earlier years in which the Agricultural Income Tax Act D did not operate. All the States in which coffee is grown and all the persons concerned with the coffee industry, it is asserted on behalf of the Additional Solicitor General, understood this decision as laying down that the 'sale by operation of law' mentioned therein only meant the 'compulsory acquisition' of the coffee by the Coffee Board.

(Emphasis supplied)

19. We are, however, bound by the clear ratio of this decision.

The Court considered this question : 'was there a sale to the Coffee F Board?' at page 99 of the Report and after discussing clearly said the answer must be in the affirmative. It was rightly argued, in our ' opinion, by Dr. Chitale on behalf of the respondents that the question whether there was sale or not or whether the Coffee Buard was a trustee or an agent could not have been determined G by this Court, as it was done in this case unless the question was

.-', specifically raised and determined. We cannot also by-pass this decision by the argument of the learned Additional Solicitor .- General that section 10 of the Act had not been considered or how it was understood by some. This decision in our opinion concludes all the issues in the instant appeal." H

A While referring to the Vishnu Agencies case (supra), the following

was observed in that case :

"26. All parties drew our attention to the decision in the case of Vishnu Agencies Pvt. Ltd. There the Court was concerned with the Cement Control Order and the transactions taking place under the provisions of that control order. The Cement Control Order was promulgated under the West Bengal Cement Control Act, 1948 which prohibited storage for sale and sale by a seller and purchase by a consumer of cement except in accordance with the conditions specified in licence issued by a designated officer. It also provided that no person should sell cement at a higher price than the notified price and no person to whom a written order had been issued shall refuse to sell cement "at a price not exceeding the notified price". Any contravention of the order became punish-· able with imprisonment or fine or both. Under the A.P. Procurement (Levy and Restriction on Sale) Order 1967. (Civil Appeal Nos. 2488 to 2497 of 1972) every miller carrying on rice milling operation was required to sell to the agent or an officer duly authorised by the government, minimum quantities of rice fixed by the Government at the notified price, and no miller or other person who gets his paddy milled in any rice mill can move or otherwise dispose of the rice recovered by milling at such rice mill except in accordance with the directions of the Controller. Breach of these provisions became punishable. It was held dismissing the appeals that sale of cement in the former case by the allottees to the permit-holders and the transaction between the growers and procuring agents as well as those between the rice millers on the one hand and the wholesalers or ratailers on the other, in the latter case, were sales exigible to sales tax in the respective States. It was observed by Beg CJ. that the transactions in those cases were sales and were exigible to tax on the ratio of Indian Steel and Wire Products Ltd., Andhra Sugars Ltd., and Karam Chand Thapar. In cases like New India Sugar Mills, the substance of the concept of a sale itself disappeared because the transaction called price did not amount to a sale when all that was done was to carry out an order so that the transaction was substantially a compulsory acquisition. On the other hand, a merely regulatory law, even if it circumscribed the area of free choice, did not take away the basic character or core of sale from the transaction. Such a law which

. >-

F.C.L v. STATE[VENKATASWAMI, J.] 45

governs a class obliges a seller to deal only with parties holding A licenses who may by particular or allotted quantities of goods at specified prices, but an essential element of choice was still left to the parties between whom agreements took place. The agreement, despite considerable compulsive elements regulating or restricting the area of his choice, might still retain the basic character of a transaction of sale. In the former type of cases, the binding char- B acter of the transaction arose from the order directed to particular parties asking them to deliver specified goods and not from a general order or law applicable to a class. In the latter type of cases, the legal tie which binds the parties to perform their obligations remains contractual. The regulatory law merely adds other C obligations, such as the one to enter into such a tie between the parties. Although the regulatory law might specify the terms, such as price, the regulation is subsidiary to the essential character of the transaction which is consensual and contractual. The parties to the contract must agree upon the same thing the same sense.

Agreement on mutiiality of consideration, ordinarily arising from D an offer and acceptance, imports to it enforceability in courts of law. Mere regulation or restriction of the field of choice does not take away the contractual or essentially consensual binding core or character of the transaction. Analysing the Act, it was observed that according to the definition of "sale" in the two Acts the E transactions between the appellants in that case and the allottees or nominees, as the case may be, were patently sales because in one case the property in the cement and in the other property in the paddy and rice was transferred for case consideration by the appellants. When the essential goods are in short supply, various types of orders are issued under the Essential Commodities Act, F 1955 with a view to making the -goods available to the consumer at a fair price. Such orders sometimes provide that a person in need of an essential commodity like cement, cotton, coal or iron and steel must apply to the prescribed authority for a permit for obtaining the commodity. Those wanting to engage in the business G of supplying the commodity are also required to possess a dealer's licence. The permit holder can obtain the supply of goods, to the extent of quantity specified in the permit and from the named dealer only and at a controller price. The dealer who is asked to supply the stated quantity to the particular permit-holder has no option but t~ supply the stated quantity of goods at the controlled H

price. Then the decisions in State of Madras v. Gannon Dunkerley & Co. Ltd. and New India Sugar Mills v. CST, were discussed and the correctness of the view taken in the former case was doubted and the majority opinion in the latter case was overruled.

28. Since all persons including the Coffee Board are prohibited from purchasing/selling coffee in law, there could be no sale or purchase to attract the imposition of sales : purchase tax it was urged. Even if there was compulsion there would be a sale as was the position in Vishnu Agencies. This Court therein approved the minority opinion of Hidayatullah, J. in New India Sugar Mills v.

CST: In the nature of the transactions contemplated under the Act mutual assent either express or implied is not totally absent in this case in the transactions under the Act. Coffee growers have a volition or option, though minimal or nominal to enter into the coffee growing trade. Coffee growing was not compulsory. If any one decides to grow coffee or continue to grow coffee, he must transact in terms of the regulations.imposed for the benefit of the coffee growing industry. Section 25 of the Act provides the Board with the right to reject coffee if it is not up to the standard. Value to be paid as contemplated by the Act is the price of the coffee.

Fixation of price is regulation but is a matter of dealing between the parties. There is no time fIXed for delivery of coffee either to the Board or the curer. These indicate consensuality which is not totally absent in th.: tqnsaction.

43. Th'i ltue principle or basis in Vishnu Agencies case applies to this case. Offer and acceptance need not always be in an elementary form, nor does the law of contract or of sale of goods require that consent to a contract must be express. Offer and acceptance can be spelt out from the conduct of parties which cover not only their acts but omissions as well. The limitations imryosed by the Control Order or the normal right of dealers and consumers to supply and obtain goods, the obligations imposed on the parties and the penalties prescribed by the order do not militate against the position that eventually, the parties must be deemed to have completed the transaction under an agreement by which one party binds itself to supply the s\ated quantity of goods to the other at a price not higher than the notified price and the

F.C.I. v. STATE [VENKATASWAMI, J.] 47

other party consents to accept the goods on the terms and condi- A tions mentioned in the permit or the order of the allotment issued in its favour by the concerned authority.

46. Because coffee is grown on the estate, the owner of the land can be presumed to have consented to surrender his produce to the Board it was submitted. But the surrender is thus clearly an B act of volition. The planting of the seeds of a coffee plant by a grower can be regarded as his act of volition in respect of the surrender to the Board of the coffee yielded by the plant."

In Oil and Natural Gas Commission's , case (supra), this Court C referred the arguments similar to. the one advanced before us and repelled the same in the following manner :

"The Co=ission is described by the Solicitor General to be a statutory body which has no option either with regard to the production or supply and the directions and decisions of the D Government leave no choice with the Commission in regard to supplies.

This Court in Satar Jung Mills Ltd. Etc. v. State of Mysore and Others laid down the following propositions : first, statutory orders regulating the supply and distribution of goods by and between the E parties under control orders in a State do not absolutely impinge on the freedom to enter into contract. Second, directions, decisions and orders of agencies of the Government to control production and supply of co=odities, may fix the parties to whom the goods are to be supplied, the price at which these are to be supplied, the F time during which these are to be supplied and the persons who have to carry out these directions. In such cases it cannot be said that compulsive directions rob the transactions of the character of agreement. The reason is that the transfer of property wiiich constitutes the agreement in spite of the compulsion of law is neither void nor voidable. It is not as a result of coercion. The G statute supplies the consensus and the modality of consensus is furnished by the statutes. There is privity of contract between the parties.

The other third, fourth, fifth and sixth propositions are these. H

Third, such a transaction is neither a gift nor a loan. It is a transfer of property from one person to another. There is consideration for the transfer. There is assent. The law presumes the assent when there is transfer of goods from one to the other. Fourth, a sale may not require the consensual element and that there may, in truth, be a compulsory sale of property with which the owner is compelled to part fur a price against him will and the effect of the statute in such a case is to say that the absence of the transferor's consent does not matter and the sale is to proceed without it. In truth, transfer, is brought into being which ex f acie in all its essential characteristics is a transfer of sale. Fifth, delimiting areas for transactions or denoti1:11g parties or denoting prie 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 of achieving proper supply at standard or fair price to eliminate the evils of hoarding and scarcity on the one hand and ensurin_g availability on the other. Sixth, after all the transactions in substance represent the out-going of the business and the price would come into computation of profits."

Orie other important aspect to be noted is that though the main judgment of this Court in Vishnu Agencies case dealt with West Bengal E Cement Control Act by the same reasonings, this Court has rejected similar arguments relating to transactions under the AP. Paddy Procurement (Levy) Order. In other words, the ratio laid down by this Court in respect of Control Orders were applied to the issues raised under Levy Orders.

Therefore, the distinction sought to be made by the learned counsel F appearing for the appellant that the subsequent judgments of larger Benches of this Court are relating to Control Orders and they do not apply to Levy Orders is without substance. We have noticed the latter trend in the judgments of this Court in particular the Coffee Board's case (supra) was not making out any serious distinction between the transactions under the Control Orders on the one hand and Levy Orders on the other.

We would also like to emphasise one other relevant factor at this stage which has also been noticed by the High Court. Placing reliance on the averments in para_graph 13 of the counter affidavit filed on behalf of the FCI, learned counsel appearing for the State before the High Court H pointed out that it was open to the FCI to reject the foodgrains offered by

J...

F.C.I. v. STATE [VENKATASWAMI, J.] 49

the State Government if the FCI thought that the foodgrains did not A conform to the standard of quality as required by it. The relevant averment made in para 13 of the counter affidavit was to the effect that the FCI had rejected 142 MT of wheat which was offered by the State Government. This shows that the FCI had reserved the right to accept or reject the offer of the State. This also negatives the contention of the learned counsel appear- B ing for the appellants that the transaction in question is one single integrated process and there is no break in it.

On facts and in the light of observations of full bench of the Allahabad High Court (supra) we are satisfied that some area of consensual arrangement and some field for volition is left untouched by the Legislation C in all disputed transactions. The disputed transactions are sales, may be, under the compulsion of a statute. Nevertheless, they are sales exigible to tax. Whatever coercive force is used to bring about the transactions, the same must be traced to legislation and not to the State Government as a party to such transactions.

We, therefore, 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 transactions. In the light of

the rulings of this Court referred to above in detail, we are unable to agree E 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 F 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 Mal's case is no longer good law in the light of later larger Bench decisions of this Court referred to above.

Now coming to the second proposition regarding the constitutionality of Explanation (II) added to Section 3(D)(i) 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 H

A question 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 lo 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

B 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 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.

C We, therefore, do not find any substance in the proposition No. 2 advanced by the learned Senior counsel for the appellants.

Regarding 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 D note explaining the position in the following manner :

"2. From 15.11.1971to18.5.1973, 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 purchases. Therefore, 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 assessment.

3. For the period commencing from 1968-69 and afte1wards (excluding the period 15.11.71 to 18.5.1973 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 com-

F.C.I. v. STATE [VENKATASWAMI, J.] 51

plete retrospective effect by the U.P. Sales Tax (Amendment and A 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 Cor- B poration of India furnishes proof that it has 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

1%9-70 Rs. 931249.92 1971-72 Rs. 2132428.63 1972-73 Rs. 8059065.00

Total Rs. 11122743.55

In 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 E 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." F

In view of the above, the appellants can work out their 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 G that the appellant has been singled out for harsh treatment and there was -'. no other dealer in food grains 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 con- H

A sideration their economic superiority. A classification on the basis of gross

turnover was held by this Court in the earlier case as reasonable one vide Mis. Hoechst Pha1111aceuticals Ltd. v. State of Bihm; AIR (1983) SC 1019.

We 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 propositions.

There is a group of special leave petitions preferred by millers. They C 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 sale 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 D and therefore, there was no sale. 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 Court.

The Food Corporation of India have distributed fertilizers to the Sate 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 that in the distribution of fertilizers, 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 volition or the freedom of con- G tract 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 H consensual contractual agreement in the exercise of their volition subject

F.C.I. v. STATE [VENKATASWAMI,.l.J 53

only to the restrictions regarding price fixation, q1wta requirements etc.

We 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. We have held that the transaction falling under Levy Orders would amount to sales. Therefore, we have no difficulty or hesitation in approving B the view taken by the High Court that the activity of distribution of fertilizers amounts to sale exigible to sale tax.

We 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 C 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 trans- D actions 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 bags 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 actditional ground given by the High Court was that there was nothing to show E 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 F of the judgment.

In the result all the civil appeals except Civil Appeal Nos. 890, 892, 893 and 1995 of 1987 filed by the State of Punjab and Haryana are dismissed. The appeals filed by the State of Punjab and Haryana are G allowed as indicated above. There will be no order as to costs.

Order Dated 28th January, 1997.·

The 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 H

A not decided. Therefore, the civil appeals arising out of S.L.P. (C) Nos. 8772-74/87, 6775/91, 7477/91, 7478/91, 8541/91, 15719/94 and 13131/91 preferred by the Rice Millers will he posted for further arguments on this issue in Court.

v.s.s.

B All the appeals are dismissed Except Appeals Nos. 890, 89:?,893

and 1995 of 1987 are allowed.