Source: https://www.legalcrystal.com/case/428388/chittoor-co-operative-sugars-limited-vs-andhra-pradesh
Timestamp: 2019-04-21 05:02:15+00:00

Document:
Judge B.P. Jeevan Reddy and ;G. Ramanujulu Naidu, JJ.
Appellant Advocate P. Venkatarama Reddy, Adv.
1. These two tax revision cases are preferred by the same assessee. T.R.C. No. 30 of 1978 pertains to the assessment year 1972-73, while T.R.C. No. 31 of 1978 pertains to the assessment year 1973-74. The assessee is the Chittoor Co-operative Sugars Ltd.
2. Four questions are raised for our consideration in these tax revision cases, which we shall deal with in seriatim. The first contention urged by Mr. P. Venkatarama Reddy, learned counsel for the assessee, is that the inclusion of the turnover relating to diesel oil supplied by the assessee to the lorries hired by it in its turnover is contrary to low. The facts relevant to this question are : During the crushing season, the assessee engaged certain lorries belonging to the lorry contractors, on a permanent basis. Those lorries were to be used only for purposes of the assessee, and for no other purpose. The charges therefor were to be paid on a particular basis agreed between the parties. It is relevant to state that under the agreement, the assessee had not undertaken to supply the diesel oil for the lorries, which means that the lorry contractors had to procure the requisite quantity of diesel from the usual or their own sources. It so happens that the assessee owns a private petrol bunk, which it has installed to meet the requirements of its own vehicles and lorries. Mr. P. Venkatarama Reddy tells us that the assessee has paid 12 per cent Central sales tax on the fuel which is supplied to it for the said petrol bunk, and that no C forms are also issued by the assessee, which would have enabled it to claim a lesser rate of Central sales tax. Be that as it may, the admitted fact is that the diesel was supplied from the assessee's private petrol bunk to the lorries belonging to the contractors and which were engaged by the assessee during the crushing season. (The diesel is said to have been supplied at the cost price without charging any profit).
3. The department included the said turnover relating to diesel, in the total turnover of the assessee, which was objected to. The Tribunal held that inasmuch as the assessee was under no obligation to supply the diesel under the agreement entered into by it with the lorry contractors, the supply of diesel to such lorries amounts to 'sale' and has been properly included in the total turnover. Mr. Venkatarama Reddy submits that the position here is akin to what happens in the case of a service contract. He relies upon two decisions dealing with service contracts, viz., State of Andhra Pradesh v. Hotel Sri Lakshmi Bhavan  33 STC 444 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi : 1SCR557 in this behalf. On a perusal of the said judgments, however, we find that in the first mentioned case the food was supplied by the assessee to its employees as a part of the wages under the contract of service, and therefore it was held that there was no sale of the food so supplied. The said decision applies the principle relevant in the case of a works contract to service contract as well. Same is the case in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi : 1SCR557 . That was a case where the meals were served to the visitors and there was no separate charge for the meals, but the charge was made on 'inclusive terms' basis which covered all the amenities, including the meals provided to the guests. We are of the opinion that the principle of the said decision has no application to the facts of the present case. Here the assessee voluntarily supplied diesel - may be at the cost price - and the lorry contractors purchased it from the assessee, instead of purchasing from another petrol bunk. We are, therefore, of the opinion that the finding of the Tribunal on this question does not call for any interference.
6. In our opinion, the principle of these two decisions squarely applies to the facts of the present case. Here also, the shareholders of the society mostly are from a rural area, and the presumption that they may not know the ways of business and in case they individually go to purchase, the possibility of their being exploited by businessmen, is equally real. For that reason, they came together to form assessee-co-operative society, and one of the objects for which the society was formed, was to procure chemical fertilisers and supply it to its shareholders. It is clear that the assessee was acting only as an agent of its shareholders in the matter of procuring chemical fertilisers, and supplying the same to them. The observations of the Supreme Court in Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat : 1SCR714 apply with equal force to the present case.
8. The contention on the basis of the words underlined by us is that, since the statute expressly treats the supply or distribution of goods by a society to its members, as a sale, there is no reason to construe otherwise. But, as pointed out by us above, the definition of the expression 'sale' in the Madras Act, and particularly explanation I thereto is in identical terms as the words emphasised by the learned Government Pleader. The Supreme Court observed that the said words must be understood in the context of the entry 'sale of goods' occurring in List II of the Seventh Schedule to the Constitution. The decision of the Supreme Court in Joint Commercial Tax Officer v. Young Men's Indian Association : 3SCR680 having been rendered in similar language, we are unable to say that, because of the words emphasised it must be held that each and every supply of goods or other articles by a society to its members or by a club to its members, constitutes 'sale'.
9. The learned Government Pleader then relied upon the decision in Deputy Commissioner of Commercial Taxes, Tiruchirapalli Division v. North Arcot District Co-operative Sugar Mills Ltd.  34 STC 543, which is also relied upon by the Tribunal in support of its view. It would be appropriate to briefly note the basic facts of that case. The assessee there was a co-operative sugar mill, and it regularly purchased fertilisers of different kinds, manufactured a new manure mixture, and supplied the same to the cane-growers, who were members of the society. The supplies made to the cane-growers were shown in the accounts of the mill as 'sales' effected by the society. In those circumstances, the Tribunal found that there was a sale of manure to the cane-growers, but held that inasmuch as the mill was not a dealer in fertilisers, the sale cannot be subjected to sales tax. When the matter came up before the Madras High Court, it was contended by the assessee-sugar mill that inasmuch as under bye-law 43 the society is expected to advance moneys to its shareholders, the society made advances partly in the shape of cash and partly in kind, i.e., in the shape of fertilisers and therefore such supply cannot be treated as 'sale'. The court, however, held that the bye-law relied upon merely enables the assessee to advance cash up to a particular limit to its members and if the mill has paid such advance partly in the form of manure it must be understood that the members took the entire advance in cash and utilised a portion of such advance for purchase of manure. On that reasoning it was held that there was a sale of fertilisers by the society to its members. But, so far as the case before us is concerned, as pointed out by us above, one of the objects for which the sociey was formed, was to supply chemical fertilisers to its members. More than one bye-law speaks of this object. A society is expected to fulfil and to act in furtherance of the objects for which it was formed. Therefore the society was expected to supply fertilisers to its members, which it did. This fact distinguishes the case before us from the case before the Madras High Court. As pointed out by us above, because of the said bye-laws, the assessee-society must be deemed to have been acting as the agent of its members in the matter of procuring the chemical fertilisers and supplying the same to its members. For these reasons, we hold that the Tribunal was in error in holding that the supply of chemical fertilisers by the assessee to its members amounts to sale.
10. The third point urged is that the Tribunal was in error in holding that the sale of scrap and by-products is liable to be included in the assessee's turnover. The Tribunal held that the sale of scrap, empty barrels, burnt lime and bagasse is incidental and ancillary to the main business of the assessee, that there was continuity and regularity of trade in these commodities year by year, and that therefore those sales cannot be termed as casual. We find no error in the reasoning of the Tribunal. Indeed, the decision in State of Tamil Nadu v. Burmah Shell Oil Company : 2SCR636 , relied upon by the Tribunal, fully bears out the Tribunal's reasoning, and we see no grounds to take a different view.
13. Moreover, in this case, the benefit of such unauthorised collection ultimately goes to the members of the society only, who are very large in number.
14. Having regard to the observations of the Supreme Court, referred to above, we hold that the Tribunal was in error in holding that the value of the gunny bags must be included in the turnover of the assessee only on the ground that the assessee charged and collected sales tax thereon.
15. With the result, these tax revision cases are partly allowed, and it is held that the value of chemical fertilisers supplied by the assessee to its members as also the value of the gunnies in which sugar was sold and or transported by the assessee is not liable to be included in the assessable turnover of the assessee. Having regard to the facts and circumstances of the case, there shall be no order as to costs. Advocate's fee Rs. 200 in each.

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