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PETITIONER:

FOOD CORPORATION OF INDIA ETC. ETC.

Vs.

RESPONDENT:

STATE OF KERALA

DATE OF JUDGMENT: 06/01/1997

BENCH:

CJI, SUJATA V. MANOHAR, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:

THE 6 AND 28TH DAY OF JANUARY, 1997

Present:

Hon'ble the Chief Justice

Hon'ble Mrs. Justice Sujata V.Manohar

Hon'ble Mr. Justice K. Venkataswami

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, Sr. Advs., (A.K. Verma, P.D. Tyagi) Advs for M/s. JBD

& Co., G.I. Gopalkrishnan, 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, Irshad

Ahmad, Advs. with them for the appearing parties.

J U D G M E N T

The following Judgment of the Court was delivered:

(With Civil Appeal Nos. 897/87. 892-93/87. 991/90. 1130/87.

1995/87. 2532/87. S.L.P.(C) Nos. 10126/87 10137/87.

10161/87. 10162/87, 10248/87, 10508/87. C.A No. 894/90,

S.L.P. (C) No. 10150/87, 10157/87, 10152/87, 10153/87,

10154/87, 8772-74/87, 6775/91, 7477/91, 7478/91, 8541/91,

15719/94 and 13131/91)

C.A. Nos. 544-554/97 @ S.L.P.(C) Nos. 10126/87, etc. and

C.A. Nos. 555-563/97 @ S.L.P.(C) Nos. 8772-74/87, etc.

J U D G M E N T

Venkataswami .J.

Leave granted in all the special leave petitions.

In all these cases. common questions of law arise and

arguments were also addressed on that footing and

consequently, they are disposed of by this common judgment.

The principal common question of law that arises for

consideration can be broadly stated as follows:-

"Whether the Food Corporation of

India (hereinafter called "the

FCI") is liable to pay

sales/purchase tax to the States

while purchasing foodgrains or in

distributing fertilizers pursuant

to orders issued under Section 3 of

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the Essential Commodities Act,

1955?"

There is a difference of opinion among the High Courts

on this question. A division Beach of the Allahabad High

Court (Lucknow Bench) has taken the view that the FCI is

liable to pay purchase tax in the light of the provisions of

the U.P. Sales Tax Act, 1948 (hereinafter called "the Act").

A Division Beach of the Punjab and Haryana High Court,

however, has taken a view that the FCI is not liable to pay

tax, on the purchase of foodgrains. We may at once state

here that the Lucknow Bench of the Allahabad High Court in

taking the view that the FCI is liable to pay tax after

elaborately dealing with 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 Mai Narain Das vs. Commissioner of

Sales Tax (1970 (3) SCC 809) in view of subsequent decisions

of larger benches of this Court does not hold good. The

Division Bench of the Punjab and Haryana High Court,

however, has taken exactly the opposite view holding that

the decision of this Court in Chitter 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

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 `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 that decision of this Court, Mr.

Thakur, learned Senior Counsel addressed elaborate arguments

distinguishing the subsequent decision of larger benches of

this Court projection a `liberal interpretation' of the

definition of `sale' occurring 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 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 notices by the High Court in the common

judgment are given below in brief.

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 State issued

different orders under the Essential Commodities Act known

by different names as Levy Orders, Procurement Orders or

Requisition Orders, for 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 goodgrains, it is

purchased by the Food Corporation of India from the State

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Governments for the purpose of maintaining the national pool

of foodgrains. The Sales Tax Department 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. 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 the State

Government or its purchasing agent

shall be the first 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 crores as provided under

Section 3-F of the U.P. Sales Tax Act, which now 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

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 date 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 on the ground that

the said provisions are discriminatory, arbitrary and

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unreasonable.

In addressing the arguments challenging the view taken

by the Lucknow Bench of the Allahabad High Court, Mr.

Thakur, learned Senior 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 India. The

legislation authorising such

imposition, proceedings and

recovery of Sales Tax is wholly

ultra vires the said Entry 54 of

Constitution of India. Levy

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 at

more than one point. It is

impermissible 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 retrospectively 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 affection the

appellants.

6. That the interest calculated by

the respondents is not payable and,

therefore, in any case the

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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 that.

The principal argument appears to be that levy

procurement did not 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 India. Consequently, the levy

procurement is not at all taxable under the U.P. Sales Tax

Act. After referring to relevant provisions in the Essential

Commodities Act, 1955 and the levy control orders, it was

pointed out that the persons holding stocks of foodgrains

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 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. 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 procurement 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 M/s New India

Sugar Mills India Ltd, vs. Commissioner Oil Sales Tax Bihar

(Air 1963 SC 1207) and Chitter Mal's case (supra) the

learned Senior Counsel submitted that the cases subsequent

to these two decisions taking different 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 parties and everything is

determined in the levy orders. Even the place of delivery of

the foodgrains if 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 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 regulatory orders. According to

the learned Senior Counsel. Chitter Mall's case has rightly

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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 regulatory orders and transactions

under levy control orders, the learned Senior Counsel has

summarised his submissions on the first proposition as

follows:-

"That the transaction 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

power 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

orders. 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

States 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 the

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

bifurcable or divisible into one or

other transaction. Totality of the

acts 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

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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 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."

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

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 not more good law in view of latter

decisions of larger benches of this Court. Though an

argument referring to 46th Amendment 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. vs.

Commercial Tax Officer and Others

((1978) 1 SCC 520); Salar Jung

Sugar Mills Ltd. etc. vs State of

Mysore and others (1972) 2 SCR

228); State of Punjab and Others

vs. Dewan's Modern Breweries Ltd.

(43 STC 454); Coffee Board,

Karanataka, Bangalore vs.

Commissioner of Commercial Taxes,

Karanataka and other ((1988) 3 SCC

262): Oil and Natural Gas

Commission vs 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 vs. Ram Bilas Ram Gopal (AIR

1970 Allahabad 518). Though those observations did not find

approval 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

appropriate place. In addition to that, reliance also was

placed on certain portions in the pleadings (to which also

we shall make reference at 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

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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.

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

of 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 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 judgment of the Allahabad

High Court in Commissioner of Sales Tax vs. Ram Bilas Ram

Gopal (AIR 1970 Allahabad 518), this Court in Chitter Mal's

case has observed in paras 8 and 9 as follows:-

"8. The High Court relied upon the

following observations in Ram Bilas

Ram Gopal's case, 1969 All 1.1.424:

1970 All. 518:

"Analysing Clause 3 of the Levy

Order it is clear that a licensed

dealer is obliged to sell to the

State Government fifty per cent, of

he 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

(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 of 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 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

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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

one of the parties, namely, the

State Government to decide when it

will stop purchasing wheat from the

dealer. That in substance is Clause

3 of the Levy obligations imposed

on the dealer and the State

Government. All other details of

the transaction are left open to

negotiation. It leaves it open to

the parties to negotite 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 compels the

licensed dealer to deliver to the

controller or his authorised agent

every day 50 per cent, of 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, 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

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M/s New India Sugar Mill's case,

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 in question in

accordance with the despatch

instructions from the State 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

the despatches 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 it

had no volition in the matter.

Intimation by the State of its

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 offer. A

contract of sale of goods

postulates a voluntary arrangement

regarding goods between the

contracting parties. It was held

that in the case before the Court

there was no such voluntary

arrangement."

The abvoe judgment came up for consideration inter alia

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in Vishnu 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 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 :-

"We would, however, like to clarify

that though compulsory acquisition

of property would exclude the

element of mutual assent 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 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 3 of the

Wheat Procurement Order envisages

compulsory acquisition of wheat by

the State Government from 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. vs.

Ram Bilas Ram Gopal which held

while construing Clauses 3 that so

long as there was freedom to

bargain 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 ave

concluded that the transaction was

in truth and substance, in the

nature of compulsory acquisition,

in the nature of compulsory

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".

We may also usefully extract a passage from the

separate but concurring judgment of Beg C.J. as he then was.

The same reads ad follows :-

"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

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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

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 vs.

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 was no

legislative "levy order" involved

in that case. On the other hand. In

Commissioner, Sales Tax, U.P. vs.

Ram Bilas Ram Gopal the Order under

consideration was actually called a

levy order, but the case was

distinguishable from New India

Sugar Mills vs. Commissioner of

Sales Tax, Bihar (supra) on facts.

It was held in the 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

of Ram Bilas Ram Gopal (supra) were

cited and specifically disapproved

by a bench of this Court in Chitter

Mal Narain Das vs. 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 the substance of the

transaction under consideration

which matters in such cases."

In Dewan's Breweries case (supra), the question for

consideration was whether the supplies of Indian made

foreign liquor by distilleries and brewery company from its

wholesale depots to permit holders on the permit issued by

the Excise and Taxation Officer are sales and liable to sale

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 holding licences

and there was no volition in the distribution of liquor

which was received from the manufacturing concern at Jammu.

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

observed as follows:-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 24

"This case, in our opinion, is

squarely covered by a recent

decision of this Court delivered by

a Bench of seven Judges in Vishnu

Agencies (Pvt. Ltd.) vs. Commercial

Tax Officer. The High Court in the

case of Jagatjit Distilling and

Allied Industries Ltd. had mainly

relied upon the decision of this

Court to hold that the transactions

in that case were not sales. The

said decisions are New India Sugar

Mills Ltd. vs. Commissioner of

Sales Tax, Bihar and Chittar Mal

Narain Das vs. Commissioner of

Sales Tax, U.P. In the case of

Vishnu Agencies, the former case

was considered in paragraphs 37 to

39 of AIR volume at pages 463-464

(pages 51-52 of 42 STC) and it was

held that the view expressed in the

majority judgment was not good law

and the one contained in the

minority judgment was 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 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 Sales Tax, U.P. vs.

Ram Bilas Ram Gopal, "which held

while construing clause 3 that so

long as there was freedom to

bargain in 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 Mal's case is no

longer good law." (Emphasis

supplied)

In Coffee Board, Karnataka, Bangalore, vs. Commissioner

of Commercial Taxes, Karnataka and others (1983 (3) SCC

263), 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 issue more or less similar to the one on hand,

we propose to extract liberally form 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 :-

"(a) Compulsory registration of all

lands plated with coffee (Section

14 of the Coffee Act). (b)

Mandatory delivery of all coffee

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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 o 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

the Act were declared as void by

Section 47 of the Act."

The contention in that case was that there was no sale

and it was 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 Kerala vs. Bhavani Tea

Produce Co. (unanimous decision of

a Bench of five learned 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

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that when growers delivered coffee

to the Board, though the grower

"does not actually sell" the coffee

to the 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 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

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 Board was

a trustee or an agent could not

have been determined 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."

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 accordance

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with the conditions specified in

licence issued by a designated

officer. Its 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 punishable with imprisonment

or fine or both. Under the A.P.

Procurement (Levy and Restrictions

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 retailers on the

other, in the latter case, were

sales exigible to sales tax in the

respective States. It was observed

by Beg C.J. 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 governs a class obliges a

seller to deal only with parties

holding licenses who may buy

particular or allotted quantities

of goods at specified prices, but

an essential element of choice was

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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 arose

from the 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 obligations, such

as the one to enter into such a tie

between the parties. Although the

regulatory law high specify the

terms, such a price, the

regulations 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

mutuality of consideration,

ordinarily arising form 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

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, 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 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

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asked to supply the stated quantity

to the particular permit-holder has

no option but to supply the stated

quantity of goods at the controlled

price. Then the decisions in State

of Madras vs. Gannon Dunkerley &

Co. Ltd. and New India Sugar Mills

vs. 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 vs. 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

violation 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 the transaction.

43. The true 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. Other and acceptance can

be spelt out from the conduct of

parties which cover not only their

acts but omissions as well. the

limitations imposed by the Control

Order on the normal right of

dealers and consumers to supply and

obtain goods, the obligations

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imposed on the parties and the

penalities prescribed by the order

do not militate against the

position that eventually, the

parties must be deemed to have

competed the transaction under an

agreement by which one party binds

itself to supply the stated

quantity of goods to the other at a

price not higher than the notified

price and the other party consents

to accept the goods on the terms

and conditions 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 act of

violation. 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 referred the arguments similar to the one advanced

before us and repelled the same in the following manner :-

"The Commission 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 the

directions and decisions of the

Government leave no choice with the

Commission in regard to supplies

This Court in Salar Jung Mills Ltd.

etc. vs. State of Mysore and Others

laid down the following

propositions : first, statutory

orders regulating the supply and

distribution of goods by and

between the parties under control

orders in a State do not absolutely

impinge on the freedom to enter

into contract. Second, directions,

decisions and orders of agencies of

the Government to control

production and supply of

commodities, may fix the parties to

whom the goods are to be supplied,

the price at which these are to be

supplied, the time during which

these are to be supplied and the

persons who have to carry out these

directions. In such cases at cannot

be said that compulsive directions

rob the transactions of the

character of agreement. The reason

is that the transfer of property

which constitutes the agreement in

spite of the compulsion of law is

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neither void nor voidable. It is

not as a result of coercion. The

state 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.

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 for a price

against him will and the effect of

the statute in such a case is to

say that the absence of the sale is

to proceed without it, in truth,

transfer, is brought into being

which ex facie in all its essential

characteristics is a transfer of

sale. Fifth, delimiting areas for

transactions or denoting parties or

denoting price for transactions are

all within the area of individual

freedom of contract with limited

choice by reason of ensuring the

greatest good for the greatest

number of achieving proper supply

at standard or fair price to

eliminate the evils of boarding and

scarcity on the one hand and

ensuring 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."

One other important aspect to be noted is that though

the main judgment of this Court in Vishnu Agencies case

dealt with West Bengal Cement Control Act by the same

reasonings, this Court has rejected similar arguments

relating to transactions under the A.P. Paddy Procurement

(Levy) Order. In other words, the ratio laid down by this

Court in respect of Control Orders were applied to the

issues under levy Orders. Therefore, the distinction sought

to be made by the learned counsel appearing for the

appellant that the subsequent judgment 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 a emphasise one other relevant

factor at this stage which has also been noticed by the High

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Court. Placing reliance on the averments in paragraph 13 of

the counter affidavit filed on behalf of the FCI, learned

counsel appearing for the State before the High Court

pointed out that it was open to the FCI to reject the

foodgrains offered by the State Government it the FCI

thought that the foodgrains did not 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 appearing

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 in all

disputed transactions. The disputed transactions are sales,

may be, under the compulsion of a statue. Nevertheless, they

are sales exigible to tax. Whatever coersive 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 with the submission of the

learned Senior Counsel for the appellants that there was no

area left for consensual agreement in the parties to the

procurement transactions. The view taken by the Full Bench

of the Allahabad High Court in Ram Bilas Ram Gopal case is

the correct view, and the High Court of Allahabad (Lucknow

Bench) was right in applying the same in the judgment under

appeal. We also hold that the view of the Punjab and Haryana

High Court challenged before us in some of these cases

taking a different view does not lay down the correct law.

To put the matter beyond controversy, we hold, with respect,

that the decision in Chitter 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)(1) of the U.P. Sales Tax Act, it must be answered

against the assessee following our answer to proposition

No.1 and in favour of the Revenue. We have held that the

transactions in questions are all sale and exigible to tax

under the State Sales Tax Act. The contention that the

Explanation newly added was ultra vires Entry 54 List II of

the Seventh Schedule to the Constitution, on the assumption

that the disputed transactions are not sales and, therefore,

by a fiction the impugned Explanation cannot deem a sale

which is not a sale, is without substance. The learned

counsel fairly concedes that it is open to the State

Legislature to shape a point at which tax is levied, if may

be equally permissible to the legislature to treat a

particular sale or purchase as the first sale or purchase,

but it cannot by legislative device or fiction of law make

something as a sale/purchase which in fact is not. This

argument has to fail in view of our answer to proposition

No.1 in favour of the Revenue. We, therefore, do not find

any substance in the proposition No.2 advanced by the

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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

note explaining the position in the following manner:-

"2. From 15.11.1971 to 18.5.1973,

on the one hand State Government

and its agencies were liable to pay

tax on their purchase and on the

other hand Food Corporation of

India was also liable to pay tax on

his purchase as tax on Foodgrains,

was at all points of 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 afterwards (excluding

the period 15.11.71 to 18.5.73 and

2.9.76 to 30.4.77) provision of

Explanation-II of section 3D(i) is

applicable because this

Explanation-II in section 3D(i) has

been inserted with complete

retrospective effect by the U.P.

Sales Tax (Amendment and

validation) Act, 1976 (U.P. Act

No.23 of 1976) published on

20.5.76. Therefore, Food

Corporation of India had been taxed

rightly because under the provision

of Explanation-II of section 3D(i),

the tax is collected only at one

point viz. from the Food

Corporation of India. Credit is

however given where Food

Corporation of India furnishes

proof that it 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

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1969-70 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 followed

and after verification benefit of

the deposit of tax will be given to

Food Corporation of India.

Thus, there is no question of

multiple taxation for any period

other than 15.11.1971 to

18.5.1973."

In view of the above, the appellants can work out

remedy before the concerned authorities in accordance with

law. There is nothing to be decided by this Court.

Now coming to the fourth proposition, the grievance

appears to be that the appellant has been singled out for

harsh treatment and there was no other dealer in foodgrains

in the State of U.P. whose annual turnover would exceed

Rs.10 crores. It is now well-settled that it is within the

competency of the State Legislature to classify the dealers

and to impose surcharge upon those who were placed in one

category taking into consideration their economic

superiority. A classification on the basis of gross turnover

was held by this Court in the earlier case as reasonable one

vide M/s Hoechst Pharmaceuticals Ltd. vs. State of Bihar

(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 challenged before the High Court the demand

of market fee under the U.P. Krishi Utpadan Mandi Adhiniyam.

1964 on rice. The basis of their challenge was that there

was no safe to demand the market fee when the rice was

procured under the levy orders. According to the appellants

in these matters there was compulsory acquisition of stocks

under the levy orders and therefore, there was no safe. In

the earlier paragraphs, we have dealt with and have arrived

at a finding that the disputed transactions are sales. The

same view was taken by the High Court and consequently, the

writ petitions filed by the millers were dismissed. We

affirm the view of the High Court.

The Food Corporation of India have distributed

fertilizers to the State Governments/their nominees under

Fertilizer (Control) Order. The levy of sales tax on such

distribution of fertilizers was challenged by the food

Corporation of India. The High Courts of Andhra Pradesh and

Kerala upheld the levy and aggrieved by that, the Food

Corporation of India have filed civil appeals. The argument

advanced before the High Court on behalf of the FCI was

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discharging a statutory obligation vested in it under the

Control Order and there is no element of volition or

consensus of agreement in those transactions. This was

negatived by the High Courts holding that there is no

provision in the Control Order excluding the exercise of

violation of the freedom of contract totally. Only the price

of fertilizers was controlled, quoted standard has been

prescribed for mixture of fertilizers and persons carrying

on the business of selling fertilizers are required to

obtain licences. It was also noticed by the High Court that

there was no statutory compulsion in the matter of sale or

purchase of fertilizers and parties are left to enter into

consensual contractual agreement in the exercise of their

volition subject only to the restrictions regarding price

fixation, quota 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. Wee

have held that the transaction falling under Levy Orders

would amount to sales. Therefore, we have no difficulty or

hesitation in approving the view taken by the high Court

that the activity of distribution of fertilizers amounts to

sale exigible to sale 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 the view taken by the Punjab and

Haryana High Court was not the correct one, the State of

Punjab aggrieved by the decision of the Punjab and Haryana

High Court has filed appeals. Our discussion concerning the

six propositions would equally apply to the appeals filed by

the State of Punjab and one additional point arises in the

appeals filed by the State of Punjab, namely, whether the

gunny bags used in the course of the disputed transactions

as a packing material are liable to be included in the

taxable turnover or not? The Punjab and Haryana High Court

held that the gunny bag in these transactions are not

exigible to tax as the contents, namely, rice/paddy are not

liable to tax as there was no sale at all. An additional

ground given by the High Court was that there was nothing to

show whether there was any agreement between the parties for

the sale of gunny bags. Now that we have held that the

disputed transactions are exigible to tax, one reason given

by the High Court as mentioned above, cannot be supported.

Further, the facts are not clear regarding the agreement. In

the circumstances, we consider that the matter has to be

left open to be decided by the Assessing Officer while

finalising the assessment in the light of the judgment.

In the result all the civil appeals except Civil Appeal

Nos. 890, 892, 893 and 1995 of 1978 filed by the State of

Punjab and Haryana are dismissed. The appeals filed by the

States of Punjab and Haryana are allowed as indicated above.

There will be no order as to costs.

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 not decided. Therefore, the civil

appeals arising out of S.L.P.(C)Nos. 8772-74/87, 6775/91,

747/91, 7478/91, 8541/91, 15719/94 and 13131/91 preferred by

the Rice Miller will be posted for further arguments on this

issue in Court.