Supreme Court of India
STATE OF KARNATAKA AND ORS.versusM/S SRI CHAMUNDESWARI SUGAR LTD.
- Citation
- 2008 INSC 464
- Decided
- 8 April 2008
- Disposal
- Case Allowed
- Bench
- ARIJIT PASAYAT
Holding
SAP paid to cane growers is part of the purchase price and is subject to purchase tax under the Karnataka Sales Tax Act, 1957.
Summary
M/s Sri Chamundeswari Sugar Ltd., a sugar manufacturer, purchased sugarcane from growers and paid the Statutory Minimum Price fixed by the Central Government together with the State Advised Price (SAP) fixed by Karnataka. The assessing authority levied purchase tax on the total amount, including SAP, under the Karnataka Sales Tax Act, 1957. The company contended that SAP, being an advance or a subsidy, should not form part of the purchase price for tax purposes. The High Court upheld the tax, the Tribunal reversed, and the High Court again reinstated the tax, leading to a Supreme Court appeal. The Court held that SAP is part of the consideration paid for the sugarcane and therefore liable to purchase tax, rejecting the argument that contractual agreements could exempt it. Consequently, the appeal was allowed and the High Court's order set aside.
Issues considered
- Whether the State Advised Price (SAP) paid by a sugar factory to cane growers forms part of the purchase price liable to purchase tax under the Karnataka Sales Tax Act, 1957.
- Whether an agreement between the purchaser and the grower can exclude the SAP from the definition of purchase price for tax purposes.
Legislation cited
- Central Sales Tax Act, 1956
- Essential Commodities Act, 1955
- Indian Contract Act, 1872
- Karnataka Sales Tax Act, 1957s. 2(t), s. 6
- Sale of Goods Act, 1930
- Sugarcane (Control) Order, 1966s. clause 3, s. clause 3-A, s. clause 5-A
Subjects
purchase taxsugarcaneState Advised PriceKarnataka Sales Tax Acttaxability of advance paymentsStatutory Minimum Pricesale and purchase definitioncontractual agreement and tax liability
Judgment
[2008] 6 S.C.R 16
A STATE OF KARNATAKA AND ORS.
V.
M/S SRI CHAMUNDESWARI SUGAR LTD.
(Civil Appeal No. 4934 of 2006)
APRIL 8, 2008
B
[DR. ARIJIT PASAYAT, P. SATHASIVAM AND
AFTAB ALAM, JJ.] .
Sales Tax.
c Karnataka Sales Tax Act, 1957 - Sugarcane (Control)
Order, 1966 - Clause 5 and 3A - Purchase tax - Levy of -
Purchase of sugarcane from cane growers - Liability of
purchaser to pay purchase tax on excess E;Jmount paid by
purchaser to cane-grower as advance over and above
D minimum cane price and additional cane price - Held:
Assessee paid State Advised Price (SAP) which is subject to r
certain adjustments - It cannot take the plea that because it
was agreed by the grower and the purchaser that certain
amount would be paid, does not render the amount paid as
E SAP irrelevant - Agreement cannot determine the question
of liability to pay the purchase tax - Revenue was justified in
demanding purchase tax on the amount paid as SAP - Hence,
order of High Court that advance price towards SAP cannot
be subjected to tax is not sustainable and is set aside.
F Words and Phrases: ~
'Purchase price' and 'Purchase' - Meaning of
'Sale' - Meaning of - In the context of s. 2(t) of the
Karnataka Sales Tax Act, 1957.
G
The respondent company is the manufacturer of
sugar. It was liable to pay tax on purchase of sugarcane.
The assessing authority passed the assessment orders
for assessment year 1990-1991 to 1993-1994. It took into
H 16
STATE OF KARNATAKA AND ORS. v. MIS SRI 17
CHAMUNDESWARI SUGAR LTD.
coll'sideration the statutory minimum price fixed by the A ·
Central Government, the State Advised Price fixed by the
State of Karnataka and all other amounts paid toe the
sugarcane growers by the respondent-company, and
determined the purchase price paid to sugarcane growers
by the respondent company on which purchase tax was B
levied under the Karnataka Sales Tax Act, 1957.
Respondent-company filed writ petition which was
dismissed holding that the amount paid under the different
nomenclatures required to be considered as purchase
price paid by the purchaser of sugarcane to the cane c
growers. Appeal preferred thereagainst was disposed of
alongwith other appeals by order dated 08.02.1996 i.e.
State of Tamil Na du and Ors. v. Kothari Sugars and Chemicals
Ltd. holding that without any contractual or statutory basis
fixing the sale price of sugarcane at an amount higher D
than the minimum cane price fixed under clause 3 of the
Sugarcane (Control) Order, 1966 and the additional cane
price fixed under clause 5-A, any sum paid by the
purchaser to the grower as advance prior to fixation of
the additional cane price under clause 5-A, to the extent
that it is in excess of the additional cane price fixed later, E
cannot form part of the price of cane sugar.
One of the appeals against the decision ofKarnataka
High Court in Tungabhadra Sugar Works and Anr v. State of.
Karnataka and Ors was remitted back to High Court for· F
fresh consideration in the light of certain observations and
directions given by this Court. High Court remitted the
matter to the Assessing Authority. The Assessing Officer
held that the· State Advised Price paid by the respondent
forms part of the purchase price paid to the sugarcane G
growers and thus, was to be included in the turnover of
the dealer for purpose of computation of tax. Respondent
filed appeal which was dismissed. In second appeal,
tribunal held that the advance price towards SAP cannot
be subjected to tax and do not form part of purchase price. H
18 SUPREME COURT REPORTS [2008] 6 S.C.R
A High Court upheld the order. It also held that in the
absence of agreement between sugarcane purchasers
and sugarcane growers, the payment of excess amount
fixed by the State/Central Government was not to be
reckoned. Hence the present appeal. On finding that there
B was slight controversy in some of the decisions of this
Court, a Division Bench referred the matter to a larger
Bench and then the matter came up for hearing by the
three Judge Bench.
Allowing the appeal, the Court
c
HELD: 1..1 In the State of U.P. the SAP forms part of
the agreement. In the instant case, it is not there. UP
Cooperative's case deal with question of statutory price.
In Ponni Sugars case the decision in UP Cooperative's
case was followed. There is no dispute that respondent
0
paid the SAP which is subject to certain adjustments. That
being so, the respondent cannot take the plea that
because if was agreed by the grower and the purchaser
that certain amount would be paid, that does not in any
way render the amount paid as SAP irrelevant. In fact, an
E agreement cannot determine the question of liability to
pay the purchase tax. [Para 13] [40-B, C, DJ
1.2 The plea that purchase price is not defined,
therefore, the agreed price would be taken to be the
F purchase price is unsustainable. The basic question is
what is the consideration paid for effecting the purchase.
[Para 14] [41-A]
1.3. The definition of "Sale" in Section 2(t) of the
Karnataka Sales Tax Act, 1957 is relevant. It refers to
G transfer of the property in goods by one person to another
in the course of trade or business "for cash or for deferred
payment or other valuable consideration". "Purchase
price" is well-known expression in commercial
transactions. Every purci1ase involves a corresponding
H sale. The purchase money or purchase price for property
STATE OF KARNATAKA AND ORS. v. M/S SRI 19
CHAMUNDESWARI SUGAR LTD.
I 1
is the price to be paid for it. [Para 15] [41-8, C] A
Commissioner of Income Tax, Andhra Pradesh v. TN.
Aravinda Reddy 1979 (4) SCC 721 - referred to.
1.4 Normal meaning of the word 'purchase' is
acquisition for money or for any consideration. That is B
the primary meaning. In Concise Oxford Dictionary, apart
from the two meanings "buy, acquire", another meaning
given to the word "purchase" is "procure". The word
"procure" consists of much wider import than the word
"purchase". In the same dictionary, the word "procure" c
has been mentioned the meaning as "obtained by care
or effort acquire". Purchase is thus a word of restricted
meaning than the word "procure". While considering a
taxing statute which deals with income from business the
word "purchase" will therefore, have to be seen in the
0
commercial sense. In the commercial sense, a transaction
of purchase is a part of a transaction of sale. A transaction
of sale can never be complete unless there is a transfer
of property from the seller as well and the buyer who is
the purchaser, must, therefore, acquire the property
before he can claim to have purchased the property. E
[Para 16] [41-F, G; 42-A, B]
Concise Oxford Dictionary - referred to.
1.5 In the Sale of goods Act and also in Central
~ Sales Tax Act or in any of the sales tax laws made in F
the several States, the definition includes the sale of
goods, and not to the purchase of goods. That must be
so because the sale of a commodity must include within
its ambit the concept of sale as well as purchase. It is not
possible to conceive of a sale of goods without a buyer. G
[Para 17] [42-8, C] ·
1.6 It is fairly accepted that SAP has been paid. The
claim of the respondent is that determination is tentative
and certain adjustments can be made later. But till that is H
20 SUPREME COURT REPORTS [2008] 6 S.C.R.
A done the SAP has to be taken as the consideration.
Appellants were justified in demanding purchase tax on
the amount paid as SAP and the High Court's view is
clearly unsustainable and is set aside. The view expressed
in Ponni Sugars case is in consonance with the view
s expressed by the Constitution Bench in UP Cooperative's
case. The observations relating to the agreed price which
is above the lowest ~ermissible rate cannot read ,to mean
that any ceiling is fixed by the agreed price. In fact in Ponni
Sugars case and UP Cooperative's case this Court held
C that the price fixed under the Control Order was the
minimum price and it was the lowest permissible ratl'l. The
.
,;
highest amongst the three prices relatable to the
purchase is the price on the basis of which the purchase
tax is to be levied. [Para 18] [42-D-G]
D State of TN. and Ors. v Kothari Sugars and Chemicals
Ltd. and Ors. 1996 (7) SCC 751; E. I. D. Parry (I) Ltd. v. Assistant
Commisioner of Commercial Taxes and Anr. 2000 (2) SCC
321; Ponni Sugars (Erode) Ltd. v. Dy Commercial Tax Officer
2005 (13) SCC 102; State of Tamil Nadu and Ors. v. Kothari
E Sugars and Chemicals Ltd. 1996 (101) STC 197; UP
Cooperative Cane Unions Federations v. West UP Sugar Mills
Association and Ors. 2004 (5) SCC 430 - referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4934 of 2006.
F
From the Judgment and Order dated 2.8.2004 of the High
Court of Karnataka at Bangalore in S.T.R.P. Nos. 59 to 62 of
2001.
Sanjay R. Hegde, Amit Kumar Chawla andArul Verma for
G theAppellants.
Dhruv Mehta, Harshvardhan Jha, Yashraj Singh Deora,
Gulshan Sharma (for Mis. K.L. Mehta & Co.,) for the
Respondent.
H The Judgment of the Court was delivered by
STATE OF KARNATAKA AND ORS. v. MIS SRI 21
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
J
1 DR. ARIJIT PASAYAT, J. A
1. Noticing that there was slight controversy on principle in
the decisions of this Court in State of T.N. and Ors. v Kothari
Sugars & Chemicals Ltd. and Ors. (1996 (7) SCC 751), E.l.D.
Parry (I) Ltd. v. Assistant Commisioner of Commercial Taxes
and Anr. (2000 (2) sec 321) on one hand and Ponni Sugars B
•, (Erode) Ltd. v. Dy. Commercial Tax Officer (2005 (13) SCC
102) the matter was referred to a larger Bench and that is how
the matter was placed before us. The controversy lies within a
very narrow compass and is essentially as follows:
c
2. The respondent company is a dealer registered under
the provisions of the Karnataka Sales Tax Act, 1957 (in short
the 'Act') and Central Sales Tax Act, 1956 (in short the 'Central
Act') and is engaged in the manufacture of sugar and is liable
to pay tax on purchase of sugarcane. The price payable for
D
purchase of sugarcane by a sugar factory is fixed by the
?\ Government of India in exercise of its powers under clause 3 of
the Sugarcane (Control) Order, 1966 (in short 'Control Order').
The price so fixed is called the Statutory Minimum Price. In
addition to statutory price so fixed, the Government of Karnataka
also fixes the price payable to sugarcane growers by the sugar E
factories as State Advised Price ('SAP' for short). The price
paid by sugar factories to sugarcane growers also comprises
harvesting subsidy, transportation subsidy, plantation subsidy
and the advance payment towards these subsidies.
F
3. The assessing authority for the assessment years 1990-
1991, 1991-1992, 1992-93 and 1993-94 had passed
assessment orders taking into consideration the statutory
minimum price fixed by the Central Government, SAP fixed by
the State of Karnataka and all other amounts paid to sugarcane
G
growers by the respondent-company as the purchase price paid
to sugarcane growers and had levied purchase tax under the
.... ' Act.
4. The orders of assessment passed by the Assessing
Officer were questioned by the respondent-company by filing a H
22 SUPREME COURT REPORTS [2008] 6 S.C.R.
!
A Writ Petition before the High Court. Grievance of the respondent-
company was that the Assessing Authority was not justified in
levying purchase tax on the amount paid by the factory to the
sugarcane growers over and above the statutory minimum price
fixed by the Central Government. The High Court rejected the
B Writ Petition and held that the amount paid under the different
nomenclatures required to be considered as purchase price ,.
paid by the purchaser of sugarcane to the cane growers. The
respondent-company approached this Court questioning
correctness or otherwise of the order passed by the High Court
c by filing a Special Leave Petition. The appeal was disposed of
alongwith other appeals involving similar issues by order dated
8.2.1996 i.e. State of Tamil Nadu and Ors. v. Kothari Sugars
and Chemicals Ltd. (1996 (101) STC 197). It was inter-alia
observed as follows:
D "On a perusal of the Sugarcane (Control) Order, 1966, it
is clear that the total price of Sugarcane fixed thereunder
is the aggregate of the minimum cane price fixed under
clause 3 and the additional price fixed under clause 5-A.
Unless there be an agreement between the grower and
E purchaser for purchase of the sugarcane at a higher price,
the obligation of the purchaser is to pay the grower only
the aggregate of the amounts fixed under clauses 3 and
5-A. In other words, under the statute there is no liability of
the purchaser to pay the grower any amount in excess of
F this aggregate amount. Where, without any contractual or
statutory basis the sale price of sugarcane is fixed at an
amount higher than the minimum cane price fixed under
clause 3 and the additional cane price fixed under clause
5-A, any sum paid by the purchaser to the grower as
advance prior to fixation of the additional cane price under
G
clause 5-A, to the extent that it is in excess of the additional
cane price fixed later, cannot form part of the price of cane
sugar. It must be proved as a fact that the higher price
including the excess amount was paid as the- price of the
" ,..
sugarcane under an agreement between the grower and
H
/
STATE OF KARNATAKA AN6 ORS. v. M/S SRI 23
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
' ~ purchaser irrespective of the lower amount being fixed as A
the aggregate of the price fixation under clauses 3 and 5-
A of the Control Order. Unless a clear finding to that effect
is recorded, the amount paid-by the purchaser in excess
of the aggregate of the minimum price fixed under clause
3 and the additional price fixed under clause 5-A, as a B
,;1, part of the-amount paid as advance prior to the fixation of
the additional price under clause 5-A, cannot be
automatically treated as a part of total price of sugarcane".
5. So far as the decision of Karnataka High Court in
Tungabhadra Sugar Works and Anr v. State of Kamataka and c
Ors., this Court remitted the matter for a fresh consideration in
the light of certain observations and directions given. After
remand by order dated 9.7.1996 in Writ Petition No.4583/93
and connected matters, the High Court remanded the matter to
the Assessing officer with certain observations, the relevant D
portion of which reads as under:
».
"We also think that the proper course to be adopted in
these cases is to remit the matter to the assessing
Authority for fresh consideration in the light of what has
been stated by the Supreme Court in _its order in Civil E
Appeal No.11605-608/1995. Hence, we quash the
assessment orders or the orders made in appeals arising
therefrom or any demands subsisting thereto and direct
the assessing authorities concerned to redo the
assessments, in the light of the decision of the Supreme F
1 Court aforesaid."
6. The Assessing Officer after a detailed verification of
the materials made available by the respondent-company came
to hold that the State Advised Price paid by the respondent
G
forms part of the purchase price paid to the sugarcane growers
and, therefore, that required to be included in the turnover of the
dealer for the purpose of computation of tax. The appeal filed
by the resp.ondent-company was dismissed by the First
Appellate Authority, but in Second Appeal the Karnataka
H
24 SUPREME COURT REPORTS [2008] 6 S.C.R.
A Appellate Tribunal (in short the 'Tribunal') decided in favour of
the respondent-company.
7. Aggrieved by the findings, the State and its functionaries
filed Sales Tax Revision Case Nos.59-62 of 2001 before the
High Court. Question of law raised was as follows:
B
"Whether the Tribunal was justified in holding that the
advance towards SAP cannot be subjected to tax even
though the other incentive subsidies were to be treated as
part of purchase price in view of the decision of the
Supreme Court in EID Parry (I) Limited' case?"
c
8. Referring to the decisions of this Court in EID Parry's
and Kothari Sugars cases (supra), the High Court held that the
matter was concluded by para 9 in Kothari's case (supra). The
High Court further held that in the absence of agreement between
o sugarcane purchasers and sugarcane growers, the payment of
excess amount fixed by the State/Central Government was not
to be reckoned. The writ petition was accordingly dismissed.
9. In support of the appeal, learned counsel for the
appellants submitted that approach of the High Court is clearly
E erroneous. It was submitted that essentially there are two prices
fixed in respect of sugarcane; one is fixed by the Central
. Government which is the minimum price under the Control Order
issued under the Essential Commodities Act, 1955 (in short
'EC Act'). There is another price which is the State Advised
F Price fixed by the Executive Order. State Advised Price is
normally higher than the price fixed under the Control Order. In
U.P Cooperative Cane Unions Federations v. West U.P Sugar
...
Mills Association and Ors. (2004 (5) SCC 430) the controversy
was competence of the State Government to fix the advised
G price. This Court observed that the State had the authority and
there was no repugnancy.
10. The controversy lies within a very narrow compass.
The purchase tax is payable under Section 6 of the Act. Under
clause 2(f) of Control Order the 'price' defined is the minimum
H price fixed by the Central Government and clause 3 defines the
STATE OF KARNATAKA AND ORS. v. MIS SRI 25
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
1' 'minimum price'. A
11. It is further submitted that purchase tax is payable on
the purchase price. The consideration that is paid for making
purchase is the purchase price. By way of illustration, it is stated
that there may be three different rates; (i) fixed by the Central
Government; (ii) the State Advised Price and (iii) the price fixed B
in the agreement between grower and the purchaser. Even if
the first and the third prices are lesser than the second price i.e.
the amount paid for effecting the purchase is the purchase price.
The authorities therefore had rightly taken that to be the basis
for determination of purchase tax payable. According to learned c
counsel for the respondent in view of what has been stated in
Kothari's case (supra) the price agreed between the purchaser
and the grower is the price on which purchase tax is payable.
12. In UP Cooperative's case (supra) it was observed
inter-alia as follows: D
"29. Learned counsel for the respondent has also
submitted that in order to constitute a valid agreement,
the consent of the parties thereto should be a voluntary
consent and not a consent obtained under any kind of E
compulsion or duress. It has been submitted that after the
State Government makes an announcement of a State-
advised price, the occupiers of the sugar factories are
compelled to enter into agreements with the cane-growers
and cane-growers' cooperative societies in Forms B and
C, wherein the State-advised price is mentioned. The F
t same price is also mentioned in the parchas issued to the
cane-growers. It has been urged that the sugar factories
cannot be compelled to pay such State-advised price even
though it may have been mentioned in the forms or in the
parchas. It is not possible to accept the contention raised. G
As discussed earlier, the State Government in exercise of
its regulatory power can fix the price of sugarcane. The
mere fact that this price is not to the liking of the sugar
factory does not mean that it cannot form the basis for
supply of sugarcane by the cane-growers or cane-growers' H
26 SUPREME COURT REPORTS [2008] 6 S.C.R.
A cooperative society to the sugar factory. It is well settled ~
that even a compulsory sale does not lose the character
of a sale. This question has been examined in considerable
detail by a Constitution Bench in Indian Steel & Wire
Products Ltd. v. State of Madras (AIR 1968 SC 478). The
B appellant in this case supplied certain steel products to
various persons at the instance of the Steel Controller, ~
who exercised powers under the Iron and Steel (Control of
Production and Distribution) Order, 1941, which was
issued under the Defence of India Act, 1939. The appellant
challenged the assessment of sales tax made on its
c turnover under the Madras General Sales Tax Act. The
contention of the appellant was that it was the Controller
who determined the persons to whom the goods were to
be supplied, the price at which they were to be supplied,
the manner in which they were to be transported and the
D mode in which payment of price was to be made. In short,
it was said that every facet of the transaction was
prescribed by the Controller and, therefore, it could not be "
considered as sales. Sub-clause (1) of clause 11-B of the
Control Order provided that the Controller may, by
E notification in the gazette, fix the maximum price at which
any iron or steel may be sold and sub-clause (3) of the
same clause provided that no producer, or stockholder
shall sell or offer for sale (and no person shall acquire) any
iron or steel at a price exceeding the maximum price fixed
F under sub-clause (1) or (2). After review of a number of
authorities, the Court held as under: (AIR p.487, para 17) ,_
"17. For the reasons already stated, we are unable
to accept the contention that the transactions with
which we are concerned in these cases are not sales.
G Out of the four elements mentioned earlier, three were
admittedly established, namely, the parties were
competent to contract, the property in the goods was
transferred from the seller to the buyer and price in
money was paid. The only controversy was whether
H there was mutual assent. Our finding is that there
STATE OF KARNATAKA AND ORS. v. M/S SRI 27
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J]
was mutual assent in several respects. Hence, we A
agree with the High Court that the transactions before
us are sales."
30. In Andhra Sugars Ltd. v. State of AP (AIR 1968 SC
599) the question of compulsion by law to enter into an
agreement was considered by a Constitution Bench. B
Under the Andhra Pradesh Sugarcane (Regulation of
Supply and Purchase) Act, 1961, the occupier of a sugar
factory had to buy sugarcane from cane-growers in
conformity with the directions from the Cane
Commissioner. Under Section 21 of the aforesaid Act, C
the State Government had power by notification to tax
purchasers of sugarcane for use, consumption or sale in
a sugar factory and the tax was leviable subject to a
maximum rate per metric ton. The petitioner sugar factories
filed writ petitions under Article 32 of the Constitution 0
challenging the validity of Section 21 mainly on the ground
that as the petitioners were compelled by law to buy cane
from cane-growers. their purchases were not made under
agreements and were not taxable under Entry 54 List II
having regard to Gannon Dunkerley case (AIR 1958 SC E
560). The contention was repelled after a thorough analysis
of the legal position and the following observations on
p. 711 of the Report show that the challenge raised by the
respondents here has no substance: (AIR pp. 603-04,
para 4) F
"4. Under Section 4(1) of the Indian Sale of Goods
Act, 1930, a contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. By Section
3 of this Act, the provisions of the Indian Contract G
Act, 1872 apply to contracts of sale of goods save
insofar as they are inconsistent with the express
provisions of the later Act Section 2 of the Indian
Contract Act provides that when one person signifies
to another his willingness to do or to abstain from H
28 SUPREME COURT REPORTS [2008] 6 S.C.R.
A doing anything with a view to obtaining the assent of
the other to such act or abstinence, he is said to
make a proposal. When the person to whom the
proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal when
B accepted becomes a promise. Every promise and
every set of promises forming the consideration for
each other is an agreement. There is mutual assent
to the proposal when the proposal is accepted and
in the result an agreement is formed. Under Section
c 10, all agreements are contracts if they are made by
the free consent of parties competent to contract for
a lawful consideration and with a lawful object and
are not by the Act expressly declared to be void.
Section 13 defines consent. Two or more persons
are said to consent when they agree upon the same
D
thing in the same sense. Section 14 defines free
consent. Consent is said to be free when it is not
caused by coercion, undue influence, fraud,
misrepresentation or mistake as defined in Sections
15 to 22. Now, under Act 45of1961 and the Rules
E framed under it, the cane-grower in the factory zone
is free to make or not to make an offer of sale of
cane to the occupier of the factory. But if he makes
an offer, the occupier of the factory is bound to accept
it. The resulting agreement is recorded in writing and
F is signed by the parties. The consent of the occupier
of the factory to the agreement is not caused by
coercion, undue influence, fraud, misrepresentation
or mistake. His consent is free as defined in Section
14 of the Indian Contract Act though he is obliged by
G law to enter into the agreement. The compulsion of
law is not coercion as defined in Section 15 of the
Act. In spite of the compulsion, the agreement is
neither void nor voidable. In the eye of the law, the
agreement is freely made. The parties are competent
H to contract. The agreement is made for a lawful
STATE OF KARNATAKA AND ORS. v. M/S SRI 29
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
1
consideration and with a lawful object and is not void A
under any provisions of law. The agreements are
enforceable by law and are contracts of sale of
sugarcane as defined in Section 4 of the Indian Sale
of Goods Act. The purchases of sugarcane under
the agreement can be taxed by the State Legislature · B
under Entry 54 List II."
Again .at SCR p.712, the Court made the following
observation: (AIR p. 604, para 5)
"It is now realised that in the public interest, persons c
exercising certain callings or having monopoly or near-
monopoly powers should sometimes be charged with the
duty to serve the public and, if necessary, to enter into
contracts. Thus, Section 66 of the Indian Railways Act,
1890 compels the railway administration to supply the
D
public with tickets for travelling on the railway upon payment
of the usual fare. Section 22 of the Indian Electricity Act,
1910 compels a licensee to supply electrical energy to
every person in the area of supply on the usual terms and
conditions. Cheshire and Fifoot in their Law of Contract,
6th Edn., p.23 observe that for reasons of social security E
the State may compel persons to make contracts. One of
the objects of Act 45 of 1961 is to regulate the purchase
of sugarcane by the factory-owners from the cane-growers.
The cane-growers scattered in the villages had no real
y bargaining power. The factory-owners or their combines F
enjoyed a near monopoly of buying and could dictate their
own terms. In this unequal contest between the cane-
growers and the factory-owners, the law stepped in and
compelled the factory to enter into contracts of purchase
of cane offered by the cane-growers on prescribed terms G
and conditions."
31. A similar question was examined by a Bench of seven
Judges in Safar Jung Sugar Mills Ltd. v. State of Mysore
(1972 (1)-SCC 23). The contention was that there was no
H
30 SUPREME COURT REPORTS (2008] 6 S.C.R.
A mutual assent by and between the sugar mills and the
growers of the sugarcane and, therefore, there was no
purchase or sale of sugarcane and consequently no tax
under the Mysore Sales Tax Act could be levied. It was
held that statutory orders regulating the supply and
B distribution of goods by and between the parties under
the Control Orders in a State do not absolutely impinge on
the freedom to enter into contract. Legislative measures
or statutory provisions fixing the price, delivery, supply,
restricting areas for transactions are all within the realm of
c planning economic needs, ensuring production and
distribution of essential commodities and basic
necessities of community. The individual freedom is to be
reconciled with adequate performance by the Government
of its functions in a highly organised society. In para 44 of
the Report it was held as under: (SCC pp.38-39)
D
"The parties choose the term of delivery. They have choice
of obtaining a supply exceeding 95% of the yield. They
can stipulate for a price higher than the minimum. They
can have terms for payment in advance as well as in cash.
E A grower may not cultivate and may not have any yield. A
factory may be closed or wound up, and may not buy any
sugarcane. A factory can reject goods on inspection. A
combination of all these features indicate that the parties
entered into agreement with mutual assent and with volition
F for transfer of goods in consideration of price. The
transactions amount to sales within the meaning of the
Mysore Sales Tax Act."
32. In Sukhnandan Saran Dinesh Kumarv. Union of India
(1982 (2) sec 150) after considering the provisions of
G the 1966 Order and the 1953 Act made by the U.P.
Legislature the Court clearly ruled that in order to protect
the sugarcane-growers who are not in a position to
negotiate, the Government can prescribe terms in a
contract which they have to enter into with the occupiers
H of sugar factories. After elaborate discussion of the relevant
STATE OF KARNATAKA AND ORS. v. M/S SRI 31
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
provisions, the Court expressed its view in the following A
words in para 22 of the Report: (SCC p. 165)
"The proposition is now beyond the pale of
controversy that the State can impose a restriction in
the interest of general public on the right of a party to
contract where in the opinion of the Government the B
contracting parties are unable to negotiate on the
footing of equality. Constitutional validity of statutes
prescribing minimum wages has been founded on
this proposition. The principle can be effectively
extended to the powerful sugar industry and the cane- c
growers because the cane-growers admittedly are
at a comparative disadvantage to the producers of
sugar and khandsari sugar who were described in
the course of arguments as sugar barons. It does not
. require an elaborate discussion to reach an
affirmative conclusion that sugarcane-growers who
are farmers cannot negotiate on the footing of the
D
equality with the producers of sugar and khandsari
sugar. The State action for the protection of the
weaker sections is not only justified but absolutely E
necessary unless the restriction imposed is
excessive."
33. As discussed earlier, the reservation or assignment of
area is made for the benefit of a sugar factory. The
.Y agreements executed by the cane-growers or cane- F
growers' cooperative society in favour of occupier of a
factory are also for the benefit of the sugar factory as by
such agreements it gets an assurance of a continuous
supply of freshly harvested sugarcane on the days
indicated in the requisition slips issued by it so that there G
may not be any problem in getting optimum quantity of
raw material throughout the crushing season. In absence
of the agreements the sugar factory will also be a loser as
it may face great problem in getting the supply of
sugarcane according to its requirement. The occupiers of H
32 SUPREME COURT REPORTS [2008] 6 S.C.R.
A the factory are themselves keen on execution of the
agreements but their only objection is to the mention of
State-advised price. The agreement is one composite
transaction and it is not open to them to contend that the
terms thereof which are to their advantage should be
B enforced but the term relating to price notified by the State
Government should not be enforced as their consent in
that regard was not a voluntary act. In our opinion, having
regard to the advantages derived by the sugar factories,
they are fully bound by the agreement wherein the State-
c advised price may be mentioned and it is not open to
them to assail the clause relating to price of the sugarcane
on the ground that their consent was not voluntary or was
obtained under some kind of duress.
34. Learned Senior Counsel for the respondents has
D strenuously urged that the Central Government having
made the 1966 Order which contains a specific provision
for fixation of price of sugarcane, under clause 3(1) thereof,
the regulatory power under the 1953 Act cannot embrace
within its fold the same power of fixation of price as this
E will be clearly repugnant to a law made by Parliament and
would be void in view of Article 254(1) of the Constitution.
In Tika Ramji (AIR 1956 SC 676) it has been held that the
EC Act under which the Central Government made the
1966 Order and the 1953 Act made by the U.P. Legislature
F have been enacted with reference to Entry 33 of List 111 of
the Seventh Schedule. The constitutional validity of the
1953 Act was upheld by the Constitution Bench in the said
decision. On p. 437 of the Report (SCR) the Court quoted
with approval the following passage from the judgment of
Sulaiman, J. in Shyamakant Lal v. Rambhajan Singh
G
1939 FCR 193) (FCR at p. 212 : AIR at p. 83) for the
principle of construction in regard to repugnancy: (AIR p.
700, para 32)
"When the question is whether a Provincial
H legis!lation is repugnant to an existing Indian law, the
STATE OF KARNATAKA AND ORS. v. MIS SRI 33
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
1
onus of showing its repugnancy and the extent to A
which it is repugnant should be on the party attacking
its validity. There ought to be a presumption in favour
of its validity, and every effort should be made to
reconcile them and construe both so as to avoid
their being repugnant to each other; and care should B
,.J. be taken to see whether the two do not really operate
in different fields without encroachment. Furlher,
repugnancy must exist in fact, and not depend
merely on a possibility:"
(emphasis supplied) c
And then went on to hold: (AIR p.700, para 33)
"33. In the instant case, there is no question of any
inconsistency in the actual terms of the Acts enacted
by Parliament and the impugned Act. The only D
..... questions that arise are whether Parliament and the
State Legislature sought to exercise their powers
over the same subject-matter or whether the laws
enacted by Parliament were intended to be a
complete exhaustive code or, in other words, E
expressly or impliedly evinced an intention to cover
the whole field."
35. In M. Karunanidhi v. Union of India (1979 (3) SCC
431) the principles to be applied for determining
.'y
repugnancy between a law made by Parliament and law F
made by the State Legislature were considered by a
Constitution Bench. In pursuance of an FIR lodged against
Shri M. Karunanidhi, CBI after investigation had submitted
charge-sheet against him under Sections 161, 468 and
471 IPC and Section 5(2) read with Section 5(1 )( d) of the G
Prevention of Corruption Act. The Madras Legislature had
~
passed an Act known as the Tamil Nadu Public Men
(Criminal Misconduct) Act, 1973 which had received the
assent of the President. It was contended that by virtue of
Article 254(2) of the Constitution, the provisions of the H
34 SUPREME COURT REPORTS [2008] 6 S.C.R.
t
A Indian Penal Code, Prevention of Corruption Act and
Criminal Law Amendment Act stood repealed. After review
of all the earlier authorities the Court laid down the following
tests: (SCC pp.448-49, para 35)
"35.1. That in order to decide the question of
B repugnancy it must be shown that the two enactments
contain inconsistent and irreconcilable provisions,
so that they cannot stand together or operate in the
same field.
c 2. Thatthere can be no repeal by implication unless
the inconsistency appears on the face of the two
statutes.
3. That where the two statutes occupy a particular
field, but there is room or possibility of both the
D statutes operating in the same field without coming
into collision with each other, no repugnancy results.
4. That where th.ere is no inconsistency but a statute
occupying the same field seeks to create distinct
and separate offences, no question of repugnancy
E
arises and both the statutes continue to operate in
the same field."
35.1. The same question was examined in considerable
detail in Hoechst Pharmaceuticals Ltd. v. State of Bihar
F 1983 (4) sec 45) and it was held that one of the occasions
where inconsistency or repugnancy arose was when on
the same subject-matter one would be repugnant to the
other and, therefore, in order to raise a question of
repugnancy, two conditions must be fulfilled. The State
law and the Union law must operate on the same field and
G
one must be repugnant or inconsistent with the other and
these are cumulative conditions. In National Engg.
Industries Ltd. v. Shri Kishan Bhageria (1988 Supp SCC
82) Sabyasachi Mukharji, J. opined that the best test of
repugnancy is that if one prevails, the other cannot prevail.
H
STATE OF KARNATAKA AND ORS. ·V. M/S SRI 35
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
36. In S. Satyapal Reddy v. Govt. of A.P (1994 (4) SCC A
391) the question was examined in the context of
prescription of a higher qualification by the State
Government. The service rule made by the Central
Government prescribed a diploma in Mechanical
Engineering as the minimum qualification for appointment B
~. on the post of Assistant Motor Vehicles Inspector while
the rule made by the State Government required a degree
in Mechanical Engineering or certain other alternative
qualifications. The challenge made by the diploma-holders
was negatived and it was held that prescribing a higher c
qualification did not give rise to any inconsistency or
repugnancy as both the rules could operate harmoniously
and effect could be given to both of them. Similarly, in
Preeti Srivastava (Dr) v. State of M.P (1999 (7) SCC
120) it was held that laying down higher eligibility
D
qualification by the State Government for admission to
postgraduate medical cour~es did not lead to any kind of
repugnancy.
37. Under sub-clause (1) of clause 3 of the 1966 Order,
the Central Government can only fix a minimum price of E
sugarcane. This clause should be read along with sub-
clause (2) which creates an embargo or prohibition that
no person shall sell or agree to sell sugarcane to a
producer of sugar and no such producer shall purchase or
agree to purchase sugarcane at a price lower than that F
y fixed under sub-clause (1). The inconsistency or
repugnancy will arise if the State Government fixed a price
which is lower than that fixed by the Central Government.
But, if the price fixed by the State Government is higher
than that fixed by the Central Government, there will be no
G
occasion for any inconsistency or repugnancy as it is
possible for both the orders to operate simultaneously
and to comply with both of them. A higher price fixed by
the State Government would automatically comply with
the provisions of sub-clause (2) of clause 3 of the 1966
H
36 SUPREME COURT REPORTS [2008] 6 S.C.R.
A Order. Therefore, any price fixed by the State Government
which is higher than that fixed by the Central Government
cannot lead to any kind of repugnancy.
38. The decisions of this Court touching the controversy in
hand may now be examined. In Maharashtra Rajya
B Sahkari Sakkar Karkhana Sangh Ltd. v. State of
Maharashtra (1995 Supp (3) SCC 475) (SCC paras 11,
12 and 21), R.M. Sahai, J. speaking for a three-Judge
Bench held that the entire process of price fixation can be
divided into three stages. The first is the fixation of what
c is known as the minimum ex-factory price by the Central
Government under the 1966 Order for all the sugar factories
in the country linking it with basic recovery of 8.5 per cent
with a proportionate increase for every 0.1 per cent extra
recovery. The second is the State-advised price and every
D State has its own method to determine it. The power is
assumed under the Acts of the State Legislature or orders
issued by the Government and in the State of U.P. it is
done by orders issued under the U.P. Sugarcane
(Regulation of Supply and Purchase) Act, 1953. The third
E is the price paid at the end of the season. The Bhargava
Commission had recommended the payment of additional
price at the end of the season on 50-50 profit-sharing
basis between growers and factories to be worked out in
accordance with the Second Schedule to the 1966 Order.
F In para 21, it was observed as under:
~
"The price is fixed, maybe, by the Board of Directors
or by the State Government under bye-laws but the
prices are for the reserved area. The Central
Government did not fix any maximum price obviously
G because the conditions in the agricultural sector
differed from State to State. Therefore, it having fixed
a minimum price expects the State to offer t
remunerative price to its cultivators. In a controlled
economy the price fixation machinery is to be
H determined by the State Government or under the
STATE OF KARNATAKA AND ORS. v. MIS SRI 37
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
1966 Order in the manner provided therein. Since in A
Maharashtra 95% of the sugar factories are in the
cooperative sector the price is fixed by the
Government as it has substantial financial stake. But
so long the price fixation does not suffer from any
-+ infirmity or it is held to be prejudicial to the cane- B
growers so as to benefit the State or the financial
institution it cannot be held to be bad."
38.1. The next is State of M. P v. Jaora Sugar Mills Ltd.
(1997 (9) SCC 207) which has been decided by a Bench
of two Judges. The dispute arose on account of fixation of C
price under the M.P. Sugarcane (Regulation of Supply
and Purchase) Act, 1958. The contention on behalf of the
sugar factories was that clauses 3 and 5-A of the 1966
Order determine the liability to pay the price and additional
price and the Central Government having determined the D
price of the sugarcane under the aforesaid Order, there is
no power with the State Government dehors the Order to
fix any agreed price. The concept of agreed price came
into force on 19-9-1976 by virtue of clause 3-A of the said
Order and until then there was no power to fix an agreed E
price. It was also urged that the State Government has,
therefore, no power under the Act to fix any price as the
field was occupied by the 1966 Order. The contention
was, however, not accepted and after noticing the
provisions of clauses 3(2) and 3(3). it was held as under F
in para 8 of the Report: (SCC p.211)
"8. This would clearly indicate that despite the fixation
of minimum price under clause 3(1), by agreement
between the sugarcane-grower and the purchaser
of the sugarcane, they would be at liberty to agree to G
sell or purchase the sugarcane at a higher price than
that fixed by the Central Government under clause
3(1). Only for postponement of payment beyond 14
days, there should be an agreement in writing
between the parties obviously with the concurrence H
38 SUPREME COURT REPORTS [2008] 6 S.C.R.
A of the Central Government or authorised authority in
that behalf. Thus, there is no statutory prohibition in
that behalf to pay higher price. That would be further
clear by clause 3(2) which speaks of the contract
between the parties for payment of higher price of
B sugarcane fixed under sub-clause (1) of clause 3
pursuant to the agreement or pursuant to the minimum
price fixed by the Central Government under clause
3(1) of the Order."
38.2. It was observed in paras 9 and 10 that there was no
c prohibition for the cane-growers and occupiers of the sugar
factories in entering into oral agreement through the service
of the Cane Commissioner, a statutory authority, who could
effect such an agreement. The agreement would not be
tainted with compulsion but in novation of the minimum
D price fixed under the 1966 Order. After noticing the
provisions of the M.P. Act, which are somewhat similar to
the U. P. Act, it was held as under in para 13 of the Report:
(SCC p.213)
"13. It would thus be clear that the Cane
E Commissioner having power to compel the cane-
growers to supply cane to the factory or khandsari
unit, he has incidental power and is duty-bound to
ensure payment of the price of the sugarcane
supplied by the sugarcane-grower. The price fixed
F or agreed is a statutory price and bears the stamp
of statutory first charge on the sugar and assets of
the factory over any other contracted liabilities to
recover the price of the sugarcane supplied to the
factory or khandsari unit."
G
38.3. S.K.G. Sugar Ltd. v. State of Bihar (1997 (9) SCC
362) is a decision by a Bench of three Judges and deals t
with the effect of the 1966 Control Order and the Bihar
Sugarcane (Regulation of Supply and Purchase)Act, 1981.
It was clearly ruled that the provisions of the 1966 Order
H
STATE OF KARNATAKA AND ORS. v. M/S SRI 39
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
do not show that there is any prohibition on the factory or A
the association of factories entering into an agreement to
pay higher price than the minimum price prescribed under
the Order and the object of the Order is to ensure that the
cane-growers should not be compelled to sell their
sugarcane at a price lower than the minimum price fixed B
+ by the Central Government under clause 3. In this case an
agreement had been arrived at between Sugar Factories
Owners Association and sugarcane-growers, wherein a
higher price was agreed to be paid but this was sought to
be resiled ·by the appellant on the ground that it was a c
company, which was an independent entity in the eye of
the law and was, therefore, not bound by any such
agreement. After noticing the provisions of the Act and the
earlier decision rendered in State of M. P. v. Jaora Sugar
Mills Ltd. it was held as under in para 6 of the Report:
D
(SCC p. 367)
"6. It is not in dispute that under Section 31 of the
Supply Act, the State Government has power to fix
the reserved area, in other words, zone was carved
out for the appellant for the supply of sugarcane to E
the factory. All the farmers who are cultivating
sugarcane within that zone are bound by the State
action to supply sugarcane to the factories within
that reserved area. Consequently, the factory also is
bound by the actions of the State Government. F
'y
Obviously, pursuant to _the obligation had by the State
under the Supply Act, the meeting was convened by
the State Government whereat the Factory Owners'
Association and farmers participated and agreed to
fix the price at Rs .20.50 per quintal of sugarcane.
G
As a consequence, both the cane-growers as well
as the owners of the factory are bound by the decision.
This having been agreed upon, the price fixed by the
State Government in excess of the minimum price
fixed by the Central Government under clause 3 of
H
40 SUPREME COURT REPORTS [2008] 6 S.C.R.
A the Order would be the price fixed for supply of f
sugarcane and the Government would be entitled to
enforce the liability."
38.4. It was also observed in the same paragraph that the
State Government acted in its statutory capacity to fix the
B higher price of the sugarcane.
13. It is to be noted that in the State of U.P. the SAP forms
part of the agreement. lh the instant case it is not there. Paras
39 and 40 of UP Cooperative's case (supra) deal with question
c of statutory price. In Ponni Sugars case (supra) the decision in
UP Cooperative's case (supra) was followed. The controversy
appears to have been blown out of proportion. There is no
dispute that respondent paid the SAP which is subject to certain
adjustments. That being so, the respondent cannot take the plea
that because it was agreed by the grower and the purchaser
0
that certain amount would be paid, that does not in any way
render the amount paid as SAP irrelevant. In fact, an agreement
cannot determine the question of liability to pay the purchase
tax. Section 6 of the Act reads as follows:
E "6. Levy of purchase tax under certain circumstances. -
Subject to the provisions of sub-section (5) of Section 5,
every dealer who in the course of his business purchases
any taxable goods in circumstances in which no tax under
Section 5 is leviable on the sale price of such goods, and
F (1) either consumes such goods in the manufacture of
other goods for sale or otherwise (or consumes otherwise)
or disposes of such goods in any manner other than by
way of sale in the State, or
(i1) despatches them to a place outside the State except
G
as a direct result of sale or purchase in the course of inter-
state trade or commerce,
shall be liable to pay tax on the purchase price of such
goods at the same rate at which it would have been leviable
H on the sale price of such goods under Section 5."
STATE OF KARNATAKA AND ORS. v. MIS SRI 41
CHAMUNDESWARI SUGAR LTD. [PASAYAT, J.]
j 14. It is the stand of the respondent that purchase price is A
not defined and, therefore, the agreed price would be taken to
be the purchase price. This plea is clearly unsustainable. As
noted above, the basic question is what is the consideration
paid for effecting the purchase.
15. The definition of "Sale" (in Section 2(t) of the Act) is B
relevant. It refers to transfer of the property in goods by one
person to another in the course of trade or business "for cash or
for deferred payment or other valuable consideration". "Purchase
price" is well-known expression in commercial transactions.
Every purchase involves a corresponding sale. The purchase c
money or purchase price for property is the price to be paid for
it. Speaking technically, acquires by "words of purchase" and is
a "purchaser" when he obtains title in any other mode than by
descent or devolution of law. It was noted in Commissioner of
Income Tax, Andhra Pradesh v. T.N. Aravinda Reddy (1979 D
(4) sec 721) as follows:
"The meaning of the word 'purchase' in Section 54, Clause
(i) of the Income Tax Act, 1961 does not differ from its plain
meaning which sense buying for a price equivalent of price
by payment in kind or adjustment towards an old debt or E
for other monetary consideration. Each release in the
circumstances of the given case is a transfer of the
releaser's share for valuation to the release. In plain
English, the transferee purchases the share of each of his
brothers. Thus Section 54, Clause (i) is attracted." F
" 16. Normal meaning of the word 'purchase' is acquisition
for money or for any consideration. That is the primary meaning.
In Concise Oxford Dictionary, apart from the two meanings "buy,
acquire", another meaning given to the word "purchase" is
G
· "procure". The word "procure" consists of much wider import
than the word "purchase". In the same dictionary, the word
~ "procure" has been mentioned the meaning as "obtained by care
or effort acquire". Purchase is thus a word of restricted meaning
than the word "procure". While considering a taxing statute which
H
42 SUPREME COURT REPORTS [2008] 6 S.C.R.
A deals with income from business the word "purchase" will
therefore, have to be seen in the commercial sense. In the
commercial sense, a transaction of purchase is a part of a
transaction of sale. A transaction of sale can never be complete
unless there is a transfer of property from the seller as well and
B the buyer who is the purchaser, must, therefore, acquire the
property before he can claim to have purchased the property.
17. In the Sale of goods Act and also in the Central Sales
Tax Act or in any of the sales tax Jaws made in the several States,
the definition includes the sale of goods, and not to the purchase
C of goods. That must be so because the sale of a commodity
must include within its ambit the concept of sale as well as
purchase. It is not possible to conceive of a sale of goods without
a buyer.
18. It is fairly accepted that SAP has been paid. The claim
0
of the respondent is that determination is tentative and certain
adjustments can be made later. But till that is done the SAP has
to be taken as the consideration. In our view appellants were
justified in demanding.purchase tax on the amount paid as SAP
and the High Court's view is clearly unsustainable and is set
E aside. The view expressed in Ponni Sugars case (supra) is in
consonance with the view expressed by the Constitution Bench
in U.P Cooperative's case (supra). The observations relating
to the agreed price which is above the lowest permissible rate
cannot read to mean that any ceiling is fixed by the agreed price.
F In fact in Ponni Sugars case (supra) and U.P Cooperative's
case (supra) this Court held that the price fixed under the Control
Order was the minimum price and it was the lowest permissible
rate. The highest amongst the three prices relatable to the
purchase is the price on the basis of which the purchase tax is
G to be levied.
19. The appeal is allowed but in the circumstances with
no order as to costs.
N.J. Appeal allowed.
H
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