1. Challenge to the constitutionality of Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, concerning tax on sugarcane purchases. (Para 1 , 3 )
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1967 Supreme(SC) 283
SUPREME COURT OF INDIA
K.N. WANCHOO, C.J.I., R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE, JJ.
Andhra Sugars Ltd. and another etc., Petitioners
Versus
State of A.P. and others (in all the Petitions), Respondents. Basti Sugar Mills Ltd. (In W. P. No. 53 of 1967), Intervener.
Writ Petns. Nos. 53, 100, 101, 105 and 106 of 1967,
D/- 29-9-1967.
Advocates Appeared
Mr. M. C. Setalvad, Senior Advocate, (M/s. A. V. Koteswara Rao, K Rajendra Chaudhuri and K R. Chaudhuri, Advocates, with him), for Petitioners (In W P. No.53 of 1967); Mr. N. C. Chatterjee, Senior Advocate, (M/s. A. V. Koteswara Rao, K Rajerdra Chaudhuri and K. R. Chaudhuri. Advocates with him) for Petitioners (In W. P. No. 100 of 1967); M/s A. V. Koteswara Rao, K. Rajendra Chaudhuri and K. R. Chaudhuri, Advocates, for Petitioners (In W P. No. 101 of 1967). M/s. K. R. Chaudhuri and K. Rajendra Chaudhuri, Advocates, for Petitioners (In W. Ps. Nos. 105 and 106 of 1967)Mr. C. K. Daphtari, Attorney-General, for India, (Mr. A. V Rangam, Advocate, with him), for Respondents (In W. P No. 53 of 1967); Mr. P. Ram Reddy, Senior Advocate, (Mr. A. V. Rangam, Advocate, with him), for Respondents (In W Ps. Nos. 100, 101 105 and 106 of 1967); Mr. Sachin Chaudhuri Senior Advocate, (Mr G. L. Sanghi Advocate and Mr. O. C Mathur, Advocate of M/s. J. B. Dadachanji and Co. with him) for Intervener (In W P No 53 of 1967).
Advocates:
A.V.KOTESWARA RAO, A.V.RANGAM, C.K.DAFTARY, G.L.SANGHI, K.R.CHAUDHARY, K.RAJENDRA CHAUDHARY
A.V.KOTESWARA RAO, A.V.RANGAM, C.K.DAFTARY, G.L.SANGHI, K.R.CHAUDHARY, K.RAJENDRA CHAUDHARY
A purchase made under statutory compulsion constitutes a valid contract of sale taxable under Entry 54, List II of the Constitution, provided there is an offer and acceptance. Statutory obligation to contract does not amount to coercion under the Indian Contract Act.
Headnote:(A) Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 - Section 21 - Constitution of India - Entry 54, List II, Schedule VII - Article 14, 301 - Indian Sale of Goods Act, 1930 - Indian Contract Act, 1872 - Tax on purchase of sugarcane - Whether a purchase made under statutory compulsion constitutes a "purchase of goods" taxable under Entry 54, List II - If the seller is free to offer and the buyer is legally bound to accept, the resulting agreement is a valid contract of sale - Compulsion of law does not amount to coercion under the Indian Contract Act, 1872 - Such transactions are exigible to tax. (Paras 4, 7, 8)
(B) Taxable Event - Legislature is competent to levy purchase tax based on the weight (tonnage) of goods rather than the price - Tax may be levied on purchases of goods required for specific purposes such as use, consumption, or sale in a factory. (Paras 9, 11)
(C) Constitution of India - Article 301 - A non-discriminatory tax on goods does not offend the freedom of trade, commerce, and intercourse unless it directly impedes the free movement or transport of goods. (Para 14)
(D) Constitution of India - Article 14 - Differential tax rates for different classes of sugar production units (vacuum pan process vs. open pan process) are reasonable if based on a rational relation to the object of taxation and capacity to pay. (Para 15)
Facts of the case:
Petitioners, owners of sugar factories, challenged the constitutionality of a provision levying tax on the purchase of sugarcane. Under the governing state act, factories were mandated to purchase sugarcane from growers within their designated zones if offered. The petitioners contended that since the purchase was compulsory by law, it did not constitute a "sale" or "purchase" in the legal sense required for taxation under Entry 54, List II of the Constitution.
Findings of Court:
The court held that the statutory obligation to enter into an agreement does not negate the existence of a contract of sale. The seller's freedom to offer and the buyer's subsequent acceptance, even if mandated by law, results in a valid contract. The tax based on tonnage and specific use is valid, and the differential treatment of different production units based on scale and capacity to pay does not violate the right to equality.
Issues: Whether a purchase made under statutory compulsion constitutes a "purchase of goods" taxable under Entry 54, List II of the Constitution; whether the tax violates Articles 14 and 301 of the Constitution; and whether tax can be levied based on weight and specific use.
Ratio Decidendi: A contract of sale exists if there is mutual assent, even if one party's assent is compelled by statute, provided the compulsion is not "coercion" as defined in the Indian Contract Act. Such a transaction satisfies the requirements of a "sale of goods" and is taxable. Non-discriminatory taxes do not violate Article 301 unless they directly restrict the movement of goods.
Result: Petitions dismissed.
Legal Category Hierarchy
- constitutional law
- commercial law
-
administrative law
-
delegated legislation
- statutory exemptions (Para 16)
-
delegated legislation
Table of Contents
2. Whether statutory compulsion to purchase sugarcane negates a contract of sale under Entry 54, List II, and whether the tax violates Articles 14 and 301. (Para 2 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 )
3. Statutory compulsion to enter a contract does not negate mutual assent or the existence of a valid contract of sale if the seller is free to offer. (Para 4 , 5 , 6 , 7 , 8 )
4. A contract of sale exists if there is mutual assent through offer and acceptance, even if one party is legally obliged to accept the offer. (Para 4 , 8 )
5. Writ petitions dismissed with costs. (Para 18 )
6. Does statutory compulsion to purchase goods negate a contract of sale?
No. If the seller is free to make an offer and the buyer accepts it, mutual assent exists. Such agreements are valid contracts of sale under the Indian Contract Act and Sale of Goods Act, even if the buyer is legally obliged to accept the offer. (Para 4 , 8 )
7. Can a purchase tax be levied based on weight rather than price or turnover?
Yes. The legislature is competent to levy purchase tax with reference to the weight of the goods purchased, and the levy need not be limited to the dealer's turnover. (Para 9 , 10 )
8. Does a non-discriminatory purchase tax violate the freedom of trade under Article 301?
No. A non-discriminatory tax does not offend Article 301 unless it directly and immediately impedes the free movement or transport of goods from one part of the country to another. (Para 14 )
9. Is differential tax treatment for different sugar production processes violative of Article 14?
No, provided the classification is reasonable and has a rational relation to the object of taxation, such as differences in industry scale and the capacity of the users to pay the tax. (Para 15 )
Judgement
BACHAWAT, J. :- In all these writ petitions under Article 32 of the Constitution, the petitioners ask for an order declaring that Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 (Andhra Pradesh Act No.45of 1961) is unconstitutional and ultravires and a direction prohibiting the respondents from levying tax under Section 21 and to refund the tax already collected. Section 21 of the Act is in these terms :
"21 (1) The Government may, by notification, levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use, consumption or sale in a factory.
(2) The Government may, by notification, remit in whole or in part such tax in respect of cane used or intended to be used in a factory for any purpose specified in such notification.
(3) The Government may, by notification, exempt from the payment of tax under this Section-
(a) any new factory which, in the opinion of the Government has substantially expanded, to the extent of such expansion, for a period not exceeding two years from the date of completion of the expansion.
(4) The tax payable under sub-sec. (1) shall he levied and collected from the occupier of the factory in such manner and by such authority as may be prescribed.
(5) Arrears of tax shall carry interest at the rate of nine per cent per annum.
(6) If the tax under this Section together with the interest, if any, due thereon, is not paid by the occupier of a factory within the prescribed time, it shall be recoverable from him as an arrear of land revenue." Section 2 (i) defines a factory which means "any premises including the precincts thereof wherein twenty or more workers are working or were working on any day during the preceding twelve months and in any part of which any manufacturing process connected with the production of sugar by means of vacuum pans is being carried on or is ordinarily carried on with the aid of mechanical power. Section 2 (m) defines the occupier of a factory. By Ordinance No. 1 of 1967 which was replaced by Act No. 4 of 1967, the following new sub-section (I-A) was inserted and other consequential amendments were made in Section 21 of the principal Act.
"(I-A) The Government may, by notification, levy a tax at such rate, not exceeding three rupees and fifty paise per metric tonne, as may be prescribed on the purchase of cane required for use, consumption or sale in a Khandsari unit."
Also the following sub-sections (kk) and (kkk) were inserted in Section 2 of the principal Act :
"(kk) khandasari sugar means sugar procured by open-pan process in a khandasari unit from sugarcane juice or from rab or gur or both, containing more than, eighty per cent sucrose;
(kkk) khandasari unit means a unit engaged or ordinarily engaged in the manufacture of khandasari sugar and includes a bel;"
It may be mentioned that sales and purchases of sugarcane are exempt from tax under the Andhra Pradesh General Sales Tax Act, 1957. The petitioners own sugar factories as defined in Section 2 (i). Their agents are the occupiers of the factories as defined in Section 2 (m). They purchased cane from canegrowers within their respective factory zones. The State Government had issued notifications levying tax under Section 21. For the last several years the petitioners have paid the tax on their purchase of sugarcane and further demands are being made on them for payment of the tax. They challenge the vires and the constitutionality of Section 21 on various grounds. The principal submissions were made by Mr. M. C. Setalvad who appeared in Writ Petition No. 53 of 1967 and his arguments were adopted by counsel appearing in the other petitions. Mr. N. C. Chatterjee who appeared in Writ Petition No. 100 of 1967 raised a few additional contentions.
2. The submission of Mr. Setalvad is that Section 21 so far as it levies a tax on the purchase of sugarcane by or on behalf of the petitioners from the canegrowers in their resp
