# SALAR JUNG SUGAR MILLS LTD. ETC v. STATE OF MYSORE & ORS

- **Citation:** [1972] 2 S.C.R. 228
- **Court:** Supreme Court of India
- **Decided:** 1971-11-01
- **Case number:** Civil Appeals· Nos. 2002 to 2005 and 2014 to 2017 of 1968
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/salar-jung-sugar-mills-ltd-etc-v-state-of-mysore-ors-5638
- **Pages:** 23

## Headnote

228
SALAR JUNG SUGAR MILLS LTD. ETC.
v.
STATE OF MYSORE & ORS.
November 1, 1971
rs. M. SJICRI, c. J., J.M. SHELAT, A. N. RAY, I. D. DUA,
S. C. ROY, 0. G. PALEKAR AND G. K. MITTER, JJ.]
• Mysore Sales Tax Act, 1951 as amended by Mysore Act II of 1961Levy of purchase tax on sugarcane purchased by factories from grower.-
Purchase and supply of sugarcane regu/IJted by Central and State Control
Orders-Transactions
whether
amounted to sale
within
meaning of
1. 2(/) of Mysore Sales Tax Act-Mutual assent between purdiaser and
seller whether present-Factories whether dealer within meaning
of
s. 2(k) of Act-Different rates of tax in different States whether vio/IJtit•e
of Art. 14 of Constitution.
By Mysore !\ct 11 of 1961 which came into force on October l, 1961
sugarcane was included at Serial No.· 11-A in the Third Schedule to the
Mysore Sales Tax Act, 1957.
As a result of the amendment the appellants were subjected to levy of tax on purchase of sugarcane. Their writ
petitions challen&ing the levy were dismissed by the High Court. In appeals
by certificate the appellants contended before this Court that : (i) on
account of "the Central & State Control Orders applicable to the transactions there was no mutual assent by and between the appellants and the
growers of sugarcane in regard to supply of sugarcane by the growers
and the acceptance by the factories and therefore there was no purchase
and sale of sugarcane; (ii) the appellants were not dealers within the
meaning of s. 2(k) of the Mysore Sales Tax Act; (iii) the levy of tax
on purchase of sugarcane at different rates in different Staie. was discriminatory and in violation of Art. 14.
HELD : (i) The decisions relating to 'compulsory sales' establish
that statutory orders regulating the supply and distribution of gooda 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 planning economic
needs ensuring production and distribution of essential commodities and
basic necessities. of community.
The recent (rends in these legal rules
delimit the variety of structure of rights and duties which individuals may
create by such acts and transactions.
The complexity of modem activities and the consequent difficulty ot providing for every eventuality have
shaken fervour for fieedom of contract as there W'3S during the nineteenth
century.
The economic environment has changed.
The individual freedom is to be reconciled with adequate performance by the Government
of its functions in a highly organised society. Delimiting areas for transactions or parties or denoting price for transaction are all within the area
of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number bv achie;ing proper
supply at standard or fair prices to eliminate the evils of hoarding and
scarcity on the one hand and availability on the other. (244 G-245 BJ
In the present case the Control Orders are to be kept in the forefront for appreciating the true ch'.lracrer of transactions. It is apparent
that the area is restricted. The parties are determined by the order. The
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SALAR JUNG SUGAR MILLS V. MYSORE (Ray, J.)
229
minimum price is fixed. The minimum quantity of supply is also regulated.
These features do not complete the picture. The entire transaction indicates that the parties agree to buy and sell. The parties choose the terms
ol delivery. The parties have choice witb regard to obtaining supply of
a quantity higher than 95 per cent of the yield. The parties can stipulate
for a price higher than the minimum.
The parties can have terms for
payment in advance as well in cash.
A gro'l:'.er may not cultivate
and
there may not be any yield. A factory may be closed or wound up and
·may not buy sugarcane.
A
factoi'y can reje

## Text

_Characters 0–39,687 of 63,797. This is a partial read: ask again with offset=39687 for what follows._

228
SALAR JUNG SUGAR MILLS LTD. ETC.
v.
STATE OF MYSORE & ORS.
November 1, 1971
rs. M. SJICRI, c. J., J.M. SHELAT, A. N. RAY, I. D. DUA,
S. C. ROY, 0. G. PALEKAR AND G. K. MITTER, JJ.]
• Mysore Sales Tax Act, 1951 as amended by Mysore Act II of 1961Levy of purchase tax on sugarcane purchased by factories from grower.-
Purchase and supply of sugarcane regu/IJted by Central and State Control
Orders-Transactions
whether
amounted to sale
within
meaning of
1. 2(/) of Mysore Sales Tax Act-Mutual assent between purdiaser and
seller whether present-Factories whether dealer within meaning
of
s. 2(k) of Act-Different rates of tax in different States whether vio/IJtit•e
of Art. 14 of Constitution.
By Mysore !\ct 11 of 1961 which came into force on October l, 1961
sugarcane was included at Serial No.· 11-A in the Third Schedule to the
Mysore Sales Tax Act, 1957.
As a result of the amendment the appellants were subjected to levy of tax on purchase of sugarcane. Their writ
petitions challen&ing the levy were dismissed by the High Court. In appeals
by certificate the appellants contended before this Court that : (i) on
account of "the Central & State Control Orders applicable to the transactions there was no mutual assent by and between the appellants and the
growers of sugarcane in regard to supply of sugarcane by the growers
and the acceptance by the factories and therefore there was no purchase
and sale of sugarcane; (ii) the appellants were not dealers within the
meaning of s. 2(k) of the Mysore Sales Tax Act; (iii) the levy of tax
on purchase of sugarcane at different rates in different Staie. was discriminatory and in violation of Art. 14.
HELD : (i) The decisions relating to 'compulsory sales' establish
that statutory orders regulating the supply and distribution of gooda 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 planning economic
needs ensuring production and distribution of essential commodities and
basic necessities. of community.
The recent (rends in these legal rules
delimit the variety of structure of rights and duties which individuals may
create by such acts and transactions.
The complexity of modem activities and the consequent difficulty ot providing for every eventuality have
shaken fervour for fieedom of contract as there W'3S during the nineteenth
century.
The economic environment has changed.
The individual freedom is to be reconciled with adequate performance by the Government
of its functions in a highly organised society. Delimiting areas for transactions or parties or denoting price for transaction are all within the area
of individual freedom of contract with limited choice by reason of ensuring the greatest good for the greatest number bv achie;ing proper
supply at standard or fair prices to eliminate the evils of hoarding and
scarcity on the one hand and availability on the other. (244 G-245 BJ
In the present case the Control Orders are to be kept in the forefront for appreciating the true ch'.lracrer of transactions. It is apparent
that the area is restricted. The parties are determined by the order. The
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SALAR JUNG SUGAR MILLS V. MYSORE (Ray, J.)
229
minimum price is fixed. The minimum quantity of supply is also regulated.
These features do not complete the picture. The entire transaction indicates that the parties agree to buy and sell. The parties choose the terms
ol delivery. The parties have choice witb regard to obtaining supply of
a quantity higher than 95 per cent of the yield. The parties can stipulate
for a price higher than the minimum.
The parties can have terms for
payment in advance as well in cash.
A gro'l:'.er may not cultivate
and
there may not be any yield. A factory may be closed or wound up and
·may not buy sugarcane.
A
factoi'y can reject goods
after inspection.
Inspection and appropriation of goods, which in the present case were
unasccrtaincd goods indicates not only freedom in the formation but also
in the performance of contracts. The combination of all these factors
indicate' that thte parties entered into agreement with mutual assent and
with volition for transfer of goods in consideration of price. [248 B·E;
247 BJ
The transactions accordingly amounted to sales within the
meaning
of s. 2(t) of the Mysore Sales Tax Act.
Indian Steel & Wire Products Ltd. v. State of Madras [19681 1 S.C.R.
479, Andhra Sug~rs Ltd. & Anr. v. State of Andhra Pradesh, [1968] l S.C.R.
706 and State of Rajasth.an & Anr. v. M /s. Karam Chand Thappar & Bros.
Ltd. [1969] I S.C.R. 861, relied on.
State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. 11959]
S.C.R. 379, M/s. New India Sugar Mills Ltd. v. Commissioner of Sales
Tax, Bihar, [.1969] Supp. 2 S.C.R. 459, M/s. Chiller Mal Narain Da.< v
Commissioner of Sales Tax, [1971) 1 S.C.R. 671, Newcastle Breweries Ltd.
v. Inland Revenue Commissioners,
(1927) 96 L.J.K.B.
735, Kirkness
(Inspector of Taxes) v. John Hudson & Co. Ltd., ~1955) A.696 and Ridge
Nominees Ltd. v. Inland Revenue Commissioners Li962] Ch. 376, Considered.
(ii) If a person carries on the business of buying or selling a commodity it is not necessary that he shall sell the same commodity to become a
dealer. The commodity may be converted into another saleable commo·
dity or it mav be used as an ingredient in the manufacture of a commodity.
Therefore, the factories which bought sugarcane could be said
to carry on the business of buying and selling sugarcane and the factories
were 'dealer' within the meaning of s. 2(k) of the Mysore Sales Tax
Act, 1249 C]
.
State of Andhra Pradesh v .. Abdul Bakshi & Bros. A.I.R. 1965 S.C.
531, relied on.
(iii) It was not disputed that all the factories in Mysore had been
treated equally.
Different rates of purchase tax in different States are
applicable on various grounds. The quantity available, the conditions of
sgriculturists, the number of factories will all have distinctive features.
Therefore there could be no infraction of Art. 14 of the Constitution.
[249 El
(iv) In view of the decision of this Court in
Tata Iron & Steel Co.'s
case the appellants could not impeach the imposition and levy of sale tax
on the ground that the appellants could not collect from the purchasers
of su~ar the purchase tax paid by the appellants on purchase of Sugarcane.
[24? G-HJ
Tata Iron & Steel Co. v. State of Bihar, [1958] S.C.R. 1355, applied.
.230
SUPREME COURT REPORTS
[ 1972} 2 S.C.R.
CIVIL APPELLATE JURISDICTION : Civil Appeals· Nos. 2002
to 2005 and 2014 to 2017 of 1968.
Appeals from the judgment and order dated April 16, 1968
of the Mysore High Court in Writ Petitions Nos. 2225 of 1967, 29
to 31 of 1968, 2208 of 1967 and 32 to 34 of 1969 respectively.
G. Yasanta Pai, G. L. Sanfhi, p, C..Bhartari, B. Datta, I. B.
Dadachanji, 0. C. Mathur and RJJviilda Narain, for the appellants (in all tbe appeals) .
V. S. Desai, S. S. lavaii and R. B. Atar, for the respondents
(in all the al>J>Cll)s) .
The Judgment of the Court was delivered by
Ray, J. These appeals are by certificate against the judgment
and order dated 16 April, 1968 of the High Court of Mysore
dismissing the applications of the appellants under Article 226 of
the Constitution for writs, orders aiod directions prohibiting the
respondent-State of Mysore and the Commissioner for Commercial
Taxes at Bangalore from levying or taking proceedings to levy
any purch~ tax on purchase of sugarcane from the grower or
from collecting or taking any proceedings for recovery of any such
tax with or without penalty from the appellants. The appellants
also asked for orders, writs and directions for refund of several
sums of money collected as and for purchase tax.
The appel!ants are the India Sugars and Refineries Ltd. and
the Salar Jung Mills Ltd.
The India Sugars and Refineries Ltd.
is situated at Hospet in Bellary District in Mysore and the Salar
Jung Sugar Mills Ltd. is situated at Munirabad in Raichur District
in Mysore.
The appellant, the India Sugars and Refineries Ltd. in four
applications now Civil Appeals No. 2015, 2016, 2017 and 2014
of 1968 impeached the demand and collection made against the
appellant for lar_ge sums of money as and for purchase tax and
penalty on the pur~hase of sugarcane from the growers for the
period 1 April, 1962 to 30 June, 1967 and further asked for refund
<X large sum of money collected as purchase tax.
The appellant Salar Jung Sugar Mills Ltd. itn four applications
now Civil Appeals No. 2003, 2004, 2005, and 2002 of 1968
asked for similar orders and djrections in respect of the period
1 July, 1963 to 30 June, 1967.
In the fifties practically all the States in which sugarcane was
grown for the purpose of manufacturing sugar used to levy cess
on sugarcane brought into the premises of sugar factories.
This·
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SALAR JUNG SUGAR MILLS V. MYSORE (Ray.,/.)
231
Court in Diamond Sugar Mills v. State of U.P.('1) [1961] 3 S.C.R.
242 held that section 3 of the U.P. Sugarcane (::ess Act, 1956
which empowered the Governor of the State to impose cess on entry
of sugarcane ~nto the premises of a factory did not fall within Entry
52 of List II and as there was no entry in the State List or in .the
Concurrent List in which the said Act could fall, it was beyond
the legislative competenc.e of the State Legislature. The decision of
this Court was given on 13 December, 1960. The Sugarcane Cess
(Validation) Act, 1961 was passed by Parliament validating the
imposition of collection of cess on sugarcane under several State
enactments before the commencement of the Validation Act of
1961.
The Mysore State Legislature imposed tax on purchase of
sugarcane purchased by sugar factories.
By Mysore Act No. 11
of 1961 which came into force on 1 October, 1961 sugarcane was
included at Serial No. 11-A in the Third Schedule to the Mvsore
Sales Tax Act, 1957. The relevant provision in the Mysore Act
is as follows :-
" 11-A Sugarcane-Purchased by the last dealer in the State
liable to tax under this Act-Fifteen per cent".
As a result of the amendment the appellants were subjected to
levy of tax on purchase of sugarcane.
The appellants raised three principal contentions. First, there
was no mutual assent by and between the appellants and the
growers of sugarcane in regard to supply of sugarcane by the
growers and the acceptll(nce by the factories and therefore there
was no purchase and sale of sugarcane. Secondly, the appellants
are not dealers within the meaning of section 2 (k) of the Mysore
Sales Tax Act.
Third, the levy of tax on purchase of sugarca)lle
at different rates in different States was discriminatory and in
violation of Article 14.
In order to appreciate the rival contentions on the first ground
as to whether there was a purchase or sale of sugarcane the relevant legislation has to be Jooked "into and facts and circumstances
have to be ascertained for fi,nding out as to what the actual
transaction was.
In exercise of the powers conferred by section 3 of the Essential Commodities Act, 1955 the Central Government on 27
August, 1955 made the Sugarcane Control Order, 1955. The
Central Government was empowered by clause 3 of the Sugarcane
Control Order, 1955 to fix the minimum price of sugarcane to be
paid by purchasers of sugar. Sale or
purch~se of
sugar~ai:ie
at a price lower than the price fixed under section 3 was proh1b1t-
232
SUPREME COURT REPORTS
[ l 972) 2 S.C.R.
ed.
The Central Government, however, could flit an additional
price under certain circumstances and contingencies.
Clause 4 of
the Order of 1955 gave the Government power to prohibit or restrict or otherwise regulate export of sugarcane from !\llY area for
supply to different factories and also to direct that no jaggery or
sugar shall be manufactured from sugarcane except under and in
accordance with the conditions specified in a licence issued in that
behalf.
On 4 October, 1963 in exercise of the powers conferred by
section 3 of the Defence of India Act, 1962 the Central Government introduced Rule 125-B to the Defence of India Rules. Rule
125:B inter alia stated that if the Central Governmtmt was of
opinion that it was necessary or expedient for regulating or
increasing the supply of sugarcane or for securing the equitable
distributioo of sugarcane the Central Government could pass
orders to. reserve areas where sugarcane was grown for a factory;
determine the quantity of sugarcane which a factory would require
for crushing during a year; fix with respect to any specified sugarcane grower in a reserved area the quantity or percentage of sugarcane grown by such grower for supply to the factory concerned;
require a factory to enter into an agreement with the grower to
purchase the quantity of sugarcane so determined;
and further
direct that no sugarcane shall be exported from a reserved area
except under and iin accordance with a permit issued by the
Central Government
On .26 September, 1963 sugar was notified under Rule 125-B
oi the Defence of India Rules as a thing .essential to the life of
the community.
On 7 October,
1963 , the Central Government directed that the powers conferred by Rule 125-B of
the Defence of India Rules shall be exercised by the State
Government.
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In this background the Mysore Government on 14 November,
1963 i.n exercise of the powers conferred by Rule 125-B of the
Defence of India Rules brought into existence the Mysore Su~ar
cane (Regulation of Supply) Order, 1963. In Schedule I of the
Order factories were specified and reserved areas were enumerated
in the said Schedule for supply of sugarcane to the specified factory
and the sugarca.ne growers in the reserved areas were to suooly
95 per cent of sugarcane grown to the factory concerned.
Every
factory ~o which suoolv of sugarcane was to be made w'as required
to enter i1?to an agreement with each sugarcane grower to purchase
the qua.nttty of sug~rcane determined.
Purchase of sugarcane by
power crusher or for manufacture of gur, shakkar, gul, jagaery,
rab or khandsari sugar was prohibited.
Export of sugarcane from
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SALAR JUNG SUGAR MILLS V. MYSORE (Ray., J.)
233
a reserved area was also prohibited except under permit. Contravention of the Mysore Sugarcane Controi Order was made punishable by forfeiture of property in respect of which there was a/
contrave.ntion.
The Mysore Sugarcane Control Order,
1963
specified the India Sugars and Refineries Ltd. as the factory and
enumerated the areas reserved for. supply of sugarcane to
the
specified factory.
It may be stated here that the Salar Jung Sugar
Mills Ltd. was also specified in the Schedule and it remained
specified until 1965 whe,u the Mysore Sugarcane Munirabad
Order, 1965 was made as specially applicable to Salar Jung Sugar
Mills Ltd.
On 14 February, 1964 in exercise oi the powers conferred by
section 3 of the Essential Commodities Act, the Central Government amended the Sugarcane Con'trol Order, 1955. Clause 4 of
the Sugarcane Control Order, 1955 was amended and substituted
by a new cbuse. The new clause 4 conferred powers on the
Central Government to reserve areas where sugarcane was grown
for a factory, determine the quantity of sugarcane which the factory would require for crushing during the year, fix with respect
to any specified sugarcane grower in a reserved area the quantity
or percentage of sugarcane grown by such grower which such
grower would supply to the factory concerned; require the sugarcane grower and the factory to enter into ·an agreement for supply
and purchase of the quantity of sugarcane so determined. Clause 4
as amended further provided that every sugarcane grower or
factory to whom the order applied would be bound to supply or
purchase the quantity of sugar covered by the agreement entered
into and wilful failure on the part of anyQlle would constitute a
breach of the provisions of the said Order.
On 20 February, 1964 in exercise of the powers conferred by
clause 6 of the Sugarcane (Control) Order, 1955, the Central
Government directed that the powers conferred on the Central
Government by clause 4 of the said Order, shall be exercisable
by .the State Governments of Andhra Pradesh, Assam,
Bihar,
Guiarat, Kerala, Madhya Pradesh, Madras, Maharashtra, Mysore,
Orissa, Punjab, Rajasthan, Uttar Pradesh ·and West Bengal and
the Chief Commissioner of Pondicherry.
On 15 January, 1965 the Mysore Government in exercise of
the powers conferred by clause 4 of the Suimrcane Control Order,
1955 as amended and read with the notification dated 20 February,
1964 made the Mysore Sugarcane
(Regulation of Supply)
(Munirabad) Order, 1965. The Mysore Sugarcane (Munirabad)
Order of 1965 in clause 2 ( c) defined factory to mean the premises
of the appellant Salar Jung Sugar Mills Ltd. at Munirabad. In Schedule I ol. the Mysore Sugarcane (Regulation of Supply) (Munira-
.I
234
SUPREME COURT REPORTS
[1972] 2 s.c.R.
bad) Order, 1965 the area reserved for supply of sugarcane to the
factory was !'numerated setting out the names of the villages. The
Mysore Sugarcane Order, 1955 determined the crushing capacity
o~ the appellant Salar J u,ng Sugar Mills Ltd. to be 1000 tons per
day and the quantity of sugarcane required by the factory during
the crushing season to be 1,50,000 tons. The Order further stated
that the factory was to secure the quantity .Pi sugarcane from the
area specified in Schedule I and the quantity of sugarcane to be
supplied by each grower was fixed at 95 per cent of the sugarcane
grown by the grower.
Every sugarcane grower and the factory
concerned. were required to enter into an agreement to supply or
purchase the quantity of sugarcane determined under clause 4.
Export of sugarcane from reserved area was prohibited.
The
Sugarcane (Regulation. qf Supply) Order, 1963 in so far as it
related to matters provided for in the Mysore Sugarcane (Munirabad) Order, 1965 was repealed.
Thereafter, the Mysore Sugarcane (Regulation of Supply) Order, 1963 applied to the India
Su)!ar and Refineries Ltd. and the Mysore Sugarcane (Regulation
of Supply) (Munirabad), Order, 1965 applied to the Salar Jung
Sugar Mills Ltd.
On 16 July, 1966 in exercisc'of the powers conferred by
section 3 of the Essential Commodities Act, 1955 the Central
Government made the Sugarcane (Control) Order, 1966 and
repealed the Sugarcane (Control) Order, 1955. Under the Sugarcane (Control) Order, 1966 'factory' means ·any premises. including the precincts thereof in any part of which sugar is ma.nufactured
by vacuum pan process, 'price' meal)s the pric~ or the minimum
price fixed by the Central Government from time to time delivered
at the gate of the factory or sugarcane purchasing centre and
'reserved area' means any area where sugarcane is grown and
reserved for a factory in terms of the Order. Clause 3 of the 1966
Sugarcane Control Order dealt with minimum price of sugarcane
fixed by the Central Government having regard to (a) cost of
production of sugarcane, (b) the return to the grower from alternative crops on the ge:ieral trend of prices of agricultural commodities, ( c) availability of sugar to the consumer at a fair price,
( d) the price at which sugar produced from sugarcane is sold by
producers of sugar, and ( e) the recovery. of sugar from sugarcane.
Purchase and sale of sugarc3ille at a pnce lower than that fixed
was prohibited.
The price of sugarcane became payable 14 days
frO!JJ the date of delivery.
Additional price for sugarcane could
also be fixed under clause-5.
Under clause 6 of the Order the
Central Government could reserve area where sugarcane is grown
fo& the factory having regard to the crushicg capacity of the
factory, the availability of sugarcane in the reserved area and the
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SALAR JUNG SUGAR MILLS V. MYSORE (Ray, J.)
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need for production of sugar and also determine the quantity of
sugarcane required by the factory for crushing during al!lY year
and fix the quantity to be supplied by a grower to the factory.
The grower and the factory were required to enter into an agreemem for supply or purchase of sugarcane.
Export of sugarcane
from any reserved area was prohibited.
Jn exercise of the powers conferred by clause 6 of the Sugarc::u1e (Control) Order, 1966 the Mysore Sugarcane (Regulation
of Distribution) (Munirabad) Order, 19.66. was made by the
Government of Mysore repealing the Mysore Sugarcane (Regulation of Supply) (Munirabad) Order, 1965.
The 1966 Sugarcam::
(Munirabad) Order was in relation to the appellants Salar Jung
Sugar Mills Ltd. Clause 3 o.f the Order dealt with the crushing
capacity of the factory being 1000 tons per day and the quantity
of sugarcane required for the factory during the year was determi·ned to be 1,50,000 tons.
The appellant's factory was to secure
the quantity of sugarcane determined under clause 3 (2) from the
areas specified in Schedule I being the reserved areas for supply
o.f sugarcane to the factory.
The sugarcane growers in the
reserved area were to supply 95 per cent of the sugarcane grown
by them to the factory.
The sugarcaJne grower and the factory
were required to enter into an agreement for supply and purchase
of sugarcane.
Counsel on behalf of the appellants contended that there was
no sale and purchase of sugarcane by reason of want of mutual
assent and further that the entire transaction was only by operation
of statutes, and at no stage there was any element of freedom to
buy or sell.
It was said that under the statutes these consequences
emerged.
First, the price was fixed.
Secondly, the .sugarcane
grower was required to deliver sugarcane and the factory was
required to receive supply only from the sugarcane grower in the
reserved area. Thirdly, the guantity of supply by the sugarcane
grower, namely, 95 per cent of the produce was fixed. Fourthly,
the quantity of sugarcane required by the factory was fixed· at
1,50,000 tons a year.
Fifthly, the grower in the reserved area
could not export sugarcane to any place or. person outside the
area.
Sixthly, it was said that entering into agreement between
the grower and the factory for supply and purchase of sugarcane
was under the statute.
Counsel for the State 9n the other hand contended that the·
transaction was in essence and substance purchase and sale and
there was mutual assent betWeen the parties as to the transactions.
H
It was said that a grower after he had grown sugarcane at f!1e
comm~ncement of the cultivation season might bargain for a prtce
higher than the minimum price.
Again, if the factory did not
2-L500Sup.CI/72
236
SUPREME COURT REPORTS
[1972) 2 S.C.R.
agree to pay higher price the grower might not elect to grow
sugarcane or even allow his land to lie fallow. The factory might
agree to pay a price .higher than the minimum price in order to
provide sufficient inducement to growers for higher yield, Strong
reliance was placed by counsel for the State on t'he agreement
entered into between the growers and the fact9ry as decisive of
purchase and sale. . As to the agreement it was said on behalf of
the State that to tm&ure a well phased supply of sugarcane to the
factory the latter might enter into an agreement with the growers
even before they would plant sugarcane.
The dat~ of delivery
were to be agreed upon between the parties. The growers according to the State might ask for advance payment of price in cash
or in the form of seedlings, fertilisers and the like. Factories could
ask for more than 95 per cent of the yield.
At all relevant times sugarcane was declared to be an essential
commodity.
The various orders were made for regulating the
supply of sugarcane to the factories having regard to the crushing
capacity of the factory, the availability of· sugarcane in the area
and the need for production o,f sugarcane. This co-ordination
between productioo and distribution of sugarcane on the one hand
and production and distribution of sugar on the other hung together as complementary to each other in regard to the requirements
of basic ingredient.
The carvi.ng out of areas for production and
·distribution of sugarcane is necessary to preserve continuity of
supply and to prevent shortage and defective distribution.
The
regulation of supply of sugarC3ille by fixing the minimum price is
an application of the principle of utilitarianism which receives the
approbation and goodwill of boih the grower and the factory so
that the grower is assured of an economic competitive return and
the factory is also assured of not being scared by soaring and
fluctuating price to thwart and impede production and manufacture
of sugar.
Counsel for the appellants eXtracted the famous dictum of Sir
Henry Maine and submitted that the orders in the present case
were retrograde step 3111.d the clock was put back by reversing the
historical evolution from status to contract.
What was emphasized by counsel for the appellants was as follows : The various
Orders had the effect of bringing into existence the status of delivery by the growers and acceptance by the factory of sugarcane
as a result of the statutory orders and there was no area of bargain.
There was no element of will.
There was no aspect of assent.
The entire tninsaction was nothing but a regimentation of pattern
Of :iutomatic supply !!Ill\ !ICcepll!n\:e. The grower W!!Ji bo11nd to
dehver.
The factory W'IS bQund t9- ;i,c~pt. · Neither P!lm poyld
move out of the apron strings oJ the s\atqtes.
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This Court in State of Madras v. Gannon Dunkerley-& Co.
(Madras) Ltd. [1959] S.C.R. 379 in dealing with the assessment
of Gannon Dunkerley & Co. to sales tax on the value of the materials used in the execution of building contracts within the taxable
turnover of the company held that the building contrac't was one
entire and indivisible transaction and there was no separate individual sale of the building materials comprised in the constructiOill.
ft was said by this Court that in a building contract the agreement
between the parties was that the contractor should construct the
building according to the specificatio,ns contained in the agreement
and in consideration therefor receive payment as provided therein,
and in such an agreement there was :neither a contract to sell the
materials used in the construction nor did the property pass therein as movable.
The reason why counsel for the appellants relied
on the decision in Gannon Dunkerley & Co. was in support of
the proposition that the word 'sale' occurring in Entry 54 in
List II was to be interpreted in the sense in which the word 'sale'
is used in the Indian Sale of Goods Act.
This Court iin Gannon
Dunkerley & Co. referred to the meaning of· the word 'sale' in
various treatises like Blackstone's Commentary, Benjamin on Sale,
Halsbury's Laws of England and held relying on the meaning given
by Benjamin on Sale that the four elements required in a sale
were; first, that the parties must be. competent to contract;
secondly, there should be mutual assent; thirdly, property in the
thing is to be transferred; and, fvurthly, the price in money is to
be paid.
Counsel for the appellants contended that the element
of mutual assent was lacking in the present cases.
In Mis New India Sugar Mills Ltd. v. The Commissioner of
Sales Tax, Bihar [1963] Suppl, 2 S.C,R. 459 a qu~on arose
as to whether the •despatches bf sugar to the Province of Madras
by dealers in accordance with the directions issued by the Controller under ,the Sugar and. Sugar Products Control Order, 1946
was liable to be taxed as a sale.
This Court in the majority opinion held that the despatches cl sugar under the directions of the
Controller were not the result of any contract of sale because there
was no offer by the dealers to the State and no acceptance by. the
State. The dealer was held to be compelled· to carry out the directions of the Controller and there was illO volition.
Intimation by
the State of its requirement of sugar to the Controller or communication of the allotment order to the dealer assessee was held not
to amount to. an offer. The minority view N1 that case was that
there was a sale of sugar and consent could be express or implied
and as long as the parties carried on trade under controls at fixed
price they must be deemed to have agreed to such a price; there
must be an amplied COillttact with an implied offer and an implied
acceptance.
The decisibn of this Court in the case of Gannon
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SUPREME COURT REPORTS
(1972) 2 S.C.R.
Dunkerley & Co. (supra) was referred to in the New India Sugar
Mills (supra) case for the meaning of the word 'sale).
The majority view in the case of New India Sugar Mills Ltd.
was on the reasoning that the prerequisite to a sale ~as a contract
of sale which was to be had between the parties.
The Province
of Madras intimated its requirements to the Controller.
The
ControlJer called upon the manufacturing units to supply sugar to
the Province..
It was held that the Controller did not act as an
agent of the Province to purchase goods but that he acted in
exercise of his statutory authority.
Therefore, there was no offer
by the Province to purchase sugar and there was no acceptance of
offer by the manufacturer. The ratio was that there was no privity
between the manufacturer and the Province.
The minority view
in that case was that there might be compulsion in both buying
and selling but a compelled sale might nevertheless
be a sale.
Hidayatullah, J. 'for the minority view said "the affairs of the world
are very complicated and sales are not always in their elementary
forms. Due to short supply or maldistribution o.f goods, controls
have to be imposed.
There are permits, price controls, rationing
and shops which are licensed.
Cu.n it be said that there was no
sale because mutuality is lost on one account or another ? It was
not said in the case of Tata Iron and Steel Co. Ltd. v. The State
of Bihar [1958] S.C.R. 1355 which was a case of control, that
there was rio sale.
The eintry should be interpreted in a liberal
spirit and not cut down by narrow technical considerations.
The
entrv in other words should not be shorn of all its content to leave
a mere husk of legislative power. For the purposes of legislation
such as on sales >tax it is only necessary to see whe'ther there is a
sale express or implied.' Such a sale was not found in forward
contracts and in respect of materials used in building contracts.
I
am of opinion that in these transactions there was a sale of sugar
for a price and the tax was payable".
Could a company which supplied steel products to various
persons in the State of Madras at· the instance of the Steel Controller exercising powers under the Iron and Steel (Control) of
Production and. Distribution Order, 1941 be assessed to sales tax
on those transactions.
This was the question in Indian Steel &
Wire Products Ltd. v. State of Madras [1968] 1 S.C.R. 479.
Clause 5 of the Order in the Madras case stated that "no producer
,or stockholder shall dispose of or agree to dispose ,)f or export
or aJ;ree to export from British India any iron or steel except in
accordance with the conditions contained or incorporated in a
general or special written order of the Controller".
Clause 10-B
of the Order stated that "the Controller may, by a written order
require any person holding stock of iron and steel. acquired by
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him otherwise than in accordance with the provisions of Clause 4
to sell the whole or any part of the stock to such person or class of
persons and on such terms and conditions as may be specified in
the Order".
Clause 4 of the Order dealt with acquisition and
stated that "no person shall acquire or agree to acquire any iron
or steel fr'>m a producer ·or a stockholder except under the authority of and in accordance with the conditions contained or incorporated in a general or special written order of the Controller".
The company contended that the parties to whom the goods were
to be supplied, the price which was to be paid, the manner in
which goods were to be transported and the mode in which payment was to be mad~ were all detennined by the Controller and
therefore the transfers were not sales because of compulsion and
lack _of agreement.
Hegde, J. speaking for the Court referred to
the observations in Cheshire and Fifoot Law of Contract
(6th
Ed.) at p. 22 ·and said "Law invariably imposed some restrictions
on freedom of contract".
But due to change in political outlook
and as a result of econon1ic compulsions, the freedom of contract
is now being confined gradually to narrower and narrower limits.
It would be incorrect to contend that because law imposes some
restrictions on freedom to contract, there is no contract at all. So
long as mutual assent is not completely excluded in any dealing,
in law it is a contract". The transactions were held to be sales
because the date for supply of goods. the time for payment and the
independent arrangement between the parties for transport predicated the basis of mutual a3sent.
The Andhra Pradesh Sugarcane (Regulation of Supply and
Purchase) Act, 1961 came up for consideration before this Court
in Andhra Sugars Ltd. & Anr. etc. v. Stale of Andhra Pradesh &
Ors. [1968] 1 S.C.R. 706.
A sugar factory had to buy sugarcane
from canegrowers in conformity with the directions of the Cane
Commissioner.
The State Government by notification had power
to tax purchases of sugarcane for use, consumption or sale i,il · a
sugar factory.
The sugar factories- challenged the validity cl the
Act empowering the Government to t.u purchases of sugarcane in
those instances because the factories were compelled to buy cane
from the sugarcane growers al)d they were bound to enter into
agreements in prescribed terms and conditions and to buy sugarcane in conformity with instructions issued by the Cane Commissioner under the Act and areas were declared as the factory zone
for supply of cane to a factory, the factory was bound to purchase
quantity of cane grown in that area and offered for sale as might
be determined by the Cane Commissioner, the cane growers were
prohibited from supplying or selling cane to any factory or person
otherwise than in accordance with the provisions of the Schedule.
This Court on reading the provisions of the Act and the Rules
framed thereunder found that a cane-grower j.n a factory zone was
'
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SUPREME COURT REPORTS
[1972] 2 S.C.R.
free to sell or not to sell his sugarcane to the factory. The contention of the factories was that if the grower offered to sell the factory
was bound to enter into agreement on prescribed terms and conditions and therefore the factories were compelled by law to buy
cane from the grower; and the purchases were not made under
agreements.
-
Bachawat, J. speaking for the Court in the. Andhra Sugars case
said that the decision in the New India Sugar Mills Ltd. was not
to be treated as an authority for the proposition that there can be
no contract of sale under compulsion of a statute.
The offer of a
cane grower to sell was a free consent and the compulsion cf Jaw
\\'as not coercion as defined in section 15 of the Indian Contract
Act, I 892.
The agreement in spite of the compulsion of law was
said to be neither void nor voidable.
A canegrowcr made an
offer directly to the factories.
The factory accepted it.
The
parties signed an agreement.
There was privily of contract
between the parties.
It was therefore a contract of sale and purchase though the buyer was obliged to give his assent under
compulsion of a statute.
In the case of Arl{ihra Sugars Ltd. this Courr referred to the
whittling down of the laissez faire concept in a social Welfare
State by emphasising the public interest to control unfair competition and combination. lt was said "The cane growers scattered
in the villages had no .real bargaining power. The factory owners
or their combines enjoyed a near monopoly of buying and could
dictate their own terms.
In this unequal contest between the
canegrowers and the factory owners. the Jaw stepped in and compelled the
factory
to enter into contracts of purchase of cane
offered by the canegrowers on prescrib~d terms and conditions".
The Colliery Control Order, 1945 empowered the Central
Government to fix price at which coal might be sold by colliery
owners.
The colliery owners were prohibited from selling or
agreeing to sell or offer_ing to sell coal at a price different from
the price fixed in that behalf.
Where a colliery owner signified
to the Deputy Coal COntroller (Distribution) in writing his willingness to sell direct to consumers and an allotment was. made by the
Deputy Controller to a consumer for such direct sale, the coal
was to be delivered to the c\)nsumer at the price fixed under
clause 4 of the Order.
The Central Government was authorised
to issue from time to time such directions as it thought fit to any
colliery owner regulating the disposal of his stocks of coal or of
the expected output of coal in the colliery during
any
period
including directions as to the grade, size and quanti1y of coal which
might be disposed ol and persons or class or description of persons
to whom coal should or should not be disposed of.
The order
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further provided that no person shall acquire or purchase any coal
from a colliery, and no colliery owner or his agent shall despatch
or agree to despatch or transport any coal from the colliery except
under the authority and in accordance with the conditions contained in a general or special authority of the Central Government.
The Colliery Coal Control Order 1945 came up for consideration in State of Rajasthan & Anr. v. M/s. Karam Chand Thappar
& Bros. Ltd. [1969] 1 S.C.R. 861.
Under a contract with
Equitable Coal Company, I(aratn Chand Thappar and Bros. Ltd.
acquired the monopoly right to supply coal on behalf of the collieries in Rajasthan and sold as the agent of the Equitable Coal
Company.
Karam Chand Thappar and Bros. entered IDto an
agreement with the State of Rajasthan to supply coal to the
Rajasthan Government.
The company contended that the supply
of coal to the State oi Rajasthan did not constitute sale as the
supply was controlled by the Colliery Control Order, 1945 and
even if there was a sale it would be inter-State sale.
It was held
that the Colliery Control Order super-imposed upon the agreement
between the parties the rate fixed and the elements necessary to
render turnover from sale of goods liable to sales tax, namely.
competency of parties, mutual assent of the parties, passing of
propeny in the goods supplied to the purchaser and payment or
promise of payment of price were present in the transaction.
In
the Rajasthan case it was noticed that when the goods supply of
which is controlled by statutory orders are delivered pursuant to
contract of sale the principle of the decision in the case of Ne11·
India Sugar Mills Ltd. has no applicat.ion.
Shah, J. speaking for
the Court in the Rajasthan case said that there was an agreement
of sale between the parties competent to contract and in pursuance
of the agreement of sale propeny in the goods supplied passed 10
the purchaser for price agreed to be paid. The transaction wa"
therefore, one of sale of goods within the meaning of the Rajaslhan
Sales Tax Act.
The U.P. Wheat Procurement (Levy) Order, 1959 was made
for maintaining and securing equitab!e distribution and availability
of wheat at fair prices.