# STATE OF KARNATAKA AND ORS v. M/S SRI CHAMUNDESWARI SUGAR LTD

- **Citation:** [2008] 6 S.C.R. 16
- **Court:** Supreme Court of India
- **Decided:** 2008-04-08
- **Case number:** Civil Appeal No. 4934 of 2006
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-karnataka-and-ors-v-m-s-sri-chamundeswari-sugar-ltd-24545
- **Pages:** 27

## Headnote

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[2008] 6 S.C.R 16
STATE OF KARNATAKA AND ORS.
V.
M/S SRI CHAMUNDESWARI SUGAR LTD.
(Civil Appeal No. 4934 of 2006)
APRIL 8, 2008
[DR. ARIJIT PASAYAT, P. SATHASIVAM AND
AFTAB ALAM, JJ.] .
Sales Tax.
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
minimum cane price and additional cane price -
Held:
Assessee paid State Advised Price (SAP) which is subject to
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
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.
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.
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
16
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STATE OF KARNATAKA AND ORS. v. MIS SRI
CHAMUNDESWARI SUGAR LTD.
17
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 Judg

## Text

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[2008] 6 S.C.R 16
STATE OF KARNATAKA AND ORS.
V.
M/S SRI CHAMUNDESWARI SUGAR LTD.
(Civil Appeal No. 4934 of 2006)
APRIL 8, 2008
[DR. ARIJIT PASAYAT, P. SATHASIVAM AND
AFTAB ALAM, JJ.] .
Sales Tax.
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
minimum cane price and additional cane price -
Held:
Assessee paid State Advised Price (SAP) which is subject to
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
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.
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.
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
16
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STATE OF KARNATAKA AND ORS. v. MIS SRI
CHAMUNDESWARI SUGAR LTD.
17
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.
c
Allowing the appeal, the Court
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
0 case was followed. 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 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
I 1
STATE OF KARNATAKA AND ORS. v. M/S SRI
CHAMUNDESWARI SUGAR LTD.
19
is the price to be paid for it. [Para 15] [41-8, C]
Commissioner of Income Tax, Andhra Pradesh v. TN.
Aravinda Reddy 1979 (4) SCC 721 - referred to.
A
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.
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4934 of 2006.
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.
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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
B
and Anr. (2000 (2) sec 321) on one hand and Ponni Sugars
•,
(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
E
also fixes the price payable to sugarcane growers by the sugar
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 19901991, 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
G
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, 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
,..
H
sugarcane under an agreement between the grower and
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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 5A 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
E
been stated by the Supreme Court in _its order in Civil
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.
B
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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:
"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?"
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.]
'
'minimum price'.
A
1
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
B
Government; (ii) the State Advised Price and (iii) the price fixed
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 D
inter-alia as follows:
"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
compulsion or duress. It has been submitted that after the
E
State Government makes an announcement of a Stateadvised 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
F
C, wherein the State-advised price is mentioned. The
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
c
challenged the assessment of sales tax made on its
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,
D
the manner in which they were to be transported and the
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
A
B
c
D
E
F
G
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28
SUPREME COURT REPORTS
[2008] 6 S.C.R.
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
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
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
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
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
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
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
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 nearmonopoly 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,
E
6th Edn., p.23 observe that for reasons of social security
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 canegrowers 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
A
B
c
D
E
F
SUPREME COURT REPORTS
(2008] 6 S.C.R.
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
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
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)
"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.
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
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 B
contract where in the opinion of the Government the
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
D
..
affirmative conclusion that sugarcane-growers who
are farmers cannot negotiate on the footing of the
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 caneF
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
A
B
c
D
E
F
G
H
32
SUPREME COURT REPORTS
[2008] 6 S.C.R.
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
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 Stateadvised 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
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
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
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
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
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
F
repugnancy between a law made by Parliament and law
.'y
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.
A
Indian Penal Code, Prevention of Corruption Act and
t
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)
B
"35.1. That in order to decide the question of
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
E
and separate offences, no question of repugnancy
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
G
law and the Union law must operate on the same field and
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
H
repugnancy is that if one prevails, the other cannot prevail.
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 subclause (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
B
hand may now be examined. In Maharashtra Rajya
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.