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PETITIONER: KRISHNA COCONUT CO. & ANR.

       Vs.

RESPONDENT: EAST GODAVARI COCONUT & TOBACCO MARKETCOMMITTEE

DATE OF JUDGMENT: 27/10/1966

BENCH: SHELAT, J.M. BENCH: SHELAT, J.M. RAO, K. SUBBA (CJ) HIDAYATULLAH, M. SIKRI, S.M. BACHAWAT, R.S.

CITATION:  1967 AIR  973            1967 SCR  (1) 974

ACT: Madras Commercial Crops Market Act, 1933, ss. 2(1) (a),  and 11  (1)  on Goods declared under s. 2(1) (a)  as  commercial crops--levy of fee under S. 11(1) on goods "bought and sold" in  notified area-whether referred to single transaction  of purchase  and corresponding sale--or applied  to  subsequent sale   by  purchaser-whether  object  of  the  Act   to   be considered-whether levy valid.

HEADNOTE: By  a  notification in June 1949, the State  Government,  in exercise  of  a  power  under  s.  2(1)(a)  of  the   Madras Commerical  Crops  Market Act, 1933, declared  coconuts  and copra  to  be ’commercial crops’ within the meaning  of  the Act.  The respondent Market Committee IL-vied in respect  of the  declared commerical crops, a fee on the  goods  ’bought and  sold’  within the notified area under s. 11(1)  of  the Act,  read with Rule 28(1) of the Rules made under the  Act. The  appellants filed various suits contesting the  levy  on the  ground that they sold coconuts and copra  to  customers outside  the  notified area and in some  cases  outside  the State;   consequently,  they  sought  refund  of  the   fees collected by the respondent committee. The suits filed were tried together and the trial Judge held that  the levy, though called a "fee", was -really a  "tax", and that the Committee was only empowered to impose such tax when  the  goods were bought and sold  within  the  notified area.   He  therefore passed decrees in all the  suits  .for refund of the fees collected. The  first appeal by the respondent Committee was  dismissed by the Sub-Judge who further held that the fee in  substance being  a tax, such tax on sales completed outside the  State would also offend Art. 286 of the Constitution.  However,  a second appeal to the High Court was allowed on the view that the  transactions which were the subject-matter of the  levy under  Section  11(1) were transactions  consisting  of  the purchase   of   the  goods  by  the   appellants   and   the corresponding  sales  to them by the producers and  not  the subsequent  sales effected by the appellants to  their  cus-

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tomers  outside the notified area or the  States;  therefore the  transactions  on  which the said fee  was  levied  were effected  and  completed inside the notified area  and  fell within the expression "bought and sold" in section 11(1). In  the appeal before this court it was contended on  behalf of  the  appellants that the transactions effected  by  them consisted  in their purchasing the goods and stopped at  the stage  of goods "bought" so that no fee could be  levied  in the  absence of the other ingredient, i.e., sale within  the notified area. HELD  :  The construction placed on s. II (1)  by  the  High Court was correct and the respondent Committee had therefore rightly charged the fee. [983 B] 975 The  words "bought and sold" used in s. 11(1) aim  at  those transactions  where under a dealer buys from a producer  who brings  to the market his goods for sale.   The  transaction aimed  at  must  be  viewed  in  the  sense  in  which   the legislature  intended  it  to be viewed,  that  is,  as  one transaction resulting in buying on the one hand and  selling on the other.  Such a construction is commendable because it is  not only in-consonance with the words used in s. 11  (1) but  is consistent with the object of the Act  as  expressed through  its  various  provisions,,  i.e.,  to  prevent  the mischief  of exploitation of producers of  commercial  crops such  as coconuts and copra and to see that  such  producers got a fair price for their goods. [982 A-B, E-F] Kutti  Koya  v.  State  of  Madras  A.I.R.  1954  Mad.  621; Satyanarayana  and  Venkataraju  Firm  v.  Godavari   Market Committee  A.I.R. 1959 Andh. Pra. 398;  M.C.V.S.  Arunachala Nadar  v.  The State of Madras [1959] Suppl.  1  S.C.R.  92; Louis  Drevfus  &  Co.  v.  South  Arcot  Groundnut   Market Committee A.I.R. 1945 Mad. 383; referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal Nos. 858 to  861 of 1964. Appeals by special leave from the judgment and order of  the Andhra Pradesh High Court in Second Appeals Nos. 720 and 724 to 726 of 1957. C.B. Agarwala and T. V. R. Tatachari, for the appellants (in all the appeals). P.   Ram  Reddy and K. R. Sharma for the respondent (in  all the appeals. ) The Judgment of the Court was delivered by Shelat, J. All these four appeals by special leave raise a common    question regarding interpretation of section 11(1) of the    Madras Commercial Crops Market Act, XX of 1933 and Rule  28 of the Rules made thereunder and therefore  can  be disposed of by a common judgment. The  Act was originally enacted by the  Madras  Legislature. It was a law in force immediately before the constitution of the State of Andhra Pradesh and governed the territories now forming part of that State.  By virtue of Andhra Pradesh Act of 1953 and the Adaptation of Laws Order passed on  November 1, 1953 by the State Government of Andhra Pradesh it  became applicable to the newly formed State of Andhra Pradesh.   By a  Notification dated June 27, 1949 the then  Government  of Madras, in exercise of the power conferred on it by  section 2(1)(a), declared coconuts and copra to be commercial crops. Under  section  4  of the Act,  the  State  Government  also declared  the  District of East Godavari  as  the  "notified area"  for  purposes of the Act in respect of  coconuts  and

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copra.   By  a further notification dated December  5,  1950 issued under section 4(a) of the Act it established a Market Com- 976 mittee at Rajahmundry for the said notified area.  The  said Market  Committee  levied the following fees,  viz.,  (1)  a licence  fee under s. 5(1) of the Act read with Rule  28(3); (2) a licence fee for storage, wharfage etc., under  section 5(3) read with Rule 28(3); (3), a registration fee under  s. 18 read with Rule 37; (4) a fee on the said goods bought and sold within the notified area and under s.   II   (1)   read with Rule 28(1); and (5) a fee under the same section on   consign ments of coconut oil. Contesting  the  levy of fees under items 2 to  5  as  being illegal  on the ground that they sold coconuts and copra  to customers  outside  the  notified area  and  in  some  cases outside the State, the appellants filed various suits in the court  of the District Munsif, Amalapuram for refund of  the said  fees  collected  by the said  Committee  at  different times.   The  Market  Committee  resisted  the  said   suits claiming that the aforesaid provisions conferred power  upon it  to levy the said- fees and that the said levy was  valid and  legal.   The  said suits were tried  together  and  the District  Munsif  by his judgment dated  October  17,  1955, inter alia, held that the levy under section 11(1) read with Rule  28(1) though called a "fee" was really a  "tax",  that the  said provisions empowered the Committee to  impose  the said  tax  only  when the said goods were  bought  and  sold within  the  notified area, that the sales effected  by  the appellants  were to customers outside the said area  and  in some  cases  outside the State, that the  Committee  had  no power  to levy and collect the said fees’ and therefore  the appellants  were  entitled to refund of the  said  fees  and accordingly passed decrees in all the suits.  In appeals  by the Committee, the Subordinate Judge, Amalapuram, held  that though  the appellants purchased the said goods  within  the notified area they exported them to their customers  outside the notified area and outside the State and relying upon the decision  in  Kutti Koya v. State of Madras() he  held  that though section II (1) called the said levy as fee it was  in substance  a  tax  and  that such  a  tax  being  oil  sales completed at the places of their customers outside the State offended  Art.  286 of the Constitution  and  was  therefore illegal.   The  Subordinate Judge, except for  deleting  the relief  granted in respect of licence fee under s.  5(3)  of the  Act, dismissed the appeals and confirmed  the  judgment and  decree  of  the  Trial  Court.   The  Market  Committee thereupon  filed Second Appeals in the High Court of  Andhra Pradesh.   Before  the High Court the  controversy  centered round  the  question of fee under s. 11 (1)  only.   By  its common  judgment  dated  November 8,  1961  the  High  Court relying upon the judgment of a Division Bench of that  Court in  Satyanarayana  and Venkataraju Firm v.  Godavari  Market Committee(2) held that the word "fee" in section II (1)  was in  fact a fee and not a tax, The Division Bench  also  held that the said goods were pur- (1) A.I.R., 1954 Mad. 621. (2) A.I.R. 1959 Andh.   Pradesh 398. 977 chased  by  the appellants from producers or  petty  dealers within the notified area and then sold by them to  customers outside  the said area or the State, that  the  transactions which  were the subjected matter of the levy  under  section 11(1)  were transactions consisting of purchase of the  said

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goods by the appellants and the corresponding sales to  them by  the producers and petty dealers and not  the  subsequent sales  effected  by  them to  their  customers  outside  the notified area or the State, that therefore the  transactions on which the said fee was levied were effected and completed inside  the  notified area and fell  within  the  expression "bought and sold" in section 11 (1) and therefore the Market Committee   rightly   levied   the  said   fee   on   those. transactions.  In the result, the Division Bench allowed the appeals and dismissed the appellants’ suits.  It is this judgment   and  decree  against  which  these  appeals   are directed. The  preamble of the Act states that the Act was passed  for making  provisions  for  better  regulation  of  buying  and selling  of and the establishment of markets for  commercial crops.  As stated in M.C.V.S. Arunachala Nadar v. The  State of  Madras(1),  the Act was the result of  long  exploratory investigation by experts in the field, conceived and enacted to  regulate the buying and selling of Commmercial crops  to provide   suitable  and  regulated  markets,  to   eliminate middlemen and bring face to face the producer and the  buyer so  that they meet on equal terms thereby eradicating or  at any  rate  reducing  the  scope  for  exploitation  of   the producers.  It therefore provided a machinery for regulating trade by providing a common place where facilities would  be furnished   by   way  of  space,   buildings   and   storage accommodation,   and   where  market  practices   would   be regularised   and   market  charges  clearly   defined   and unwarranted  ones prohibited, where correct weighment  would be  ensured  by licensed weighmen and all weights  would  be checked and stamped, where payment on hand would be ensured, where  provision would be made for settlement  of  disputes, where daily prevailing prices would be made available to the grower  and reliable market information  provided  regarding arrivals,  stocks, prices etc., and where quality  standards would   be   fixed  when  necessary   and   contract   forms standardized  for  purchase  and sale.  The  result  of  the implementation  of the Act would be thus to give  reasonable facilities  to  the  growers of  commercial  crops  ensuring proper price for their commodities. Section 4(a) (1) provides for the formation of a market com- mittee for enforcing the provisions of the Act and the Rules and  bylaws  framed thereunder.  Sub-section (2)  lays  down that the Committee shall establish in the notified area such number  of markets providing such facilities, as  the  State Government  may from time to time direct, for  purchase  and sale of commercial crops.  Section 5 (1)  [1959] Suppl. 1 S.C.R. 92. 978 prohibits  any person to set up, establish or use,  continue or .allow to be continued any place within the notified area for the purchase or sale of commercial crops except under  a licence and in accordance with the conditions thereof.   The Market Committee, however, can exempt from the provisions of this  sub-section any person who carries on the business  of purchasing  or selling any .,commercial crop  in  quantities not  exceeding  those  prescribed by  the  Rules.   It  also exempts from the provisions of this section a person selling a  commercial  crop  which has been grown by him  or  a  co- operative  society selling a commercial crop which has  been grown by any of its members and also a person purchasing for his  private  use  a  commercial  crop  in  quantities   not exceeding those prescribed by the rules.  Section 6 provides that every market committee shall consist of such number  of members  not exceeding twelve as may be fixed by  the  State

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Government  and  provides for representatives  of  licencees under  section 5 and buyers, sellers and buyers and  sellers registered  under  the  Rules  prescribed  in  that  behalf. Section II (1) with which we are concerned in these  appeals reads:               "The  Market Committee shall, subject to  such               rules as may be made in this behalf, levy fees               on  the  notified  commercial  crop  or  crops               bought  and sold in the notified area at  such               rates as it may determine." The  Explanation  to  sub-section  (1)  provides  that   all notified  commercial  crops leaving a notified  area  shall, unless the contrary is proved, be presumed to be bought  and sold within such area.  Sub-section 2 provides that the  fee chargeable  under  sub-section(1)  shall  be  paid  by   the purchaser  of  the commercial crop concerned  provided  that where such a purchaser cannot be identified the fee shall be paid  by  the seller.  Section 12 provides that  all  monies received by a market committee shall be paid into a fund and all  expenditure incurred by the market committee  shall  be defrayed  out of the said fund.  The expenditure  which  the committee  can incur is for purposes set out in  section  13 which  incidentally  reflect the object and purpose  of  the Act.  Section 18 empowers the State Government to make rules including  rules  for  licence fee  under  section,  5,  the registration  fee and the prohibition of buying and  selling ,of commercial crops in the notified area by persons not  so registered  and  the fee to be levied  on  commercial  crops bought and sold in the notified area.  Rule 28 lays down the maximum  fee leviable on commercial crops under  section  11 (I)  as  also  the  maximum fee  payable  for  licences  and registration.  Rule 28-A provides that the fees referred  to in sub-rule (1), that is, "fees" under section 11 (1), shall not  be  levied  more than once on a commercial  crop  in  a notified area.  These provisions clearly show the policy  of safe_guarding   the  interests  of  the  producers  and   of guaranteeing to them 979 reasonable  return  for the crops they would bring  to  sell without being exploited. Mr. Agarwala raised the following contentions: (1) that  the fee  charged  by the Market Committee under s.11(1)  was  on sales effected by the appellants with their customers,  some of  whom were admittedly outside the notified area  and  the rest  outside  the State; (2) that that was the  footing  on which the parties proceeded with the suits but that case was given  up in the High Court and the High Court was in  error in permitting the Committee to shift its case and argue that the fee was levied not on those sales but on transactions of purchase  entered into by the appellants with the  producers and other petty dealers. It  is  true that in para 3 of their plaint  the  appellants averred  that their business activities consisted of  buying coconuts  and  copra in East Godavari District  and  selling them  to  customers outside the notified area and  even  the State and that those sales were completed at the  respective places  of those customers.  The appellants’ case  therefore was  that in respect of these sales with customers  some  of whom were outside the notified area and the rest outside the State, the levy of fee was in the former case beyond the ken of s. II (1) and in the latter case repugnant to Art. 286 of the  Constitution.  The written statement of the  respondent committee denied these allegations.  The Committee  asserted that both the purchases and sales took place in the notified area  and that though the fee levied by it was on  sales  by

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the  appellants  and  though  delivery  of  the  said  goods thereunder took place outside the notified area the sales in respect  thereof  were  made within the  notified  area  and therefore  the  question of the levy under  section  11  (1) being  repugnant  to Art. 286 of the  Constitution  did  not arise.   Besides  these  pleadings  Mr.  Agarwala  drew  our attention to certain notices of demand and circulars  issued by  the Committee in which it was stated that the  said  fee was  being  levied on goods exported outside  East  Godavari District and that the traders were liable to pay it both  on coconuts exported to outsiders and also consumed internally. That presumably was stated because if the goods were "bought and  sold"  within  the notified area,  even  if  they  were subsequently  exported outside, section 11(1)  would  apply. The  practice followed by the appellants and not  denied  by the Committee was that they used to despatch these goods  by rail to their customers.  Railway receipts and hundies  were then  sent to their bankers at the destination  and  railway receipts were delivered to the customers on their  honouring the  hundies  Thus  the goods  were  delivered  outside  the notified  area and the sales effected by the  appellants  to their  customers were also completed at places  outside  the notified area and in some cases outside the State. On these facts the District Munsif held that property in the goods having passed at destination, sales took place outside the 980 notified area and therefore the fee charged by the Committee was  illegal as section 11(1) permitted such a levy only  on goods  bought and sold within the notified area.  On  appeal by  the Committee, the Subordinate Judge held that the  said fee  was  a  tax, that it was a tax  on  sales  outside  the notified area and the State and was not therefore  warranted under  section  11 (1) and was repugnant to  Art.  286.   It seems that in both the courts, the real issue was lost sight of,  viz.,  whether the goods in respect of  which  the  fee under  s.  1 1 (I) was levied were goods "bought  and  sold" within the notified area as envisaged by the section. In the High Court however the questions convassed were (1)  whethe r the  fee provided in section 11 (1) was a fee or a  tax  and (2)  even  if  it was a fee whether the  Committee  had  the power to levy it in respect of goods sold by the  appellants outside  the  notified area.  As already  stated  the  Trial Judge and the Subordinate Judge had proceeded on the footing that  the said fee was levied on sales entered into  by  the appellants with their customers who undoubtedly were outside the notified area.  But the real question that ought to have been  dealt  with by the Trial, Judge and on appeal  by  the Subordinate Judge was not whether the appellant’s sales were to  customers  outside the notified area or  the  State  but whether the fee which was levied was valid.  The question of the  validity of the levy entailed another  question,  viz., whether  the  levy  was  on  transactions  effected  by  the appellants before they sold those goods to their  customers. Were the appellants entitled to a refund of the fees  levied on them under s. II (1) ?, was the principal question in the suits.   To  decide that question it was necessary  for  the court to go into the question whether the fee was charged on the  sales  by the appellants or on  the  transactions  made between them and those from whom they purchased the goods in question.  Since neither the Trial Court nor the Subordinate Judge had gone into that question, it was necessary for  the High  Court  to  go into it not only to do  justice  to  the parties but also because that was the real issue arising  in

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the  suits  and was the crux of the litigation.   There  was therefore  no  question  of  the  High  Court  allowing  the respondent-Committee  to make out a new case.  The  question from  the  very  inception was  whether  the  Committee  was competent  to levy the fee in question under section  11(1). To answer that question the court necessarily had to enquire on  which  transactions could the said fee be  levied  under section 11(1) and whether it was rightly levied by the  Com- mittee.  The High Court answered these questions by  holding that  it  was levied, on the transactions  effected  by  the appellants with those from whom they bought the said  goods, that section 11(1) dealt with those transactions and was not therefore  concerned with the subsequent sales entered  into by the appellants with their customers outside the  notified area.    Since,   according  to  the   High   Court,   those transactions were admittedly effected within the noti- 981 fied area the levy was valid and warranted under s. 1 1 (1). In  our view the High Court approached the question  from  a correct  angle  and therefore there was no question  of  its having allowed the Committee to change its case or make  out a new case. That  being the position, the next question is  whether  the Committee  could  levy  fee  under section  II  (1)  on  the transactions  effected  by the appellants before  they  sold those  goods to their customers.  Mr. Agarwala’s  contention was that the fee levied under section 11(1) could only be in respect  of  goods "bought and sold" and not in  respect  of transactions where goods were only "bought" or only  "sold". According  to him it is only when a person bought goods  and sold those identical goods within the notified area that the fee under section 11(1) could be levied.  According to  him, the  transactions  effected by the appellants  consisted  in their  purchasing the said goods; they stopped at the  stage of  goods "bought".  Therefore, the other ingredient  for  a valid  levy of the fee not being present the fee  levied  in the present case was not in accordance with the requirements of  section  11 (1) and was  unwarranted.   This  contention raises  the question as to the meaning of the words  "bought and  sold"  in  section 11(1).  At first  sight  they  would appear  to be susceptible of three meanings; viz., (1)  that they mean duality of transactions where the same person buys goods and sells those identical goods in the notified  area; (2) that they mean "bought" or "sold" the conjunctive  "and" meaning  in the context of the sub-section  the  disjunctive "or" and (3) that they apply to a transaction of purchase as the concept of purchase includes a corresponding sale.  When a  person buys an article from another person,  that,  other person at the same time sells him that article and it is  in that  sense  that section 11(1) uses the words  "bought  and sold."  The incidence of the fee under section 11(1)  is  on the goods thus "bought and sold".  This last  interpretation was favoured by the High Court of Madras in Louis Dreyfus  & Co.  v. South Arcot Groundnut Market Committee(1) which  has been accepted by the High Court in the present case. If  the construction commended to us for acceptance  by  Mr. Agarwala  were  to be correct, viz.,  that  the  appellant’s transactions  stopped at the stage of goods  "bought",  they would  not be transactions in respect of goods  "bought  and sold".   If  the  fee was levied on sales  effected  by  the appellants with their customers its levy would not be  valid under  section 1 1 (1) and would also be repugnant to  Art.’ 286 where goods were delivered outside the State.  But it is a  well settled rule of construction that the  court  should endeavour as far as possible to construe a statute in such a

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manner that the construction results in validity rather than its invalidity and gives effect to the (1)  A.I.R. 1945 Mad. 383. 982 manifest intention of the legislature enacting that statute. The object in passing the Act was to prevent the mischief of exploitation  of  producers  of  commercial  crops  such  as coconuts and copra and to see that such producers got a fair price  for their goods.  The mischief to prevent  which  the Act  was enacted was the exploitation of these producers  by middlemen and those buying goods from them and therefore the Act  provided  facilities such as market  place,  place  for storage,  correct weighment etc., so that the producers  and his  purchasers  come  face  to  face  in  a  regulated  and controlled market and a fair price was obtained by them.  If the  construction  suggested  by Mr.  Agarwala  were  to  be accepted  and  the  section were to be  construed  as  being applicable  to  those transactions only which  have  a  dual aspect, that is, buying by a dealer from a producer and  the dealer  selling  those identical goods within  the  notified area,  the  object of the Act would be defeated,  for  in  a large  number  of cases the transactions would halt  at  the stage of buying and the Committee in those cases would  have no  power  to  levy the fee on them.  Why is a  buyer  or  a seller  or a buyer and seller required to be registered  and why  does  the  Act prevent those who  have  not  registered themselves  from effecting transactions in commercial  crops unless  the object was to regulate and control  transactions in  those  commodities  at  all  stages  and  in  a   manner preventing   the   exploitation  of  the  producer   ?   The legislature  had thus principally the producer in  mind  who should have a proper market where he can bring his goods for sale  and where he can secure a fair deal and a fair  price. The  Act  thus aims at transactions which  such  a  producer would  enter  into with those who buy from him.   The  words "bought  and  sold"  used  in section  11(1)  aim  at  those transactions  where under a dealer buys from a producer  who brings  to the market his goods for sale.  The  transactions aimed  at  must  be  viewed  in  the  sense  in  which   the legislature  intended  it  to be viewed,  that  is,  as  one transaction resulting in buying on the one hand and  selling on the other.  Such a construction is commendable because it is  not  only in consonance with the words used  in  section 11(1)  but  is  consistent with the object  of  the  Act  as expressed through its various provisions.  The  construction on  the other hand canvassed by the appellants is  defeative of  the  purpose  of  the Act  and  should,  unless  we  are compelled to accept it, be avoided.  The construction  which we  are  inclined to accept acquired some support  from  the fact that section II makes the purchaser and not the  seller primarily responsible for payment of the fee and it is  only when  the purchaser cannot be identified that the seller  is made liable. Mr.  Agarwala at first also urged that the fee under  s.  11 (1)  amounted to a tax and that it was in fact a sales  tax. But  at the last moment he stated that he- did not  wish  to press  that contention and requested us not to  express  any opinion  thereon.   Since the contention is not  pressed  we need not express any opinion on that ques- 983 tion  and  confine  ourselves  to the  question  as  to  the interpretation  of  the  words "bought  and  sold"  in  that section. In our view the construction placed by, the High Court on s. 11(1)   was  a  correct  construction  and   therefore   the

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respondent-committee had rightly charged the appellants with said fee. The  appeals  therefore fail and are dismissed  with  costs. One hearing fee. R.K.P.S.               Appeals dismissed... 984