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PETITIONER: ANDHRA SUGARS LTD. & ANR.  ETC.

       Vs.

RESPONDENT: STATE OF ANDHRA PRADESH & ORS.

DATE OF JUDGMENT: 29/09/1967

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. WANCHOO, K.N. (CJ) RAMASWAMI, V. MITTER, G.K. HEGDE, K.S.

CITATION:  1968 AIR  599            1968 SCR  (1) 705  CITATOR INFO :  F          1969 SC 147  (9,26)  R          1969 SC 343  (9)  RF         1970 SC1912  (7)  RF         1970 SC2000  (11)  RF         1972 SC  87  (27,28,29)  RF         1974 SC1745  (4)  APR        1978 SC 449  (36,37,39,43,52)  R          1980 SC 286  (48)  MV         1985 SC 679  (27)  R          1988 SC1487  (26)  R          1989 SC2015  (8)  D          1990 SC 781  (28,74,81)  R          1990 SC 820  (15,21)

ACT: Andhra  Pradesh  Sugar-cane (Regulation of Supply  and  Pur- chase)  Act  1961 (45 of 1961), s. 21-Validity  of  section- Purchases of sugar by factories under compulsion of law-Such transactions  whether  taxable  under  Entry  54,  List  II, Seventh Schedule, Constitution of India, 1950-Section 21  of Act  45 of 1961 whether violates Art. 14 of Constitution  of India-Whether  impedes free trade, commerce and  intercourse within the meaning of Art. 301 Constitution of India.

HEADNOTE: Under the Andhra Pradesh (Regulation of Supply and Purchase) Act  1961  the  occupier  of a  sugar  factory  had  to  buy sugarcane from canegrowers in conformity with the directions of the Cane Commissioner.  Under s. 21 of the Act the  State Government  had  power by notification to tax  purchases  of sugarcane  for use, consumption or sale in a sugar  factory. The  tax was leviable subject to a maximum rate  per  metric tonne.   The maximum rate for khandsari units was less  than that  for factories; sugarcane purchased for  production  of jaggery  was not taxed at all.  The petitioners  were  sugar factories  in  Andhra Pradesh.  They  filed  writ  petitions under  Art. 32 of the Constitution challenging the  validity of  s.  21 mainly on the ground that as the  petitioners  or their  agents  were compelled by law to buy  cane  from  the

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canegrowers, their purchases were not made under  agreements and were not taxable under Entry 54 List II having regard to Gannon Dunkerley’s case.  It was further urged that the  tax leviable under s. 21 was not truly a purchase tax as it  was levied  with reference to weight of the goods, that  it  was levied  with reference to use and was therefore a  use  tax, and that it was the entry of the goods into the factory that was  sought  to  be  taxed  Articles  14  and  301  of   the Constitution were also said to be contravened. Held:     (1)  There  has  been a  gradual  erosion  of  the laissez  faire  concept which prevailed  in  the  nineteenth century.   It  is now realised that in the  public  interest persons  exercising certain callings or having  monopoly  or near  monopoly Powers should sometimes be charged  with  the duty  to serve the  public, and if necessary, to enter  into contract& The canegrowers scattered in the villages- had  no real  bargaining power.  In the 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 canegrowers on  prescribed  terms  and conditions. [713 C.F.]. Under  Act  45 of 1961 and the Rules framed  under  it,  the canegrower  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 is free as defined in s. 14 of the Indian Contract Act.  The compulsion of law  is not coercion as 706 defined   in  s.  15  of  the  Act.   The,  agreements   are enforceable  by law and are contracts of sale as defined  in s.  4  of the Indian Sale of Goods Act.   The  purchases  of sugarcane under the agreement can be therefore taxed by  the State Legislature under Entry 54 List II.  Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 is accordingly not ultra vires. [712 F-H]. State of Madras v. Gannon Dunkerley & Co. [1959] S.C.R.  379 and  New  India Sugar Mills Ltd., v. Commissioner  of  Sales Tax,  Bihar,  [1963] Supp. 2 S.C.R. 459,  distinguished  and explained. Lane v. Cotton, 1 Ld.  Raym 646:91 E.R. 17, Kirkness v. John Hudson  &  Co. Ltd. [1955] A.C. 696 and  Ridge  Nominees  v. I.R.C. [1962] 2 W.L.R. 3, referred to. The  Indian  Steel  & Wire Products Ltd., v.  The  State  of Madras, [1968] 1 S.C.R. 479, relied on. (ii) Purchase  tax need not always be levied with  reference to price of goods or with reference to turnover.  It may  be levied  on  the occupier of a factory by  reference  to  the weight of the goods purchased by him. [717 C-E]. It  cannot  he accepted that a purchase tax must  be  always levied on goods generally and never with reference to  their use, consumption or sale.  Under List II Entry 54 the  State Legislature  is not bound to levy a tax on all purchases  of cane.   It may levy a tax on purchases of cane required  for use, consumption or sale in a factory.  The tax so levied is not a use tax. [717 F-718 B]. McLeod v. Dilworth & Co. 322 U.S. 327: 88 L. Ed. 1305 and C. G.  Naidu  & Co. v. State of Madras, A.I.R. 1953  Mad.  116, referred to. The  tax  under s. 21 is not a levy on the (entry  of  goods into  the  factory.   Cane cultivated  by  the  factory  and entering it cannot be taxed under the section. [718 G]. Diamond Sugar Mills Ltd., and Anr. v. State of Uttar Pradesh

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and Anr., [1961] 3 S.C.R. 242, referred to. (iii)     Section  21 does not impede free  trade,  commerce and  intercourse and therefore does not offend Art.  301  of the  Constitution.   The  tax levied under s.  21  does  not discriminate against any imported  cane. [719 E-720 A]. A.   T.  Mehtab  Majid and Co. v. State  of  Madras,  [1963] Supp. 2 S.C.R. 435, Atiabari Tea Co’ Ltd., v. State of Assam JUDGMENT: (Rajasthan) Ltd., v. State-of Rajasthan, [1963] 1 S.C.R. 491, referred to. (iv) The differential treatment of factories producing sugar by means of vacuum pans, khandsari units producing sugar  by the  open  pan process and canegrowers using  cane  for  the manufacture  of  jaggery is reasonable and  has  a  rational relation  to  the  object  of the Act.   There  is  thus  no violation of Art. 14 of the Constitution. [720 G-H]. Nor  does discrimination result from the exemption under  s. 21(3) of factories which are new or which in the opinion  of the  Government have substantially expanded.  The  exemption is  based  on legitimate legislative policy.   The  question whether the exemption should be granted to a factory and  if so  for what period and the question whether a  factory  has substantially  expanded  and  if  so  the  extent  of   such expansion have to be decided with reference to the facts  of each individual case.  It is not possible for the State                             707 Legislature  to examine the merits of individual  cases  and the function was properly delegated to the State Government. The  legislature was not obliged to prescribe a  more  rigid standard for the guidance of Government. [721 A-C].

& ORIGINAL JURISDICTION: Writ Petitions Nos. 53, 100, 101, 105 and 106 of 1967. Petitions under Art. 32 of the Constitution of India for the enforcement of the fundamental rights. M.   C. Setalvad, A. V. Koteswara Rao, K. Rajendra Chaudhuri and K. R. Chaudhuri, for the petitioners (in W. P. No. 53 of 1967). N.   C.  Chatterjee, A. V. Koteswara Rao, K. Rajendra  Chau- dhuri and K. R. Chaudhuri, for the petitioners (in W.P.  No. 100 of 1967). A.   V.  Koteswara  Rao, K. Rajendra Chaudhuri  and,  K.  R. Chaudhuri, for the petitioners (in W.P. No.101 of 1967). K.   R.  Chaudhuri and K. Rajendra Chaudhuri, for the  peti- tioners (in W.P. Nos. 105 and 106 of 1967). C.   K. Daphtary, Attorney-General and A. V. Rangam, for  he respondents (in W.P. No. 53 of 1967). P.   Ram Reddy and A. V. Rangam, for the, respondents (in V.   Ps. No. 100, 101, 105 and 106 of 1967). Sachin  Chaudhury,  G. L. Sanghi and O. C. Mathur,  for  the intervener (in W.P. No. 53 of 1967). The Judgment of the Court was delivered by-- Bachawat,  J. In all these writ petitions under Art.  32  of the the petitioners ask for an order declaring that s. 21 of the  Andhra  Pradesh  Sugarcane (Regulation  of  Supply  and Purchase)  Act, 1961 (Andhra Pradesh Act No. 45 of 1961)  is unconstitutional and ultra vires and a direction prohibiting the  respondents from levying tax under S. 21 and to  refund the tax already collected. Section 21 of the Act is in these terms:      "21(1) The Government may, by notification, levy a  tax at  such rate not exceeding five rupees per metric tonne  as

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may be prescribed on the purchase of cane required for  use, consumption or sale in a factory.  (2)  The  Government  may,  by  notification,               remit in whole or in part such tax in  respect               of  cane  used, or intended to be  used  in  a               factory  for  any purpose  specified  in  such               notification.  (3)  The  Government  may,  by  notification,               exempt  from  the payment of  tax  under  this               section--  (a) any new factory which, in the opinion  of               the Government has substantially expanded,  to               the extent of such expansion, for a period not               exceeding   two   years  from  the   date   of               completion of the expansion.               P(N)7SCI--6               708               (4)   The  tax payable under  sub-section  (1)               shall   be  levied  and  collected  from   the               occupier of the factory in such manner and  by               such authority as may be prescribed.               (5)   Arrears  of tax shall carry interest  at               the rate of nine per cent per annum.               (6)   If  the tax under this section  together               with the interest, if any, due thereon, is not               paid  by the occupier of a factory within  the               prescribed time, it shall be recoverable  from               him as an arrear of land revenue."               Section  2(1)  defines a factory  which  means               "any premises including the precincts thereof,               wherein twenty or more workers are working  or               were  working on any day during the  preceding               twelve  months  and in any part of  which  any               manufacturing   process  connected  with   the               production of sugar by means of vacuum pans in               being  carried on or is ordinarily carried  on               with  the  aid of mechanical  power.   Section               2(m)  defines the occupier of a  factory.   B:               Ordinance No. 1 of 1967 which was replaced  by               Act  No.  4 on 1967, the  following  new  sub-               section   (I-A)   was   inserted   and   other               consequential amendments were made in S. 21 of               the principal Act               "(1-A)  The Government may,  by  notification,               levy a tax at such rate, not exceeding  three.               rupees  and fifty paise per metric tonne,  as               may  be  prescribed on the  purchase  of  cane               required  for  use, consumption or sale  in  a               khandsari unit".               Also the following sub-sections (kk) and (kkk)               were inserted in s.  2 of the principal Act:               "(kk) ’khandasari sugar’ means sugar  produced               by open-pan process in a khandasari unit  from               sugarcane  juice, or from rab or gur or  both,               containing more than eighty per cent sucrose;               (kkk)  ’khandasari unit’ means a unit  engaged               or  ordinarily engaged in the  manufacture  of               khandasari sugar and includes a bel;" It may be mentioned that sales and purchases of sugarcane  a exempt  from tax under the Andhra Pradesh General Sales  Tax Act,  1957.  The petitioners own sugar factories as  defined in 2(1).  Their agents are the occupiers of the factories as defined  in S. 2(m).  They purchased cane  from  canegrowers within their respective factory zones.  The State Government had  issued notifications levying tax under s. 21.  For  the

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last  several  years the petitioners have paid  the  tax  on their  purchases of sugarcane and further demands are  being made on them for payment of the tax They challenge the vires and  the  , constitutionality of S. 21 of  various  grounds. The principal submissions were made by M. M. C. Setalvad who appeared in Writ Petition No. 53 of 196                             709 and  his arguments were adopted by counsel appearing in  the other petitions.  Mr. N. C. Chatterjee who appeared in  Writ Petition   No.   100  of  1967  raised  a   few   additional contentions. The  submission of Mr. Setalvad is that s. 21 so far  as  it levies  a tax on the purchases of sugarcane by or on  behalf of the petitioners from the canegrowers in their  respective factory  zones is ultra vires the powers of the  legislature under  Entry No. 54, List 11, Sch.  VII of the  Constitution in  the light of the decision in State of Madras  v.  Gannon Dunkerley & Co.(1). Now, in Gannon Dunkerley’s case(1),  the actual decision was that the legislature had no power  under List II, Entry 48, Sch.  VII of the Government of India Act, 1935  to  impose a tax on the supply of materials  under  an entire   and  indivisible  contract  for   construction   of buildings.  But the Court also held that the phrase "sale of goods"  in the Entry must be interpreted in the legal  sense which  it  had  in the Indian Sale of Goods  Act,  that  the Provincial  Legislature  had no power to tax  a  transaction which  was  not a sale of goods in that sense  and  that  in order  to constitute a sale there must be an  agreement  for sale  of  goods  for a price and  the  passing  of  property therein  pursuant to such an agreement.  Ventakarama  Aiyar, J. laid at pp. 397-398: "Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be  an  agreement  between the parties for  the  purpose  of transferring  title  to goods which  of  course  presupposes capacity  to  contract, that it must be supported  by  money consideration,  and  that  as a result  of  the  transaction property must actually pass in the goods.  Unless all  these elements are present, there can be no sale." in  the  light  of this decision, the  expression  "sale  of goods"  in Entry 54, List II, Sch.  VII of the  Constitution must  be  given  the ame interpretation.   On  a  parity  of reasoning,  to constitute a purchase of goods"  within  this Entry, there must be an agreement for purchase of goods  and the  passing  of  property  therein  pursuant  to  such   an agreement.    The  question,  therefore,  is   whether   the purchases by or on behalf of the petitioners from the  cane- growers  in their respective factory zones were  made  under agreements of purchase and, sale. It  appears  that the Cane Commissioner is  empowered  under s.15  of  Act  No. 45 of 1961 to declare  any  area  as  the factory  one for the purpose of supply of cane to a  factory during a particular crushing season.  Under S. 16(1), on the declaration of the factory zone the occupier of the  factory is  bound  to purchase such quantity of cane grown  in  that area and offered for sale to the factory (1)  [1959] S.C.R. 379. 710 as may be determined by the Cane Commissioner in  accordance with   the  provisions  of  the  schedule.   Section   16(2) prohibits  the  the  canegrowers  in  a  factory  zone  from supplying  or  selling cane to any factory or  other  person otherwise  than  in accordance with the  provisions  of  the schedule.  Section 28(2)(1) empowers the Government to  make rules providing for the form of agreement to be entered into

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under  the  provisions of the Act.  Rule 20  of  the  Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Rules, 1951  framed under the Act provides that a canegrower  or  a canegrower’s co-operative society may within 14 days of  the order declaring an area as the factory zone or such extended time as may be fixed by the Cane Commissioner, offer in Form No.  2 to supply cane grown in that area to the occupier  of the factory and such occupier of the factory within 14  days of the receipt of the offer shall enter into an agreement in Form  No.  3  or  Form No. 4  with  the  canegrower  or  the canegrower’s co-operative society as the case may be for the purchase  of the cane offered.  Form No. 3 is the  statutory form  of agreement with a canegrower.  By the  agreement  in Form No. 3 the occupier of the factory agrees to buy and the canegrower agrees to sell during the crushing season certain sugarcane  crop  grown  in the area  at  the  minimum  price noticed  by the Government from time to time upon the  terms and  conditions mentioned in the agreement.   The  agreement contains an arbitration clause and is signed by or on behalf of  the  occupier of the factory and  the  canegrower.   The agreement  in  Form No. 4 with a  canegrower’s  co-operative society is on the same lines.  All the terms and  conditions of  the  agreements and the mode of  their  performance  are fixed  and regulated by the Act, the Rules and  orders  made under  the Act.  Contravention of the provisions of the  Act or  of  any rule or order made under the Act  is  punishable under S. 23.  The minimum price of sugarcane is fixed  under the Sugarcane Control Order, 1966.  The learned Attorney and Mr.  Ram Reddy attempted to argue that the occupier  of  the factory  has some option of not buying from  the  canegrower and  some  freedom of bargaining about the  terms  and  con- ditions  of the agreements.  But after having read  all  the relevant  provisions of the Act and the Rules, they did  not pursue  this  point.   We  are  satisfied  that  under   the provisions  of  Act  No. 45 of 1961  And  the  Rules  framed thereunder,  a canegrower in a factory zone is free to  sell or not to sell his sugarcane to the factory.  He may consume it or may process it into jaggery and then sell the finished product.  But if he offers to sell his cane, the occupier of the factory is bound to enter into an agreement with him  on the prescribed terms and conditions and to buy cane pursuant to  he agreement in conformity with the instructions  issued by the Cane Commissioner.  The submission of the petitioners is that as ,hey or their agents are compelled by law to  buy cane from the 711 canegrowers  their purchases are not made  under  agreements and  are  not  taxable under Entry No. 54,  List  11  having regard  to  Gannon  Dunkerley’s  case(1).   This  contention requires close examination. Under s. 4(1) of the Indian Sale of Goods Act, 1930, a  con- tract  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 s. 3 of this Act, the provisions  of the Indian Contract Act, 1872 apply to contracts of sale  of goods  save  in  so far 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  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

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an  agreement.  There is mutual assent to the proposal  when the  proposal is accepted and in the result an agreement  is formed.   Under S. 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,.  Sec- tion  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 ss. 15  to 22.   Now,  under Act No. 45 of 1961 and  the  Rules  framed under it, the canegrower 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,   mis- representation  or mistake.  His consent is free as  defined in s. 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 S. 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 consideration and with a lawful object and is  not void  under  any  provisions of  law.   The  agreements  are enforceable by law and are contracts of sale of sugarcane as defined  in  S.  4 of the Indian Sale  of  Goods  Act.   The purchases  of sugarcane under the agreement can be taxed  by the State legislature under Entry 54, List 11. (1)  [1959] S.C.R. 379. 712 Long ago in 1702, Holt, C.J. said in Lane v. Cotton(1):               "When  a  man  takes  upon  himself  a  public               employment, he is bound to serve the public as               far as this employment goes, or an action lies               against him for refusing." The  doctrine that one who takes up a public  employment  is bound  to  serve the public was applied  to  innkeepers  and common carriers.  Without lawful excuse, an innkeeper cannot refuse  to receive guests at his inn, and a  common  carrier cannot  refuse to accept goods offered to him for  carriage. See  Halsbury’s Laws of England, 3rd Edn., Vol. 4, art.  375 and  Vol. 21, art. 938.  A more general application  of  the doctrine  was  arrested by the growth of  the  principle  of laissez  faire  which had its heyday in  the.  midnineteenth century.   Thereafter, there has been a gradual  erosion  of the  laissez faire concept.  It is now realised that in  the public  interest,  persons exercising  certain  callings  or having monopoly or near monopoly powers should sometimes  be charged  with  the  duty  to  serve  the  public,  and,   if necessary,  to  enter into contracts.  Thus, S.  66  of  the Indian Railways Act, 1890 compels the railway administration to  supply  the public with tickets for  travelling  on  the railway  upon payment of the usual fare.  Section 22 of  the Indian  Electricity Act, 1910 compels a licensee  to  supply electrical  energy to every person in the area of supply  on the  usual  terms and conditions.  Cheshire  and  Fifoot  in their  Law  of Contract, 6th Edn., p. 23  observe  that  for reasons  of social security the State may compel persons  to make contracts.  One of the objects of Act No. 45 of 1961 is to regulate the purchase of sugarcane by the factory  owners from  the  canegrowers.  The canegrowers  scattered  in  the

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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  law stepped in and compelled the factory to enter into contracts of purchase of cane offered by the canegrowers on prescribed terms and conditions. In  The  Indian Steel & Wire Products Ltd. v. The  State  of Madras(2),  the  Court held that. sales  of  steel  products authorised by the Controller under cls. 4 and 5 of the  Iron and  Steel (Control of Production and  Distribution)  Order, 1941  were  eligible to tax under Entry 54,  List  11.   The Court  found that the parties had entered into contracts  of sale  though  in view of the Order the  area  of  bargaining between  the  buyer  and the  seller  was  greatly  reduced. Hegde,  J. speaking for the Court said that as a  result  of economic compulsions and changes in of the political outlook the freedom to contract was now being confined gradually  to narrower and narrower limits.  We have here a case where one party (1), 1 Ld.  Raym. 646: 91 E.R. 17 (2) [1968] 1 S.C.R. 479. 713 to  a  contract  of sale is compelled to enter  into  it  on rigidly  prescribed terms and conditions and has no  freedom of bargaining.  But the contract, nonetheless, is a contract of sale. In Kirkness v. John Hudson & Co. Ltd.,(1) the House of Lords by a majority held that a compulsory vesting of title of the company’s railway wagons in the British Transport Commission under s. 29 of the Transport Act, 1947 was not a sale within the meaning of the phrase "is sold" in S. 17 of the  Income- tax  Act, 1945.  Under S. 29, there was a compulsory  taking of  property.  The assent of the company to the  taking  was not  required by statute.  By force of law, the property  of the  company  was taken without its assent.   There  was  no offer,  no acceptance and no mutual assent and  no  contract resulted.  The House of Lords held that mutual assent was an element  of  a transaction of sale.  In  Gannon  Dunkerley’s case(1),  the Court approved of this principle and  rejected the  argument  of counsel that an  involuntary  transfer  of title as in Kirkness’s case(2) was a sale within the meaning of the legislative Entry.  But the Court did not say that if one  party was free to make an offer of sale and  the  other party  was obliged by law to accept it and to enter into  an agreement for purchase of the goods, a contract of sale  did not result.  In the present case, the seller makes an  offer and the buyer accepts it.  The parties then execute and sign an agreement in writing.  There is mutual assent and a valid contract,  though  the assent of the buyer  is  given  under compulsion   of  statute.   Mi.   Setalvad  relied  on   the following passage in the Law of Contract by G.H. Treitel, at p. 5: "Where the legislation leaves no choice at all to  one party,  the transaction is not a contract." But  the  author does not cite any authority in support of the  proposition., He  adds that even a compulsory disposition of property  may be  treated  as  contract for the purpose  of  a  particular statute  and cites the case of Ridge Nominees v.  I.R.C.(3). There, the Court distinguishing Kirkness’s case(3) held that the   compulsory   transfer  of  shares  of   a   dissenting shareholder by a person "authorised to make the transfer  on his  behalf  under  s.  209  of  the  Companies  Act,   1948 corresponding  to  S.  395 of our Companies  Act,  1956  was having  regard to the machinery created by the  section  a conveyance on sale within s. 54 of the Stamp Act, 1 91.  The

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Lord  Justices  gave separate opinions.   It  is  worthwhile quoting the opinion of Donovan, L. J. who said:-               "When  the legislature, by section 209 of  the               Companies  Act, 1948, empowers the  transferee               company  to  appoint an agent on behalf  of  a               dissenting  shareholder  for  the  purpose  of               executing a transfer of his shares                (1)  [1955] A.C. 696.               (2) [1959] S.C.R. 379.                (3) [1962] 2 W.L.R. 3.               714               against  a price to be paid to the  transferor               company  and held in trust for the  dissenting               shareholder,   it  is  clearly  ignoring   his               dissent  and putting him in the same  position               as  if  he had assented.  For the  purpose  of               considering  whether this results in  a  sale,               one  must,  I think, bear  that  situation  in               mind, and  regard,  the  dissent   of   the               shareholder  as overridden by an assent  which               the statute imposes upon him, fictional though               this may be.  Thus. in the context of  section               209  the transfer becomes in law a  conveyance               on sale.  This conclusion, in my opinion, does               not run counter to what was said in the  House               of  Lords in Kirkness (Inspector of Taxes)  v.               John Hudson & Co. Ltd.,(1), where, in terms of               the   statute   there   under   consideration,               property   belonging  to  other  persons   was               declared  to vest on a specified date  in  the               Transport   Commission  against   payment   of               compensation.   This  may be no  more  than  a               difference  of  machinery, but  machinery  may               make the very difference between a sale and  a               mere   expropriation   against   compensation.               "Lord Simonds, I venture to think, implies  as               much  when he says he gets no assistance  from               the cases decided under the Stamp Acts."               In  M/s.   New  India  Sugar  Mills  Ltd.,  v.               Commissioner of Sales Tax, Bihar(2), the Court               by a majority held that the supply of sugar by               a sugar factory to a Provincial Government  in               obedience  to  the  directions  of  the  Sugar               Controller  given  under the Sugar  and  Sugar               Products  Control Order, 1946 was not  a  sale               taxable under List II, Entry 48, Sch.  VII  of               the  Government  of  India  Act,  1935.    Mr.               Setalvad  placed strong reliance on  the  fol-               lowing passage in the judgment of Shah, J.  at               pp. 469-470:               "A  contract  of sale between the  parties  is               therefore  a  pre-requisite to  a  sale.   The               transactions  of  despatches of sugar  by  the               assessees  pursuant to the directions  of  the               Controller  were  not the result of  any  such               contract  of sale.  It is common  ground  that               the   Province   of   Madras   intimated   its               requirements  of sugar to the Controller,  and               the  Controller called upon the  manufacturing               units  to  supply  the whole or  part  of  the               requirement to the Province.  In calling  upon               the  manufacturing units to supply sugar,  the               Controller  did  not act as an  agent  of  the               State to purchase goods: he acted in  exercise               of  his statutory authority.  There was  mani-

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             festly  no  offer  to purchase  sugar  by  the               Province,  and no acceptance of any  offer  by               the manufacturer.  The manufacturer was  under               the Control Order left no volition: he   could               not decline to carry out the order; if he               (1) [1955] A.C. 696.                    (2) [1963] Supp. 2 S.C.R. 459, 469.               715               did so he was liable to be punished for breach               of  the order and his goods were liable to  be               forefeited.   The Government of  the  Province               and  the  manufacturer had no  opportunity  to               negotiate,  and sugar was despatched  pursuant               to the direction of the Controller and not  in               acceptance of any offer by the Government." Divorced  from the context, this passage gives some  support to  the  contention  that there can be no  contract  if  the acceptance  of  the  offer is made  under  compulsion  of  a direction  given by a statutory authority.  But the  passage must  be read with the facts of the case.  By cl. 3  of  the Sugar  and Sugar Products Control Order, 1946, producers  of sugar  were  prohibited from disposing of  sugar  except  to persons   specially  authorised  in  that  behalf   by   the Controller   to   acquire  sugar  on   behalf   of   certain Governments.  Clause 5 required every producer or dealer  to comply   with  the  directions  issued  by  the   Controller regarding  production,  sales, stocks  and  distribution  of sugar.  Clause 6 authorised the Controller to fix the  price of  sugar.  Clause 7(1) authorised the Controller  to  allot quotas of sugar for any Province and to issue directions  to any  producer  or  dealer  for  the  supply  of  the   sugar specifying  the  price, quantity and type or  grade  of  the sugar  and the time and manner of supply.  Contravention  of the directions entailed forfeiture of stocks under cl. 11 of the  Order and was punishable under r. 81(4) of the  Defence of  India  Rules,  1939.  The admitted  course  of  dealings between  the  parties  was  that  the  Governments  of   the consuming  States used to intimate to the  Sugar  Controller their  requirement of sugar and the factory owners  used  to send  to  him  statements of their stocks of  sugar.   On  a consideration  of  the requisitions and  the  statements  of stock,   the  Controller  used  to  make  allotments.    The allotment  order used to be addressed by the  Controller  to the  factory  owner, directing him to supply  sugar  to  the Government  in  question  in accordance  with  the  latter’s despatch  instructions.  A copy of the allotment order  used simultaneously  to be sent to the Government  concerned  and the  latter  then  used  to send  to  the  factory  detailed despatching instructions.. In these circumstances, Kapur and Shah, JJ. (Hidayatullah, J. dissenting) held that by  giving intimation of its requirement of sugar to the Controller and applying  for allotment of sugar, the Government  of  Madras did  not make any offer to the manufacturer.  The  direction of the Controller to the manufacturer to supply sugar to the Government  was  given  in the  exercise  of  his  statutory authority and was not the communication of any offer made by the  Government.   The despatch of the goods  in  compliance with the directions of the Controller was not the acceptance by the manufacturer of any offer, nor could it be deemed  to be  an offer by the manufacturer to supply goods.   On  the, special  facts of that case, the majority decision was  that there was no offer and acceptance and no contract  resulted. That decision should not be 716 treated  as an authority for the proposition that there  can

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be  no contract of sale under compulsion of a  statute.   It depends  upon  the facts of each case and the terms  of  the particular  statute  regulating  the  dealings  whether  the parties  have  entered  into a contract of  sale  of  goods. Under Act No. 45 of 1961, a canegrower makes an offer to the occupier of the factory directly and the latter accepts  the offer.   The  parties  then make and sign  an  agreement  in writing.  There is thus a direct privily of contract between the  parties.  The contract is a contract of sale  and  pur- chase  of  cane,  though the buyer is obliged  to  give  his assent under compulsion of a statute.  The State Legislature is  competent  to tax purchases of canes made under  such  a contract. Mr.  Setalvad submitted that there-can be no levy of a  pur- chase  tax  with reference to the tonnage of the  cane.   We cannot accept this contention.  Usually the purchase tax  is levied  with reference to the price of the goods.   But  the legislature  is competent to levy the tax with reference  to the weight of the goods purchased. The contention of Mr. Chatterjee that a purchase tax must be levied with reference to the turnover only is equally devoid of merit.  Where the purchase tax is levied on a dealer, the levy  is  usually  with reference  to  his  turnover,  which normally  means  the aggregate of the  amounts  of  purchase prices.   But  the tax need not necessarily be levied  on  a dealer or by reference to his turnover.  It may be levied on the occupier of a factory by reference to the weight of  the goods purchased by him. Mr.  Chatterjee next submitted that a purchase tax  must  be levied on goods generally, and there can be no purchase  tax with reference to their subsequent use, consumption or sale. He  based his argument on paragraphs 17 to 20.  Chap.   III, Vol.   III of the Report of the Taxation Enquiry  Committee. There, the Committee while discussing the comparative merits of  sales  tax in relation to customs,  excise  and  octroi, pointed out that sales tax was a major source of revenue and could be applied to the generality of goods, while  customs, excise and octroi could be applied to only a limited portion of the industrial output of the country.  The Committee  did not  express any opinion on the scope of List II, Entry  54. Under that Entry, the State legislature is not bound to levy a  tax  on  all purchases of cane.  It may  levy  a  tax  on purchases of cane required for use, consumption or sale in a factory.   The legislature is competent to tax and  also  to exempt  from  payment  of tax sales or  purchases  of  goods required for specific purposes.  Other instances of  special treatment  of goods required for particular purposes may  be given.   Section 6 and Sch.  1, item 23 of the Bombay  Sales Tax Act, 1946 levy tax on fabrics and articles for  personal wear.   Section 2(j)(a)(ii) of the C.P and Berar  Sales  Tax Act,  1947  exempts  sales of goods intended for  use  by  a registered  dealer as raw materials for the  manufacture  of goods.                             717 Mr. Chatterjee submitted that the tax levied under s. 21 was a use tax and referred to McLeod v. Dilworth & Co.(1) and C. G.  Naidu & Co. The State of Madras(2).  He argued that  the State  legislature  could  not  levy a  use  tax  which  was essentially  different from a purchase tax.  The  assumption of counsel that S. 21 levies a use tax is not  well-founded. The  taxable event under S. 21 is the purchase of goods  and not  the  use  or  enjoyment  of  what  is  purchased.   The constitutional  implication of a use tax in American law  is entirely  irrelevant.   The observation in the  Madras  case that  the Explanation to Art. 286(1)(a) of the  Constitution

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conferred,  a power on the State legislature to levy  a  use tax  is  erroneous.   The Explanation  fixed  the  situs  of certain  sales.  It did not confer upon the legislature  any power to levy a use tax. To  appreciate  another argument of Mr.  Chatterjee,  it  is necessary  to  refer  to  a  few  facts.   It  appears  that paragraph  21 of the Bill published in the Gazette on  March 3,  1960  preliminary to the passing of Act No. 45  of  1961 provided for a levy of a cess on the entry of cane into  the premises of a factory for use, consumption or sale  therein. On December 13, 1960, this Court in Diamond Sugar Mills Ltd. and  Another  v. The State of Uttar Pradesh  and  Another(3) struck  down a similar provision in the U.P. Sugarcane  Cess Act,  1956 on the ground that the State legislature was  not competent  to  enact  it  under Entry 52,  List  II  as  the premises  of  a  factory was not a  local  area  within  the meaning  of  the  Entry.  Having regard  to  this  decision, paragraph  21  of  the Bill was amended and  s.  21  in  its present  form was passed by the State Legislature.  The  Act was  published  in the Gazette on December  30,  1961.   Mr. Chatterjee submitted that in this context the levy under  s. 21  was really a levy on the entry of goods into  a  factory for  consumption,  use or sale therein.  We  are  unable  to accept this contention.  As the proposed tax on the entry of goods  into a factory was unconstitutional, paragraph 21  of the original Bill was amended and s. 21 in its present  form was enacted.  The tax purchase of goods.  The taxable  event is  the purchase of cane for  use, consumption or sale in  a factory  and not the entry of cane into a factory.   As  the tax  is not on the entry of the cane into a  factory, it  is not payable on cane cultivated by the factory and   entering the factory premises. Mr.  Setalvad submitted that s. 21 impeded free trade,  com- merce and intercourse and offended Art. 301 of the Constitu- tion and relied on the decision in Firm A. T. Mehtab Majid & (1) 322 U.S. 327: 88 L. Ed. 1305. (2) A.I.R. 1953 Mad. 116, 127-128, (3) [1961] 3 S.C.R. 242. 718 Co.  v.  State of Madras(1).  In that case, the  Court  held that r. 16(2) of the Madras General Sales Tax (Turnover  and Assessment) Rules, 1939 discriminated against imported hides or  skins  which had been purchased or  tanned  outside  the State  by levying a higher tax on them and contravened  Art. 304(a) of the Constitution.  At p. 442,  Raghubar Dayal,  J. said:               "It is therefore now well settled that  taxing               laws  can be restrictions on  trade,  commerce               and  intercourse, if they hamper the  flow  of               trade  and if they are not what can be  termed               to   be  compensatory  taxes   or   regulatory               measures.  Sales tax of the kind under  consi-               deration here, cannot be said to be a  measure               regulating  any trade or a,  compensatory  tax               levied  for  the use  of  trading  facilities.               Sales   tax,   which   has   the   effect   of               discriminating between goods of one State  and               goods of another, may affect the free flow  of               trade and it will then offend against Art. 301               and will be valid only if it comes within  the               terms of Art. 304(a)."               That  case  decides  that a  sales  tax  which               discriminates  against  goods  imported   from               other States may impede the free flow of trade               and  is then invalid unless protected by  Art.

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             304(a).   But the tax levied under S. 21  does               not  discriminate against any  imported  cane.               Under S. 21, the same rate of tax is levied on               purchases  of  all  cane  required  for   use,               consumption or sale in a factory.  There is no               discrimination between cane grown in the State               and  cane imported from outside.  As a  matter               of  fact,  under  the  Act  the  factory   can               normally  buy only cane grown in  the  factory               zone.  A non-discriminatory tax on goods  does               not  offend  Art.  301  unless it   directly               impedes the free movement or transport of  the               goods.  In Atiabari Tea Co. Ltd., v. The State               of  Assam and others(2).   Gajendragadkar,  J.               speaking for the majority said:               "We   are,   therefore,  satisfied   that   in               determining  the  limits  of  the  width   and               amplitude  of the freedom guaranteed  by  Art.               301  a  rational and workable  test  to  apply               would  be: Does the impugned restriction  ope-               rate  directly or immediately on trade or  its               movement?.  It  is the free  movement  of  the               transport  of  goods  from  one  part  of  the               country  to the other that is intended  to  be               saved, and if any Act imposes any direct  res-               trictions  on the very movement of such  goods               it  attracts the provisions of Art.  301,  and               its  validity  can  be sustained  only  if  it               satisfies the requirements of Art. 302 or Art.                             304 of Part XIII." (1) [1963] Supp. 2 S.C.R. 435. (2)  [1961] 1 S.C.R. 809, 860-861. 719 This  interpretation of Art. 301 Was not dissented from  in Automobile   Transport   (Rajasthan)  Ltd.   v.   State   of Rajasthan(1).   Normally,  a tax on sale of goods  does  not directly  impede  the free movement or transport  of  goods. Section  21  is no exception.  It does not impede  the  free movement or transport of goods and is not violative of  Art. 301. Mr.  Setalvad next submitted that s. 21 offended Art. 14  of the Constitution in several ways.  It was argued that s.  21 read  with s. 2(e) discriminated between producers of  sugar using the vacuum pan and open pan processes.  Under s. 2  1, as  it stood before its amendment by Act No. 4 of  1967  tax was levied on purchases of cane by factories producing sugar by means of vacuum pans but purchases of cane by  khandasari units  producing  khandasari sugar by the open  pan  process were  entirely exempt from the tax.  Even the amended s.  21 levies  a  lower  rate of tax on the purchases  of  cane  by khandsari  units.   It  was  also  argued  that  there   was discrimination   in  favour  of  producers  of  jaggery   by exempting  their purchases of cane from payment of the  tax. But  the affidavits filed on behalf of the respondents  show that  factories producing sugar by means of vacuum pans  and khandasari  units producing sugar by the open pan  processes form distinct and separate classes.  The industry using  the vacuum  pan process is in existence since 1932-33.   No  tax was  levied on this industry until 1949.  In 1949  when  the industry  became well established, tax was levied on it  for the  first  time  by s. 14 of  the  Madras  Sugar  Factories Control  Act, 1949.  The khandasari units carry on  a  small scale  industry.  They are of recent origin in the State  of Andhra  Pradesh.  Until 1967, this industry was exempt  from the levy.  When the industry came to be somewhat established

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by 1967 a smaller rate of tax was levied on it.  In 1965-66, factories  adopting  the vacuum pan process bought  over  32 lakh tonnes of cane while the khandasari sugar units in  the State   bought  about  2.70  lakh  tonnes  of   cane.    The manufacture of jaggery has no resemblance to the manufacture of sugar by the vacuum pan or the open pan system.  It is  a cottage  industry  wherein  individual  canegrowers  process their cane into jaggery and market it as a finished product. Having  regard to the affidavits, we are satisfied that  the differential  treatment of the factories producing sugar  by means  of vacuum pans, khandasari units producing sugar  by. the  open  pan process and cane growers using cane  for  the manufacture  of  jaggery is reasonable and  has  a  rational relation  to  the  object of  taxation.   There  are  marked differences  between the three classes of users of cane  and their  capacity  to  pay the  tax.   The  legislature  could reasonably treat the three sets of users of cane differently for purposes of levy. (1) [1963] 1 S.C.R. 491, 533. 702 It  was next argued that the power under s. 21(3) to  exempt new  factories  and factories which in the  opinion  of  the Government  have substantially expanded  was  discriminatory and  violative  of Art. 14.  We are unable  to  accept  this contention.   The  establishment of new  factories  and  the expansion  of the existing factories need encouragement  and incentives.   The exemption in favour of new  and  expanding factories  is based on legitimate legislative  policy.   The question  whether  the exemption should be  granted  to  any factory, and if so, for what period and the question whether any factory has substantially expanded and if so, the extent of  such expansion have to be decided with reference to  the facts  of  each  individual  case.   Obviously,  it  is  not possible for the State legislature to examine the merits  of individual cases and the function was properly delegated  to the  State Government.  The legislature was not  obliged  to prescribe  a  more rigid standard for the  guidance  of  the Government.  We hold that S. 21 does not violate Art. 14. The  petitioner in Writ Petition No. 101 of 1967 raised  the contention that it was a new factory and that the Government of  Andhra Pradesh should have exempted it from  payment  of tax  under s. 21(3)(a).  The contention was controverted  by the  respondents.   The affidavits do  not  give  sufficient materials  on  the  point, nor is there any  prayer  in  the petition  for  the issue of a mandamus directing  the  State Government to grant the exemption.  In the circumstances, we do  not think it fit to express any opinion on  the  matter. It  will be open to the petitioner in Writ Petition No.  101 of 1967 to raise this contention in other proceedings. In  the result, the petitions are dismissed with costs,  one hearing fee. G.C.               Petitions dismissed. 121