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CASE NO.: Appeal (civil)  4934 of 2006

PETITIONER: State of Karnataka and Ors

RESPONDENT: M/s Sri Chamundeswari Sugar Ltd

DATE OF JUDGMENT: 08/04/2008

BENCH: Dr. ARIJIT PASAYAT & P. SATHASIVAM & AFTAB ALAM

JUDGMENT: J U D G M E N T REPORTABLE

CIVIL APPEAL NO. 4934  OF 2006

Dr. ARIJIT PASAYAT, J.  

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.I.D.  Parry (I) Ltd. v. Assistant Commisioner of Commercial Taxes  and Anr. (2000 (2) SCC 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:

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  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 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.  

3.      The assessing authority for the assessment years 1990- 1991, 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 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 Writ  Petition before the High Court.  Grievance of the respondent- company was that the Assessing Authority was not justified in

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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 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 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:          "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 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 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 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 sugarcane under an  agreement between the grower and purchaser  irrespective of the lower amount being fixed as  the aggregate of the price fixation under  clauses 3 and 5-A 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 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 Karnataka and  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  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

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the assessing Authority for fresh consideration  in the light of what has 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  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 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 respondent-company was dismissed by the First  Appellate Authority, but in Second Appeal the Karnataka  Appellate Tribunal (in short the ’Tribunal’) decided in favour of  the respondent-company.  

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 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 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 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 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  price fixed by the Central Government and clause 3 defines  the ’minimum price’.

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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 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 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 U.P. Cooperative’s case (supra) it was observed 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 State Government  makes an announcement of a State-advised 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  C, wherein the State-advised price is mentioned.  The 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. 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’ 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 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 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, 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

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Controller may, by 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 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. 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 there was mutual  assent. Our finding is that there was mutual  assent in several respects. Hence, we agree  with the High Court that the transactions  before us are sales."

 30. In Andhra Sugars Ltd. v. State of A.P. (AIR 1968  SC 599) the question of compulsion by law to enter  into an agreement was considered by a Constitution  Bench. 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, 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  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 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)   "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 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

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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 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 45 of 1961 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 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 Section 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 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 exercising certain  callings or having monopoly or near-

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monopoly 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 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 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 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 cane-growers 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  and conditions."

31. A similar question was examined by a Bench of  seven Judges in Salar Jung Sugar Mills Ltd. v. State  of Mysore (1972 (1) SCC 23). The contention was  that there was no 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

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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 Kumar v. Union of  India (1982 (2) SCC 150) after considering the  provisions of 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 of sugar factories.  After elaborate discussion of the relevant provisions,  the Court expressed its view in the following 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 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-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 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 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 agreements executed by the  cane-growers or cane-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 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 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

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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 State- advised 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 III 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 legislation is repugnant to an  existing Indian law, the onus of showing  its repugnancy and the extent to 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 be taken to see whether the  two do not really operate in different  fields without encroachment. Further,  repugnancy must exist in fact, and not  depend merely on a possibility:"                                 (emphasis supplied)

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 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

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be a complete exhaustive code or, in  other words, 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 repugnancy between a law made by  Parliament and law 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 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  Indian Penal Code, Prevention of Corruption Act  and 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)

"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. 2. That there 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 statutes operating in the same field  without coming into collision with each other,  no repugnancy results.  

4. That where there is no inconsistency but a  statute occupying the same field seeks to  create distinct 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 1983 (4) SCC 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 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 repugnancy is that if one prevails, the other cannot  prevail.

36. In S. Satyapal Reddy v. Govt. of A.P. (1994 (4)  SCC 391) the question was examined in the context  of prescription of a higher qualification by the State

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Government. The service rule made by the Central  Government prescribed a diploma in Mechanical  Engineering as the minimum qualification for  appointment 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 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 qualification by  the State Government for admission to postgraduate  medical courses 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 sugarcane. This clause should be  read along with sub-clause (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 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 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 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 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 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. The  second is the State-advised price and every State  has its own method to determine it. The power is  assumed under the Acts of the State Legislature or  orders issued by the Government and in the State of  U.P. it is done by orders issued under the U.P.  Sugarcane (Regulation of Supply and Purchase) Act,  1953. The third is the price paid at the end of the  season. The Bhargava Commission had  recommended the payment of additional price at the

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end of the season on 50-50 profit-sharing basis  between growers and factories to be worked out in  accordance with the Second Schedule to the 1966  Order. In para 21, it was observed as under:

"The price is fixed, maybe, by the  Board of Directors or by the State  Government under bye-laws but the  prices are for the reserved area. The  Central Government did not fix any  maximum price obviously because the  conditions in the agricultural sector  differed from State to State. Therefore, it  having fixed a minimum price expects the  State to offer remunerative price to its  cultivators. In a controlled economy the  price fixation machinery is to be  determined by the State Government or  under the 1966 Order in the manner  provided therein. Since in Maharashtra  95% of the sugar factories are in the  cooperative sector the price is fixed by the  Government as it has substantial  financial stake. But so long the price  fixation does not suffer from any infirmity  or it is held to be prejudicial to the cane- growers so as to benefit the State or the  financial institution it cannot be held to  be bad."

38.1. The next is State of M.P. v. Jaora Sugar Mills  Ltd. (1997 (9) SCC 207) which has been decided by a  Bench of two Judges. The dispute arose on account  of fixation of price under the M.P. Sugarcane  (Regulation of Supply and Purchase) Act, 1958. The  contention on behalf of the sugar factories was that  clauses 3 and 5-A of the 1966 Order determine the  liability to pay the price and additional price and  the Central Government having determined the  price of the sugarcane under the aforesaid Order,  there is no power with the State Government dehors  the Order to fix any agreed price. The concept of  agreed price came into force on 19-9-1976 by virtue  of clause 3-A of the said Order and until then there  was no power to fix an agreed price. It was also  urged that the State Government has, therefore, no  power under the Act to fix any price as the field was  occupied by the 1966 Order. The contention was,  however, not accepted and after noticing the  provisions of clauses 3(2) and 3(3), it was held as  under in para 8 of the Report: (SCC p.211)

"8. This would clearly indicate that  despite the fixation of minimum price  under clause 3(1), by agreement between  the sugarcane-grower and the purchaser  of the sugarcane, they would be at liberty  to agree to sell or purchase the sugarcane  at a higher price than that fixed by the  Central Government under clause 3(1).  Only for postponement of payment  beyond 14 days, there should be an  agreement in writing between the parties  obviously with the concurrence of the  Central Government or authorised

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authority in that behalf. Thus, there is no  statutory prohibition in that behalf to pay  higher price. That would be further clear  by clause 3(2) which speaks of the  contract between the parties for payment  of higher price of sugarcane fixed under  sub-clause (1) of clause 3 pursuant to the  agreement or pursuant to the minimum  price fixed by the Central Government  under clause 3(1) of the Order."

38.2. It was observed in paras 9 and 10 that there  was no prohibition for the cane-growers and  occupiers of the sugar factories in entering into oral  agreement through the service of the Cane  Commissioner, a statutory authority, who could  effect such an agreement. The agreement would not  be tainted with compulsion but in novation of the  minimum price fixed under the 1966 Order. After  noticing the provisions of the M.P. Act, which are  somewhat similar to the U.P. Act, it was held as  under in para 13 of the Report: (SCC p.213)

"13. It would thus be clear that the Cane  Commissioner having power to compel  the cane-growers to supply cane to the  factory or khandsari unit, he has  incidental power and is duty-bound to  ensure payment of the price of the  sugarcane supplied by the sugarcane- grower. The price fixed or agreed is a  statutory price and bears the stamp of  statutory first charge on the sugar and  assets of the factory over any other  contracted liabilities to recover the price  of the sugarcane supplied to the factory  or khandsari unit."

38.3. S.K.G. Sugar Ltd. v. State of Bihar (1997 (9)  SCC 362) is a decision by a Bench of three Judges  and deals with the effect of the 1966 Control Order  and the Bihar Sugarcane (Regulation of Supply and  Purchase) Act, 1981. It was clearly ruled that the  provisions of the 1966 Order do not show that there  is any prohibition on the factory or the association  of factories entering into an agreement to pay higher  price than the minimum price prescribed under the  Order and the object of the Order is to ensure that  the cane-growers should not be compelled to sell  their sugarcane at a price lower than the minimum  price fixed by the Central Government under clause  3. In this case an agreement had been arrived at  between Sugar Factories Owners Association and  sugarcane-growers, wherein a higher price was  agreed to be paid but this was sought to be resiled  by the appellant on the ground that it was a  company, which was an independent entity in the  eye of the law and was, therefore, not bound by any  such agreement. After noticing the provisions of the  Act and the earlier decision rendered in State of M.P.  v. Jaora Sugar Mills Ltd. it was held as under in  para 6 of the Report: (SCC p.   367)

"6. It is not in dispute that under Section  31 of the Supply Act, the State

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Government has power to fix the reserved  area, in other words, zone was carved out  for the appellant for the supply of  sugarcane to the factory. All the farmers  who are cultivating sugarcane within that  zone are bound by the State action to  supply sugarcane to the factories within  that reserved area. Consequently, the  factory also is bound by the actions of the  State Government. Obviously, pursuant  to the obligation had by the State under  the Supply Act, the meeting was  convened by the State Government  whereat the Factory Owners’ Association  and farmers participated and agreed to  fix the price at Rs .20.50 per quintal of  sugarcane. As a consequence, both the  cane-growers as well as the owners of the  factory are bound by the decision. This  having been agreed upon, the price fixed  by the State Government in excess of the  minimum price fixed by the Central  Government under clause 3 of the Order  would be the price fixed for supply of  sugarcane and the Government would be  entitled to enforce the liability."

38.4. It was also observed in the same paragraph  that the State Government acted in its statutory  capacity to fix the higher price of the sugarcane.

13.     It is to be noted that in the State of U.P. the SAP forms  part of the agreement. In the instant case it is not there. Paras  39 and 40 of U.P. Cooperative’s case (supra) deal with  question of statutory price.  In Ponni Sugars case (supra) the  decision in   U.P. Cooperative’s case (supra) was followed. The  controversy appears to have been blown out of proportion.  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 it 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 agreement cannot determine the question of  liability to pay the purchase tax. Section 6 of the Act reads as  follows:

"6. Levy of purchase tax under certain  circumstances.\027 Subject to the provisions of sub- section (5) of Section 5, every dealer who in the  course of his business purchases any taxable goods  in circumstances in which no tax under Section 5 is  leviable on the sale price of such goods, and         (i)     either consumes such goods in the  manufacture of other goods for sale or otherwise (or  consumes otherwise) or disposes of such goods in  any manner other than by way of sale in the State,  or         (ii)    despatches them to a place outside the  State except as a direct result of sale or purchase in  the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of  such goods at the same rate at which it would have  been leviable on the sale price of such goods under  Section 5."

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14.     It is the stand of the respondent that purchase price is  not defined and, therefore, the agreed price would be taken to  be the purchase price. This plea is clearly unsustainable. As  noted above, the basic question is what is the consideration  paid for effecting the purchase.  

15.     The definition of "Sale" (in Section 2(t) of the Act) is  relevant.  It refers to 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 purchase involves a corresponding sale.   The purchase money or purchase price for property is the  price to be paid for it.  Speaking technically, acquires by   "words of purchase" and is a "purchaser" when he obtains title  in any other mode than by descent or devolution of law.  It was  noted in Commissioner of Income Tax, Andhra Pradesh v. T.N.  Aravinda Reddy (1979 (4) SCC 721) as follows:          "The meaning of the word ’purchase’ in Section  54, Clause (i) of the Income Tax Act, 1961does  not differ from its plain meaning which sense  buying for a price equivalent of price by  payment in kind or adjustment towards an old  debt or for other monetary consideration.   Each release in the circumstances of the given  case is a transfer of the releaser’s share for  valuation to the release.  In plain English, the  transferee purchases the share of each of his  brothers.  Thus Section 54, Clause (i) is  attracted."       

16.     Normal meaning of the word ’purchase’ is acquisition for  money or for any consideration.  That is 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" 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  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.          

17.     In the Sale of goods Act and also in the Central Sales Tax  Act or in any of the sales tax laws made in 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.     18.     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 done the SAP

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has to be taken as the consideration. In our view 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 (supra)  is in consonance with the view expressed by the Constitution  Bench in U.P. Cooperative’s case (supra). The observations  relating to the agreed price which is above the lowest  permissible rate cannot read to mean that any ceiling is fixed  by the agreed price. In fact in Ponni Sugars case (supra) and  U.P. Cooperative’s case (supra) this Court held that the price  fixed under the Control Order was the minimum price and it  was the lowest permissible rate. 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.  

19.     The appeal is allowed but in the circumstances with no  order as to costs.