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PETITIONER: UNION TERRITORY OF CHANDIGARH

       Vs.

RESPONDENT: M/S. AMRIT ROLLER FLOUR MILLS

DATE OF JUDGMENT08/07/1985

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. VENKATARAMIAH, E.S. (J)

CITATION:  1985 AIR 1199            1985 SCR  Supl. (2)  14  1985 SCC  Supl.  213     1985 SCALE  (2)51

ACT:      Punjab General Sales Tax Act 1948, Section 2(h)      Roller Flour  Mills - Licence holder under Wheat Roller Flour Mills  (Licensing and  Control) Order  1957 -  Sale of maida, Suji  and  rawa  to  permit  holders  -  Transactions whether constitute sale - Whether liable to be taxed.

HEADNOTE:      The respondent-Firm was a Roller Flour Mills and held a licence under  the Wheat  Roller Flour  Mills (Licensing and Control) Order,  1957. Clause  3 of  the said Order provides that no  owner or  person in  charge of  a roller Mill shall manufacture or  cause to  be manufactured  any wheat product except under and in accordance with the terms and conditions of a  licence issued  under the  Order. The  licence was  an annual licence  renewable from  year to  year and  liable to suspension or  cancellation in the event of contravention of the Control  Order or  any of the conditions of the licence. The licensee  was required to abide by any directions issued by the  licensing authority  in regard to purchase of wheat, the extraction of maida, suji and rawa and also in regard to the distribution or disposal of the wheat products.      Wheat is supplied to the respondent under the orders of the Government of India. The respondent grinds the wheat and supplies maida  and suji  emerging from  that process to the holders of  permits issued by the District Food and Supplies Officer.      The respondent  was assessed  for the  years 1964-65 to 1967-68 to sales tax under the Punjab General Sales Tax Act, 1948 on  the turnover of the supplies effected by it. During the  assessment   proceedings  it  was  contended  that  the transactions entered  into by  it did not constitute "sales" within the  meaning of  the Act and as such sales tax should not be  levied.  The  assessing  authority  relying  on  the decision in  the  Excise  and  Taxation  Officer  (Assessing Authority) Hissar  and Another  v. Jaswant  Singh [1971]  27 S.T.C. 582 rejected the pntention and assessed the firm. The assessment orders  were maintained  in appeal  and in second appeal also. 15      At the  instance of the assessee, the High Court called for a  reference and held that as the respondent was obliged

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to follow  the instructions  of the  concerned authority  in regard to the purchase of wheat, or the extraction of maida, suji and  rawa as  well as in regard to the distribution and disposal of  such products, it followed the decision in Food Corporation of  India &  Another v. State of Punjab & Others [1971] 27  S.T.C. 582  and took  the view  that there was no ’sale’.      In the appeal to this Court on the question whether the transaction affected  by  the  respondent  fall  within  the definition of  "sale" under  Clause (h)  of Sec.  2  of  the Punjab General Sales Tax Act, 1948.      Allowing the appeals ^      HELD: In Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax Officer  "Others etc.  [1978] 2  S.C.R. 433,  this Court held that  notwithstanding the  conditions  imposed  by  the statutory framework  of the  Control Order  within which the dealer operated the transaction effected by him must clearly be regarded  as sales.  The instant  case is covered by that decision. The  transactions effected  by the  respondent are ’sales’ liable to tax. The Judgment of the High Court is set aside. The  question referred  to the High Court is answered in the  affirmative in  favour of  the appellant and against the respondent. [19 D-F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal Nos. 404- 407 of 1978.      From the  Judgment and  Order dated  13.10.1976 of  the Punjab and Haryana High Court in General Sales Tax Reference No. 15,17, 18 and 19 of 1974.      P.A. Francis, S.P. Nayar and Miss A. Subhashini for the Appellant      S.T. Desai and R.S. Sodhi for the Respondent.      The Judgment of the Court was delivered by      PATHAK, J.  These appeals by special leave are directed against the judgment of the High Court of Punjab and Haryana disposing of  four references under the Punjab General Sales Tax Act, 1948. 16      The respondent  firm, Messrs. Amrit Roller Flour Mills, carries on  business at  Chandigarh. It  is registered  as a dealer  under   the  Punjab  General  Sales  Tax  Act,  1948 (hereinafter called the "Act"). It holds a licence under the Wheat Roller Flour Mills (Licensing and Control) Order, 1957 (hereinafter referred  to as  the "Control Order"). Wheat is supplied  to   the  respondent   under  the  orders  of  the Government of  India. The  respondent grinds  the wheat  and supplies the atta, maida and suji emerging from that process to the  holders of  permits issued  by the District Food and Supplies Officer under the Control Order.      The respondent  was assessed  for the  years 1964-65 to 1967-68 to  sales tax  under the  Act on the turnover of the supplies effected  by it.  During the assessment proceedings it contended  that the  transactions entered  into by it did not constitute  sales within  the meaning  of  the  Act  and consequently no  sales tax  could be  levied. The contention was rejected.  The assessing  authority relied on The Excise and  Taxation  Officer  (Assessing  Authority),  Hissar  and Another  v.   Jaswant  Singh.  [1971]  27  S.T.C.  582.  The assessment orders  were maintained  in appeal and thereafter in second  appeal also. At the instance of the assessee, the High Court  called for a reference on the following question

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of law in each of the four cases:           Whether on  the facts  and in the circumstances of           the case,  the  sale  of  wheat  products  against           permits issued  by the  District Food and Supplies           Controller, Chandigarh,  is  liable  to  be  taxed           under the Punjab General Sales Tax Act, 1948?" The High  Court referred  to the  provisions of  s.3 of  the Essential Commodities  Act, 1955,  under which  the  Control Order had  been issued, and to clause V of the Licence under which the  respondent carried  on his  business, and holding that the  respondent was  obliged to follow the instructions of the  concerned authority  in regard  to the  purchase  of wheat, or  the extraction of maida, suji and rawa as well as in regard to the distribution and disposal of such products, the High  Court took  the view  that there  was no  sale. In adopting that  view the  High Court  preferred to follow its decision in  The Food  Corporation of  India and  Another v. State of Punjab and Others [1976] 38 S.T.C. 144.      In these  appeals by the Union Territory of Chandigarh, the sole  question is  whether the  transactions effected by the respondent  fall within  definition of  "sale" under the Act. Clause(h) 17 of s.2  of the Act defines a "sale" to mean "any transfer of property in  goods .....  for cash  or deferred  payment  or other  valuable   consideration,  but  does  not  include  a mortgage, hypothecation,  charge or  pledge. The broad basis on which  the High  Court  has  proceeded  is  that  a  sale necessarily implies  the freedom  to contract,  and that all the four  elements, that  is to say, that the parties should be competent  to  contract,  that  there  should  be  mutual assent, that  property or  goods should pass from the seller to the  buyer and  that the price in money should be paid or promised must  all exist together, and that inasmuch as they do not  so exist in the transactions in question, it must be held that there is no sale.      The Essential  Commodities Act,  1955, under  which the Control Order  was issued,  is an  Act to  provide,  in  the interest of  the general  public, for  the  control  of  the production,  supply   and  distribution  of  and  trade  and commerce in,  certain commodities. Sub-s.(1) of s.3 empowers the State Government to make orders providing for regulating or prohibiting the production, supply and distribution of an essential  commodity,   and  trade   and  commerce  in  such commodity, if  it is  of opinion  that it  is  necessary  or expedient so to do for maintaining or increasing supplies of such  essential   commodity,  of   securing  its   equitable distribution and availability at fair prices or for securing such essential  commodity for  the Defence  of India  or the efficient conduct  of military  operations. Sub-s.(1) of s.3 details that  an  order  under  sub-s.(1)  may  provide  for controlling the  price at  which any essential commodity may be bought  or sold,  and for regulating by licences, permits or otherwise the storage, transport, distribution, disposal, acquisition, use  or consumption  of any essential commodity and for requiring any person holding in stock, or engaged in the production,  or in the business of buying or selling, of any essential  commodity, to  sell the  whole or a specified part of  the quantity  held in stock or produced or received by him,  or likely to be produced or received by him, to the Central Government  or a  State  Government  or  such  other person as  may be specified in the Order. In the exercise of that power  the Central  Government made  the Control  Order with which  we are concerned. Clause 3 of the Order provides that no  owner or  person in  charge of  a roller mill shall

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manufacture, or  cause to be manufactured, any wheat product except under and in accordance with the terms and conditions of a  licence issued under that Order. The licence was to be in Form  II. It was an annual licence renewable from year to year, and  liable to suspension or cancellation in the event of a contravention of the Control Order 18 or any  of the conditions of the licence. Paragraph V of the licence required  the licensee  to abide  by any  directions issued by  the licensing authority in regard to the purchase of wheat, the extraction of maida, suji and rawa and also in regard  to   the  distribution  or  disposal  of  the  wheat products.      Now the  High Court  considered the  matter  and  found itself  obliged   to  follow   its  decision   in  The  Food Corporation of  India (supra).  That was  a case  under  the Punjab Rice  Procurement (Levy)  Order, 1958  where rice was procured by  the State  Government  and  its  officers  from licensed dealers  and licensed  millers and then supplied to the Food  Corporation of  India, which in turn made supplies to various  State Governments. The Food Corporation of India was assessed to sales tax under the Punjab General Sales Tax Act. The  High Court  held that  the chain  of  transactions between the  miller and  the dealer  on the one hand and the State Government  on the  other and  thereafter between  the State Government  and the  Corporation and  then between the Corporation and  the other  States was  a  single  composite process originating  in an  arrangement between  the Central Government and  the State  Governments under which the State Governments were  required to contribute to a central pool a certain percentage  of foodgrains  intended  for  supply  to deficit States  through the  agency of the Corporation, that there was  no profit motive at any stage and the Corporation did not act as a dealer in the legal sense when it passed on the goods to other States. Accordingly, the Food Corporation of India,  the High  Court concluded,  could not  be said to sell the rice and was therefore not liable to pay sales tax, there being no freedom of contract within the meaning of the law laid  down in  Salar Jung  Sugar Mills  Ltd. v. State of Mysore [1972]  29 S.T.C.  246  and  the  element  of  mutual assent, implicit  or explicit,  being non-existent. The High Court observed  that the facts of the case brought it within the law  explained by  this Court in Chittar Mall Narain Das v. Commissioner of Sales Tax, [1970] 26 S.T.C. 344.      We think  that the  case before  us is  distinguishable from The  Food Corporation  of India  (supra). It  is a case which falls  more appropriately within the rule laid down by this Court in Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax Officer  & Ors.  etc. [1978]  2  S.C.R.  433  where  the majority judgment  discussed the  entire  case  law  on  the subject, including the earlier decisions in Salar Jung Sugar Mills  Ltd.(supra)  as  well  as  Chittar  Mall  Narain  Das (supra). The  appellants  in  Vishnu  Agencies  (Pvt.)  Ltd. (supra) had carried on business as agents 19 and distributors  of cement in the State of West Bengal. The distribution of  cement was  regulated by  the  West  Bengal Cement Control  Act, 1948  and by  the  Control  Order  made thereunder. Sub-s.(1)  of s.3  of the  Cement Control Act is framed in  language analogous  to sub-s.(1)  of s.3  of  the Essential  Commodities  Act,  1955.  And  under  the  Cement Control Order,  1948 issued  under  that  Act,  no  sale  or purchase of  cement can  be made,  except in accordance with conditions  contained   in  a  written  order  issued  by  a specified statutory  authority and  at a price not exceeding

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the notified  price.  The  appellant,  who  was  a  licensed stockiest of  cement was  permitted to  stock cement  in its godown and to supply it to persons in whose favour allotment orders were  issued and  at  the  price  stipulated  and  in accordance with  the conditions in the permits issued by the authorities. Pursuant  to the allotment orders the appellant supplied cement  to various  allottees from  time to time in accordance with the terms of the licence obtained by it. The appellant was  assessed to  Sales  tax,  and  in  appeal  it contended that  there was  no sale  because having regard to the stringent  provisions of  the Cement  Control  Order  no violation or  bargaining power  was left to it and there was no element of mutual consent or agreement between it and the allottees. This  Court came  to  the  firm  conclusion  that notwithstanding the  conditions  imposed  by  the  statutory framework within  which the dealer operated the transactions effected by  it must clearly be regarded as sales. After the decision by  this  Court  in  Vishnu  Agencies  (Pvt.)  Ltd. (supra) we  do not  feel  called  upon  to  enter  into  the question arising  in the  present case in any detail. We are satisfied that  upon the  facts  of  the  present  case  the question is  concluded by  the view  taken by  this Court in Vishnu  Agencies   (Pvt.)  Ltd.   (supra)   and   that   the transactions effected  by the  appellant must be regarded as sales.      Accordingly,  we  allow  the  appeals,  set  aside  the judgment of  the High Court of Punjab and Haryana and answer the question  referred to the High Court in the affirmative, in favour  of the  Union Territory of Chandigarh and against the respondent.  In the  circumstances, there is no order as to costs. N.V.K.                                      Appeals allowed. 20