JUDGMENT
J.V. Gupta, J.
1. This judgment will dispose of Civil Writ Petitions Nos. 1573 and 6099 of 1983 and 510, 4140 and 4505 of 1984 as it is a common case of the parties that in case it is held that the transactions in question are not sales then all the writ petitions are liable to be allowed.
2. For facility of reference, these cases can be classed in two categories, i. e. :
(i)C.W.P. No.
1573 of 1983 : which is by the
Food Corporation
of India against
the State of Haryana,
calling in question
the sales tax imposed
on it under the
Haryana General Sales
Tax Act for the
procurement of rice
by it through State
agency under the
Haryana Rice Procurement
Levy) Order, 1979 ;
ii) C.W.P. No.
6099 of 1983 : which are also by the Food
C.W.P. No. Corporation of India against
510 of 1984, the State of Punjab calling
C.W.P. No. in question, inter alia,
4140 of 1984, the sales tax imposed under
C.W.P. No. Section 4B of the Punjab
4505 of 1984. General Sales Tax Act for
the procurement of rice
by it through the agencies
of the State under the Punjab
Rice Procurement (Levy) Order.
3. Since, as already stated the fate of all these writ petitions depends upon the decision whether the transaction of supply of rice to the Food Corporation of India under the Levy Orders amounts to “sale” or not, it would be pertinent to notice in brief the facts as they emerge from C.W.P. No. 1573 of 1983 and are relevant, since that has come up before us on reference by the learned single Judge.
4. According to the writ petition, the petitioner is a Corporation established under the Food Corporation of India Act, 1964 (Act No. 37 of 1964). It procures rice, paddy and other foodgrains in the surplus State through the aegis 6i the State Government and its officers and distributes the foodgrains so procured to the deficit States in India. Though it is registered as a dealer under the Haryana General Sales Tax Act and the Central Sales Tax Act for other food-grains, it is not a dealer vis-a-vis the transactions of the procurement of rice and the subsequent supply by it to the agencies or depots outside the State of Haryana. In pursuance of the instructions of the Central Government, the Government of Haryana promulgated the Haryana Rice Procurement Price Control Order, 1968, as also the Haryana Rice Procurement (Levy) Order, 1979 (hereinafter referred to as the Levy Order). The procurement price of the rice is fixed under these Orders and the different officers of the State of Haryana procure rice on behalf of the petitioner-Corporation with the funds made available by it to the Director of Food and Supplies Department, Haryana. The procured rice is delivered to the Central pool under the supervision and control of the Corporation. It procured rice from the State Government in the years 1970-71 and 1971-72 in the similar circumstances as are in vogue now and the sales tax authorities then created a demand of tax to the tune of Rs. 1,63,87,225.46 against it on account of sales tax and it filed Civil Writ Petition No. 4065 of 1973 in this Court which was allowed by the Division Bench on May 17, 1975 and the decision therein is reported as Food Corporation of India v. State of Punjab [1976] 38 STC 144. It was held therein :
(a) that there was no relationship of principal and agent between the Corporation and the State and its officers;
(b) that the petitioner is the recipient of the foodgrains from the State Government and that to that extent the Corporation was not a dealer ;
(c) that the act of procuring rice under the Levy Order did not constitute sale, i.e., the transaction of sale of rice under the Levy Order by the millers and the dealers to the State of Punjab is not a taxable event; and
(d) that the case was covered by the decision of the Supreme Court in Chittar Mal Narain Das v. Commissioner of Sales Tax [1970] 26 STC 344.
5. Since no appeal was filed against the said Division Bench judgment of this Court, it has become final between the parties. Therein, the Division Bench had placed reliance on the decision of the Supreme Court in Chittar Mal Narain Das v. Commissioner of Sales Tax [1970] 26 STC 344. This decision was considered by the Supreme Court in a latter case [Vishnu Agencies Pvt. Ltd. v. Commercial Tax Officer [1978] 42 STC 31]. Taking cue from the aforementioned decision of the Final Court, the Assessing Authority levied tax on the petitioner-Corporation. The appeals against that levy are pending. The Haryana General Sales Tax Act was amended in 1976 and paddy was brought on Schedule D and sales tax on the sale of paddy was made payable by the last purchaser in the State. Similarly, the rice was also made the subject-matter of Schedule D and tax was made leviable on it in the hands of the petitioner-Corporation at the stage of purchase by it in the State and in other cases at the stage of first sale in the State by the dealer liable to pay tax. The Governor of Haryana made amendment to Schedule D by Notification No. S.0.124/H.A. 20/ 73/S. 63/82 dated November 30, 1982, the relevant part of which reads as under:
In the Haryana General Sales Tax Act, 1973, in Schedule D, after entry at serial No. 2B, the following entry shall be inserted, namely:
2C. Rice (i) If purchased by In the hands
Food Corporation of Food Corpo-
of India from ration of India
within the State, at the stage of
directly or purchase by it
throughany other in the State.
dealer liable to
pay tax under
this Act.
(ii) In all other First sale in
cases except the State by a
(i) above. dealer liable
to pay tax under
this Act.
6. After the issuance of this notification, the Assessing Authority directed the petitioner-Corporation to furnish the figures of the rice procured by it during December, 1982 and January, 1983. It submitted a statement of levy rice procured during the two months. On the receipt of the statement, the Assessing Authority issued the letter, annexure P-2, asking it to pay tax on the purchase of rice made from within the State of Haryana for the period November 30, 1982 to January 31, 1983 and required it to show cause as to why penalty under Section 47 of the Haryana General Sales Tax Act should not be imposed for failure to pay tax and also directed the petitioner-Corporation to deposit an amount of Rs. 50,01,857.10. The Assessing Authority is treating the procurement of rice under the Haryana Rice Procurement (Levy) Order, 1979, as purchases by the petitioner-Corporation and thereby making it liable to pay tax. According to the petitioner, this stand of the Assessing Authority is against law as it goes contrary to the decision of this Court in Food Corporation of India’s case [1976] 38 STC 144.
7. The notification dated November 30, 1982, has also been attacked by the petitioner on various grounds but those need not be noticed as the same has been withdrawn by notification dated October 31, 1984.
8. In the written statement filed on behalf of the Assessing Authority, it has been averred that the rice is procured under the provisions of the Levy Order by the District Food and Supplies Controllers and is then supplied to the petitioner-Corporation in pursuance of a bilateral agreement. The rice is not supplied by the District Food and Supplies Controllers to the petitioner-Corporation under the provisions of the Levy Order. The advance payment of price of the food-grains to be presumed by the District Food and Supplies Controllers does not in any way change the nature of the transaction of sale. So the sales made by the District Food and Supplies Controllers of rice procured by them from the millers to the petitioner-Corporation is a sale and is exigible to sales tax under the provisions of the Haryana General Sales Tax Act. The petitioner-Corporation is a registered dealer and is doing business in real sense in which the term is used. It has been earning profits out of its business like other trading companies. Even the supply of rice to the District Food and Supplies Controllers made under the Levy Order is a sale. It has been held to be so by the Supreme Court in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 in the context of the Andhra Pradesh Levy Order, wherein it was held that such a transaction amounted to a sale. The petitioner-Corporation is a dealer. The transaction in which the rice procured by the officers of the State of Haryana under the provisions of the Haryana Rice Procurement (Levy) Order is delivered to the petitioner-Corporation is a sale; exigible to tax. The authority under the Levy Control Order to sell compulsorily procured rice is vested in the State Government. The petitioner-Corporation has no such authority to procure rice from various licensed dealers under the Levy Order. After the rice has been procured under the Levy Order, the same is sold to the petitioner-Corporation which transaction is a result of mutual business dealings. Such transactions are not made between the petitioner-Corporation and the Director of Food and Supplies Department, Haryana, under the Levy Order. Even the procurement of levied rice by the authorities in pursuance of the Levy Order has been held by the Final Court to be sale in Vishnu Agencies’ case [1978] 42 STC 31. It was also submitted that the decision by the Supreme Court in Chittar Mal Narain Das v. Commissioner of Sales Tax AIR 1970 SC 2000 on which reliance was placed by the Division Bench of this Court in Food Corporation of India’s case [1976] 38 STC 144 stands overruled by a subsequent judgment of the Supreme Court in Vishnu Agencies’ case [1978] 42 STC 31. It was further submitted that after the decision of Vishnu Agencies’ case [1978] 42 STC 31 (SC), the Division Bench judgment of this Court in Food Corporation of India’s case [1976] 38 STC 144 does not lay down the correct law and requires reconsideration.
9. As observed in the earlier part of this judgment, before this Bench, it is a common case of the parties that in case it is held by this Court that the decision rendered by the Division Bench of this Court in Food Corporation of India’s case [1976] 38 STC 144 was correct and the Supreme Court’s decision in Vishnu Agencies case [1978] 42 STC 31 does not overrule the same so far as the requisite ratio of that case is relevant, impliedly or otherwise, then the transactions will not amount to sales and the writ petitions will be liable to succeed.
10. The correctness of the Division Bench judgment of this Court in Food Corporation of India’s case [1976] 38 STC 144 was doubted earlier also in C.W.P. No. 1863 of 1979 by the Division Bench of this Court. As a result, the said case was referred to the Full Bench but the decision of the Full Bench See [1981] 47 STC 182 (P & H) has been rendered nugatory as the State of Haryana filed appeal by special leave against the Full Bench decision of this Court in the Supreme Court and the judgment of the Supreme Court therein is reported as State of Haryana v. Krishna Rice Mills [1983] 52 STC 1. Therein the Supreme Court held :
After hearing the learned counsel for the parties, it seems to us that the High Court should not have proceeded beyond recording the assurance that the State Government would withdraw the instructions and holding that, therefore, the writ petition had become infructuous. In our opinion, no further question arose for consideration by the High Court. The High Court erred in pronouncing on the merits of the question whether the transaction constituted a sale under the aforesaid sales tax enactments. We think that its observations and findings on the question should be vacated. It will be for the Assessing Authorities to deal with the question on the merits in accordance with law. The Assessing Authorities should proceed on the basis that no opinion has been expressed either by the High Court or by us. They should also examine the cases before them without reference to the instructions issued by the Government. We order accordingly.
11. In view of the above observations, it has become necessary for us to go through the whole matter again to find out if the ratio of Chittar Mal Narain Das’s case AIR 1970 SC 2000, so far as it has remained intact, after the decision of the Supreme Court in Vishnu Agencies’ case [1978] 42 STC 31, has been rightly made applicable by the Division Bench of this Court in Food Corporation of India’s case [1976] 38 STC 144 and if not, the counsel agreed that this case will have to be referred to the Full Bench. But the stress of the learned counsel for the petitioner is that the Food Corporation of India’s case [1976] 38 STC 144 (P & H) still holds the field as good law and for that reason we have decided to go through the exercise again for ourselves.
12. For that purpose, we may notice Chiitar Mal Narain Das’s case AIR 1970 SC 2000. Therein the U.P. Wheat Procurement (Levy) Order, 1959, was being examined by the Supreme Court to come to the conclusion whether the transactions entered into under that Order amount to sale or not. For facility of the reference, Clause 3 of the said Order, which is material, is reproduced hereunder:
Clause 3 provides:
(1) Every licensed dealer shall sell to the State Government at the controlled prices:
(a) Fifty (50) per cent of wheat held in stock by him at the commencement of this Order; and
(b) Fifty (50) per cent of wheat procured or purchased by him every day beginning with the date of commencement of this Order and until such time as the State Government otherwise directs.
(2) The wheat required to be sold to the State Government under Sub-clause (1) shall be delivered by the licensed dealer to the Controller or to such other person as may be authorised by the Controller to take delivery on his behalf.
13. It was held that “the Order ignored the volition of the dealer and the source of the obligation to deliver the specified quantities of wheat and to pay for them was not in any contract but in the statutory Order” and after holding so the Supreme Court further said that assuming that the Controller might designate the place of delivery and place of payment of price at the controlled rate and the licensed dealer acquiesced in them, the transaction of supply of wheat pursuant to Clause 3 of the Order and acceptance thereof did not result in a contract of sale.
14. Then came the decision of the Supreme Court in Vishnu Agencies’ case [1978] 42 STC 31 wherein it was stated regarding Chittar Mal Narain Das’s case AIR 1970 SC 2000 as under :
The ultimate decision in Chittar Mal’s case [1971] 1 SCR 671 at 677 can be justified only on the view that Clause 3 of the Wheat Procurement Order envisages compulsory acquisition of wheat by the State Government from the licensed dealer…. Looking at the scheme of the U.P. Wheat Procurement Order, particularly Clause 3 thereof, this court in Chittar Mal’s case [1971] 1 SCR 671 seems to have concluded that the transaction was, in truth and substance, in the nature Of compulsory acquisition, with no real freedom to bargain in any area.
15. The matter has become easier for us as the Supreme Court itself in State of Punjab v. Dewan’s Modern Breweries Ltd. [1979] 43 STC 454 has commented on Chittar Mal Narain Das’s case AIR 1970 SC 2000 in the light of Vishnu Agencies’ case [1978] 42 STC 31 (SC) and has narrated the extent to which Chittar Mal Narain Das’s case AIR 1970 SC 2000 has been held to be not good law. It was observed thus:
Chittar Mal’s case [1971] 1 SCR 671 was also considered in paragraphs 44-45 at page 467 (pages 56-57 of 42 STC) and it was distinguished on the ground that the said decision ‘can be justified only on the view that Clause 3 of the Wheat Procurement Order envisages compulsory acquisition of wheat by the State Government from the licensed dealer’. But then the criticism in that case of the Full Bench decision of the Allahabad High Court in Commissioner of Sales Tax, U.P. v. Ram Bilas Ram Gopal AIR 1970 All. 518, ‘which held while construing Clause 3 that so long as there was freedom to bargain in some areas the transaction could amount to a sale though effected under compulsion of a statute’ was not endorsed. It is, therefore, plain that to that extent Chittar Mal’s case [1971] 1 SCR 671 is also not good law.
16. It would, thus, be seen that in case of compulsory acquisition of commodities when there is some freedom to bargain in some areas, the transaction would amount to a sale and to that extent only the ratio of Chittar Mal’s case AIR 1970 SC 2000 has been held to be not good law though the ultimate decision has been justified as being one of compulsory acquisition by the State in the strict sense of the term. In other words, Vishnu Agencies’ case [1978] 42 STC 31 (SC) has split up compulsory acquisition of commodities into two categories for the purpose of determining whether the transaction involved therein amounts to “sale” or not. In one category falls the case of the nature of Chittar Mal Narain Das’s case AIR 1970 SC 2000 and in the other, the case of the nature of Vishnu Agencies’ case [1978] 42 STC 31 (SC), Dewan’s Modern Breweries Ltd.’s case [1979] 43 STC 454 (SC) and Union Territory of Chandigarh v. Amrit Roller Flour Mills case [1985] 60 STC 66 (SC), etc.
17. Now we revert to the decision of this Court in Food Corporation of India’s case [1976] 38 STC 144. Therein the question arose whether the transaction under the Punjab Rice Procurement (Levy) Order, 1968, amounted to sale or not and for the purpose of comparison with the Levy Order involved in Chittar Mal Narain Das’s case AIR 1970 SC 2000, it would be pertinent to notice similar clause occurring in the Rice Levy Order. Clause 3 of this Order reads:
Clause 3.-(1) Every licensed miller shall sell to the State Government at the controlled prices:-
(a) 75 per cent of the quantity of rice held in stock by him at the commencement of this Order; and
(b) 95 per cent of the total quantity of Bold Group Rice and 90 per cent of the total quantity of Slender Group Rice (as mentioned in Schedule I) produced or manufactured by him in his rice mill, everyday beginning with the date of commencement of the Punjab Rice Procurement (Levy) (First Amendment) Order, 1972, until such time as the State Government otherwise directs.
(2) Every licensed dealer shall sell to the State Government at the controlled prices:-
(a) 75 per cent of the quantity of rice held in stock by him at the commencement of this Order; and
(b) 95 per cent of the total quantity of Bold Group Rice and 90 per cent of the total quantity of Slender Group Rice (as mentioned in Schedule I) got milled by him every day out of his stock of paddy beginning with the date of commencement of the Punjab Rice Procurement (Levy) (First Amendment) Order, 1972, until such time as the State Government otherwise directs:
Provided that nothing contained in this Sub-clause shall apply to the units and institutions certified by the Punjab Khadi and Village Industries Board to be engaged in the production of hand-pounded rice.
(3) The rice required to be sold to the State Government under Sub-clauses (1) and (2) shall be delivered by the licensed miller or the licensed dealer to the Director or to such other person as may be authorised by the Director to take delivery on his behalf.
(4) The State Government may, by general orders, notified in the official Gazette, vary the percentage of rice required to be sold to the State Government under this Order.
(5) Notwithstanding anything contained in the foregoing Sub-clauses the State Government may, by notification, specify the varieties of rice which are required to be sold to the State Government under this clause and may likewise specify the varieties of rice which are not required to be so sold.
18. After elaborately dealing with the aforesaid Clause 3, the Division Bench of this Court came to the conclusion:
So far as the foodgrains under the Levy Order are concerned, the Corporation does not act independently. If a dealer has no say of any kind in the matter, I fail to understand how such a transaction can have any profit-motive. It will be a travesty of facts to call it a business so far as the distribution of foodgrains to deficit States by the Corporation is concerned.
Further, I find that the act of procuring rice under the Levy Order does not constitute ‘sale’ or, in other words, the transaction of sale of rice under the Levy Order by the millers and the dealers to the State of Punjab is not a taxable event” and further held that “from a bare perusal of these clauses [i.e., of the U.P. Wheat Procurement (Levy) Order], it would be clear that the same are in part materia with the clauses of the Levy Order with which we are concerned.
19. It would, thus, be clear that the decision in Food Corporation of India’s case [1976] 38 STC 144 (P & H) is based on the ratio of Chittar Mal Narain Das’s case AIR 1970 SC 2000 to the extent that the Levy Order envisages compulsory acquisition of rice by the State Government from the licensed dealers and not on the later part of the ratio which was raised by the Supreme Court on certain assumptions which assumptions according to our humble opinion were not germane for deciding the Chittar Mal Narain Das’s case AIR 1970 SC 2000 as has been made clear in Vishnu Agencies’ case [1978] 42 STC 31 by the Constitution Bench of the Supreme Court itself.
20. Further strength to our approach is sought from the decision of the Supreme Court in Amrit Roller Flour Mills’ case [1985] 60 STC 66 wherein Food Corporation of India’s case [1976] 38 STC 144 (P & H) was also cited and the Supreme Court therein observed as under :
Now the High Court considered the matter and found itself obliged to follow its decision in Food Corporation of India [1976] 38 STC 144. 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 Solar Jung Sugar Mills Ltd. v. State of Mysore [1972] 29 STC 246 (SC) 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 Mal Narain Das v. Commissioner of Sales Tax [1970] 26 STC 344 (SC). We think that the case before us is distinguishable from Food Corporation of India [1976] 38 STC 144 (P & H). It is a case which falls more appropriately within the rule laid down by this court in Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer [1978] 2 SCR 433, where the majority judgment discussed the entire case law on the subject, including the earlier decisions in Salar Jung Sugar Mills Ltd. [1972] 29 STC 246 (SC) as well as Chittar Mal Narain Das [1970] 26 STC 344 (SC).
21. After giving our thoughtful consideration to the entire matter we find that the Control Orders which are the subject-matter of the decision in Vishnu Agencies’ case [1978] 42 STC 31 (SC) were different from the Levy Order under which the State Government sets up the machinary for compulsory acquisition of the essential commodities. The Supreme Court’s decision in Chittar Mal Narain Das’s case AIR 1970 SC 2000 which was relied upon for decision by the Division Bench of this Court in Food Corporation of India’s case [1976] 38 STC 144 holds the field and does not stand impliedly overruled in toto.
22. From the aforesaid observations, it is clear that the Control Orders under which the compulsory acquisition of rice is made stand on different footing and the transactions made thereunder would not amount to sales. It is correct that their Lordships in Vishnu Agencies’ case [1978] 42 STC 31 (SC) did not agree with the observations made in Chittar Mal Narain Das’s case AIR 1970 SC 2000 to the effect that even if in respect of place of delivery or the place of payment of the price there could be a consensual arrangement, the transaction will not amount to a sale, but in spite of these observations, so far as the cases of compulsory acquisition with no real freedom to bargain in any area under the relevant procurement orders are concerned, in view of Chittar Mal Narain Das’s case AIR 1970 SC 2000 was held as justified.
23. Under the circumstances, we do not find any merit in the contention of the learned State counsel that the Division Bench judgment of this Court in Food Corporation of India’s case [1976] 38 STC 144 stands overruled and does not lay down correct law. In these transactions, there is no profit-motive at any stage nor do the goods vest in the State Government in the sense that it can bargain with the Corporation and dictate its terms, nor does the Corporation act as a dealer in the legal sense when it passes on these goods to the other States. It was further held that the Corporation does not act as a dealer when it sends the goods to the other States and that no profit-motive is involved in the transactions entered into between the Corporation and the deficit States. The same being the position in the present writ petitions, the same are liable to be allowed in view of the Division Bench judgment of this Court in Food Corporation of India’s case [1976] 38 STC 144 as the transactions cannot be held to be sales which could be taxed.
24. Though in some of the writ petitions, certain other points have also been raised like the vires of Section 4B of the Punjab General Sales Tax Act, yet the same have not been gone into in view of the findings given above.
25. In Civil Writ Petition No. 4140 of 1984, the petitioner-Corporation has also challenged the order of the Sales Tax Tribunal, Punjab, dated April 24, 1984, relating to the assessment year 1975-76, wherein sales tax has been imposed on the bardana. According to the Corporation, the bardana was transferred along with the tax-free goods and was, therefore, not exigible to tax. Moreover, as to whether there was an agreement to sell bardana or not was a question of fact and it was for the Revenue to prove the existence of such an agreement. It was further contended that bardana was a cheap mode of conveying the commodities; its value was insignificant as compared to the commodity packed therein and that an implied contract to sell bardana independently could not be inferred. In support of the contention, reliance was placed on Commissioner of Taxes, Assam v. Prabhat Marketing Co. Ltd. [1967] 19 STC 84 (SC) and M.A. Razack & Company v. State of Madras [1967] 19 STC 135 (SC). On the other hand, the learned counsel for the State relied upon A. Srinivasa Pai v. State of Kerala [1975] 36 STC 482 (Ker) and Deputy Commissioner of Sales Tax, Ernakulam v. Raja Oil Mills [1979] 43 STC 78 (Ker) [FB] to contend that the bardana was taxable.
26. According to the Supreme Court in Razack & Co.’s case [1967] 19 STC 135, as the value of the packing material as compared to the value of the contents of the packet was insignificant, an agreement to sell packing material independently of chewing tobacco could not, under the general law, be implied. Thus, the order assessing the bardana in the said writ petition is quashed as no independent agreement has been shown to exist.
27. Consequently, all the impugned orders are quashed and the writ petitions are allowed. No costs.
D.S.Tewatia, J.
28. I agree.