JUDGMENT
Jeevan Reddy, J.
1. These two tax revision cases are preferred by the same assessee. T.R.C. No. 30 of 1978 pertains to the assessment year 1972-73, while T.R.C. No. 31 of 1978 pertains to the assessment year 1973-74. The assessee is the Chittoor Co-operative Sugars Ltd.
2. Four questions are raised for our consideration in these tax revision cases, which we shall deal with in seriatim. The first contention urged by Mr. P. Venkatarama Reddy, learned counsel for the assessee, is that the inclusion of the turnover relating to diesel oil supplied by the assessee to the lorries hired by it in its turnover is contrary to low. The facts relevant to this question are : During the crushing season, the assessee engaged certain lorries belonging to the lorry contractors, on a permanent basis. Those lorries were to be used only for purposes of the assessee, and for no other purpose. The charges therefor were to be paid on a particular basis agreed between the parties. It is relevant to state that under the agreement, the assessee had not undertaken to supply the diesel oil for the lorries, which means that the lorry contractors had to procure the requisite quantity of diesel from the usual or their own sources. It so happens that the assessee owns a private petrol bunk, which it has installed to meet the requirements of its own vehicles and lorries. Mr. P. Venkatarama Reddy tells us that the assessee has paid 12 per cent Central sales tax on the fuel which is supplied to it for the said petrol bunk, and that no C forms are also issued by the assessee, which would have enabled it to claim a lesser rate of Central sales tax. Be that as it may, the admitted fact is that the diesel was supplied from the assessee’s private petrol bunk to the lorries belonging to the contractors and which were engaged by the assessee during the crushing season. (The diesel is said to have been supplied at the cost price without charging any profit).
3. The department included the said turnover relating to diesel, in the total turnover of the assessee, which was objected to. The Tribunal held that inasmuch as the assessee was under no obligation to supply the diesel under the agreement entered into by it with the lorry contractors, the supply of diesel to such lorries amounts to “sale” and has been properly included in the total turnover. Mr. Venkatarama Reddy submits that the position here is akin to what happens in the case of a service contract. He relies upon two decisions dealing with service contracts, viz., State of Andhra Pradesh v. Hotel Sri Lakshmi Bhavan [1974] 33 STC 444 and Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi in this behalf. On a perusal of the said judgments, however, we find that in the first mentioned case the food was supplied by the assessee to its employees as a part of the wages under the contract of service, and therefore it was held that there was no sale of the food so supplied. The said decision applies the principle relevant in the case of a works contract to service contract as well. Same is the case in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi . That was a case where the meals were served to the visitors and there was no separate charge for the meals, but the charge was made on “inclusive terms” basis which covered all the amenities, including the meals provided to the guests. We are of the opinion that the principle of the said decision has no application to the facts of the present case. Here the assessee voluntarily supplied diesel – may be at the cost price – and the lorry contractors purchased it from the assessee, instead of purchasing from another petrol bunk. We are, therefore, of the opinion that the finding of the Tribunal on this question does not call for any interference.
4. The second contention is that the department was in error in treating the supply of chemical fertilisers by the assessee to its shareholders as “sale” and including the same in its total turnover. The assessee is a co-operative society. One of its objects is “to teach the members improved methods of cultivation of sugarcane and to supply seed materials, manures, implements, etc., for growing sugarcane” [vide bye-law 2(3)]. We may also refer in this connection to bye-law 3(ii). One of the objects of the society, according to bye-law 3(ii), is “to undertake measures for the development of sugarcane, including supply of seed, chemical fertilisers, agricultural implements, irrigation facilities and other production requirements, including agricultural credit and to provide technical advice on improved cultivation methods”. In pursuance of these objects of the society as incorporated in the bye-laws, the assessee procured chemical fertilisers and supplied the same to its shareholders, in proportion to the shares held by them. This supply of chemical fertilisers was treated as “sales”. Mr. Venkatarama Reddy’s contention is that the situation here is akin to the one obtaining in the case of supply of food and other amenities by the clubs to their members, and therefore, the principle enunciated by courts in that behalf applies with equal force herein. Reliance is placed upon Joint Commercial Tax Officer v. Young Men’s Indian Association [1070] 26 STC 241 (SC), a decision of the Supreme Court. The Supreme Court there pointed out, on a reference to the English decisions, that in the case of unincorporated clubs, the principle adumbrated was that all the members jointly own the property and the goods of the club, and therefore, there is no question of sale of the food or other articles supplied by the club to its members. In the case of incorporated clubs, the theory applied was that the club is merely an agent or trustee for its members, and the property held by it is held for and on behalf of its members, and not antagonistic to its members. We must note that the definition of “sale” in the Madras General Sales Tax Act, which was considered by the Supreme Court in the said case, is substantially identical with the definition of that expression in the Andhra Pradesh Act. In particular, explanation I to the definition of “sale” in the Madras Act read :
“The transfer of property involved in the supply or distribution of goods by a society (including a co-operative society), club, firm or any association to its members, for cash or for deferred payment or other valuable consideration, whether or not in the course of business shall be deemed to be a sale for the purposes of this Act.”
The Supreme Court observed, with reference to the scope of the said definition :
“The essential question, in the present case, is whether the supply of the various preparations by each club to its members involved a transaction of sale within the meaning of the Sale of Goods Act, 1930. The State Legislature being competent to legislate only under entry 54, List II, of the Seventh Schedule to the Constitution, the expression ‘sale of goods’ bears the same meaning which it has in the aforesaid Act. Thus, in spite of the definition contained in section 2(n) read with explanation I of the Act if there is no transfer of property from one to another, there is no sale which would be exigible to tax. If the club even though a distinct legal entity is only acting as an agent for its members in the matter of supply of various preparations to them no sale would be involved as the element of transfer would be completely absent. This position has been rightly accepted even in the previous decision of this court.”
5. Reference may also be made in this connection to Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat . It was a case of a co-operative society which carried on the business of ginning and pressing cotton brought by its members. The question was, whether it was liable to tax on the purchase turnover of the cotton received from its members, under the Bombay Sales Tax Act. In that connection, the Supreme Court observed as follows :
“It must be remembered that by and large the farmers are illiterates. They do not know the ways of business. The general belief is that taking advantage of the ignorance and illiteracy of the farmers, businessmen exploit them. To avoid such exploitation, the Act authorised the formation of co-operative societies of the farmers through which they can sell their goods. Those societies merely function as agents for the farmers who are their members. By becoming members of those societies and subscribing to their bye-laws, they had given large powers to their agents so that their produce may be sold in the best possible manner. None of the bye-laws of the society goes to show that the society had purchased the goods entrusted to it by its members.”
6. In our opinion, the principle of these two decisions squarely applies to the facts of the present case. Here also, the shareholders of the society mostly are from a rural area, and the presumption that they may not know the ways of business and in case they individually go to purchase, the possibility of their being exploited by businessmen, is equally real. For that reason, they came together to form assessee-co-operative society, and one of the objects for which the society was formed, was to procure chemical fertilisers and supply it to its shareholders. It is clear that the assessee was acting only as an agent of its shareholders in the matter of procuring chemical fertilisers, and supplying the same to them. The observations of the Supreme Court in Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat apply with equal force to the present case.
7. The learned Government Pleader laid emphasis upon the following words by us in the definition of the expression “sale” occurring in clause (n) of section 2(1) of the A.P. General Sales Tax Act. The main limb of of the definition reads as follows :
“‘Sale’ with all its grammatical variations and cognate expressions means every 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 for any other valuable consideration and includes any transfer of materials for money consideration in the execution of a works contract, provided that the contract for the transfer of such materials can be separated from the contract for the services and the work done, although the two contracts are embodied in a single document or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of or a charge on, goods.”
8. The contention on the basis of the words underlined by us is that, since the statute expressly treats the supply or distribution of goods by a society to its members, as a sale, there is no reason to construe otherwise. But, as pointed out by us above, the definition of the expression “sale” in the Madras Act, and particularly explanation I thereto is in identical terms as the words emphasised by the learned Government Pleader. The Supreme Court observed that the said words must be understood in the context of the entry “sale of goods” occurring in List II of the Seventh Schedule to the Constitution. The decision of the Supreme Court in Joint Commercial Tax Officer v. Young Men’s Indian Association having been rendered in similar language, we are unable to say that, because of the words emphasised it must be held that each and every supply of goods or other articles by a society to its members or by a club to its members, constitutes “sale”.
9. The learned Government Pleader then relied upon the decision in Deputy Commissioner of Commercial Taxes, Tiruchirapalli Division v. North Arcot District Co-operative Sugar Mills Ltd. [1974] 34 STC 543, which is also relied upon by the Tribunal in support of its view. It would be appropriate to briefly note the basic facts of that case. The assessee there was a co-operative sugar mill, and it regularly purchased fertilisers of different kinds, manufactured a new manure mixture, and supplied the same to the cane-growers, who were members of the society. The supplies made to the cane-growers were shown in the accounts of the mill as “sales” effected by the society. In those circumstances, the Tribunal found that there was a sale of manure to the cane-growers, but held that inasmuch as the mill was not a dealer in fertilisers, the sale cannot be subjected to sales tax. When the matter came up before the Madras High Court, it was contended by the assessee-sugar mill that inasmuch as under bye-law 43 the society is expected to advance moneys to its shareholders, the society made advances partly in the shape of cash and partly in kind, i.e., in the shape of fertilisers and therefore such supply cannot be treated as “sale”. The court, however, held that the bye-law relied upon merely enables the assessee to advance cash up to a particular limit to its members and if the mill has paid such advance partly in the form of manure it must be understood that the members took the entire advance in cash and utilised a portion of such advance for purchase of manure. On that reasoning it was held that there was a sale of fertilisers by the society to its members. But, so far as the case before us is concerned, as pointed out by us above, one of the objects for which the sociey was formed, was to supply chemical fertilisers to its members. More than one bye-law speaks of this object. A society is expected to fulfil and to act in furtherance of the objects for which it was formed. Therefore the society was expected to supply fertilisers to its members, which it did. This fact distinguishes the case before us from the case before the Madras High Court. As pointed out by us above, because of the said bye-laws, the assessee-society must be deemed to have been acting as the agent of its members in the matter of procuring the chemical fertilisers and supplying the same to its members. For these reasons, we hold that the Tribunal was in error in holding that the supply of chemical fertilisers by the assessee to its members amounts to sale.
10. The third point urged is that the Tribunal was in error in holding that the sale of scrap and by-products is liable to be included in the assessee’s turnover. The Tribunal held that the sale of scrap, empty barrels, burnt lime and bagasse is incidental and ancillary to the main business of the assessee, that there was continuity and regularity of trade in these commodities year by year, and that therefore those sales cannot be termed as casual. We find no error in the reasoning of the Tribunal. Indeed, the decision in State of Tamil Nadu v. Burmah Shell Oil Company , relied upon by the Tribunal, fully bears out the Tribunal’s reasoning, and we see no grounds to take a different view.
11. Now, we come to the last point urged by Mr. P. Venkatarama Reddy, viz., that the department was in error in treating the value of the gunnies as part of the turnover. The contention is that the sugar itself is exempted from tax, and that the gunnies in which the sugar was supplied or delivered are only the cheapest and the necessary means of delivery and transport, and hence it cannot be held that there was an implied contract for sale of gunny bags. Now, admittedly there was no express contract for the sale of gunny bags, nor does the bill issued by the assessee show separately the value or the cost of gunny bags supplied, though it is true that sales tax is charged on the value of gunny bags (at the rate of 0.12 paise each bag). The only question is, whether in the circumstances of the case, it can be held that there was an implied contract for the sale of gunny bags. The law on the subject has been set out in Hyderabad Deccan Cigarette Factory v. State of Andhra Pradesh [1966] 17 STC 624 (SC) which has been referred to with approval in State of Madras v. Cement Allocation and Co-ordinating Organisation . The statement of law which was approved and which is also relevant for our purposes, reads as follows :
“In the instant case, it is not disputed that there were no express contracts of sale of the packing materials between the assessee and its customers. On the facts, could such contracts be inferred ? The authority concerned should ask and answer the question whether the parties in the instant case, having regard to the circumstances of the case, intended to sell or buy the packing materials, or whether the subject-matter of the contracts of sale was only the cigarettes and that the packing materials did not form part of the bargain at all, but were used by the seller as a convenient and cheap vehicle of transport. He may also have to consider the question whether, when a trader in cigarettes sold cigarettes priced at a particular figure for specified number and handed them over to a customer in a cheap cardboard container of insignificant value, he intended to sell the cardboard container and the customer intended to buy the same ? It is not possible to state as a proposition of law that whenever particular goods were sold in a container the parties did not intend to sell and buy the container also. Many cases may be visualised where the container is comparatively of high value and sometimes even higher than that contained in it. Scent or whisky may be sold in costly containers. Even cigarettes may be sold in silver or gold caskets. It may be that in such cases the agreement to pay an extra price for the container may be more readily implied. In the present case, if we may say so with respect, all the authorities, including the High Court, dealt with the question as a question of law without considering the relevant factors which would sustain or negative any such agreement.”
12. It must be held in this case also that the “gunny bag” was the most convenient and cheap vehicle of delivery and transport, and having regard to the value of the gunny bag as compared to the value of its contents, it cannot be said that there was an implied contract to sell the gunny bags. In fact, the Tribunal held against the assessee on this count not on the ground that there was an implied agreement to sell the gunny bags, but only on the ground that as a fact, the assessee did charge and collect sales tax on the value of gunnies. We are, however, of the opinion that such unauthorised collection of sales tax by the assessee does not make any difference to the principle, since the matter has to be determined with reference to the provisions of law. We may in this behalf refer to the following observations of the Supreme Court in Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh :
“Railway freight being Rs. 274.40 was added to the value of the goods and sales tax was collected by the company from the purchasers. That indicated, according to counsel for the respondent, that the true effect of the agreement between the parties was that the price was inclusive of the railway freight. But the form in which the invoice is made out is not determinative of the contract between the company and its customers. If, apprehending that it may have to pay sales tax on the freight, the company collected sales tax on the freight, the true nature of the contract between the company and the purchasers cannot on that account be altered. The company may be liable to refund the amount of excess sales tax to its purchasers. But that is a matter between the company and the purchasers and the State cannot seek to levy tax on railway freight if it is not made a part of the price …..”
13. Moreover, in this case, the benefit of such unauthorised collection ultimately goes to the members of the society only, who are very large in number.
14. Having regard to the observations of the Supreme Court, referred to above, we hold that the Tribunal was in error in holding that the value of the gunny bags must be included in the turnover of the assessee only on the ground that the assessee charged and collected sales tax thereon.
15. With the result, these tax revision cases are partly allowed, and it is held that the value of chemical fertilisers supplied by the assessee to its members as also the value of the gunnies in which sugar was sold and or transported by the assessee is not liable to be included in the assessable turnover of the assessee. Having regard to the facts and circumstances of the case, there shall be no order as to costs. Advocate’s fee Rs. 200 in each.