JUDGMENT
Mohan, J.
1. Since all these writ petitions raise one and the same question of law, they are dealt with under a common judgment. It is enough to note the facts in Writ Petition No. 869 of 1982.
2. The petitioners are a company incorporated under the Indian Companies Act of 1913. The incorporation took place on 12th July, 1964. Its registered office is at No. 109, Nungambakkam High Road, Madras 600 034. The petitioners are manufacturers of sugar and other by-products at their factory situate at Vadapathimangalam, Thanjavur district. They are assessed to sales tax. They are assessees on the files of the Deputy Commercial Tax Officer, Mannargudi, Thanjavur district (first respondent herein).
3. The sugarcane is a raw material for manufacture of sugar. It is subject to purchase tax under section 7-A read with Sl. No. 62 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. The point of levy is “at the point of last purchase in the State”. Presently, the rate of tax is 12 per cent. An additional sales tax is also levied in addition to the above, at 0.7 per cent. on the taxable turnover under the Tamil Nadu Additional Sales Tax Act, 1970.
4. The petitioners submit monthly returns in form A-2. This is in accordance with rule 18 of the Tamil Nadu General Sales Tax Rules, 1959. During the sugar season 1980-81, viz., 1st October, 1980 to 30th September, 1981, the petitioners submitted returns declaring as taxable turnover the cost of sugarcane purchased from the cane growers at Rs. 161.40 per metric tonne. This price of Rs. 151.40 is fixed by the Government of India under clause 3 of the Sugarcane (Control) Order, 1966. To that effect a notification was made under GSR 676-B (Ess. Com./Sugarcane) dated 8th October, 1980. For the sugar year 1981-82 the price of sugar was fixed by the Government of India at Rs. 152.90 by a notification dated 30th September, 1981. Accordingly the returns were filed on the basis of the notified price. They were accepted by the first respondent and taxes were remitted.
5. While the matter stood thus, the second respondent by his proceedings in Re. D1/30077/80 dated 8th January, 1981 indicated that the third respondent had in his order, directed the sugar factories in Tamil Nadu to pay minimum cane price at Rs. 176 per metric tonne linked to the sugar recovery of 8.6 per cent. for the sugar season 1980-81. On this basis the second respondent communicated that the petitioners were advised to pay Rs. 203.80 per metric tonne as sugarcane price to the cane grower. It was also stated that the amounts paid in excess of the price fixed and notified by the Government of India shall be adjusted against the additional cane price payable under clause 5A-(6) of the Sugarcane (Control) Order, 1966. A similar communication was addressed on 5th December, 1981 to the effect that the petitioners were to pay a minimum cane price at Rs. 166 per metric tonne linked to the sugar recovery of 8.6 per cent. for 1981-82 sugar season. Accordingly, the second respondent advised the petitioners to pay sugarcane price at Rs. 194.10 per metric tonne. Here again it was mentioned that the amounts paid in excess of the price fixed and notified by the Government of India shall be adjusted against the additional cane price payable under clause 5-A(6) of the Sugarcane (Control) Order, 1966.
6. Immediately representations were made to the third respondent through the South Indian Sugar Mills Association, that this requirement to pay over and above the statutory price notified by the Government of India will impose a heavy financial burden on the sugar factories. The incidence of tax on the sugarcane was the highest in the State of Tamil Nadu in comparison with any other State. Therefore, the sugar mills should be granted waiver of purchase tax, at least on the difference between the statutory price notified by the Government of India under clause 3 of the Sugarcane (Control) Order, 1966 and the additional price determined eventually under clause 5-A(2) of the Sugarcane (Control) Order, 1966. However, pending final orders on the said representation, the third respondent by letter dated 4th August, 1981 permitted payment of purchase tax on statutory cane price notified by the Government of India under clause 3 of the Sugarcane (Control) Order, 1966 and the additional price determined eventually under clause 5-A(2) of the Sugarcane (Control) Order, 1966. However, pending final orders on the said representation, the third respondent by letter dated 4th August, 1981 permitted payment of purchase tax on statutory cane price notified by the Government of India. The petitioners paid the price declared under clause 3 of the Sugarcane (Control) Order, 1966 to the cane growers and the differential sum was treated as “advance payment towards cane supply during 1980-81 season”, against probable additional cane price under clause 5-A of the Sugarcane (Control) Order, 1966 and paid under a separate voucher. This advance not being the price or consideration was not even credited to the individual accounts of the cane ryots but was kept and taken to “advance account” debiting the supplier for advance received. The grower consequently remained a debtor as per books of the petitioners. In the meanwhile on 2nd November, 1981 the petitioners were informed that their request for waiver could not be complied with.
7. By proceedings dated 3rd September, 1981, the first respondent called upon the petitioners to furnish particulars of purchase tax due, whereupon, it was submitted by letter dated 8th September, 1981 that the State Government had no power to fix the price for sugarcane and that the petitioners were liable to pay purchase tax only on the basis of the price fixed by the Government of India under clause 3 of the Sugarcane (Control) Order, 1966. By letter dated 12th November, 1981 the respondent, the assessing authority, called upon the petitioners to remit Rs. 11,00,800 as tax and Rs. 59,036 towards additional tax for the period January, 1981 to May, 1981. It was stated that the petitioners were in arrears on the difference between the statutory cane price and the State Government directed price.
8. Immediately the petitioners filed their objections on 24th November, 1981. It was stated that they were not liable to pay purchase tax on the amounts over and above that fixed by the Government of India under clause 3 of the Sugarcane (Control) Order, 1986, that the State directed price had no statutory force, that the liability to purchase tax will arise only when the final sum declared is made under clause 5-A(2) of the Sugarcane (Control) Order, and that there was no liability to pay tax on what was merely an “advance”. An interim reply was also sent on 18th November, 1981. Notwithstanding the same, by proceedings date 11th December, 1981 the first respondent reiterated his demand for the months of April and May, 1981. The first respondent proposed to assess pure “advance” paid to the cane growers as purchase price. Again on 26th December, 1981 objections were made to the proposal reiterating the earlier stand of the petitioners. It was also brought to the notice of the first respondent that writ petitions had been filed in the High Court of Madras, challenging similar proposals and levies and he was requested that the action might be deferred. Notwithstanding this, the first respondent passed assessments and called upon the petitioners to remit the purchase tax. It is under these circumstances the present writ of mandamus had come to be filed to forbear from levying, assessing or demanding purchase tax on advance paid to cane growers representing the difference between the price fixed by the Government of India, under clause 3 of the Sugarcane (Control) Order, 1966 and the price directed by the second respondent in his order dated 8th January, 1981 for the following among other grounds :
(i) The petitioners are liable to pay only on the price declared under clause 3 of the Sugarcane (Control) Order, 1966. Further sums paid are only ad hoc amounts by way of advance adjustable against additional cane price payable under clause 5-A(6) of the Sugarcane (Control) Order, 1966. As such it cannot be treated as price. Under clause 5-A of the Sugarcane (Control) Order, an additional price has to be fixed in accordance with the Second Schedule to that Order, which Schedule prescribes a formula. There cannot be price determination under clause 5-A on any interim basis. It will require post-sugar season figures and cannot be fixed on ad hoc basis. The petitioners have paid the statutory minimum which is reported in the monthly returns. Further sums paid as advance cannot be treated as price, since they do not have the character of price.
(ii) The petitioners are not legally bound by the directive of the third respondent to pay the recommended price over and above the statutory price fixed under clause 3 of the Sugarcane (Control) Order. Therefore, the demand is illegal.
(iii) The written agreement between the assessee and the cane supplier provides only for payment of a price fixed by the Central Government. A cane supplier cannot legally or statutorily demand a price higher than the one notified by the Government of India under the provisions of the Sugarcane (Control) Order. Any payment by the petitioner as advance has neither nexus to the contract nor law and cannot be subjected to purchase tax.
(iv) The payment of advance cannot be treated as turnover for the purpose of the Tamil Nadu General Sales Tax Act, 1959. The additional price fixed under clause 5-A of the Sugarcane (Control) Order is nothing but a payment by way of sharing the excess realisation on sale of free market sugar and therefore not a price.
(v) Any payment subsequent to the time of purchase as contemplated under clause 5-A cannot truly be a price.
(vi) Serial No. 62 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1969 is unconstitutional. The levy of sales tax is opposed to the principle of equitable estoppel.
9. In the counter-affidavit, which is common to all the writ petitions, sworn to by the Deputy Secretary to Government, Commercial Taxes and Religious Endowments Department, Madras, the following stand is taken :
(i) The purchase tax on sugarcane has been demanded on the difference of turnover between the statutory price per metric tonne fixed by the Central Government and the price fixed by the Tamil Nadu Government, per metric tonne, for the months of April, 1981 and May, 1981. The petitioner’s contention is that he has to pay only the purchase tax on the price fixed by the Central Government. The petitioner has to pay purchase tax based on the price fixed by the State Government, which was accepted by the assessee and paid to the cane growers though the payment was entered as advance in the accounts. (ii) According to clause 3, explanation (3) of the Sugarcane (Control) Order, the sugar mills have to pay within 14 days from the date of delivery of sugarcane, the minimum price fixed by the Government of India or the price agreed to be paid by the sugar mills. In this case, the petitioner has paid the State advised price during the years 1980-81 and 1981-82. Therefore, it has to be inferred that the mills have agreed to the advice of the State Government and acted accordingly. In view of this position, the price advised by the State Government, which in other words, the agreed price of the mills, becomes the statutory price. Though the petitioner is making payments to the cane growers at the rates fixed by the Director of sugar, Madras, he has treated the difference amount between statutory cane price fixed by the Central Government and the State fixed price as advance, to avoid taxation on the difference amount. Hence, the contentions of the petitioner that the advance is not price and the advance account, debiting to supplier for advance received, would not constitute “price” are not correct.
(iii) When the request of the petitioners for the waiver of tax on the differential price was not complied with by the State, automatically the price fixed by the Director of Sugar became final. The State advised prices for 1980-81 and 1981-82 are statutory prices. Hence, the petitioner is obliged to pay purchase tax for these prices.
(iv) The petitioner actually made payments to the sugarcane growers in accordance with the State directed cane price, but, they had shown the figures under two heads :
(i) price fixed by the Central Government; and
(ii) the difference amount as advance. If these two items are totalled, the total price will be the price fixed by the Director of Sugar. The so-called advance paid to the cane growers is nothing but the price difference. In view of the wording of the letter of the Director of Sugar dated 8th January, 1981, the petitioner is liable to pay the State directed cane price.
(v) After accepting the order of the Director of Sugar, the petitioner made payments to the cane growers at the price fixed by the Director. Therefore, the differential amount paid by the petitioner is not an advance. It is only a portion of the price. The petitioner himself has submitted that if a higher price is agreed to between the supplier and the factory, the cane growers have got the right to demand the same. Even though there is no written agreement to pay the higher price, the petitioner had actually paid the price advised by the State Government. Hence, it has to be inferred that the petitioner has agreed to the advice of the State Government. Therefore, the price agreed to be paid by the petitioner is statutory under the order. The contrary contention is not tenable. If the payment is in accordance with the price fixed by the Director, it will be a turnover for the purpose of assessment.
(vi) The amount paid to cane growers is only cane price and not an advance recoverable from them. Such payment is made only against supply of cane. The price declared under Bhargava formula is only an additional price and not an amount. Therefore, the so-called advance is only a portion of sugarcane price. Such payment made against supply of cane is liable for taxation.
(vii) The rate of tax on the last purchase turnover of sugarcane has been correctly adopted when assessment was made in this case.
(viii) The levy of tax on sugarcane is within the bounds of law and is permitted under the Tamil Nadu General Sales Tax Act, 1959. Hence, the levy is in order and there are no merits in the writ petitions.
10. In the reply affidavit filed on behalf of the petitioners, it is averred that the respondents’ claim for purchase tax “on the purchase of sugarcane” on the price fixed by the State Government. The advance paid by the petitioners over and above the price fixed by the Government is not by way of “price” and the liability itself is to be ultimately arrived at under clause 5-A of the Sugarcane (Control) Order. The payments by way of advance as vouched and accepted in terms of the consensus with the grower are consistent with condition No. 11 of the terms of agreement entered into between the growers and the mills, by which the grower is obliged to receive only the statutory price. These payments were made only to growers with whom there are written agreements governing terms of supply. Hence, the terms are to be read in conjunction with the agreement. It is submitted that both under section 2(n) and under section 2(r) of the Tamil Nadu General Sales Tax Act, 1959, these amounts will not be “price” or “turnover”.
11. The petitioners were not parties to the extra statutory orders issued by the State Government and the petitioners have not agreed either with the cane growers or with the State Government to accept the State directed price. The petitioners do not pay any sum under any agreement with the cane growers, except what is paid as price as fixed by the Government of India and as “adjustable advance” pending determination of the liability, if any, under clause 5-A of the Sugarcane (Control) Order, 1966. The cane growers having received the interim advances on specific terms from the petitioners are contractually/statutorily bound to restore the sums, if any, found in excess of the amount determined under clause 5-A of the Control Order. The failure to restore such sums will be a breach of contract on their part. The petitioners at that stage considered the recovery of the excess advance over and above the clause 5-A liability and such recoverable sum is ultimately waived and written off as cane development expenditure. This is a gratuitous act of the petitioners. It is independent of the contract for purchase of sugarcane. Therefore, this cannot form part of the turnover. The sums so waived would neither be “price” nor “turnover”. The same will not have an attribute of a payment under the contract of sale duly concluded under the agreement.
12. It is incorrect to state that the advances were paid to avoid payment of tax. The purchase turnover is not supported by the provisions of section 2(n) and section 2(r) of the Tamil Nadu General Sales Tax Act.
13. Though several points had been raised in the affidavit filed in support of the writ petitions, in fairness Mr. F. S. Nariman, learned counsel appearing for the petitioners, did not choose to argue those points and confined only to the question whether the advance payment could be treated as price, whether the State Government had authority to compel the petitioner to pay over and above the statutory minimum price and whether the amounts so paid under compulsion could be recovered.
14. Mr. F. S. Nariman, learned counsel appearing for the petitioners, after taking us through the relevant provisions of the Sugarcane (Control) Order, draws our attention to the notification dated 8th October, 1980, issued by the Ministry of Agriculture, Department of Food, New Delhi, wherein the basic minimum sugarcane price is fixed at Rs. 13 per quintal. In the schedule annexed with the notification, the petitioner is shown as item No. 9 in Tamil Nadu and his minimum sugarcane price is fixed at Rs. 16.14 per quintal. Based on that, it comes to Rs. 161.40 per metric tonne. Under G.O. Ms. No. 2218, Agriculture Department, dated 16th November, 1980 of the Government of Tamil Nadu, the minimum cane price is fixed at Rs. 176 per metric tonne. On 19th November, 1980, the Director of Sugar writes to all Special Officers of Co-operative Sugar Mills and all other sugar mills advising to pay at Rs. 193.40. It was stated therein specifically :
“The above additional price will be adjusted as per clause 5-A(6) of the Sugarcane (Control) Order, 1966.
All the sugar mills should show the arrears of cane price in their fortnightly cane price statements worked out at the above rates only.”
Thereafter under G.O. Ms. No. 6, dated 2nd January, 1981, Agriculture (S) Department of the Government of Tamil Nadu, G.O. Ms. No. 2218, Agriculture, dated 15th November, 1980 was modified. On that basis the petitioner was directed to pay Rs. 203.80 per metric tonne. It was specifically stated therein :
“The cane price payable by the sugar mills as indicated against each sugar mill for the supply of cane in 1980-81 season over and above the statutory minimum cane price fixed by the Government of India shall be adjusted against the additional cane price payable under clause 5-A of the Sugarcane (Control) Order, 1966.
All the sugar mills should show the arrears of cane price in their fortnightly cane price statements worked out at the above rates only.”
Concerning this, the petitioner sent a letter on 8th September, 1981 to the first respondent contending that he has no jurisdiction. Ignoring this protest the petitioner was directed to pay the arrears and on 11th December, 1981, notices for April and May were issued and the assessment order was passed on 26th December, 1981. It is the demand for the months of April and May, 1981. It is submitted that these demands are illegal. The minimum price payable to the cane grower is fixed under the Sugarcane (Control) Order. With regard to the additional price purchased after 1st October, 1974 the method of calculation is as set out in the Second Schedule to the said Order. That is in terms of clause 5-A of the order. It was on this basis a letter was sent on 18th February, 1982 addressed to all State Governments by the Ministry of Agriculture, Government of India, New Delhi. However, the State Government fixes the price in G.O. Ms. No. 2218, Agriculture, dated 16th November, 1980 and G.O. Ms. No. 5, Agriculture Department, dated 2nd January, 1981. The agreement between the sugar growers and the company postulates under clause No. 11 of the agreement that the ryot agrees to receive the price fixed by the Central Government as the price for the sugarcane supplied. In clause 11 it is stipulated :
“The ryot shall receive from the company as price for the sugarcane supplied by them to the factory as per the terms of this agreement as per the rate fixed by the Central Government.”
Therefore, any amount which is sought to be claimed over and above the minimum cane price and ultimately determined under clause 5-A is not only without authority of law, but purports to be under colour of authority of law. The Director of Sugar Mills directs that the State advised price will be treated as arrears of cane price. Therefore, if the arrears are not paid it will be treated as non-payment of arrears for the purpose of Sugar Undertakings (Taking Over of Management) Act, 1978. In other words, the non-payment will entail perilous consequences.
15. In these cases, the facts reveal that for each year the excess price, viz., over and above the minimum price, has been paid not as price but as advance payment towards cane supply against probable additional cane price under clause 5-A of the Sugarcane (Control) Order. Therefore, by no stretch of imagination it could ever be contended that this advance payment will partake the character of price.
16. There is no implicit agreement between the grower and the manufacturer to pay a price higher than the minimum statutory price. Therefore, the amount paid over and above clause 5-A price can never be treated as consideration for the purchase of cane. Hence, it cannot be called as turnover within the meaning of section 2(r) of the Tamil Nadu General Sales Tax Act.
17. The counter-affidavit proceeds as if this additional payment is also the agreed price. It is totally incorrect to contend so. Merely because under threat the writ petitioner-company pays the price as advised by the State Government, it cannot mean, by reason of that payment alone, it is an agreed price.
18. The Essential Commodities Act (Central Act 10 of 1955) exhausts the field of price fixation. Section 3(3)(c) deals with price fixation. Section 4 lays down the imposition of duties on State Governments. Section 5 deals with the delegation of powers. Section 1B(1)(b) in no uncertain terms repeals any law in force in any State relating to control of production, supply and distribution of essential commodity. The sugarcane being an essential commodity any provision in this regard in the Tamil Nadu Sugar Factories Control Act will also stand repealed. Such being the position in law, the State has no power to fix any price. In other words, the price fixation has been completely taken over by the Essential Commodities Act and the orders issued thereunder. The State cannot even claim an executive power. In support of this submission, reliance is placed on the decisions reported in A. K. Jain v. Union of India and Ch. Tika Ramji v. State of Uttar Pradesh .
19. It cannot be contended that section 12 of the Tamil Nadu Act 20 of 1949 could be invoked, because –
(i) that could be done only by notification;
(ii) in any event, it is not pursuant to a decision of an Advisory Committee, as contemplated under section 12 of the said Act.
Thus, it is submitted that the nature of the State order is coercive. A threat by a person in authority without actual authority to do so is unsupportable in law. Therefore, the Director of Sugar, when he says in his letter dated 19th November, 1980 that all the sugar mills should show the arrears of cane price in their fortnightly cane price statements worked out in the above rates only, is nothing but a coercive act. As to what is the consequence of non-payment will be clear from the preamble of the Central Act (49 of 1978). It says that the Act would apply to a company which fails to pay the amount due for the cane. The consequence is spelt out under section 3(3).
20. The real question, therefore, is whether this additional amount was paid as “price”. If that is not, it is impossible to contend that it will form part of taxable turnover.
21. As to what is the position of law of a person who extorts under colour of office has been succinctly laid down in Chitty’s Law of – Contract, 24th Edition, paragraph 1835. After referring to paragraphs 1829 and 1831 wherein is found the citation of Maskell v. Horner [1915] 3 KB 106, it is submitted that the additional payment is not a voluntary payment and it was paid under compulsion. Therefore, the petitioner never made the additional payment towards the price of cane as minimum cane price. It is not a voluntary payment. There was no insistence from the State Government as minimum cane price. Admittedly higher amount is payable under clause 5-A. Therefore, the payment of entire price is on the expectation that clause 5-A price will be less. Hence, the manner in which the payment is made is important. In this connection, a useful ruling that could be cited is Brocklebank Ltd. v. King [1925] 1 KB 52, wherein the court took note of the view that the payment was made grudgingly and of necessity. The above-mentioned two rulings were referred to in a Madras decision reported in Municipal Council, Tuticorin v. Ralli Bros. AIR 1934 Mad. 420, which came up again for consideration in Chairman, Municipal Council, Rajahmundry v. Nyapathi Subba Rao (1937) 1 MLJ 496. The threat must be a real one. These two decisions were referred to in Sales Tax Officer, Banaras v. Kanhaiya Lal Makhund Lal Saraf [1958] 9 STC 747 by the Supreme Court and it was held that the tax paid under mistake of law could be refunded under section 72 and it was also held that the decision of the Madras case could not be accepted because section 72 of the Contract Act would take within it the mistake of law after the Privy Council ruling in Sri Shiba Prasad Singh v. Srish Chandra Nandi (1949) 76 IA 244. The question whether payment was made voluntarily or not is irrelevant. However, it is submitted that the payment is not voluntary for two reasons :
(i) In fact, there was no voluntary payment as additional minimum cane price, but the payment was as advance;
(ii) By agreement between the parties only the statutory price requires to be paid.
22. The next submission of the learned counsel is that it is a clear case of payment made under compulsion. Therefore, the ratio of K. R. Shenoy v. Udipi Municipality would apply. It cannot be contended as laid down in that ruling that an excess of statutory power cannot be validated by acquiescence.
23. Lastly it is submitted that the cane grower and the writ petitioner entered into a formal agreement, which requires the petitioner to pay only controlled or statutory price. Any excess paid over and above clause 5-A cannot be “price”. The liability to pay as fixed under clause 5-A of the Sugarcane (Control) Order is still there. That is in consonance with the second part of G.O. issued by the Government of Tamil Nadu. Thus, the statutory and contractual obligations are to pay the controlled or statutory price. When the petitioner paid an advance there cannot be any agreement by consensus. Therefore, the excess amount cannot be called “price”. Subsequently if this excess is waived as cane development charges, that will be of no consequence. No doubt, the decisions reported in Andhra Sugars Ltd. v. State of Andhra Pradesh and Salar Jung Sugar Mills Ltd. v. State of Mysore lay down that a consensus can be brought about between the parties by a price fixed by the Control Order. Hence, the character the mode and the manner of payment have a great bearing for determining as to what would constitute “price”. One way of reading is as “advance against final payment”, viz., in anticipation of determination under clause 5-A. Therefore, if such a payment is made how could it ever be called a price.
24. The learned Advocate-General was equally fair like the learned counsel for the petitioner. He submitted that the State Government have absolutely no authority to fix the price and G.O. Ms. No. 2218 dated 15th November, 1980, the letter of the Director of Sugar dated 19th November, 1980 and G.O. Ms. No. 6, Agriculture Department, dated 2nd January, 1981 of the Government of Tamil Nadu and the refixation of price consequent to this amendment do not have the support of law. Though a different stand is taken in the counter-affidavit he would state that the action of the State Government is without authority of law, they are not statutory in character and has no binding force. However they have only advisory force. Failure to comply with the same will not entail in any action.
25. In this case the records disclose that all the petitioners have in fact paid the cane growers an amount which is equivalent to the State advised price. The dispute, however, centres around the issue as to whether a part of such payment represents the price or consideration for the cane supply or not. The submission by the other side was that they are only “advance payments” and cannot be treated as part of consideration. In the course of the arguments of the petitioners it was fairly conceded that the amount representing the additional price fixed under clause 5-A, which is to be adjusted from the advance, could also be treated as part of the price on which tax could be levied. The dispute centres around the excess paid over and above the clause 3 and clause 5-A prices. Once it is established that the amount paid in excess of clause 3 price by the petitioners was one which was to be retained by the cane growers and the said amount was to be paid towards the cane supplied at the fixed rate per metric tonne, it would be obvious that the said amount also formed part of consideration for the cane supplied. In support of this proposition the learned Advocate-General relies on Pandavapura Sahakara Sakkare Kharkhane (P.) Ltd. v. State of Mysore [1973] 32 STC 104 (Mys). In this connection it requires to be noted if the price had not been paid the growers would not have supplied the sugarcane. Relying on North Arcot District Co-operative Sugar Mills Ltd. v. State of Tamil Nadu [1917] 40 STC 430 (Mad.), it is urged that once it was agreed to be paid by the writ petitioner-company it certainly would mean towards the supply of cane. In India Sugars & Refineries Ltd. v. State of Karnataka the question arose whether the amount paid by the dealer to the grower of sugarcane in terms of bonus, freight or lorry charges, would be price. There, it was held to be a part of the price. Therefore it is submitted that the nomenclature of the amount, namely, “advance”, would be irrelevant to decide the issue. This contention derives support from Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48 (SC).
26. The ultimate question is as to what is the amount which was paid from one pocket to another towards sale or purchase, as laid down in Central Wines v. Special Commercial Tax Officer [1987] 66 STC 48 (SC). So long as the amount for cane cannot be put under any other head excepting towards consideration for the supply of cane, that part of the amount cannot but be characterised as part of the price. The fact that payments were made on the basis of the Government orders, which have no statutory force, would not matter at all. Having regard to the fact that the amounts have in fact been paid and the fact that such amounts cannot be referred to any other head of account except towards supply of cane, the principle laid down in the judgments cited, would squarely apply and they would constitute consideration which is exigible to tax.
27. The learned Advocate-General strongly relies on the pro forma field by the petitioners and contends that this would show the petitioner agreed to pay as “price”. Reliance is also placed on the representations filed by the association for mere waiver of tax or at least to stagger the collection of tax.
28. Mr. C. Natarajan in his brief reply would refer to the ruling of the Supreme Court in Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48 and submitted that that case dealt with the minimum of turnover in the Andhra Pradesh General Sales Tax Act. Therefore, that has no application.
29. As to the meaning of “advance”, it has come to be pointed out in Md. Abdul Kadir Rowther v. Muthiah Chettiar (1960) 2 MLJ 13. Yet another case that could be usefully cited is Cauvery Sugars & Chemicals Ltd. v. Joint Commercial Tax Officer [1972] 29 STC 1 (Mad.). The learned Advocate General strongly relied on the fact of payment as evidenced by the accounts slip. But, one point that requires to be noted is, in that slip there is no column for “advance”. Thus, it is submitted that the payment made over and above the statutory minimum price, which alone the petitioners are liable to pay, cannot by any stretch of imagination be contended to partake the character of “price”.
30. Now we will proceed to deal with the merits of the above submissions advanced on either side. But, before doing so, it will be useful to highlight the point for determination.
31. The Essential Commodities Act, 1965 is an Act to provide, in the interests of the general public, for control of production, supply and distribution of, and trade and commerce in, certain commodities. The commodities which are essential have been specified in the Act. The object, therefore, is to ensure equitable distribution of essential commodities at fair price. This law had been enacted by the Parliament by virtue of the legislative power under entry 33, List III of the Seventh Schedule to the Constitution of India. Sugarcane is specifically provided under clause (b) of section 2, because it says :
“‘food crops’ include crops of sugarcane”. Section 2(v) defines food-stuffs. Sugarcane is undoubtedly a food-stuff within the meaning of the Essential Commodities Act.
32. Under section 3(1) the powers to control production, supply, distribution of essential commodities are conferred. Sub-section (2) of the said section says that the Central Government may by order provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein. Sub-section (2) catalogues the powers that could be conferred under the order made under sub-section (1). Section 3(3C) provides for the fixation of price in the following manner :
“Where any producer is required by an order made with reference to clause (f) of sub-section (2) to sell any kind of sugar (whether to the Central Government or a State Government or to an officer or agent of such Government or to any other person or class of persons) and either no notification in respect of such sugar has been issued under sub-section (3A) or any such notification, having been issued, has ceased to remain in force by efflux of time, then, notwithstanding anything contained in sub-section (3), there shall be paid to that producer an amount therefor which shall be calculated with reference to such price of sugar as the Central Government may, by order, determine, having regard to –
(a) the minimum price, if any, fixed for sugarcane by the Central Government under this section;
(b) the manufacturing cost of sugar;
(c) the duty or tax, if any, paid or payable thereon; and
(d) the securing of a reasonable return on the capital employed in the business of manufacturing sugar,
and different prices may be determined from time to time for different areas or for different factories or for different kinds of sugar.
Explanation. – For the purpose of this sub-section, ‘producer’ means ‘a person carrying on the business of manufacturing sugar’.”
Section 4 talks of imposition of duties on State Government. Section 5 enables that the Central Government by notified order, may direct that the power to issue notifications under section 3 be also exercisable by such an officer or authority subordinate to the Central Government, or the State Government. It is by virtue of this power the Sugarcane (Control) Order of 1966 came to be issued under G.S.R. 1126 dated 15th July, 1966. In clause 2(g) of the Sugarcane (Control) Order, 1966, the meaning of the word “price” is stated thus :
“(g) ‘price’ means the price or the minimum price fixed by the Central Government from time to time for sugarcane delivered –
(i) to a sugar factory at the gate of the factory or at a sugarcane purchasing centre; or
(ii) to a khandsari unit.”
Clause 3 of the said Order speaks of fixation of minimum price. That reads :
“3. Minimum price of sugarcane payable by producer of sugar. – (1) The Central Government may, after consultation with such authorities, bodies or associations as it may deem fit, by notification in the Official Gazette, from time to time, fix the minimum price of sugarcane to be paid by producers of sugar or their agents for the sugarcane purchased by them, having regard to –
(a) the cost of production of sugarcane;
(b) the return to the grower from alternative crops and the general trend of prices of agricultural commodities;
(c) the availability of sugar to the consumer at a fair price;
(d) the price at which sugar produced from sugarcane is sold by producer of sugar; and
(e) the recovery of sugar from sugarcane :
Provided that the Central Government or, with the approval of the Central Government, the State Government, may, in such circumstances and subject to such conditions as it may specify, allow a suitable rebate in the price so fixed.
Explanation. – (1) Different prices may be fixed for different areas or different qualities or varieties of sugarcane.
(2) No person shall sell or agree to sell sugarcane to a producer of sugar or his agent, and no such producer or agent shall purchase or agree to purchase sugarcane, at a price lower than that fixed under sub-clause (1).
(3) Where a producer of sugar purchases any sugarcane from a grower of sugarcane or from a sugarcane growers’ co-operative society, the producer shall, unless there is an agreement in writing to the contrary between the parties, pay within fourteen days from the date of delivery of the sugarcane to the seller or tender to him the price of the cane sold at the rate fixed under sub-clause (1) either at the gate of the factory or at the cane collection centre or transfer or deposit the necessary amount in the bank account of the seller or the co-operative society, as the case may be.
(3A) Where a producer of sugar or his agent fails to make payment for the sugarcane purchased within 14 days of the date of delivery, he shall pay interest on the amount due at the rate of 16 per cent. per annum for the period of such delay beyond 14 days. Where payment of interest on delayed payment is made to a cane growers’ society, the society shall pass on the interest to the cane growers concerned after deducting administrative charges, if any, permitted by the rules of the said society.”
Clause 5-A of the Sugarcane (Control) Order, 1966, which came to be inserted on 26th September, 1974, talks of additional price for sugarcane purchased on or after 1st October, 1974. That clause is extracted :
“(1) Where a producer of sugar or his agent purchases sugarcane, from a sugarcane grower during each sugar year, he shall in addition to the minimum sugarcane price fixed under clause 3, pay to the sugarcane grower an additional price, if found due, in accordance with the provisions of the Second Schedule annexed to this Order.
(2) The Central Government or the State Government, as the case may be, may authorise any person or authority, as it thinks fit, for the purpose of determining the additional price payable by a producer of sugar under sub-clause (1) and the person or authority, as the case may be, who determines the additional price, shall intimate the same in writing to the producer of sugar and the sugarcane grower connected with the supply of sugarcane to such producer of sugar.
(3)(a) Any producer of sugar or sugarcane grower, who is aggrieved by any decision of the person or authority, referred to in sub-clause (2) may, within thirty days from the date of communication of such decision under that sub-clause appeal to the Central Government or the State Government, as the case may be :
Provided that the Central Government or the State Government, as the case may be, may if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the aforesaid period of thirty days, admit the appeal, if presented within a further period of fifteen days.
(b) The Central Government or the State Government, as the case may be, may, after giving an opportunity to the appellant to represent his case and after making such further enquiry as may be necessary, pass such order as it thinks fit.
(c) The decision of the person or authority referred to in sub-clause (2) where no appeal is filed and of the Central Government or State Government, as the case may be, where an appeal is filed, shall be final.
(4) The additional price determined under sub-clause (2) shall be paid by the producer of sugar to the sugarcane grower at such time and in such manner as the Central Government or the State Government, as the case may be, may, from time to time, direct.
(5) No additional price determined under sub-clause (2) shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under clause 3 to the sugarcane grower :
Provided that the price so paid shall in no case be less than the total price comprising the minimum sugarcane price fixed under clause 3 and the additional price determined under sub-clause (2).
(6) Where any extra price is paid by the producer of sugar to the sugarcane grower for the supply of sugarcane in addition to the minimum sugarcane price fixed under clause 3, the extra price so paid shall be adjusted against the additional sugarcane price determined under sub-clause (2) and the balance, if any, shall be paid to the sugarcane grower.
(7) Subject to the provisions of sub-clause (4), the additional price shall become payable to a sugarcane grower, if he, in performance of his agreement with a producer of sugar, supplies not less than 86 per cent. of the sugarcane so agreed :
Provided that the additional price shall become payable to a sugarcane grower, even when he supplies less than 85 per cent. of the sugarcane as agreed, if for the same supply he has not been subjected to any penalty by or under any Central or State Act or any rules or orders made thereunder for his failure to supply 85 per cent. of sugarcane so agreed.
(8) Where the additional price determined under sub-clause (2) or sub-clause (3), as the case may be, is paid to a sugarcane growers’ co-operative society or the local sugarcane growers’ association of whatever name it may be called, it shall disperse the said additional price to such of its members who has supplied not less than 85 per cent. of the agreed sugarcane in performance of his agreement with it, within one month of the receipt of such additional price by it from the producer of sugar.
(9) The additional price payable but not actually paid in view of sub-clause (7) shall be added to the amount found payable for the following sugar year arrived at as per provisions of the Second Schedule.
Explanation. – For purposes of this clause and the Second Schedule :-
(1) ‘Sugarcane grower’ includes a grower of sugarcane, a sugarcane growers’ co-operative society, or a sugarcane growers’ association of whatever name it may be called and who enters into an agreement with a producer of sugar to supply sugarcane.
(2) ‘Sugar year’ means the year commencing on the 1st day of October and ending with the 30th day of September in the year next following.”
By a reading of this clause it is clear that it refers to the Second Schedule to this Order. The Second Schedule is as follows :
“Second Schedule
The amount to be paid on account of additional price (per quintal of sugarcane) under clause 5-A by a producer of sugar shall be computed in accordance with the following formula namely :
R-L+2A+B X = -------- C Explanation. - In this formula - 1. 'X' is the additional price in rupees per quintal of sugarcane payable by the producer of sugar to the sugarcane grower. 2. 'R' is the amount in rupees of sugar produced during the sugar year excluding the excise duty paid or payable to the factory by the purchaser.
3. ‘L’ is the value in rupees of sugar produced during the sugar year, as calculated on the basis of the unit cost per quintal ex-factory, exclusive of excise duty, determined with reference to the minimum sugarcane price fixed under clause 3, the final working results of the year and the Cost Schedule and return recommended by such authority as the Central Government may specify from time to time.
4. ‘A’ is the amount found payable for the previous year but not actually paid [vide sub-clause (9)].
5. ‘B’ is the excess of shortfall in realisation from actual sales of the unsold stocks of sugar produced during the sugar year, as on 30th day of September [vide item 7(ii) below] which is carried forward and adjusted in the sale realisations of the following year.
6. ‘C’ is the quantity in quintals of sugarcane purchased by the producer of sugar during the sugar year.
7. The amount ‘R’ referred to in explanation 2 shall be computed as under, namely :
(i) the actual amount realised during the sugar year; and
(ii) the estimated value of the unsold stocks of sugar held at the end of 30th September, calculated in regard to free sugar stocks at the average rate of sales made during the fortnight 16th to 30th September and in regard to levy sugar stocks at the notified levy prices as on the 30th September.
Explanation. – In this Schedule ‘sugar’ means any form of sugar containing more than ninety per cent. sucrose.”
The formula prescribed under the above schedule is pursuant to the recommendations of Bhargava Commission of 1974. The formula contem-plates the sharing of excess realisation on sale of free sugar by cane growers with the mills. The formula is worked out after complete working results of the mills are available at the close of sugar season. It is only thereafter under clause 5-A(2) the authority concerned determines the additional price, which has to be intimated in writing to the producer of sugar and the sugarcane grower. Therefore, it is clear that the price under clause 5-A will undoubtedly require post-sugarcane season determination. Thus, it will be seen the entire power of fixation of fair price in relation to sugarcane, which is an essential commodity being a foodstuff, has been completely taken over by the Central Government.
33. Whatever might have been the position prior to 1956, section 16 of the Essential Commodities Act, 1955, makes it abundantly clear that any other law of the State will stand repealed. The relevant portion of section 16(1)(b) may now be reproduced :
“16. (1) The following laws are hereby repealed :-
……….
(b) any other law in force in any State immediately before the commencement of this Act in so far as such law controls or authorises the control of the production, supply and distribution of, and trade and commerce in, any essential commodity.
……….”
(The rest of the section is omitted as unnecessary).
Therefore, section 12 of the Tamil Nadu Act 20 of 1949, viz., Tamil Nadu Sugar Factories Control Act, will stand repealed. That section lays down as follows :
“The Government may at any time before the commencement of a crushing season, after consulting the Advisory Committee, by notification, specify either generally or in respect of any factory, either the price which the occupier of a factory shall be bound to pay for any sugarcane purchased by him during the season or the method of calculating such price :
Provided that the Government may specify different prices or different methods of calculating the prices of different varieties of sugarcane.
(2) The Government may at any time, after consulting the Advisory Committee, by notification, vary any price or method of calculation specified under sub-section (1) :
Provided that no such notification shall apply to any sugarcane purchased by the occupier of a factory before the publication of such notification.
(3) The Government may, after consulting the Advisory Committee, by notification, permit, the occupier of a factory to pay the price payable by him under this section in such number of instalments as may be specified in such notification.
(4) The occupier of a factory shall not make any deductions from the price payable by him in accordance with this section, except such as may be prescribed.”
34. In A. K. Jain v. Union of India AIR 1910 SC 267 a question arose, whether the cultivation and sale of sugarcane can be regulated under section 3 of the Essential Commodities Act, and it was held in paragragh 4 as follows :
“The first contention of Mr. Iyengar was that sub-rule (3) of rule 3 could not have been validly issued under section 3 of the Act. According to him the said section 3 cannot be used for controlling the payment of the price of food crops; it can only deal with food-stuffs; food crops are outside its scope. This contention has been negatived by the High Court. We agree with the High Court that there is no merit in this contention. Section 2(a) of the Act defines ‘essential commodity’. Sub-clause (v) of that clause brings food-stuffs within the definition of ‘essential commodity’. Clause (b) of section 2 provides that food crops include sugarcane. The next important provisions in the Act are clauses (b) and (c) of section 3(1). Section 3(1) provides that if the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein. Sub-section (2) of that section says that without prejudice to the generality of the powers conferred by sub-section (1) an order made thereunder may provide ……………
(b) for bringing under cultivation any waste or arable land, whether appurtenant to a building or not, for the growing thereon of food crops generally or of specified food crops, and for otherwise maintaining or increasing the cultivation of food crops generally, or of specified food crops.”
Clause (c) provides for controlling the price at which any essential commodity may be bought or sold. From the scheme of clauses (b) and (c) of section 2 and section 3 of the Act, it is clear that the Parliament intended to bring under control the cultivation and sale of food crops. In view of these provisions it is idle to contend that sugarcane does not come within the ambit of the Act. The question whether the cultivation and sale of sugarcane can be regulated under section 3 of the Act came up for the consideration of this court in Ch. Tika Ramji v. State of U.P. of the report it is observed :
“Act 10 of 1966 included within the definition of ‘essential commodity’ food-stuffs which we have seen above would include sugar as well as sugarcane. This Act was enacted by Parliament in exercise of the concurrent legislative power under entry 33 of List III as amended by the Constitution (Third Amendment) Act, 1954. Food crops were there defined as including crops of sugarcane and section 3(1), gave the Central Government powers to control the production, supply and distribution of essential commodities and trade and commerce therein for maintaining or increasing the supplies thereof or for securing their equitable distribution and availability at fair prices. Section 3(2)(b) empowered the Central Government to provide, inter alia, for bringing under cultivation any waste or arablel and whether appurtenant to a building or not for growing thereon of food crops generally or specified food crops and section 3(2)(c) gave the Central Government power for controlling the price at which any essential commodity may be bought or sold. These provisions would certainly bring within the scope of Central legislation the regulation of the production of sugarcane as also the controlling of the price at which sugarcane may be bought or sold, and in addition to the Sugar (Control) Order, 1955 which was issued by the Central Government on 27th August, 1956, it also issued the Sugarcane (Control) Order, 1965, on the same date investing it with the powers to fix the price of sugarcane and direct payment thereof as also the power to regulate the movement of sugarcane.
Parliament was well within its powers in legislating in regard to sugarcane and the Central Government was also well within its issuing the Sugarcane (Control) Order, 1956 in the manner it did because all this was in exercise of the concurrent power of legislation under entry 33 of List III.”
35. At this stage we may look at the Central Act 49 of 1978, i.e., Sugar Undertakings (Taking Over of Management) Act, 1978. The preamble reads as follows :
“Whereas for maintaining the continuity of production of sugar, for avoiding undue hardship to cane producing farmers and to best subserve the interests of all sections of the people, it is expedient in the public interest to provide for the taking over for a limited period the management of every sugar undertaking which fails or ceases to manufacture sugar or “which fails to pay promptly amounts due for the cane acquired for the purposes of the undertaking.”
Section 3(3) of the Central Act 49 of 1978 says :
“If a sugar undertaking has failed to comply with an Order made under clause (a) of sub-section (2), or having commenced or resumed the production of sugar on or before the date specified in such Order, ceased to manufacture sugar before the expiry of the average period of manufacture of sugar in relation to that undertaking, and the Central Government is satisfied that it is necessary so to do for the purposes of this Act, it may, by notification declare that the management of such sugar undertaking shall vest in the Central Government on and from such date as may be specified in such notification.”
Therefore, the non-payment will entail this penalty. With this background the facts may now be analysed.
36. On 8th October, 1980 the basic minimum cane price, for the season 1980-81 was fixed by the Ministry of Agriculture, Department of Food, Government of India, New Delhi, under Notification No. G.S.R. 576-B (Ess. Com./Sugarcane), at Rs. 13 per quintal linked to a recovery of 8.6 per cent. or below with a premium of Rs. 15.2941 paise per quintal for every 0.1 per cent. increase in recovery above 8.6 per cent. For Tamil Nadu it was fixed at Rs. 15.14 as far as the petitioner was concerned. Then G.O. Ms. No. 2218, Agriculture (S)/Department, Government of Tamil Nadu, dated 15th November, 1980 was passed to the following effect :
“The Government of India have notified the statutory minimum cane price at Rs. 130 per tonne linked to the sugar recovery of 8.5 per cent. for the 1980-81 sugar season.
2. The Government have been receiving representations to the effect that the minimum cane price should be fixed at Rs. 200 and more. Taking into consideration, the increase in the cost of prices of chemical fertilisers, pesticides and diesel oil, the Government directs the sugar factories in Tamil Nadu to pay the minimum cane price at Rs. 176 (rupees one hundred and seventy-five) per tonne linked to the sugar recovery of 8.6 per cent. during the 1980-81 sugar season. The premium of Rs. 1.62 per tonne for every 0.1 per cent. increase in sugar recovery over and above 8.6 per cent. remains unchanged.
3. The Director of Sugar is requested to to work out the minimum cane price each sugar factory will have to pay taking into account the sugar recovery and send the statement to the Government and to each of the sugar factories.”
It is on these basis the Director of Sugar in his letter Rc. No. D1/30077/80 dated 19th November, 1980 writes to the special officers of all co-operative sugar mills, the chief executives of public sector sugar mills, etc., fixing as far as the petitioner is concerned the minimum cane price at Rs. 193.40 per tonne. It is specifically stated in that letter as follows :
“The above additional price will be adjusted as per clause 5-A(6) of the Sugarcane (Control) Order, 1966.
All the sugar mills should show the arrears of cane price in their fortnightly cane price statements worked out at the above rates only.”
By G.O. Ms. No. 5, Agriculture (S)/Department, dated 2nd January, 1981 of the Government of Tamil Nadu, the price was modified as 20.5882 per quintal. Pursuant to this, the price came to be modified at Rs. 203.80 in respect of the petitioner by the Director of Sugar. Here again it was stated as follows :
“The cane price payable by the sugar mills as indicated against each sugar mill for the supply of cane in 1980-81 season over and above the statutory minimum cane price fixed by the Government of India shall be adjusted against the additional cane price payable under clause 5-A of the Sugarcane (Control) Order, 1966.
All the sugar mills should show the arrears of cane price in their fortnightly cane price statements worked out at the above rates only.”
What the petitioner did was as seen from the following sample of voucher :
“Thiru Arooran Sugars Ltd., Vadapathimangalam.
Payment voucher/cane payment.
Voncher No. 85. Date : 27-3-81
Name of payee : Thiru S. Jayalakshmi. A. 5932. Head of account : : CSCA/c. VCM. Rs. 1,000 (rupees one thousand only) being part payment towards cane supply during 1980-81.
Certified : L.T.I. of Jayalakshmi. Sd. ..... Witness :
1. Sundaram, Vadakattalai (Sd.) Administrative Manager."
The petitioner made the payment in the following manner : "Thiru Arooran Sugars Ltd., Vadapathimangalam.
Sugarcane suppliers' account position slip for the season 19 - 19
Name of ryot : S. Jayalakshmi. : Ryot No. A. 6932. Date Extent : 0.50 Village : Vadakattalai Zone : 1980-1981
Estimated supply : 15 Total cane supplied : from 13-3-81 to 20-3-81 Value of the supply at the ex-factory : L. Folio : J7 M.T. 16-4-70. Rs. 2,493.55.
Gate delivery price of Rs. 151.40 per M.T.
Deduction : 1. Company loan : Rs. 10.50 2. Interest 3. Crop loan (SBI) with interest : Rs. 695.95
4. Transport charges : Rs. 130.14 5. Cane harvest charges 6. Cash advance paid : Rs. 1,315.00 7. Borewell : 8. Tractor : 9. Tyre cart : 10. Other debits :
Rs. 2,158.59 ————- Balance due : Rs. 334.96 Passed for Rs. 334.96 (Sd.) …… Accountant.” The payment voucher is to the following effect : “Thiru Arooran Sugars Ltd., Vadapathimangalam. Payment voucher (cane payment) Voucher No. 87. Date : 3-4-81. Name of payee : Thiru S. Jayalakshmi A. 5932
Head of account : Cane suppliers control A/c. VPM.
Rs. 334.96 (rupees three hundred and thirty-four and paise ninety-six only) in full and final settlement towards supply of sugarcane M.T. 16-4-70 at Rs. 151.40 per M.T. (ex-factory gate delivery) during 1980-1981 season.
Certified Witness : ... L.T.I. of S. Jayalakshmi. (Sd.) ...... ... Sd/- Administrative Manager."
37. It should be noted at this stage that it is a fair and final settlement towards the supply of sugarcane at Rs. 151.40 per metric tonne. This price is as fixed under clause 3 pursuant to the direction of the Government of India dated 8th October, 1980. An advance payment pursuant to the direction of the Director of Sugar came to be made in the following manner :
>
"Thiru Arooran Sugars Ltd., Vadapathimangalam. Payment voucher (cane payment) Voucher No. 205.
Date : 9-4-81 Name of payee : Thiru S. Jayalakshmi A. 6932. Head of account CSC A/c. VPM.
Rs. 863.02 (rupees eight hundred and sixty-three and paise two only) being advance payment towards cane supply during 1980-81 season, against probable additional cane price under section 5-A of the Sugarcane (Control) Order, 1966."
It is clearly stated hereunder, "being advance payment towards cane supply during 1980-81 season, against probable additional cane price".
It may be mentioned that this is perfectly in accord with the direction given by the Director of Sugar, both by his letters dated 19th November, 1988 and 8th January, 1981. The final position of the cane supply is represented as under :
"Thiru Arooran Sugars Ltd., Vadapathimangalam. Private sugarcane suppliers' account position slip Name of ryot : S. Jayalakshmi Extent : 0.50 Estimated supply : 16 Total cane supplied : from 11-3-81 to 17-3-81 Value of the supply at the ex-factory 151.40 Rs. 2,493.55 Gate delivery price of Rs. 52.40 863.02 ------------------- 3,356.67 Ryot No. A. 5932 Village : Vadakattalai Season : 1980-81 L.F. J7 : Zone : VPM M.T. 16-4-70.
Deduction :
1. Company loan : Rs. 10.50 2. Interest : 3. Crop loan (SBI) with interest 696.95 4. Transport charges 137.14 5. Cane harvest charges 6. Cash advance paid 1,649.96 2,493.55 Balance due 863.02"
Passed for 863.02"
Here it has to be noted the sum of Rs. 52.40 is the difference between the minimum price under clause 3, viz., Rs. 151.40 and the price fixed by the Director of Sugar on 8th January, 1981, at Rs. 203.80, till the final determination of the payment under clause 5-A has been made. This is an important fact which will have a great bearing.
38. The agreement between the petitioners and the cane growers contains the following terms :
“The ryot hereby agrees to supply the entire sugarcane raised by him in the undermentioned lands to the factory belonging to the company for 1980-81 crushing season subject to the following terms and conditions :
The surety also assures the same. Surety also accepts all the undermentioned conditions. The company hereby agrees to purchase the said sugarcane supply subject to the undermentioned conditions. The ryot agrees to receive the price fixed by the Central Government of the price for sugarcane supplied.”
…. …. ….
“11. The ryot shall receive from the company as price for the sugarcane supplied by them to the factory as per the terms of this agreement as per the rate fixed by the Central Government. The ryot further agrees that from out of the abovesaid amount the company shall be entitled to appropriate all amounts due to the company, and to pay the entire loan amount of principal and interest due to the State Bank of India received by the ryot and the surety for sugarcane cultivation and to pay the balance, if any, to the ryot. If the ryot does not supply sugarcane to the company, both the ryot and the surety shall be liable to pay the entire loan amount due to the State Bank of India directly by themselves. For that loan the company shall not be liable in any manner whatsoever. If the ryot does not supply sugarcane to the company, the company shall have the right to proceed against the ryot and the surety for recovery of the amounts due to the company. Even if the ryot had supplied only a portion of his crop, the company shall have the right to appropriate the value thereof towards the loan amount due to the company and the loan due to the State Bank of India shall be paid by the ryot and surety directly.”
39. The position under the Tamil Nadu Sugar Factories Control Act may now be looked at. The statutory agreement is contemplated under section 10 of the above Act. It has to be read with rule 11(7), which reads :
“The agreement which the occupier of the factory shall enter into with the sugarcane grower for the purchase of sugarcane offered by him shall be in the form set out in Appendix V. The agreement shall be in duplicate, one to be retained by the occupier of the factory and the other to be given to the sugarcane grower. The agreement shall be executed before such dates as are notified by the Sugarcane Commissioner in respect of all or any of the sugar factories in the State.”
That in turn refers to Appendix V, which makes it obligatory on the factory the following conditions :
“The factory shall pay the grower the statutory or controlled price for the accepted sugarcane after inspection and weight subject only to deductions of any advance made by the factory to the grower prior to such delivery.”
Thus, it will be clear that either from the point of view based on contract or under the statute, it is only the price fixed by the Central Government which has to be paid by the petitioner. Undoubtedly he had paid the price of Rs. 151.40, viz., the price fixed under clause 3. Over and above the same he had paid Rs. 52.40. This excess sum is included in the payment of Rs. 203.80 made by the petitioner as per the advice given by the Director of Sugar pursuant to two Government orders, viz., G.O. Ms. No. 2218 dated 15th November, 1980 and G.O. Ms. No. 5 dated 2nd January, 1981.
40. Under these circumstances the only question that arises for our determination is whether this excess would form part of the price so as to be included as turnover within the meaning of section 2(r) of the Tamil Nadu General Sales Tax Act. At this stage, we record the statement of Mr. Nariman, that he does not deny the liability of the petitioners to pay the final price fixed under clause 5-A.
41. The position may be reflected in the form of the following statement :
THIRU AROORAN SUGARS LTD., MADRAS
————————————————————————— Sugar Minimum Date of State Date of letter season price fixed notification directed from Director of under price Sugar working clause 3 out State for the direct price factory
Rs. Rs. 1 2 3 4 5 ————————————————————————– 1980-81 151.40 8-10-80 196.40 19-11-80
203.80 8-1-81
1981-82 152.90 30-9-81 194.10 5-12-81
1982-83 148.40 16-11-82 176.90 12-3-83
1983-84 158.80 21-11-83 188.20 3-2-84
1984-85 151.50 24-11-84 200.20 31-12-84
1985-86 207.70 13-11-85 245.50 7-2-86
1986-87 196.00 6-10-86 230.60 27-11-86 ———————————————————————–
----------------------------------------------------------------------- Amount actually Additional Date of Amount Whether State paid price under order paid in directed excess ------------------- clause 5-A under excess of is shown as As price As advance clause minimum part of taxable adjustable 5-A price and turnover in the against passed additional monthly returns probable by price clause State under 5-A price Govern- clause 5-A ment Rs. Rs. Rs. Rs. 6 7 8 9 10 11 ----------------------------------------------------------------------- 151.40 52.40 28.15 2-7-83 24.25 No 152.90 41.90 17.00 22-2-84 24.20 No 148.40 28.50 10.21 29-4-85 18.29 No 158.80 29.40 11.23 31-12-86 18.17 No* 151.50 48.70 49.48 19-8-87 (0.78) No* 207.70 37.80 28.98 17-9-87 8.82 No* 196.00 34.60 ** ** - No* ------------------------------------------------------------------------ *But in these years in order to avoid any allegation of non-disclosure, the amounts paid as advance adjustable against clause have been shown but claimed as "not taxable". **To be fixed. Whether the excess under column 10 is exigible to sales tax is the question to be answered in these writ petitions. 42. The petitioner protested by a detailed letter dated 8th September, 1981 addressed to the Deputy Commercial Tax Officer, Mannargudi, Thanjavur district, stating :
“the difference between the statutory price as fixed by the Government of India and the amount now paid in excess thereof in accordance with the Government of Tamil Nadu’s directive, has to be treated only as an advance. So, until the final additional cane price is determined by the authority duly nominated by the State Government under the Sugarcane (Control) Order, 1966 the question of working out purchase tax/additional tax on the difference does not arise.”
Inter alia, the jurisdiction of the State Government to act under clause 3(A) to fix the price was also questioned. But this protest was of no avail, because on 12th November, 1981 the Deputy Commercial Tax Officer, Mannargudi, stated that the petitioners were in arrears of purchase tax and additional tax, i.e., the difference of tax between the statutory cane price and the Government directed cane price. The petitioner was called upon to pay the arrears of tax and additional tax on or before 30th November, 1981. Again, another protest followed on 24th November, 1981. But, a notice of assessment was sent for April, 1981 on 11th December, 1981 unmindful of the protests. Equally another assessment of even date was sent on 11th December, 1981, for May, 1981. On 25th December, 1981 the petitioner protested. On 26th December, 1981 the assessment proceeding of the Deputy Commercial Tax Officer, Mannargudi, was made, which is impugned in these writ petitions. The petitioner’s objections were overruled on the following reasons :
“The dealers have made payments to the cane growers at the rates fixed by the State Government in the previous years. They had not also challenged the authority of the State Government to fix the additional cane price previously.
(ii) As provided under clause 5-A(2) of the Sugarcane (Control) Order, 1966, the additional price was fixed as Rs. 203.80 in respect of the factory by the State Government. Accepting this fixation the factory had made payments. But to avoid taxation they have followed the procedure by splitting the total figures into two, i.e., the price fixed by the Central Government, and (ii) the difference amount between the State fixed price and Central Government price as advance to cane growers. But the total of the two is equal to the price fixed by the State Government, per metric tonne. They have not objected to the price fixation for 1980-81. In the absence of an appeal, as provided under clause 5-A(3)(a) of the Sugarcane (Control) Order, 1966, the price fixed by the State Government became final.
(iii) The ad interim stay said to be granted to some other dealers in this State will not apply to the dealers since they had not challenged the order and got ad interim stay.
In these circumstances, as the dealers had not objected to the price fixed by the Tamil Nadu Government, but made payments to the cane growers, such amount is only an ‘agreed price’ and not an advance as argued by them, which can be considered as an after-thought when they are demanded to pay tax and additional tax on the differential rate.”
43. It cannot be denied that if this “advance payment” represents “price” the petitioners will be liable, and it will become a part of the turnover. The liability is traceable to section 3(2) of the Tamil Nadu General Sales Tax Act. It reads :
“Notwithstanding anything contained in sub-section (1) in the case of goods mentioned in the First Schedule, the tax under this Act shall be payable by a dealer, at the rate and only at the point specified therein on the turnover in each year relating to such goods whatever be the quantum of turnover in that year.”
Since this refers to the First Schedule, that may be looked at. Item 62 of the First Schedule deals with sugarcane, and it reads as follows :
S. No. Description of Point of levy Rate of tax Effective from the goods (per cent.) -----------------------------------------------------------------------
62. Sugarcane At the point 3 1-4-69 of last purchase 3 1/2 1-12-66 in the State. 4 18-6-67 7 25-1-68 12 15-8-74 Note :
1. Rate increased to 3 1/2 per cent. w.e.f. 1-12-1966 by Act 30 of 1965. 2. Rate increased to 4 per cent. w.e.f. 18-6-1987 by Act 6 of 1967. 3. Rate increased to 7 per cent. w.e.f. 25-1-1968 by Act 7 of 1968. 4. Rate of tax increased from 7 per cent. to 12 per cent. by Act 36 of 1974 w.e.f. 15-8-1974."
44. In attacking the levy of purchase tax Mr. Nariman would submit first and foremost that the price fixation of sugarcane has been completely taken over by the Central Government under the Essential Commodities Act read with clause 3 and clause 5-A of the Sugarcane (Control) Order, 1966. The State Government have no legal authority whatever to direct the payment of price. We have already referred to this argument in this regard on the citations made in this behalf. We do not think that we need go into this matter because, the learned Advocate-General had fairly conceded that there is no statutory authority for the State Government and they have no binding force. However, in passing we may note the stand taken in the counter-affidavit. It is otherwise. In paragraph 3 it is stated to be statutory. The same contention is repeated in paragraph 4 as well. On this aspect of the matter we will in the later part of the judgment deal with the question whether the payment made pursuant to the direction of the Director of Sugar could be claimed back by the petitioners.
45. The learned Advocate-General in his submission and in the counter-affidavit takes the stand that it is not the contention of the petitioners that the amount was paid under threat. The counter-affidavit in more than one place would have it as follows :
“2. It is submitted that the petitioner herein Tvl. Thiru Arooran Sugars Ltd., Vadapathimangalam, is an assessee, paying tax under rule 18 of the Tamil Nadu General Sales Tax Rules, 1959. He has filed the above Writ Petitions Nos. 866 to 869 of 1982 against the levy and demand of purchase tax on the purchase of sugarcane on the price fixed by the State Government. The purchase tax on sugarcane has been demanded on the difference of turnover between the statutory price per metric tonne fixed by the Central Government and the price fixed by the Tamil Nadu Government, per metric tonne, for the months of April, 1981 and May, 1981. The petitioner’s contention is that he has to pay only the purchase tax on the price fixed by the Central Government. But the petitioner has to pay purchase tax based on the price fixed by the State Government, which was accepted by the assessee and paid to the cane growers though the payment was entered as advance in the accounts.”
But the petitioner has to pay purchase tax based on the price fixed by the State Government, which was accepted by the assessee and paid to the cane growers though the payment was treated as “advance” in the accounts.
46. Again in paragraph 3 it is stated :
“……………….. the price advised by the State Government, which in other words the agreed price of the mills, becomes statutory price …………”
Paragraph 7 states :
“…… that after accepting the order of the Director of Sugar, the petitioner made payments to the cane growers at the price fixed by him, but have shown the figures separately to avoid taxation.”
We find it extremely difficult to appreciate the stand of the State of Tamil Nadu. Merely because the amounts were paid pursuant to the directive of the Director of Sugar, we do not know how they could be called agreed price. We have already seen that the agreement is only to pay the control or the statutory price. Admittedly the petitioners had paid the minimum price fixed under clause 3. Thereafter their only liability would be to pay a statutory price as fixed by the authority concerned under clause 5-A. The sugar season is from 1st of October to 30th of September of the succeeding year. The formula of fixing the price under clause 5-A in accordance with the Schedule II of the Sugarcane (Control) Order requires the collection of so many data, invariably as seen from the tabulated statement, which we have already extracted. The clause 5-A price comes to be fixed long after the sugarcane season is over. Where, therefore, after payment of the minimum cane price under clause 3, which the petitioner is statutorily and contractually bound to pay, if he pays over and above the said price in anticipation of the price fixed under clause 5-A calling it as “advance payment” how could it ever partake the character of price ?
47. Price is the money consideration for the sale of goods. The consideration for the sale can be by consensus between the parties. But, in matters of this kind which are governed by the Essential Commodities Act, such a consensus can be brought about by fixing a price under the Control Order. In Andhra Sugars Ltd. v. State of Andhra Pradesh it is held :
“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 contract of sale of goods save in so far as they are inconsistent with the express provisions of the later Act. Section 2 of the Indian Contract Act provides that when one person signifies to another his willingness to do or to abstain from doing anything with a view to obtaining the assent of the other to such act or abstinence, he is said to make a proposal. When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal when accepted becomes a promise. Every promise and every set of promises forming the consideration for each other is 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 No. 45 of 1961 and the Rules framed under it, the cane growers 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 in Salar Jung Sugar Mills Ltd. v. State of Mysore the same principle was reiterated at page 257, thus :
“In the case of Andhra Sugars Ltd. this court referred to the whittling down of the laissez faire concept in a social welfare State by emphasising public interest to control unfair competition and combination. It was said : ‘The cane growers scattered in the villages had no real bargaining power. The factory owners or their combines enjoined 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.'”
Therefore, rightly, as we have already noted, Mr. Nariman does not urge that the petitioners are not liable to pay the statutory price fixed with reference to clause 5-A. But his contention is, the petitioners were compelled to pay by reason of the directive issued by the Director of Sugar. We are in entire agreement with this submission. Certainly, but for the directive issued by the Director of Sugar, the petitioner was not obliged to pay either under the statute or under the contract entered into between the petitioners and the growers. We have already extracted the relevant portions of the directives which held out that the payments over and above the statutory minimum shall be adjusted against the additional payment specified under clause 5-A. This position is held out not only in the letter dated 19th November, 1980 but reiterated on 8th January, 1981. Therefore, on the date when the petitioners made the “advance payment” –
(i) there was no statutory obligation to pay the said amount;
(ii) nor was there any contractual obligation to pay the same;
(iii) nor again the price under clause 5-A had come to be fixed by them.
Thus, it will be clear that but for the directive, for which presently the learned Advocate-General says, that there was no statutory authority, the petitioner would not have paid.
48. We are not in agreement with the argument of the learned Advocate-General that nowhere the stand is taken that these payments were made under threat. It passes our comprehension as to why the Director of Sugar should repeatedly say that the sugar mills shall show the arrears of cane price in the fortnightly cane price statement worked out at the above rates only. Certainly irrespective of the stand of the petitioner, if there were arrears with regard to payment of cane price and upon these circumstances certain legal consequences would follow, viz., even if there is a slightest possibility of the provisions of the Sugar Undertakings (Taking Over of Management) Act, 1918 (Central Act 49 of 1978) are likely to be invoked, that would be sufficient in law to hold against the State of Tamil Nadu. To our mind it is clear that this is not a voluntary payment. The petitioner never intended to pay the minimum cane price. It was only payment by way of advance. As stated above, by agreement only a statutory or a control price requires to be paid. Therefore, the payment is not voluntary. Thus, what we had to decide is –
(i) the character;
(ii) the mode; and
(iii) the manner of payment.
If so analysed, the character of payment is not as “price” and the payment is not voluntary. The mode of payment is by way of advance, when either the statutory or the contractual liability had not arisen. The manner of payment is to be adjusted as against the minimum cane price to be fixed under clause 5-A. In our considered view, the fact of payment alone, on which the learned Advocate-General lays stress, will be of no assistance. This is not to say that we are determining this question merely on the nomenclature of payment by the petitioner, viz., as “advance payment”. But, what we regard is only the substance of the matter.
49. In P. S. S. Kharkhane (P.) Ltd. v. State of Mysore [1973] 32 STC 104 (Mys) the headnote reads as follows :
“The assessee manufacturing sugar in its factory entered into agreements with the sugarcane growers for the purchase of sugarcane at the minimum purchase price fixed by the Central Government by its order issued under the Sugarcane (Control) Order, 1956. Under the agreements the growers agreed to deliver the sugarcane f.o.r. the factory premises. Subsequently, as an inducement to the growers to supply more sugarcane, the assessee promised to pay, in addition to the minimum price agreed upon, the harvesting and transportation charges at the rate of four paise per quintal. The assessee contended that the additional payments made by the assessee by way of harvesting and transportation charges to the growers were merely ex gratia payments to give an incentive to the growers to regularly supply sugarcane to the assessee’s factory and that these amounts did not form part of the purchase price :
Held, that the substance of the transaction between the assessee and the cane growers was that the original contract had been varied by the enhancement of the price for the sugarcane supplied. The additional amount paid by the assessee could not be regarded as ex gratia payment since it was directly related to the quantity of sugarcane supplied. Therefore, the aggregate of all amounts including the additional amounts paid by the assessee towards harvesting and transportation charges was the assessee’s taxable turnover.”
This is a case of variation of original contract and the ex gratia payment related to the quantity supplied. In the case on hand there is no variation of any such contract.
50. In N.A.D. Co-op. Sugar Mills Ltd. v. State of Tamil Nadu [1977] 40 STC 430 (Mad.) the headnote reads as follows :
“Though under the Sugarcane Control Order, the Government of India had fixed Rs. 73.70 per tonne as the minimum price for sugarcane payable to the cane growers by the various mills, the cane growers, who supplied sugarcane to the assessee-mills, demanded more and, ultimately, the assessee agreed to pay Rs. 110 per tonne, which was later on approved by the Registrar of Co-operative Societies and the Government. The agreement executed by the ryots provided that the mills had to pay the controlled price or the price which was legally payable to them. The claim of the assessee that any amount paid over and above Rs. 73.70 per tonne fixed under the Sugarcane Control Order was in the nature of a subsidy and not a part of the price of sugarcane supplied and, therefore, could not be included in the turnover was rejected by the departmental authorities and the Tribunal. On a revision :
Held, that as the dispute between the assessee and the cane growers regarding the price payable was amicably settled by the assessee agreeing to pay Rs. 110 per tonne, this would amount to a novation of the contract so far as the price payable was concerned. The entire sum of Rs. 110 per tonne represented the price payable for the sugarcane and no part of it was subsidy and, therefore, the entire amount was liable to be included in the turnover.”
Here is a case of novation of contract, whereas in the case on hand, there is no such novation. This case also related to the assessment year 1967-68 and 1968-69.
51. In India Sugars and Refineries Ltd. v. State of Karnataka the headnote may be extracted :
“The assessee was a company engaged in the manufacture of sugar. For the years 1969-70 and 1971-72, the assessee entered into agreements with the sugarcane growers for the purchase of sugarcane at the minimum price fixed by the Central Government under the Sugarcane (Control) Order. Subsequently, there was some dispute between the assessee and the sugarcane growers as to the price payable for sugarcane. The dispute relating to the year 1969-70 was referred to an arbitrator who made the award directing that the company must pay a certain sum per metric tonne as bonus. The award was accepted by the company and payment was accordingly made to the respective sugarcane growers. For the year 1971-72 the company itself agreed to pay a certain sum per metric tonne as freight or lorry charges to the sugarcane growers and payment was made accordingly. On the question whether the extra payment made formed part of the purchase turnover liable to be taxed :
Held, that the real question to be examined was whether the payments made subsequent to the purchases were in the nature ex gratia payments or towards the price of sugarcane purchased. In the instant case, the extra payments made by the assessee could not be said to be voluntary or unilateral for the purpose of maintaining good relationship of the sugarcane growers. The sugarcane growers were disputing the adequacy of the price payable by the assessee for the sugarcane supplied by them. That dispute was terminated by the award of the arbitrator for the year 1969-70. For the year 1971-72 the assessee agreed to pay the extra payment to the sugarcane growers. These payments so far as the growers were concerned would be the price for their sugarcane and not for any other work. They received extra price over and above the minimum price fixed by the Central Government. Such payments formed part of the aggregate amount for which the goods were purchased and therefore were part of ‘turnover’ as defined in section 2(1)(v) of the Karnataka Sales Tax Act, 1957.”
Paragraph No. 9 may now be seen :
“It seems to us that the extra payments made by the company to the sugarcane growers cannot be said to be voluntary or unilateral for the purpose of maintaining good relationship of the sugarcane growers. The sugarcane growers were disputing the adequacy of the price payable by the company for the sugarcane supplied by them for the year 1969-70. That dispute was terminated by the award of the arbitrator. For the year 1971-72 the company agreed to pay the extra payment to the sugarcane growers at the rate of Rs. 3.79 per metric tonne. These payments so far as the growers are concerned would be the price for their sugarcane and not for any other work. They received extra price over and above the minimum price fixed by the Central Government. Such payments, in our opinion, cannot escape the turnover as defined under section 2(1)(v) of the Act since they form part of the aggregate amount for which the goods were purchased.”
It has to be carefully noted in this case that there was a dispute and it was terminated by the award of the arbitrator, which obligation the company had to discharge. Here again the assessment year was 1969-70 and 1971-72.
52. All the above rulings were rendered prior to clause 5-A of the Sugarcane (Control) Order came into effect, because this clause came to be inserted by Notification No. 402(E) dated 25th September, 1974.
53. The last of the case relied on by the learned Advocate-General is Central Wines v. Special Commercial Tax Officer [1987] 65 STC 48 (SC). We will extract the headnote :
“Sales tax charged by a dealer as ‘tax’ in his bill to the purchaser but shown separately is part of the turnover within the meaning of the definition of ‘turnover’ in section 2(s) of the A.P. General Sales Tax Act, 1957. The sales tax component of the sale price charged by the dealer to the purchaser is not collected by him as an agent of the State. Even if, therefore, the bill or the voucher issued to the purchaser indicates the amount of sales tax separately what is collected by the dealer from the purchaser is not tax but is merely a part of the sale price charged by the dealer to the purchaser. So far as the statute is concerned it does not cast any obligation on the purchaser of the goods to pay any tax and therefore what is collected by the dealer from the purchaser by way of consideration for passing the property in the goods to the purchaser is the price charged by him and not tax collected by him from the purchaser. The amount of money which goes from the pocket of the dealer as a condition or consideration for the passing of the property in the goods is thus the sale price and not the tax. It is the amount, but for the payment of which, the dealer would not transmit his title to the goods in favour of the purchaser, and not any amount paid by the purchaser towards any tax liability incurred by him on making the purchase of the goods. Nothing turns on whether the bill or voucher issued to the purchaser is so made out to show that the sales tax is charged separately. The consideration obtained by the dealer from the purchaser would in the eye of the law be the sale price regardless of what nomenclature is given to a part of the price charged by him.
Includibility of sales tax charged by the dealer from the purchaser turns on the question whether or not the tax is recoverable from the purchaser under a statutory obligation.
Even where the sales tax is not included in the bill but is collected simultaneously and kept in a suspense account by the dealer, the amount collected would be part of the ‘turnover’ as defined in section 2(s). The amount includible in the turnover on a true interpretation of section 2(s) cannot become excludible merely by reason of the accountancy device adopted by the dealer concerned.”
As rightly contended by Mr. Nariman, learned counsel for the petitioners, it turned upon the meaning of “turnover” in the Andhra Pradesh General Sales Tax Act. The extract of the definition is found at page 50 under the footnote to the following effect :
Section 2(s) of the Andhra Pradesh General Sales Tax Act, 1957 :
“‘Turnover’ means the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, what ever be the description, name or object thereof :
Provided that in the case of a sale by a person whether by himself or through an agent of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, the amount of the consideration relating to such sale shall be excluded from his turnover when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save mere cleaning, grading or sorting; ……”
The learned Advocate-General would urge on the basis of the rulings that the ultimate question is what is the amount which is paid from one pocket to another towards the sale or purchase. We are afraid the sentence cannot be torn out of context and pressed into service. It is true the nomenclature is not decisive. But, what is relevant is, as we observed above, the character, the mode and the manner of payment. With this view we go on to ascertain the meaning of “advance”.
54. In Md. Abdul Kadir Rowther v. Muthiah Chettiar (1960) 2 MLJ 13 at page 15, a Division Bench of this Court held :
“‘Advance’ means literally a payment beforehand; in certain cases it may be a loan but it cannot be said that a sum paid by way of advance is necessarily a loan. In London Financial Association v. Kelk LR (1884) 26 Ch D 107, it was observed, that the words ‘advancing’ and ‘lending’ might each have a different signification, money might be ‘advanced’ without being ‘lent’ and that the relation of borrower and lender did not exist in a great variety of the transactions. In Lincolnshire Sugar Company v. Smart LR [1937] AC 697, Lord Macmillan observed that the term ‘advanced’ in the British Sugar Industry (Assistance) Act of 1931 was ambiguous and might either refer to the pre-payments of what would become due in future or be a polite euphemism for loans; but when ‘advance’ were declared to be ‘repayable’ (though only conditionally) they certainly would lean to the side of loans.”
55. In Cauvery Sugars and Chemicals Ltd. v. Joint Commercial Tax Officer, Madras [1972] 29 STC 1 at 6 (Mad.) it was held :
“We are also of the view that the department as well as the Tribunal were not right in disallowing deduction of the difference in price arising out of reduction of the purchase price from Rs. 85 to Rs. 80 during a part of the assessment year in question. It may be granted that the assessees having paid price at the rate of Rs. 85 per tonne to the growers have not fully adjusted or recovered the difference from them. But that is no reason for disallowing deduction from the taxable turnover. A sale of goods can well be for deferred payment. It may be for credit. Where excess price has been paid and the excess is admittedly recoverable back by the payer in the light of the relevant statutory provisions, the department cannot insist that nevertheless the cannot the deductions claimed by the assessees cannot be allowed, which they are entitled to.”
56. The learned Advocate-General relies strongly on sugarcane supplier account position statement and then states that both the amount of Rs. 151.40 and Rs. 52.40 are noted against the value of the supply at the ex-factory gate delivery price per metric tonne and therefore it was not paid as advance. We are unable to accept this contention for two reasons :
(1) This was only the account position, there being no column for noting advance payment.
(2) It has to be read with payment voucher (cane payment) dated 9th April, 1981 and not in isolation.
57. We are equally unable to accept the contention of the learned Advocate-General that but for this payment, the cane growers would not have supplied sugarcane. We do not know what bearing this will have on the liability of purchase tax. Merely because the association in a collective representation prayed for the waiver of tax that cannot in any way militate against the plea for questioning the validity of demand in law, nor would the representation mean, the petitioners agreed to pay as “price”.
58. We are of the firm view that merely because the petitioner has not claimed back the excess from the cane growers, the character of payment will not in any manner stand altered. What is to be stated is the right of the petitioner to recover the excess under law. That alone is important in our view. On the same reasoning it would follow that the excess payment has been treated as cane development charges will not belittle the character of payment. Thus, we conclude that the payment was never as part of price and it was not voluntary.
As to when the payment could be considered voluntary can be gathered from Halsbury’s Laws of England, Fourth Edition, Volume 9.
“660. General rule. – A person who voluntarily pays a sum of money on another person’s demand cannot claim a return of it from a payee as money had and received to his use, for, since he might have resisted the demand, the payment must be taken to have been voluntary, if, however, the payment is made under duress or some form of compulsion other than legal compulsion it is deemed to be involuntary, and the sum paid is recoverable as money had and received.
666. Voluntary payments. – The rules governing what constitutes a voluntary payment to the defendant are similar to those in relation to payments made to third parties. A payment made to recover wrongfully detained goods is generally involuntary for this purpose, and, a fortiori, an action for money had and received will normally lie to recover benefits conferred on the defendant as a result of the latter’s duress or undue influence on the plaintiff. Moreover, apart from money paid under the compulsion of legal process, the law recognises that there are other acts or threats by the defendant which may render a payment involuntary for the purpose of such an action. The compulsory payment is often narrow, and moreover, the distinction between voluntary and involuntary payments is not strictly adhered to in a case of mistake; for where a voluntary payment has been made under a sufficiently serious mistake of fact, the sum paid may, it seems, nevertheless be recoverable in the above-mentioned form of action.
664. Other compulsory payments.-A payment is not considered voluntary when made under threat of a penal action, or of an execution, even though no execution could lawfully issue; or when illegally demanded and paid under colour of an Act of Parliament or of an office, or under an arbitrator’s award which is ultra vires; nor is a payment considered voluntary merely because the person making it has not waited to be sued or has been allowed time for payment; nor is it considered voluntary because it was made under an unenforceable contract. There may be ‘practical’ as well as ‘actual legal’ compulsion.”
59. Maskell v. Horner [1915] 3 KB 106 lays down :
“From September, 1900 to June, 1912 the plaintiff carried on business as a dealer in produce in the vicinity of Spitalfields Market. As soon as he commenced business the defendant, who was the owner of the market, demanded tolls from him under threat of seizure of his goods if he refused to pay, and on the first occasion the plaintiff objected to pay and actual seizure took place. The plaintiff then consulted a solicitor and upon learning that other dealers outside the market paid tolls he, acting upon the solicitor’s advice, paid the tolls under protest, and, thereafter, he, or his agents acting upon his instructions, always paid the tolls under protest. Subsequently, whenever the plaintiff challenged the defendant’s right, or disputed the amount of tolls, in particular cases there was a seizure or threat of seizure followed by payment under protest. From the decision in Attorney-General v. Hornet [1913] 2 Ch 140, it appeared that the tolls had been unlawfully demanded, and, in consequence, the plaintiff brought this action for money had and received to recover the tolls so paid, claiming that he paid them (1) under a mistake of fact and (2) not voluntarily but under the pressure of seizure of his goods –
Held by the Court of Appeal, affirming the decision of Rowlatt, J. on this point, that the plaintiff did not pay under a mistake either of law or fact, but because he found that other sellers were paying tolls and he did not wish to be involved in litigation with the defendant, and that the plaintiff could not recover under this head of claim; but
Held, further (Pickford L.J. doubting) reversing the decision of Rowlatt, J. on this point, that the circumstances of the payments and the conduct of the plaintiff throughout the period of years showed that he only paid to avoid seizure of his goods and never made the payments voluntarily, or intended to give up his right to the sums paid or close the transaction, and that he was entitled to recover under this head of claim the sum paid during the last six years immediately preceding this action, the earlier payments being barred by the Statute of Limitations.”
Again at page 117 it was held :
“The question is whether the plaintiff made these payments in such circumstances as entitle him to recover them from the defendant in an action at law for money had and received. The claim is put on two grounds.(1) That the plaintiff paid the sums under a mistake of fact (2) That he paid them not voluntarily but under the pressure of seizure of his goods.
I will deal first with the claim under a mistake of fact. It is an essential condition of the plaintiff’s right to recover under this head that he should establish that he paid the money in the belief that a fact was true which was untrue. That fact is that at the time of the payments the defendant was entitled to exact market tolls from the plaintiff. When the demand was first made, the plaintiff at once consulted his solicitor and, acting upon the advice given to him, made the first payment and all subsequent payments under protest. Rowlatt, J. has found upon this and other evidence before him that the plaintiff did not make these payments under the impression that the defendant was entitled to demand them from him. Upon an examination of the evidence in this case I have arrived at the same conclusion. I am satisfied that he did not pay in the belief that he was liable to the defendant, but because he found that other sellers in the market had paid and were paying these tolls to the defendant and because he was, at least, in doubt as to his liability to pay these tolls and did not wish to be involved in litigation with the defendant. Therefore, even assuming that such mistake was one of fact and not of law, the plaintiff cannot recover under this head. Able and interesting arguments were addressed to us for and against the view that a mistake as to the ownership of private rights is regarded in law as a mistake of fact. As I have come to the conclusion that the plaintiff did not pay under a mistake, it becomes unnecessary to decide whether such mistake was of fact or of law. I express no opinion on the point.
Upon the second head of claim the plaintiff asserts that he paid the money not voluntarily but under the pressure of actual or threatened seizure of his goods, and that he is therefore entitled to recover it as money had and received. If the facts proved support this assertion the plaintiff would, in my opinion, be entitled to succeed in this action.
If a person with knowledge of the facts pays money, which he is not in law bound to pay, and in circumstances implying that he is paying it voluntarily to close the transaction, he cannot recover it. Such a payment is in law like a gift, and the transaction cannot be reopened. If a person pays money, which he is not bound to pay, under the compulsion of urgent and pressing necessity or of seizure, actual or threatened, of his goods he can recover it as money had and received. The money is paid not under duress in the strict sense of the term, as that implies duress of person, but under the pressure of seizure or detention of goods which is analogous to that of duress. Payment under such pressure establishes that the payment is not made voluntarily to close transaction (per Lord Abinger C. B. and per Parke B. in Atlee v. Backhouse 3 M & W 633). The payment is made for the purpose of averting threatened evil and is made not with with the intention of giving up a right but under immediate necessity and with the intention of preserving the right to dispute the legality of the demand (per Tindal C.J. in Valpy v. Manley 1 CB 594).”
From this it will be clear that if the petitioner had paid the amount under pressure of the directive of the Director of Sugar, the non-payment will be risky and would attract the provisions of the Sugar Undertakings (Taking Over of Management) Act, 1978 (Central Act 49 of 1978). Therefore, it can never be called the voluntary payment.
60. To the same effect is Brocklebank Ltd. v. King [1925]1 KB 52. The headnote reads :
“The Shipping Controller, purporting to act under the authority of the Defence of the Realm Regulations, required as a condition of a licence to the suppliants to sell one of their ships to a foreign firm that they should pay a percentage of the purchase money to the Ministry of Shipping, and the suppliants paid the said percentage. On a petition of right to recover back the money so paid :
Held, (1) That the imposition of the condition was illegal, and that the payment was not a voluntary payment. (2) That the petition of right was barred by section 1, sub-section (1), of the Indemnity Act, 1920. It was not open to the suppliants by waiving the tort of the illegal exaction and suing for money had and received, to bring the case within para (b) of the proviso to the sub-section as a ‘proceeding in respect of rights under contract’, for the case fell within the exception to the proviso as being one in which a claim for compensation could have been brought under section 2, sub-section (l)(b), for a ‘direct loss ………….., by reason of interference with (their) business’.
Bankers and Sargant L. JJ (Scratton L. J. dissenting) also held that the suppliants failed to bring the case within the proviso upon the further ground that the contracts referred to in para (b) are limited to express contracts, and do not include the fictitious contract to repay money improperly extorted, the implication of which arises upon a waiver of the tort.
Judgment of Avory J. [1924] 1 KB 647 (T.& J. Brocklebank Limited v. The King) reversed.”
At page 61 it was held :
“The learned Judge came to the conclusion, after considering the evidence, and the authorities which were cited to him and to us, that the payment was not a voluntary one. I entirely agree with this view. The payment is best described, I think, as one of those which are made grudgingly and of necessity, but without open protest, because protest is felt to be useless.”
At page 67 it is stated :
“Further, I am clear that the payment by the petitioners in this case was not a voluntary payment so as to prevent its being recovered back. It was demanded by the Shipping Controller colore officii, as one of the only terms on which he would grant a licence for the transfer. It was a case where in Abbott C.J.’s language in Morgan v. Palmer 2 B & C 729, 735, 739 :
‘One party has the power of saying to the other “that which you require shall not be done except upon the conditions which I choose to impose”,’ or, in the language of Littledale J. in the same case, ‘The plaintiff was merely passive, and submitted to pay the sum claimed, as he could not otherwise procure his licence’. In fact here the petitioners made several inquiries and protests as to the legality of the claim.”
Again at page 72 it is observed :
“Sargant L.J. As regards the first two questions raised on this appeal, I am in complete accord with the judgment of Avory J. The illegality of the demand by the Shipping Controller is established by the decisions of this court, and of the House of Lords, in the case of Attorney General v. Wills United Dairies Ltd. (1922) WN 217. And that the payment by the suppliants was made under compulsion, and was prima facie recoverable by them, follows from the principles of the judgments in Morgan v. Palmer 2 B & C 729. It seems to me unnecessary to say more on these two points.”
These are also exactly similar to the case on hand. The repeated protests of the petitioners herein were of no avail.
61. Though the decisions reported in Municipal Council, Tuticorin v. Ralli Bros. AIR 1934 Mad. 420 and Chairman, Municipal Council, Rajahmundry v. Subba Rao (1937) 1 MLJ 496 were referred to, we do not pause to consider these decisions, because of the Supreme Court’s ruling in Sales Tax officer v. Kanhaiya Lal Makund Lal Saraf [1958] 9 STC 747.
At page 756 it is stated thus :
“We are of opinion that this interpretation put by their Lordships of the Privy Council on section 72 is correct. There is no warrant for ascribing any limited meaning to the word ‘mistake’ as has been used therein and it is wide enough to cover not only a mistake of fact but also a mistake of law. There is no conflict between the provisions of section 72 on the one hand and sections 21 and 22 of the Indian Contract Act on the other and the true principle enunciated is that if one party under a mistake, whether of fact or law, pays to another party money which is not due by contract or otherwise that money must be repaid. The mistake lies in thinking that the money paid was due when in fact it was not due and that mistake, if established, entitles the party paying the money to recover it back from the party receiving the same.”
At page 757 it was held :
“Re : (i) The respondent was assessed for the said amounts under the U.P. Sales Tax Act and paid the same; but these payments were in respect of forward transactions in silver. If the State of U.P. was not entitled to receive the sales tax on these transactions, the provision in that behalf being ultra vires, that could not avail the State and the amounts were paid by the respondent, even though they were not due by contract or otherwise. The respondent committed the mistake in thinking that the moneys paid were due when in fact they were not due and that mistake on being established entitled it to recover the same back from the State under section 72 of the Indian Contract Act. It was, however, contended that the payments having been made in discharge of the liability under the U.P. Sales Tax Act, they were payments of tax and even though the terms of section 72 of the Indian Contract Act applied to the facts of the present case no moneys paid by way of tax could be recovered. We do not see any warrant for this proposition within the terms of section 72 itself. Reliance was, however, placed on two decisions of the Madras High Court (1) reported in Municipal Council, Tuticorin v. Ralli Bros. AIR 1934 Mad. 420 and (2) Municipal Council, Rajahmundry v. Subba Rao AIR 1937 Mad. 559. It may be noted, however, that both these decisions proceeded on the basis that the payments of the taxes there were made under mistake of law which as understood then by the Madras High Court was not within the purview of section 72 of the Indian Contract Act. The High Court then proceeded to consider whether they fell within the second part of section 72, viz., whether the moneys had been paid under coercion. The court held on the facts of those cases that the payments had been voluntarily made and the parties paying the same were therefore not entitled to recover the same. The voluntary payment was there considered in contradistinction to payment under coercion and the real ratio of the decisions was that there was no coercion or duress exercised by the authorities for exacting the said payments and therefore the payments having been voluntarily made, though under mistake of law, were not recoverable. The ratio of these decisions, therefore, does not help the appellants before us. The Privy Council decision in Sri Sri Shiba Prasad v. Srish Chandra Nandi (1949) LR 76 IA 244 has set the whole controversy at rest and if it is once established that the payment, even though it be of a tax, has been made by the party labouring under a mistake of law the party is entitled to recover the same and the party receiving the same is bound to repay or return it. No distinction can, therefore, be made in respect of a tax liability and any other liability on a plain reading of the terms of section 72 of the Indian Contract Act, even though such a distinction has been made in America – vide the passage from Willoughby on the Constitution of the United States, Vol. 1, p. 12 op. cit. To hold that tax paid by mistake of law cannot be recovered under section 72 will be not to interpret the law but to make a law by adding some such words as’ otherwise than by way of taxes’ after the word’ paid’.”
62. Thus, we conclude that the payment was not voluntary, but it was paid under compulsion. Such being the position it is not open to the State to plead acquiescence. Authority in this regard is K. R. Shenoy v. Udipi Municipality it was held :
“An excess of statutory power cannot be validated by acquiescence in or by the operation of an estoppel. The court declines to interfere for the assistance of persons who seek its aid to relieve them against express statutory provision. Lord Selborne in Maddison v. Alderson (1883) 8 App Cas 467 said that courts of equity would not permit the statute to be made an instrument of fraud. The impeached resolution of the municipality has no legal foundation. The High Court was wrong in not quashing the resolution on the surmise that money might have been spent. Illegality is incurable.”
63. The result of the above discussion is, the petitioners are not liable to be taxed on the excess over and above the price fixed under clause 5-A of the Sugarcane (Control) Order, 1966. The said excess is not exigible to the sales tax or additional tax.
64. Accordingly W.P. No. 869 of 1982 will stand allowed with costs. Counsel’s fee Rs. 1,000 one set.
65. Applying the ratio in W.P. No. 869 of 1982, W.P. Nos. 497, 511 to 514, 742, 866 to 868, 1257 to 1262, 1284, 1511 to 1516 and 2291 of 1982; 2460, 3542 and 3543 of 1986; 1705, 1706, 3397 to 3400, 3426, 3625, 3626, 3720, 3721 and 6295 of 1987; 1125, 1218 to 1220, 1813, 1814, 3986, 4854 and 4855 of 1988 will stand allowed and the assessment orders in these petitions are set aside. No costs.
66. T.C. Nos. 196 to 204 of 1981, 1329 and 1330 of 1986 will stand allowed, assessment orders in these cases are set aside and the matter is remitted to the assessing authority to be decided afresh in the light of the above ruling. No costs.
67. Writ petitions allowed.