SAHAKARI KHAND UDYOG MANDALI LTD Vs. STATE OF GUJARAT
LAWS(GJH)-1979-11-2
HIGH COURT OF GUJARAT
Decided on November 15,1979

SAHAKARI KHAND UDYOG MANDALI LTD Appellant
VERSUS
STATE OF GUJARAT Respondents

JUDGEMENT

DIVAN, C. J. - (1.) SINCE the principal question arising in each of these five references is the same question substantially, all these five references were taken up for regular hearing before a Division Bench consisting of two of us (P. D. Desai and B. R. Mehta, JJ.), but thereafter these five matters have been referred to a larger Bench, so that the impact of the decision of the Supreme Court in Khedut Sahakari Ginning and Pressing Society Ltd. v. Stage of Gujarat ([1972] 29 S. T. C. 105 (S. C. ).), so far as the five assessees before us, each one of which is a co-operative society manufacturing sugar in the co-operative sector, can be considered.
(2.) A short historical background is necessary in order to appreciate the contentions raised in this case. In Sales Tax Reference No. 1 of 1966 decided by a Division Bench consisting of one of us (Divan, C. J. , and J. B. Mehta, J.) decided on 1st July, 1968, the assessee was the Khedut Sahakari Ginning and Pressing Society Ltd. In that reference, after examining the authorities available till that date and after considering the bye-laws of that particular co-operative society, which was a co-operative society of cotton growers and which society was also running a ginning and pressing factory, it was held that when unginned cotton was brought to the society by each individual member and thereafter was pooled together by the society in accordance with bye-law No. 48, the relationship between the members of that particular co-operative society and the society was that of vendor and purchaser and not that of principal and agent. The Division Bench tried to look at the real substance of the transaction without being bound down by the terminology in which the parties had chosen to clothe the transaction. It was held that the transactions in question were those of purchase of cotton by the co-operative society concerned from its members. This decision in Khedut Sahakari Ginning and Pressing Society's case (Sales Tax Reference No. 1 of 1966 decided on 1st July, 1968 (Gujarat High Court ).) was followed by the same Division Bench of this High Court in Sales Tax Reference No. 7 of 1966 decided on 4/5th July, 1968. There, the assessee was Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. , which is the assessee before us in Sales Tax Reference No. 24 of 1977, that is, one of the five matters under consideration in this judgment. In Sales Tax Reference No. 7 of 1966, the Division Bench examined the scheme of the bye-laws of the co-operative society and it was pointed out that in the case of Bileshwar Khand Udyog Khedut Co-operative Society Ltd. (Sales Tax Reference No. 7 of 1966 decided on 4/5 July, 1968 (Gujarat High Court ).) the facts were much stronger so far as revenue was concerned, as compared to the Khedut Sahakari Ginning and Pressing Society's case (Sales Tax Reference No. 1 of 1966 decided on 1st July, 1968 (Gujarat High Court ).) because, in terms, the bye-laws provided for sale of sugarcane produced by the members to the society. Prices were to be fixed at the end of the season by the Board of Directors and those prices were to be paid to the producer-members under the bye-laws. All the essentials of the transaction of sale were present in the case, namely, agreement to sell, transfer of property from the producer-member to the society and the parties being competent to contract. Looking to all these circumstances, the Division Bench held that in the case of this particular co-operative society manufacturing sugar from the supply of sugarcane by producer-members to the society, the transaction was of sale by such member and the purchase amounted to a purchase of sugarcane by the society from the member concerned. Hence, the particular question referred to the High Court was answered accordingly. After these two decisions, one in the case of Khedut Sahakari Ginning and Pressing Society Ltd. (Sales Tax Reference No. 1 of 1966 decided on 1st July, 1968 (Gujarat High Court ).) and the other in the case of Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. (Sales Tax Reference No. 7 of 1966 decided on 4/5 July, 1968 (Gujarat High Court ).) were delivered, the second decision following the reasoning of the decision in the earlier case, the matter was taken in appeal to the Supreme Court, and by its decision in Khedut Sahakari Ginning and Pressing Society Ltd. v. Stage of Gujarat ([1972] 29 S. T. C. 105 (S. C. ).), the Supreme Court reversed the decision of the Gujarat High Court and in the light of the principle underlying the formation of Co-operative societies and the object behind the formation of producers' society, and further in the light of the definition of "producers' society" set out in section 3 (h) (2) of the Bombay Co-operative Societies Act, 1925, the Supreme Court held that in that particular case, the transaction was one of entrustment of cotton crop of the producer-members to the society which was acting as the collective agent of the members, and it was held that the society was the agent of all its members and the society's principals were many. Because of the bye-laws, the several principals must be deemed to have appointed a common agent, the society, for disposing of their goods in the manner most advantageous to them. It is because of this decision of the Supreme Court in the Khedut Sahakari Ginning and Pressing Society's case ([1972] 29 S. T. C. 105 (S. C. ).) that the Division Bench before which all these five references in the case of sugar co-operative societies came up for final hearing, referred all the five matters to a larger Bench and thereafter the matters have come up before us for final hearing.
(3.) IT may be pointed out that, for the sake of easier reference, Messrs. Sahakari Khand Udyog Mandali Ltd. , Gandevi, the assessee in Sales Tax Reference No. 4 of 1976, will be referred in the course of this judgment as the Gandevi Society; Messrs. Khedut Sahakari Khand Udyog Mandali Ltd. , Bardoli, the assessee in Sales Tax Reference No. 7 of 1976, will be referred to as the Bardoli Society; Messrs. Madhi Vibhag Khand Udyog Sahakari Mandaii Ltd. , Madhi, the assessee in Sales Tax Reference No. 8 of 1970 will be referred as Madhi Society; Messrs. Chalthan Vibhag Khand Udyog Sahakari Mandali Ltd. , the assessee in Sales Tax Reference No. 10 of 1976, will be referred as the Chalthan Society; and Messrs. Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. , the assessee in Sales Tax Reference No. 24 of 1977, will be referred as the Bileshwar Society. IT may be pointed out that the Gandevi, Bardoli and Bileshwar Societies were all registered when the provisions of the Bombay Co-operative Societies Act, 1925, were in force, whereas the Madhi and Chalthan Societies were registered under the provisions of the Gujarat Co-operative Societies Act, 1961 (Gujarat Act 10 of 1962 ). By section 169 (1) of the Gujarat Co-operative Societies Act of 1961, the Bombay Co-operative Societies Act, 1925, was repealed and, under sub-section (2), all societies registered or deemed to be registered under the Bombay Co-operative Societies Act, 1925, the registration of which was in force immediately before the commencement of the Gujarat Act, shall, on such commencement, be deemed to be registered under the Gujarat Act. Therefore, by virtue of section 169 (2), even the Gandevi, Bardoli and Bileshwar Societies are deemed to have been registered under the Gujarat Co-operative Societies Act and all the five societies before us are governed by the provisions of the Gujarat Co-operative Societies Act on the footing that either in fact or under the deeming fiction set out in section 169 (2) of the Gujarat Co-operative Societies Act, 1961, the societies are to be treated as registered under this Act. The bye-laws of the Gandevi and Bileshwar Societies are originally in English, whereas the bye-laws of the Bardoli, Madhi and Chalthan Societies are in Gujarati in original, but barring some variations which will be pointed out in the course of this judgment, the bye-laws of all the five societies are on the same lines and the bye-laws of each of these five societies use identical language, whether in English or in Gujarati and, therefore, we will have to consider these bye-laws in order to ascertain whether the supply of sugarcane by the producer-members of the society concerned amounted to a transaction of purchase.;


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