- (1.) In all these writ petitions under Article 32 of the Constitution, the petitioners ask for an order declaring that Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961 (Andhra Pradesh Act No.45of 1961) is unconstitutional and ultravires and a direction prohibiting the respondents from levying tax under Section 21 and to refund the tax already collected. Section 21 of the Act is in these terms : "21 (1) The Government may, by notification, levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use, consumption or sale in a factory. (2) The Government may, by notification, remit in whole or in part such tax in respect of cane used or intended to be used in a factory for any purpose specified in such notification. (3) The Government may, by notification, exempt from the payment of tax under this Section- (a) any new factory which, in the opinion of the Government has substantially expanded, to the extent of such expansion, for a period not exceeding two years from the date of completion of the expansion. (4) The tax payable under sub-sec. (1) shall he levied and collected from the occupier of the factory in such manner and by such authority as may be prescribed. (5) Arrears of tax shall carry interest at the rate of nine per cent per annum. (6) If the tax under this Section together with the interest, if any, due thereon, is not paid by the occupier of a factory within the prescribed time, it shall be recoverable from him as an arrear of land revenue." Section 2 (i) defines a factory which means "any premises including the precincts thereof wherein twenty or more workers are working or were working on any day during the preceding twelve months and in any part of which any manufacturing process connected with the production of sugar by means of vacuum pans is being carried on or is ordinarily carried on with the aid of mechanical power. Section 2 (m) defines the occupier of a factory. By Ordinance No. 1 of 1967 which was replaced by Act No. 4 of 1967, the following new sub-section (I-A) was inserted and other consequential amendments were made in Section 21 of the principal Act. "(I-A) The Government may, by notification, levy a tax at such rate, not exceeding three rupees and fifty paise per metric tonne, as may be prescribed on the purchase of cane required for use, consumption or sale in a Khandsari unit." Also the following sub-sections (kk) and (kkk) were inserted in Section 2 of the principal Act : "(kk) 'khandasari sugar means sugar procured by open-pan process in a khandasari unit from sugarcane juice or from rab or gur or both, containing more than, eighty per cent sucrose; (kkk) 'khandasari unit' means a unit engaged or ordinarily engaged in the manufacture of khandasari sugar and includes a bel;" It may be mentioned that sales and purchases of sugarcane are exempt from tax under the Andhra Pradesh General Sales Tax Act, 1957. The petitioners own sugar factories as defined in Section 2 (i). Their agents are the occupiers' of the factories as defined in Section 2 (m). They purchased cane from canegrowers within their respective factory zones. The State Government had issued notifications levying tax under Section 21. For the last several years the petitioners have paid the tax on their purchase of sugarcane and further demands are being made on them for payment of the tax. They challenge the vires and the constitutionality of Section 21 on various grounds. The principal submissions were made by Mr. M. C. Setalvad who appeared in Writ Petition No. 53 of 1967 and his arguments were adopted by counsel appearing in the other petitions. Mr. N. C. Chatterjee who appeared in Writ Petition No. 100 of 1967 raised a few additional contentions.
(2.) The submission of Mr. Setalvad is that Section 21 so far as it levies a tax on the purchase of sugarcane by or on behalf of the petitioners from the canegrowers in their respective factory zones is ultra vires the powers of the legislature under Entry No. 54, List II, Schedule VII of the Constitution in the light of the decision in State of Madras v. Gannon Dunkerley and Co. Madras Ltd., 1959 SCR 379 = (AIR 1958 SC 560). Now, in gannon Dunkerley's case, 1959 SCR 379 = (AIR 1958 SC 560) the actual decision was that the legislature had no power under List II, Entry 48, Schedule VII of the Government of India Act, 1935 to impose a tax on the supply of materials under an entire and indivisible contract for construction of buildings. But the Court also held that the phrase "sale of goods" in the Entry must be interpreted in the legal sense which it had in the Indian Sale of goods Act, that the Provincial Legislature had no power to tax a transaction which was not a sale of goods in that sense and that in order to constitute a sale there must be an agreement for sale of goods for a price and the passing of property therein pursuant to such an agreement. Venkatarama Aiyer, J., said at pp. 397-398 (of SCR): (at p. 567 of AIR) : "Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale." In the light of this decision, the expression "sale of goods" in Entry 54, List II, Schedule VII of the Constitution must be given the same interpretation. On a parity of reasoning, to constitute a "purchase of goods" within this Entry, there must be an agreement for purchase of goods and the passing of property therein pursuant to such an agreement. The question, therefore, is whether the purchases by or on behalf of the petitioners from the canegrowers in their respective factory zones were made under agreements of purchase and sale.
(3.) It appears that the Cane Commissioner is empowered under Section 15 of Act No. 45 of 1961 to declare any area as the factory zone for the purpose of supply of cane to a factory during a particular crushing season. Under Section 16 (1), on the declaration of the factory zone the occupier of the factory is bound to purchase such quantity of cane grown in that area and offered for sale to the factory as may be determined by the Cane Commissioner in accordance with the provisions of the schedule. Section 16 (2) prohibits the canegrowers in a factory zone from supplying or selling cane to any factory or other person otherwise than in accordance with the provisions of the schedule. Section 28(2)(1) empowers the Government to make rules providing for the form of agreement to be entered into under the provisions of the Act. Rule 20 of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Rules 1951 framed under the Act provides that a canegrower or a canegrowers' co-operative society may within 14 days of the order declaring an area as the factory zone or such extended time as may be fixed by the Cane Commissioner, offer in form No. 2 to supply cane grown in that area to the occupier of the factory and such occupier of the factory within 14 days of the receipt of the offer shall enter into an agreement in form No. 3 or form No. 4 with the canegrower or the canegrowers' co-operative society as the case may be for the purchase of the cane offered. Form No. 3 is the statutory form of agreement with a canegrower. By the agreement in Form No. 3 the occupier of the factory agrees to buy and the canegrower agrees to sell during the crushing season certain sugarcane crop gown in the area at the minimum price notified by the Government from tune to time upon the terms and conditions mentioned in the agreement. The agreement contains an arbitration clause and is signed by or on behalf of the occupier of the factory and the canegrower. The agreement in Form No.4 with a canergorwers co- operative society is on the same lines. All the terms and conditions of the agreements and the mode of their performance are fixed and regulated by the Act and the Rules and orders made under the Act. Contravention of the provisions of the Act or of any rule or order made under the Act is punishable under Section 23. The minimum price of sugarcane is fixed under the Sugarcane Control Order, 1966. The learned Attorney-General and Mr. Ram Reddy attempted to argue that the occupier of the factory has some option of not buying from the canegrower and some freedom of bargaining about the terms and conditions of the agreements. But after having read all the relevant provisions of the Act and the Rules, they did not pursue this point. We are satisfied that under the provisions of Act No. 45 of 1961 and the Rules framed thereunder, a canegrower in a factory zone is free to sell or not to sell his sugarcane to the factory. He may consume it or may process it into jaggery anal then sell the finished product. But if he offers to sell his cane, the occupier of the factory is bound to enter into an agreement with him on the prescribed terms and conditions and to buy cane pursuant to the agreement in conformity with the instructions issued by the Cane commissioner. The submission of the petitioners is that as they or their agents are compelled by law to buy cane from the canegrowers their purchases are not made under agreements and are not taxable under Entry No. 54, List II having regard to Gannon Dunkerley's case, 1959 SCR 379 = (AIR 1958 SC 580). This contention requires close examination.;