HARMADIA VIVIDH KARYAKARI SAHAKARI MANDLI LTD Vs. COMMISSIONER OF SALES TAX

JUDGEMENT

(1.) THE question which has been referred to in this case is as follows : " Whether, on the facts and in the circumstances of the case, the transactions of sale of the groundnuts of the members made by the society by auction are sales liable to tax under the Bombay Sales Tax Act, 1959 ?"

(2.) THE society in question is registered under the Bombay Co-operative Societies Act, 1925, and it was assessed for the period from 1st January, 1960, to 6th June, 1961, to sales tax on its turnover of sales of groundnuts to the tune of Rs. 75,081. As this liability has been upheld even by the Tribunal, the society asked for this reference. At an earlier stage when this matter was taken up, the relevant bye-laws were considered along with the modus operandi of this business of the society. It was pointed by our learned brother A. D. Desai, J. , speaking for the Division Bench that the object of the society was to advance loans at cheap rates to the members and to sell on commission their products. Bye-law 2 (2) enabled the society to raise funds to advance loans at cheap rates especially for the needs of farming to the members. Bye-law 2 (3) provided for the activity of purchasing on commission of agricultural implements, household goods, etc. , for the members of the society, non-members and others working in the area of the operation of the society and to sell the same to them through shops. Bye-law 2 (4), which is material, authorised the society to sell on commission the crops of members and of members of other co-operative societies functioning in the area of the society and to sell products of village industries. Bye-law 8 provides that every member was bound to sell his crop in excess of the needs of his family through the society and that a failure to observe the rule made him liable to fine up to Rs. 50. Bye-law 44 (2) authorised the managing committee to take up goods for sale and if necessary and possible to grade the same. Bye-law 54 (6) provided that every member obtaining such loan should sell all his agricultural produce through the institution nominated or selected by the society for the purpose. THE society recovers these loans and outstandings from the sale proceeds. It was also pointed out that at that time the modus operandi of the business of the society as found by the Tribunal was to provide for short term credit to the members and the money advanced was realised from the crop sold through the society. THE society maintains two sets of books of account, one for money-lending and the other for sales and stores. THE member whose farming activity was thus financed by the society was bound to sell the crop through the society. THE society held a public auction for the total available groundnuts of all the members and the highest bid was accepted by a resolution of the managing committee. THE total crop was sold to the highest bidder. THE purchaser paid the entire consideration to the society. THE purchaser treated this as a purchase from the society and credited the society with full consideration. THE society debited an equal amount to the purchaser. THE society after deducting one paisa for market yard charges, five paise as commission charges per maund, credited the realisation to the individual member's account towards principal, advance, interest, etc. , and the balance, if any, as deposit in the money-lending account. On these facts, it was held that the society was not acting as a broker but as a commission agent and the modus operandi of this business demonstrated that it did business acting on itself. THEre was no privity of contract between the members and the purchasers. It was also held that even though the society was not the owner of the goods and was entrusted with these goods for the purpose of sale, it was the society which fixed the sale price. THErefore, the society was a commission agent on these facts and not a broker. It was further held that the definition of the word "dealer" in section 2 (11) of the Bombay Sales Tax Act, 1959, hereinafter referred to as the "act", which defines the dealer as a person who for commission, remuneration or otherwise carried on the business of buying or selling goods in the State would cover such a society which was a commission agent provided it was found that it carried on the business of selling goods in this particular case. As it was found that the Tribunal had drawn the inference about the business activity merely on the basis of the bye-laws, an additional statement was called for by this court from the Tribunal. It was pointed out that in order to determine whether this was a business activity, the Tribunal must give a finding relating to the volume, frequency, continuity and regularity of the transactions. It was also pointed out that it was necessary for the Tribunal to determine the question as to whether the society was making any profit by the sale of the goods of the members. THErefore, additional statement of facts was called for relating to the volume, frequency, continuity and regularity of the transaction of sale and as to whether the society was making profit. Accordingly the Tribunal has furnished the additional statement of facts by pointing out that the groundnut crop in the year of assessment was supplied by 137 members which had been sold by auction in the year of assessment. Once the auction was held after due public notice but the price offered for both the types of groundnuts being not upto the mark, no final sale was made in the first auction. In the second auction, the sale price in question was realised. THErefore, there was only one sale transaction of groundnuts in the assessment year effected by the society. THE total commission charged from the members was Rs. 470 at the rate of five paise per maund. THE price of one maund of groundnut in the year of assessment was about Rs. 12. THE commission thus charged was less than half per cent on the sale proceeds. Against that the society had spent Rs. 548 by way of expenditure for making the sale. THErefore, the Tribunal recorded a finding that the society had not made any profit out of the sale made on groundnuts supplied by the members in question. THE commission was charged simply to meet expenses incurred for the same which even was less than half per cent. THErefore, looking to the facts of the case and also the amount of commission and the expenses for effecting a sale of groundnuts, it was found by the Tribunal that the society had no profit-motive when the groundnuts were supplied by the members and when they were sold. THErefore, there was no course of dealing, either actually continued or contemplated to be continued, with a profit-motive by the society. THE Tribunal found that the groundnuts were stocked and sold simply for the purpose of securing the amounts of loans advanced to the members and not by way of making any profit and in fact no profit was realised by the society in the sale of groundnuts in the assessment year.

(3.) MR. Mody in this connection vehemently relied upon the decision of their Lordships in Khedut Sahakari Ginning and Pressing Society Ltd. v. State of Gujarat ([1972] 29 S. T. C. 105 (S. C.) ). There the question was regarding the purchase tax from such producers' society. The society was of course formed under the same Bombay Co-operative Society Act, 1925, primarily with the object of selling produce of its members as their collective produce. As the preamble of the Act enacted, the object of the Act was to facilitate the formation and working of co-operative societies for the promotion of thrift, self-help and mutual aid among agriculturists and other persons with common economic needs so as to bring about better living, better business and better methods of production, and for that purpose to consolidate and amend the law relating to co-operative societies in the Presidency of Bombay. Therefore, the twofold objective of that Act was to provide for self-help for members of the society and for the mutual help to its members. Their Lordships considered the various bye-laws and pointed out that they clearly indicated that the society was selling produce of others and not its own goods. Its duty is to arrange to sell the agricultural produce of its members. The members were only entrusting the goods to the society and not selling them to the society. Therefore, the bye-laws were interpreted as an agency agreement under which the goods came into the hands of the society for sale or for their management through the society. The members had authorised the society to pool their goods, grade them if necessary, and sell them after ginning or without ginning. The price fetched was then distributed among the members whose goods were sold. It was, therefore, held that, in these circumstances, the society was the agent of its members. Because of the various bye-laws, several members must be deemed to have appointed the common agent, the society, for disposing of the goods in a manner most advantageous to them. To achieve that object they must be held to have empowered the society to pool their goods, grade them if necessary, either after ginning or without ginning, and sell them. Therefore, that decision merely interpreted the true relation in such a case between the members and the society and found that when the members pool their goods for sale through the society as the common agent, which graded and sold the goods, the society was only an agent and it had not become the purchaser of the goods so as to be liable to purchase tax. This decision can never help MR. Modi because this court has also held in the present case, as earlier pointed out, that the society was only a commission agent. There is no purchase or sale as between the members and the society. But if the goods are sold through the society and if they are sold in the course of the society's business as a commission agent, the society would be dealer liable to pay sales tax under section 2 (11) of the Act. Therefore, once the authority of the society from its members is found from the bye-laws for the sale of the goods in question, the material question as pointed out by their Lordship in Chowringhee's case ([1973] 31 S. T. C. 254 (S. C.); 87 I. T. R. 542 (S. C.); A. I. R. 1973 S. C. 376) is whether the society was undertaking a business activity of sale of such goods.