KHEDUT SAHAKARI GINNING & PRESSING SOCIETY LTD. v. STATE OF GUJARAT
Citation: [1972] 1 S.C.R. 714; 1971 INSC 246
Court: Supreme Court of India
Bench: K.S. HEGDE , A.N. GROVER
Judgment date:
Case summary
1971 INSC 246. Supreme Court of India judgment dated 1971-09-14. KHEDUT SAHAKARI GINNING & PRESSING SOCIETY LTD. v. STATE OF GUJARAT. Read the judgment and...
Judgment text
716 SUPREME COURT REPORTS • . \ KHEDUT SAHAKARI GINNING & PRESSING SOCIETY LTD. V. STATE OF GUJARAT September 14, 1971 8 (K. S. HEGDE AND A. N. GROVER, JJ,) Bombay Cooperative Societies Act, 1925-Producers· Society pooling n1e111bers ROuds consi:;'tinR of cotton & cotton seeds and selling thenz lVitll or without ginning-Whether goods purchdsed front niembers-Byc-laws of society sho\ved that it wa~· agent of members and did not purchase goads of me111bers for purpose 6] selling-Not liable to pay purcha~c tax under Bombay Sa/es Tax Act, 1959. The appellant Was a cooperative society registered under the Bombay Cooperative Societies Act, 1925. During the assessment period November 1, 1960 to October 31, 1961 the Society received large quantity of cotton from its members and the same \Vas sold by it either after ginning and pressing or without ginning and pressing. The Society was a regis- • tered dealer under the Bombay Sales Tax Act, 1959.
The Sales Tax Officer accepted the return filed by the society and did not levy any purchase tax on it. Ho\. \-'Cvcr the Assistant Commissioner issued a notice under s. 57 of the Act on the basis that it had purchased cotton and cotton seeds from its members and these purchases \Vere liable to purchase tax. The Tribunal, relying on bye-laws 37(7), 37(18), 37( 19), 48, 49, 52, 5:> and 55 of the Society, upheld the view of the Assistant Commissioner and dismissed the Society's revision petition. It rejected the contention of the Society that it was functioning merely as the agent of its members. The High Court in reference also decided against the Society. In appeal to this Court by special leave. HELD : In considering whether a transaction is a sale or not what the court has to consider is whether as a result of the transaciion, the property 1 in the goods passed to the a~sessce for a price and whether the assessec sold those goods as its own.
[717 B-C] Being a producer's society as defined ins. 3(h) of the Cooperative Societies Act the appellant Society was evidently formed primarily with the object of selling the produce of the members as their collective pruducc. The preamble to the Act showed that two of the objectives intended to be achieved by the Act were to provide for self help by the members of the society and for mutual aid among then1. The bye-laws of the Act n1ust be examined in the background of the preamble to . the Act as well as the . definition of Producers' Society. So examined r1one of the bye-laws in-cluding those relied on by the Tribunals showed that the society had purchased either cotton or cotton seeds from its n1cn1bcr:=;. [717 E~Hl From bye-law 2 it was clear that the object of the society \Vas not ti) putchasc, or sell any cotton or cotton seeds . on its own behalf. Clause-; (7), (14), (16) and 18 of bye-Jaw 37 indicated that the Society was sdl· ing the produce of others and not its own goods.
Bye-Jaw 45 ( 1) unde;r which loans on interest could be advanced to the members against tho " " security df the goods clearly showed that the goods were entrusted to the Society and not sold to it. The society could not advance 111oney on ti1e security of its own goods. If the transactions were sales in favour of the KHEl>UT SOCIETY v. GUJARAT (Hegde, J. ) 715 Society then the amounts to be paid by the society would be purchase price. Such a payment cannot be made on the security of goods, nor cnn that paiment carry any interest. [718 B- 720 Al Bye-law 48 refers to the goods of the members of the society and not to the goods of. the Society. Because of that bye-law the members of the Society, who arc bound by that bye-law must be deemed to have authorised the Society to pool their goods, grade them if necessary and sell them either after ginning or without ginning. That bye-law also. prescribed the mode in which the price fetched should be distributed amongst the persons v.
,rhosc goods arc sold. The society is the agent of all its members. Its principa. ls are many. Because of the various bye-laws, the several principals must be deemed to have appointed a common agent-the So· ciety-for disposing o'f their goods in the 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, and sell them either after ginning or without ginning. Such an authority does not violate the laws of agency. A person can be an agent for more than one principal and if all his principals join. Uy authorise him to pool their goods and sell them and pay the sale price to them in the manner prescribed by them. be doc' not cease to be an agent. [720 G-72 l B] Accordingly the appeal must be allowed and the judgment of the High Court set aside. Rohtas /ltdustries Ltd. v. State of Bihar, 12 S. T. C. 615 and Hafiz Dill . \fohd. Haji Abdulla v. State of Maharashtra, 12 S. T. C. 292, distinguished.
Sherule Faz/e & Co. v. Comniercial Tax Officer, Additional Circle, S. Kanaru. 'J. ,fc. ngalore (_(: Anr. , 14 S. T. C. -f, approvCJ. r. Raniachandra Rathore & Bros. v. Comniissioner of Sales Tax, Madhya Pradesh, 8 S. T. C. 845 and Versova Ko/i Sahakari Vahatuk Singh Ltd. v. State of Maharashtra, 22 S. T. C. 116, held inapplicable. CrvrL APPELLATE JuRrsorcnoN : Civil Appeal No. 2418 of 1968. Appeal by special leave from the judgment and order dated July 1, 1968 of the Gujarat High Court in Sales-tax Referenc~ ~o. I of 1966. M. C. ~hag/a and I. N. Shroff, for the appellant. Urmila Kapoor and B. D. Sharma, for the respondent. S. T. Desai and P. H. Parekh, for the ilfltervener. The Judgment of the Court was delivered by Ilegde, J. This is an appeal by special appeal. · It arises from the decision of the High Court of Gujarat in a Reference under s. 61 (1) of the Bombay Sales Tax Act, 1959. That Reference was made by the Gujara1 Sales'Tax Tribunal at Ahmedabad.
After stating the case, the Tribunal submitted the question [1972] l S. C. R. A "whether on the facts and in the circumstances of the case, the transactions are purchases of cotton by the Society from its members" to the High Court for its opinion. The High Court has answered that question in the affirmative. Aggrieved by that decision, the assessee has brought this appeal. B The material facts are these :- The assessee is a Co-operative society registered . under the Bombay Co-operative Societies Act, 1925 (to be heremafter referred to as the Act. The assessee will hereinafter be referred to as the 'Society'. lt carries on the business of ginning and press- c ing cotton brought by its members. During the assessment period viz. November 1, 1960 to October 31, 1961, the assessee received large quantity of cotton from its members and the same was sold by i't either after ginning and pressing or without ginning and pressing.
The Society is a registered dealer under the Bombay Sales Tax Act, 1959. It filed its return for sales tax for the year in question. But therein it did not show any purchase turnoyer. D The Sales Tax Officer accepted the return submitted by it, and assessed it on the basis of that return,, as per his order dated May 31, 1963. He did not levy any purchase tax on the Society. The Assis·tant Commissioner of Sales Tax, Range III, Baroda, however, issued a notice dated August 6, 1963 under s. 57 of the Bombay Sales Tax Act, 1959 proposing to revise the assess- E ment of the Society by levying purchase tax in respect of 200 bales of cotton sent by the. society to Bombay for sale and also in respect of cotton and cotton seeds worth Rs. 3,56,105, sold after six months from the date an which the cotton was received by the Society on the ground that the Society purchased the said cotton from its members. F Aggrieved by that ordered the Society moved the Gujarat Sales Tax Tribunal in revision.
The Tribunal by its judgment dated July 1, 1964, dismissed the revision petition. R! ~lying on the bye-Jaws of the Society particularly on bye-laws Nos. 37 (7), 37(18), 37(19), 48, 49, 52, 53 and 55, the Tribunal came to the conclusion that the Society had purchased the carton and cot- G ton seeds in question from its members. It rejected the contention of the Society that it was merely functioning as the agent of its members while selling the cotton and cotton seeds referred to earlier. At the instance of the Society. the Tribunal submitted the question referred to earlier to the High Court for its opinion. H Whether a particular agreement is an agency agreement or an agreement of sale depends upon the terms of the agreement. For deciding that question, the terms of the agreement have got to be KHEDUT SOCIETY v. GUJARAT (Hegde, J. ) 71_7 examined. The true nwtur.
e of a transaction evidenced by a written agreement has to be ascertained from the covenants and not merely from what the parties choose to call it. The terms of the agreement must be carefully scrutinised in 'the light of the sur-rounding circumstances-see 'the decision of this Court in Rohtas Industries Ltd. v. State of Bihar('). In that decision, this Court further held that for considering whether a particular transaction is a sale or not, what the court has to consider is whether as a result of the transaction, the property ·in the goods passed to ~he assessee in return for price and whether the assessee sold those goods as its own. Bearing in mind these principles, we shall now proceed to examine the provisions of the A. ct as well as the rele-van1 by. e;laws which take the place of agreement between the parties. It is not the case of the State thwt the Society had in any manner acted in contravention of the bye-laws.
Therefore ail that we have to find out is the true effect of the bye-laws. In this case we are dealing with a case of a "producers society". "Producers Society" is defined ins. 3(h) (2) of the Act. That definition reads : " "Producers' Society" means a society formed with the object of producing and disposing of goods as the collective property of its members and includes a society formed with the object of the collective disposal of the labour of the members of such society. " The. Society with which we are concerned in this case was evidently formed primarily with the object of selling the produce of its members as their collective produce.
The preamble to that Act says "Whereas it is expedient further to facilitate the formation and working of co-operative societies for ithe 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-ope-rative societies in the Presidency of Bombay .. " Hence two of the objectives intended to be achieved by the Act were to provide for self help by the members of the society & for mutual aid amongst its members. We must examine the bye-laws in this case in the background of the preamble to the Act as well as the definition of "Producers' Society". We shall now refer to the relevant bye-laws of the Society. Those bye-laws are in Gujarathi. They had been got translated , into English by the High Court.
But as the appellant did not A ·agree with that translation in respect of bye-Jaws 45 to 49, it got those bye-laws 1ranslated officially in this Court. Counsel for the respondent has not challenged the correctness of that translation. The Society is known as Khedut Sahakari Ginning and Pressing Society Ltd. , Etola. From this it is clear th Societies merely function as agents for the farmers who are their members. By becoming members of those Societies and subscrib· ing to their bye-laws, they had given large powers to their agents so that their produce may be sold in the best possible manner. None of the b'ye-laws nf the Society goes to show that the society had purchased the goods entrusted to it by its. members. E The High Court has referred to a number of decisions for comrng to the conclusion that under the bye-laws of the Society, the Society must be held to have purchased the cotton and cotton seeds sold by it. We see no basis for that conclusion.
The quootion whether a particular agreement is an agreement of sale F or an agreement of agency. has to be decided on the basis of the terms of that agreement. Decisions rendered on the basis of other agreements may be useful for finding out the principles to be applied in finding out the true character of an agreement but those decisions cannot conclude the question before the court as no two agreements are likely to be similar. The nature of each agreement has to be decided on its own terms. G The Tribunal, the High Court as well as the Counsel for the State have placed great deal of reliance on the decision of this Court in Rohtas T11dustries Ltd. 's case (supra). Therein the assessee was a limited liability company manufacturing cem1mt. The assessee and some other cement manufacturing companies entered into an agreement 'with the Cement Marketing Company of IniJia Ltd.
, whereby the marketing company was appointed as H the 'sole and exclusive sales manager' for the sale of cement manu-factured by the manufacturing companies and the manufacturing companies agreed not to sell directly or indirectly any cement to A any person save and except through the marketing company. The manufacturing companies were entitled to be paid a certain sum per ton of cement supplied by them or at such other rate as might be decided upon by the directors of the marketing company. The ma<keting company was authorised to sell cement at such price or prices and on such terms as it might in its sole discretion think B fit and it agreed to distribute to the manufacturing companies, in proportion to the number of tons of cement of every variety and kind supplied by the manufacturing companies, the whole of its net profit less 6 per cent, on its paid up capital.
The question was whether the transactions between the assessee and the marketing company were sales or their relationship was that of agent and principal. The court held that the cement delivered, des- C patched or consigned by the assessee to the marketing company or to its orders or in accordance with its directions was sold by the assessee to the marketing company and the same was therefore liable to be taxed under the Bihar Sales Tax Act, 1944. This Court came to that conclusion on the basis of the various clauses in the agreement. One of the clauses m the agreement relied on D by this Court for coming to the conclusion that the agreement in question was an agreement of sale was that the marketing company had to pay certain price for the cement supplied to it and that price was ordinarily required to be fixed having regard to the cost of production. Further the marketing company was entitled to fix price at which the cement was to be sold and .
such price E-could be even less than the cost of manufacture. It 1s true that some of the clauses in that agreement are similar to tl! ose we are considering in this case yet no clause in that agreement mentioned that the cement manufacturing companies were merely entrusting their cement to the marketing company nor was there any ptovi-sion in that agreement for the marketing company to advance loans 10 the manufacturers on the security of the cement entrusted to it. F Further the manufacturing companies were not required to pay any interest on the amount paid to them by the marketing company. Hence we are unable to agree with the High Court and tile Tribunal that the ratio of the decision In Rohtas Industries Ltd. 's 1 case ( ) governs the facts of this case. The decision of this Court in Hafiz Din Mohd. Haji Abdulla G 2 v. State of Maharashtra( ), does not support the contention of the State.
Therein this Court on an examination of various clauses in the agreement held that the relationship between the assessee and its representatives was that of agent and principal and not of vendors and purchasers. Therefore the State can seek no assis-tance from that decision. H (2) 12 S. T. C. 292 KHEDUT SOCIETY v. GUJARAT (Hegde, J. ) 725 A Counsel for the State relied on the decision of the High Court of Madhya Pradesh in Ramachandra Ratlwre and Bros. v. Commissioner of Sales Tax, Madhya Pradesh(') and the decision of the Bombay High Court in Varsova Kali Sahakari Vahatuk Sangh Ltd. v. State of Maharashtra(') in support of the State's case. In our opinion the agreements considered in those decisions are B wholly different in nature than the bye-laws with which we are concerned in this case.
For 'he reasons mentioned above, we allow this appeal, set aside the judgment of the High Court and discharge the answer given bly the High Court and answer the question referred to the C High Court in the negative and in favour of the assessee. The appellant-assessee is entitled to its costs both in this Court as well as in the High Court. G. C. Appeal allowed. i I) 8 S. T. C. 845. (2) 22 S. T. C. 116.
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