Case Note & Summary
The judgment arises from a batch of civil appeals and special leave petitions before the Supreme Court involving the Food Corporation of India (FCI) and various States, principally the State of Kerala, concerning the levy of sales tax or purchase tax on transactions under the Essential Commodities Act, 1955. The common question was whether FCI is liable to pay sales/purchase tax to the States while purchasing foodgrains or distributing fertilizers pursuant to orders issued under Section 3 of the Essential Commodities Act, 1955. There was a conflict among High Courts: the Allahabad High Court (Lucknow Bench) held FCI liable, the Punjab and Haryana High Court held it not liable, and the Andhra Pradesh and Kerala High Courts held FCI liable on fertilizer distribution. The Supreme Court granted leave in all special leave petitions and heard arguments on the common questions. The factual background, as noticed by the Allahabad High Court, involves FCI, a corporation incorporated under the Food Corporation Act, 1964, which maintains a national pool of foodgrains. Different States issue levy orders, procurement orders, or requisition orders under the Essential Commodities Act to purchase foodgrains from farmers or millers. The procurement is done through different agencies, and after obtaining the required quantity, the foodgrains are purchased by FCI from the State Governments for the national pool. The Uttar Pradesh Sales Tax Department sought to levy purchase tax on FCI at the point of its purchases from the State of U.P. Explanation II to Section 3-D(i) of the U.P. Sales Tax Act, added retrospectively by U.P. Act No. 23 of 1976, deemed the purchase by a dealer from the State Government or its purchasing agent to be the first purchase for the purpose of tax. Additionally, Section 3-F of the U.P. Sales Tax Act imposed an additional tax at 5% on dealers whose turnover exceeded Rs. 10 crores; FCI's turnover exceeded this threshold, so additional tax was also demanded. FCI challenged the validity of Explanation II and Section 3-F as discriminatory, arbitrary, and unreasonable. The principal legal issue was whether levy procurement of foodgrains under statutory orders constitutes a sale within the meaning of Section 2(h) of the U.P. Sales Tax Act and Entry 54 of List II of the Seventh Schedule to the Constitution. Related issues included the validity of the retrospective Explanation II and the additional tax under Section 3-F, as well as whether the earlier Supreme Court decision in Chitter Mal Narain Das v. Commissioner of Sales Tax remained good law. The appellant FCI argued that levy procurement is compulsory acquisition by the State in exercise of eminent domain, with no consent or consensus, and therefore not a sale; that Explanation II is ultra vires Entry 54 and impermissibly creates a fictional first sale; that double taxation is impermissible; and that Section 3-F is arbitrary and violative of Article 14. The States relied on subsequent decisions of larger benches of the Supreme Court that adopted a liberal interpretation of sale and argued that FCI is liable to tax. The provided judgment text ends during the appellant's submissions and does not include the court's analysis or final decision. Therefore, the final holding, ratio decidendi, and operative directions cannot be stated from the text available.
Headnote
A) Sales Tax - Definition of Sale - Whether levy procurement under statutory orders constitutes a sale under Section 2(h) of U.P. Sales Tax Act, 1948 - U.P. Sales Tax Act, 1948, Section 2(h) - The appellant contended that levy procurement of foodgrains under Essential Commodities Act orders is compulsory acquisition with no volition or consensus, and therefore not a sale. The court examined the prior decision in Chitter Mal Narain Das v. Commissioner of Sales Tax which held no sale in similar circumstances B) Constitutional Law - Legislative Competence - Levy procurement as compulsory acquisition under Entry 42 List III versus sale under Entry 54 List II - Constitution of India, Seventh Schedule, Entry 54 List II - The appellant argued that levy procurement is an exercise of eminent domain and falls outside Entry 54, making the State sales tax legislation ultra vires. The court was called upon to determine the character of the transaction C) Statutory Interpretation - Retrospective Levy - Validity of Explanation II to Section 3-D(i) of U.P. Sales Tax Act - U.P. Sales Tax Act, 1948, Section 3-D(i), Explanation II - The appellant challenged the retrospective fiction that purchase by FCI from State Government is deemed first purchase, arguing it is ultra vires Entry 54 and leads to double taxation. The court considered the constitutional validity of the provision D) Constitutional Law - Equality Clause - Arbitrariness of additional tax under Section 3-F of U.P. Sales Tax Act - U.P. Sales Tax Act, 1948, Section 3-F; Constitution of India, Article 14 - The appellant contended that the 5% additional tax on dealers with foodgrain turnover exceeding Rs. 10 crores was arbitrary and discriminatory. The court was required to examine whether this provision violates Article 14
Issue of Consideration
Whether the Food Corporation of India is liable to pay sales/purchase tax to the States while purchasing foodgrains or in distributing fertilizers pursuant to orders issued under Section 3 of the Essential Commodities Act, 1955.
Law Points
- Levy procurement under Section 3 of Essential Commodities Act
- 1955 may be compulsory acquisition and not sale
- Definition of sale under Section 2(h) of U.P. Sales Tax Act
- 1948
- Compulsory acquisition under Entry 42 List III versus sale under Entry 54 List II of Seventh Schedule
- Retrospective levy through Explanation II to Section 3-D(i) of U.P. Sales Tax Act challenged as ultra vires
- Additional tax under Section 3-F of U.P. Sales Tax Act challenged as arbitrary under Article 14
