KHEDUT SAHAKARI GINNING & PRESSING SOCIETY LTD. versus STATE OF GUJARAT

Citation: [1972] 1 S.C.R. 714 · Decided: 14-09-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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714 
KHEDUT SAHAKARI GINNING & PRESSING SOCIETY 
LTD. 
V. 
STATE OF GUJARAT 
September 14, 1971 
(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 Novem-
ber 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 Offi-
cer 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 
in the goods passed to the a~sessce 1for 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 So-
cieties 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 pur-
chased 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 
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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 authoris-
ed 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 per-
sons 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 

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