M/S. SAHAKARI KHANO UDYOG MANDALI LTD. versus THE STATE OF GUJARAT

Citation: [1994] SUPP. 3 S.C.R. 776 · Decided: 23-09-1994 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

A 
MIS. SAHAKARI KHANO UDYOG MANDALI LTD. 
B 
c 
D 
E 
F 
v. 
THE STATE OF GUJARAT 
SEPTEMBER 23, 1994 
[B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.] 
Sales Tax: 
Bombay Sales Tax Act, 1959/Gujarat Sales Tax Act, 1969 : 
• 
Ss.2(11), 3, 14B/2 (10)-Co-operative Society engaged 
in sugar 
Manufacture-Society obtains sugarcane from members-Advances loans 
against the sugarcane-Whether such transactions amount to purchases at-
tracting sales tax liability--ln view of the aims and objectives set out in the 
bye-laws. Whether such Society falls under the definition "dealer". 
Words & Phrases : 
''Dealer''-Meaning of in the context of Sales Tax Act of Bom-
bay/Gujarat. 
The appellant - a Cooperative Society engages itself in supply of 
seeds, manure, agricultural implements and expert advice and assistance, 
for production of sugarcane. It utilises the sugarcane supplied by the 
members for manufacture of sugar at its factory. It also grants loans to 
the members against sugarcane entrusted by them to the Society. The 
Society also ensures that the proceeds out of the sale of sugar ilre dis-
tributed to the maximum possible extent amongst the members. 
For the assessment years 1967-68 and 1968-69 the Sales tax Officer 
held that the supply of sugarcane by the members were transactions of 
purchase by the Society and so it was liable to pay Sale tax under S.14B 
G of the Bombay Sales Tax Act, 1959. 
' 
Society's appeals to the Assistant Commissioner of Sales Tax were 
dismissed. In appeal the Sales Tax Appellate Tribunal held that the matter 
was· converted by Bileshwar !(hand Udyog Mandal v. State of Gujarat, 29 
STC 105. However, at the instance of the appellant society, the Tribunal 
H referred the following questions to the High Court. 
776 
KHAND UDYOGv. STATE 
777 
1. Whether the Tribunal was right in holding that the judgment of A 
the Gujarat High Court in the case of M/s. Bileshwar Khand Udyog 
Mandal (Sales Tax Reference No. 7 of 1966 decided on July 5, 1968) has 
not been superseded by the decision of the Supreme Court in Khedut 
Sahakari Ginning and Pressing Society Ltd. (29 S.T.C. 105) and that the 
Tribunal was bound to follow the said judgment of Gujarat High Court, B 
and that in view of the said judgment the supply of sugarcane by the 
producer-member to the the Society were purchased liable to purchase tax 
under the section 14B of the Bombay Sales Tax Act, 1959? 
2. Whether on correct interpretation of the bye-laws of the applicant-
Society, the transactions of supply of sugarcane by the grower members of C 
the Society to the society were transactions of purchases by the Society, so 
as to attract the purchase tax under Section 14B of the Bombay Sales Tax 
Act, 1959? 
3. Whether the Tribunal was right in holding that in respect of 
sugarcane grown by applicant on land of the members under arrangement D 
to share profit or loss, the applicant was purchasing sugarcane from 
partnership firm and was liable to pay purchase tax in respect of the said 
sugarcane? 
A Division Bench of the High Court which initially heard the Refer-
E 
ence along with similar other References of other sugar societies, felt that 
in view of the decision of the High Court in Khedut Sahakari Ginning and 
Pressing Society Ltd. v. State of Gujarat, 29 STC 105 (which was followed by 
it in the latter case of Bileshwar Khand Udyog Mandali Ltd.) had been 
reversed by this Court, the Reference should be he~rd by a Full Bench. 
Accordingly, the Full Bench of the High Court heard the Reference along 
with the similar References. By a common judgment, the Full Bench held 
that the transactions between the Societies and their members regarding 
supply of sugarcane amounted to purchase of sugarcane from its mem-
bers. Against this decision, the appellant-Society preferred the present 
appeal. 
The appellant contended inter alia that the farmers gave sugarcane 
to the society and received advances on the security of sugarcane or sugar 
made out of their sugarcane and as such the sugarcane remained the 
property of the members throughout. Therefore, such transactions were 
F 
G 
not transactions of purchase or sale, as it is a case of entrustment of H 
778 
SUPREME COURT REPORTS [1994) SUPP. 3 S.C.R. 
A 
sugarcane by the farmers to the society for the benefit of the farmers. 
B 
Dismissing the appeal as also the connected three appeals and a 
Special Leave Petition this Court 
. 
HELD: 1.1. No doubt the Co-operative Society was formed for the 
best 

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