Food Corporation of India vs State of Andhra Pradesh

Lingaraja Rath, J.—The question raised in this revision is whether the value of the broken rice, husk and rice bran, which are by-products of the paddy given by the petitioner to different millers for milling, is to be added to the turnover of the petitioner for the purpose of computation of sales tax treating such by-products to have been sold by the petitioner to the millers. The petitioner entered into agreements with different millers to whom it supplies paddy for the purpose of milling and pays hire charges and milling charges to the millers. The impugned judgment of the Tribunal shows that as per the milling agreement the petitioner had agreed to give the by-products to the millers towards hire charges and receive only rice, at a certain percentage from out of the paddy delivered for milling. The assessing officer and the Appellate Deputy Commissioner as also the Tribunal held the by-products to have been sold by the petitioner to the millers and hence the value of by-products is liable to be added to the turnover of the petitioner. The Tribunal in reaching this conclusion relied on its earlier decision in Sri Lakshminarayana Rice Mill, Gannavaram v. State of A.P. (1990) 10 APSTJ 46, in which it had held that under the terms of contract the by-products are transferred to the miller in lieu of hire charges for milling and transport charges in transporting the paddy to the mill and transporting back the resultant rice to the Food Corporation of India (for short "FCI") godowns and that in view of the definition of "sale" in section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957, which stipulates under of property in goods even for valuable consideration than cash comes within the definition of "sale" by FCI and it must be held to have transferred the property in goods, that is, the by-products by way of sale to the miller.

The teamed Government Pleader filed a memo along with a copy of the uniform agreement entered into by the FCI with the millers. A perusal of the agreement shows clause 5 to be the one regarding the remuneration and is as follows :

"5. Remuneration :

The agent hereby agrees to undertake the service as indicated in service clause B at the rate of Rs. 5 per quintal of paddy including for transport of stocks up to and inclusive of 5 kms. on both sides. However, the agent shall be reimbursed the transport charges at ...... per cent above schedule of rates indicated at appendix IV for the corresponding slab for distances beyond 5 kms., i.e., if the distance is 23 kms., the slab applicable is of 21 to 30 kms. and the rate payable will be 24 ps. per tonne per km. subject to maximum indicated in the SOR.

The rates mentioned above will include all ancillary services not specifically stated. If any of the services mentioned aforesaid are not performed proportionate reduction will be made from the remuneration payable to the agent. The decision of the Senior Regional Manager/Regional Manager shall be final in this regard."

It is conceded by the learned Government Pleader that in the agreement there is no other clause in respect of remuneration. So far as the by-products like broken rice, bran and husk are concerned the agreement provides in clause E(v) as follows :

"The by-products, viz., broken rice, rice fragments, rice bran and husk, etc., obtained in the shelling of paddy shall be the property of the agent and these products shall not be the responsibility of the FCI. However, sales tax, if any on the value of such by-products will be recovered from the miller at the rate fixed by the appropriate Government and in force from time to time."

Since in the agreement the service charge is indicated as only Rs. 5 per quintal of paddy and nothing else is indicated towards remuneration, there is no warrant to stipulate a further condition regarding remuneration, as has been done by the authorities under the Andhra Pradesh General Sales Tax Act. It is well-known that when the terms between the parties are under an agreement, the terms are sacrosanct between them and that it can neither be varied or altered or explained otherwise by adducing of oral evidence. Clause E(v) does not speak of the by-products having been allowed as remuneration for milling. All that it says is that the by-products are not the responsibility of the petitioner and concedes that these by-products are the property of the agent. There is nothing to show that the transfer of property in the goods or the by-products to be by way of sale, but only indicates that the FCI does not concern or bother itself for the broken rice, etc., for which it has no use and does not want to be burdened with the liability of transporting such broken rice to its godowns and taking up the responsibility either disposing of or selling it. No doubt the clause also provides that if there is any sales tax it shall be the responsibility of the miller. From this itself it cannot be said that there was a sale. Sales tax would be leviable only if there is a sale and if the transaction does not show that sale had taken place, the question of levy of sales tax does not arise. To decide whether a sale had taken place the essential ingredients of sale must be proved, that is, the sale had taken place for cash or deferred payment or for any other valuable consideration. The agreement is silent about such aspect. It does not also say that the transfer of property in goods is being made only for milling purpose nor there is anything to show that the goods were transferred to the millers either for cash or for deferred payment or for any other valuable consideration. The protective clause in the agreement of the sales tax, if any, being the responsibility of the miller may be one only by way of abundant caution for the FCI to protect itself from the liability of any tax at any point of time of such leaving of the goods in the premises of the miller is taken as constituting of sale. But as is said earlier, unless in fact a sale had taken place the mere presence of such a clause would not lead to the proof of there having been a sale. The transfer of property in the goods might take place even when there is no sale, say where there is a voluntary transfer or gifting away of the goods in question.

The learned Government Pleader for Taxes however submits that it was the very statement of the authorised representative of the petitioner that the abandonment of the by-products was in addition to the hire charges paid by the FCI and since that was so, it has to be held that the by-products were given to the miller as hire charges. The actual statement of the authorised representative is not available, but it appears from the order of the Appellate Deputy Commissioner as follows :

"Sri M. Appa Rao, Assistant Manager (Finance), FCI and Sri K. V. Subba Rao, Advocate for the appellants appeared before me and argued the cases. The main contention of the learned authorised representatives is that during assessment years 1981-82 and 1982-83, FCI had entered into contracts with various rice millers for custom milling of paddy and the contracts stipulated that FCI would take about 66 2/3 of the resultant rice and the balance of broken and fragmented rice would be left to the custom millers in addition to the hire charges paid by the FCI. In this connection the learned authorised representatives have drawn my attention to clause E(v) of the pro forma of the agreement copy with the miller ......".

We do not think that the statement in the order of the Appellate Deputy Commissioner that the by-products were being given to the miller in addition to the hire charges shows an admission that those were being left towards hire charges. The statement at best was an ambiguous one and that too was an observation by the Appellate Deputy Commissioner in his own language and might also mean that along with the hire charges the goods were also left with the Miller. At any rate, as we explained earlier, the clause itself does not yield any meaning of such leaving of the goods at the premises of the miller to be in any way linked with the hire charges.

The Tribunal however has proceeded exclusively on a footing of the by-products to have been left to the miller towards hire charges. Since the premise itself is wrong the order of the Tribunal is not sustainable. The decision in Sri Lakshminarayana Rice Mill, Gannavaram v. State of A.P. (1990) 10 APSTJ 46 (Trib) is a decision on its own facts. It does not show such a clause as clause E(v) of the agreement of having been considered by the Tribunal. In the circumstances we find the order of the Tribunal as well as the assessing officer and the Appellate Deputy Commissioner to be not sustainable and set aside.

The petition is allowed. No costs.

Petition allowed.