2005 INSC 0309
                                    SUPREME COURT OF INDIA

                                           State of Uttar Pradesh

                                                      Vs.

                                            Kanodia Flour Mills

                                             C.A.No.73 of 2000

                        (C. K. Thakker, Mrs.Ruma Pal and Arijit Pasayat JJ.)

                                                 16.03.2005

                                                JUDGMENT

C. K. Thakker, J.

1. The question in issue in this appeal is as to who is liable to pay purchase tax under the U.
P. Sales Tax Act, 1948:

2. Explanation II to section 3-D of the Act provides as :

        "Explanation II.-For the purposes of this sub-section, in relation to purchase of
        foodgrains in pursuance of any order made under section 3 of the Essential
        Commodities Act 1955, including any purchase in excess of the levy share, the
        purchase first made by a dealer from the State Government or its purchasing agent
        shall be the first purchase of such foodgrains and the tax shall accordingly be levied at
        that point on such dealer."

3. The Explanation was construed in a decision of the High Court in Rajin-dra flour and
Allied Industries (Put.) Ltd. v. State of Uttar Pradesh1 in which it was held that unless it was
established that the purchases of foodgrains by the Regional Food Controller were in
pursuance of any order made under section 3 of the Essential Commodities Act, 1955, the
purchasers from the Regional Food Controller would not be treated as a first purchaser and
the Regional Food Controller would be liable to issue form IIIC(2) to the roller flour mills
certifying in respect of the wheat sold by it to the roller flour mills.

3. In this case the Regional Food Controller, Varanasi, had sold rejected wheat to the
respondents-flour mills. The appellant sought to levy purchase tax on the respondent on the
ground that the respondents were the first purchasers of the rejected wheat. It was contended
by the appellant that by virtue of Explanation II to section 3-D of the Act, the respondents
were deemed to be the first purchasers of the wheat. The High Court negatived this
contention following the decision in Rajindra Flour and Allied Industries (Pvt.) Ltd.. The
High Court directed the Regional Food Controller at Varanasi and Regional Food Controller,

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Moradabad, to issue the requisite certificates in form mC(2) to the respondents for the wheat
sold by them to the assessees for the financial years 1982-83 and 1983-84.

4. After the appeal was preferred to this court, no stay was granted to the appellant. In due
compliance with the order of the High Court the requisite forms were furnished by the
appellant to the respondents and the respondents have produced the same before the
assessing authorities. It is submitted by the learned counsel appearing on behalf of the
respondents that this appeal has become infructuous. We do not agree. The appellant was
bound to comply with the High Court's order in the absence of any stay granted by this court.
By complying with the order it could not be said that the appellant have in any fashion
waived the rights to pursue their appeal before this court.

5. According to the appellant, the High Court had misconstrued the decision in Rajindra
Flour and Allied Industries (Pvt.) Ltd. It is pointed out to us that the division Bench in that
case has found, as a matter of fact that there was nothing to show that the orders passed by
the State Government for purchasing the rejected wheat by the roller flour mills was issued
under the provisions of the Essential Commodities Act. Learned counsel appearing for the
appellant has pointed out to us that, in this case, it was on record that the wheat had been
procured under the Support Price Scheme. During the years 1981-82 and 1982-83, all orders
for purchase under the scheme had been issued under section 3 of the Essential Commodities
Act, 1955. We have satisfied ourselves that this fact was on record before the High Court.
The High Court has failed to address its mind to this distinguishing element. A reading of the
decision in Rajindra Flour and Allied Industries (Pvt.) Ltd. appears to be correct. The High
Court should have considered the truth of the statement as made by the appellants in their
counter-affidavit read with the letter dated September 5, 1985. Accordingly, we set aside the
decision of the High Court and remand the matter back in order to enable the High Court to
redetermine this fact.

6. The appeal is, accordingly, allowed but without any order as to costs.

1[1994] UPTC 1017

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