M. Krishna Rao, J.
1. These writ petitions involve a common question for determination and hence they may be conveniently disposed of by a single judgment. All the petitioners are commission agents. They sell jaggery which was entrusted to them by their principals who are agriculturists and who grow sugarcane which is converted into jaggery.
2. It is now settled law that the commission agent is liable to pay sales tax only if his principal is liable. In all these cases, the petitioners allege that their principals are not liable to pay sales tax as they do not carry on any business in jaggery. It is stated that their principals grow sugarcane in their own lands merely to derive agricultural income and that in order to convert it into a marketable commodity not liable to speedy deterioration and easy of transport, they convert their own sugarcane into jaggery for the purpose of deriving their agricultural income and not with the object of carrying on any business. It is, therefore, urged that as their principals are not liable to pay sales tax, they are also not liable. In some of the above writ petitions, the petitioners paid the tax to the authorities and hence they prayed for quashing the assessment orders and consequential refund of the amounts. There are some other writ petitions in which assessments are sought to be quashed, but no appeals were filed by the assessees. There is yet another category in which the assessees prayed for a writ of prohibition restraining the authorities from proceeding with the assessments, As the assessees raised the question as regards the validity of explanation II of Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, these writ petitions have been entertained by this court instead of directing the assessees to seek their remedies under the Act.
3. On behalf of the assessees Sri T.K. Sampath, Sri E. Manohar, Sri I.V. Rangacharya and Sri S. Dasaratharama Reddy addressed arguments raising the following contentions: Explanation II, which was added by the Andhra Pradesh Amending Act 16 of 1963 to Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, which defines a 'dealer', is void on the ground of repugnancy, being opposed to the main definition. Even if the explanation is to be regarded as valid, it is still necessary to prove that the person is a dealer doing 'business' as defined in Section 2(1)(bbb). For this purpose, it is pointed out that the taxing authorities should take evidence to find out whether any particular grower is carrying on business in jaggery.
4. On the other hand, the learned Government Pleader for sales tax contended that the explanation is a deeming provision and when the grower of sugarcane who converts the cane into jaggery is deemed to be a dealer, it is not necessary further to establish that he also does business as defined in Section 2(1)(bbb) and that the growers are automatically liable to pay tax as if they are dealers. In this view, it is urged that no enquiry need be conducted as to whether the growers actually carried on business in jaggery,
5. In order to appreciate the point of controversy, it will be useful to cite the relevant provisions of the Andhra Pradesh General Sales Tax Act (6 of 1957):
2. (1) In this Act, unless the context otherwise requires, --
(bbb) 'business' includes, --
(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce, or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and
(ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern;
(c) 'casual trader' means a person who has, whether as principal, agent, or in any other capacity, occasional transactions of a business nature involving the buying, selling, supplying or distributing of goods in the State whether for cash, or for deferred payment, or for commission, remuneration, or other valuable consideration....
(e) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes....
(iii) a casual trader, as hereinbefore defined;
(iv) a commission agent, a broker, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal or principals.
Explanation I--Every person who acts as an 'agent of a non-resident dealer', that is, as an agent on behalf of a dealer residing outside the State, and buys, sells, supplies or distributes goods in the State or acts on behalf of such dealer as...shall be deemed to be a dealer for the purposes of the Act.
Explanation II. -- Where a grower of agricultural or horticultural produce sells such produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, in a form different from the one in which it was produced after subjecting it to any physical, chemical or any process other than mere cleaning, grading or sorting, he shall be deemed to be a dealer for the purposes of this Act(s) 'turnover' means the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at. the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof:
Provided that in the case of a sale by a person whether by himself or through an agent of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest, whether as owner, usufructuary mortgagee, tenant or otherwise, the amount of the consideration relating to such sale shall be excluded from his turnover when such produce is sold in the form in which it was produced, without being subjected to any physical, chemical or other process for being made fit for consumption save mere cleaning, grading or sorting.
6. Section 5 is the charging section imposing a tax liability on the total turnover of every dealer.
7. The question relating to the validity of explanation II to Section 2(1) (e) has to be decided on a consideration of the true nature of an explanation introducing a deeming provision. I will refer to the cases cited before me. On behalf of the petitioners reliance is placed on A. Kannu v. State of Madras [1971] 27 S.T.C. 25, in which it was observed that it is a fundamental principle that an explanation should not run contra or interfere with the normal course of the operation of the principal clause. In State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.), the Supreme Court held that it is not open to the State Legislature to tax a transaction by deeming it a sale, while it is not a sale, as it would be ultra vires of entry 54 in List II of the Seventh Schedule of the Constitution. In that sense, it was held that a deeming provision was ultra vires. In Sugauli Sugar Works (Private) Ltd. v. Assistant Registrar, Co-operative Societies, Motihari A.I.R. 1962 S.C. 1367, it was pointed out by the Supreme Court that an explanation cannot be read as adding a new head to the categories already enumerated in the section. Bat, in the context of the case, the Supreme Court held that there was no such addition to the categories mentioned in the section. But, this is not a case of an explanation containing a deeming provision. Reference is next made to Bihta Cooperative Development and Cane Marketing Union Ltd. v. Bank of Bihar A.I.R. 1967 S.C. 389, in which it was held by the Supreme Court that an explanation must be read so as to harmonise with and clear up any ambiguity in the main section and cannot be so construed as to widen the ambit of the section. But this is also not a case of explanation introducing a deeming provision. In Century Club v. State of Mysore [1965] 16 S.T.C. 38, the Mysore High Court held that an explanation deeming a transaction as a sale which in fact is not, is beyond the scope of the Mysore Sales Tax Act. But, here as in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.), the decision is based upon the legislative competence.
8. The learned Government Pleader invited my attention to Krishna Ayyan-gar v. Nallaperumal Pilial (1920) I.L.R. 43 Mad. 550, in which the Privy Council stated as follows:
The construction of the explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used.... The question is, what does the explanation mean?
No statement made on the introduction of the measure or its discussion can be looked at as affording any guidance as to the meaning of the words.
9. In Chipping and Painting Employees' Association Pvt. Ltd., Bombay v. A.T. Zambre A.I.R. 1969 Bom. 274, the effect of the words 'shall be deemed to have voluntarily abandoned his services' has been construed as equivalent to an inference drawn by a fiction of law and the question of further finding the intention as to the abandonment of services is irrelevant. The relevant standing order of the Industrial Employments (Standing Orders) Act, 1946 (Section 13-A) provides that a workman who fails to report for work within a fortnight of the expiry of leave originally granted or subsequently extended, shall be deemed to have voluntarily abandoned his services and shall not be allowed to resume his duties. In this connection, it was held that the deeming provision is an inference to be drawn by a fiction of law from the fact that the workman has failed to report within a particular time. The question of intention as to whether a workman intended to abandon his services or not may be relevant in some cases for a finding of fact whether a workman has abandoned his services. But, where abandonment is to be inferred from a given fact by a fiction of law, the question of intention would not arise, nor a question of actual abandonment. In such a case, the Labour Court ought not to go into the question of intention and the fact of abandonment. The standing order creates a fiction of law and the common law principle has no application. In St. Aubyn v. Attorney-General [1952] A.C. 15 at 63, the effect of the word 'deemed' is explained as follows:
The word 'deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.
10. In the said case, what was really not a transfer was deemed to be a transfer for the purpose of estate duty under Section 58(2) of the English Finance Act, 1940. In Commissioner of Income-tax, Bombay v. Bombay Trust Corporaration A.I.R. 1930 P.C. 54, the provisions of sections 42 and 43 of the Indian Income-tax Act, 1922, were construed. The words 'deemed to be an agent for all purposes of the Act' were taken to mean deemed for the purpose of levying income-tax. When a person is deemed to be something, the only meaning possible is that whereas he is not in reality that something, the Act of Parliament requires him to be treated as if he were. It was further held that though the agent is not a person in actual receipt of profits, the deeming provision under Section 43 puts the person artificially in the position of agent and of assessee though he may not have received the profits as required by Section 42. Reference has been made to State of Bihar v. Md. Ismail A.I.R. 1966 Pat. 1, for the proposition that an explanation or a proviso is added sometimes by way of an exception to what is stated in the main section. Sometimes an explanation stresses upon a particular thing which, ordinarily, would not appear clearly in the provision of the main section. In Public Prosecutor v. A.J. Gladstone (1963) 2 An. W.R. 388, it was pointed out that an explanation can enlarge the scope of the main section.
11. In State of Bombay v. Panduranga Vinayak (4) A.I.R. 1953 S.C. 244, it is said as follows:
When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion.
12. In East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] A.C. 109 at 132, the same principle is put in this form:
If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corrollaries of that state of affairs.
13. Another illustration of a deeming provision is contained in K. Kama-raja Nadar v. Kunju Thevar A.I.R. 1958 S.C. 687, under Section 55-A(5) of the Representation of the People Act. It provides that any person who has given a notice of retirement under Section 55-A(2) is deemed not to be a contesting candidate for the purposes of Section 52. This is a deeming provision and creates a legal fiction. The effect of such a legal fiction however is that a position which otherwise would not obtain is deemed to obtain under those circumstances. To the same effect is Commissioner of Income-tax, Delhi v. Teja Singh [1959] 35 I.T.R. 408 (S.C.), in which it is observed as follows:
It is a rule of interpretation well-settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate.
14. In Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer A.I.R. 1961 S,C. 315 at 321 (para. 20), the rule of interpretation is stated as follows:
Now the explanation must be interpreted according to its own tenor, and it is meant to explain clause (1)(a) of the article (286 of the Constitution) and not vice versa. It is an error to explain the explanation with the aid of the article, because this reverses their roles. The explanation discards the test of passing of property, and adopts the test of delivery as a direct result of the sale for purposes of consumption.
15. It is seen from the foregoing authorities that the deeming provision can be introduced either as an explanation or as a proviso and it has never been struck down on the ground that it is opposed to the spirit of the main section. By virtue of the deeming provision, a legal fiction is created and we have to assume that certain things exist though they really do not exist, and not only assume their existence but we have to give full effect to all the consequences as if it were a real state of affairs. We are familiar with the supreme powers of the Legislature in enacting retrospective laws validating invalid actions. The power to create a legal fiction or an imaginary state of affairs is indeed one of the magic powers of the Legislature. So long as the said power does not go beyond the legislative competence, the deeming provision cannot be held to be invalid. In the present case, the deeming provision says that an agricultural grower of sugarcane who converts the same to jaggery and sells it should be regarded as a 'dealer' for all purposes of the Act. It follows, therefore, that such a person satisfies the definition of 'dealer' wherever the word occurs in the Act, either in the definition clause (e) or in the charging Section 5. It is no longer necessary to investigate whether such a person satisfies the definition of a 'dealer' as a person who carries on business.... The requirement of doing business as a continued activity is assumed by virtue of legal fiction. When by such legal fiction the persons contemplated in explanation II come within the definition of 'dealer' under clause (e), the requirement of carrying on business is also assumed to be present by virtue of the legal fiction. In any event, the definition of business which is an inclusive definition, takes within its ambit the process of manufacture simpliciter. The provisions of explanation II are also in accord with the proviso to the definition of 'turnover' in clause (s). The two provisions save only the process of cleaning, grading and sorting of agricultural produce so as to make it fit for consumption but not other processes. In the case of deeming provisions by which certain transactions which are deemed to be sales, it was held that it is not competent to the Legislature to levy tax on a transaction which is not a sale as defined under the Sale of Goods Act. But, in the present case, the introduction of a fiction by treating certain persons as dealers, though they may not strictly come under the definition of 'dealer', does not affect the powers of the Legislature. It is, therefore, incorrect to say that the explanation either goes beyond the spirit of the Act or that the section is repugnant to any other provision. In fact in all cases where a deeming provision or a proviso is added to a section, it is in a sense not in consonance with the main section. A proviso or a deeming provision has always the effect of either enlarging or delimiting the scope of the main section. But, so long as the Legislature can enact such provisions, they are perfectly valid. If, according to the petitioners' contention, we have to find out in every case whether an agricultural grower of sugarcane satisfies the definition of a 'dealer' in the sense that he is engaged in a continued activity of trade, what is the need for adding explanation II at all? The very purpose of introducing explanation II is to bring within the net of taxation all those sugarcane growers who manufacture jaggery and who do not normally come within the definition of a 'dealer'. Even under the first explanation to the definition of 'dealer' the Legislature has included by way of deeming provisions various types of agents, who do not strictly come under the definition of 'dealer'.
16. In this view of the matter, it is unnecessary to consider the decision of the Supreme Court in Deputy Commissioner of Agricultural Income-tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co. [1967] 20 S.T.C. 620 (S.C.), in which the Supreme Court held that in order to come within the definition of 'dealer' a person must carry on business and his activity must consist of a course of dealings.
17. I will now refer to the decision in A. Kannu v. State of Madras [1971] 27 S.T.C. 25, on which strong reliance is placed on behalf of the petitioners, as a case which is directly in point. It is, therefore, necessary to examine this case in detail. An agriculturist filed a writ petition challenging the levy of sales tax on the sale of jaggery manufactured and sold by him out of his own sugarcane. One of the contentions raised was that the explanation to Section 2(r) of the Madras General Sales Tax Act, 1959, violates the real sense of the definition and that it should be struck down as ultra vires of the powers of the local Legislature. Section 2(r) of the said Act defines 'turnover' in the same manner as the Andhra Pradesh Act and the proviso thereto excludes the sale proceeds of agricultural and horticultural produce. Explanation I to the said proviso says that agricultural produce shall not include produce which is subjected to physical, chemical or other processes, but not mere cleaning, grading, sorting or drying. The contention was rejected and it was held that the explanation is merely elucidatory and is perfectly valid. The next contention raised in the said case which is relevant for our discussion is that the agriculturist cannot be said to be carrying on business and that he is not a dealer as he was merely converting his agricultural produce into money and manufactured jaggery with the simple object of making it a marketable produce and not with the idea of doing business. It was held that in spite of the explanation to the definition of 'turnover' in Section 2(r) of that Act, the definition of 'dealer' as a person engaged in business activity should be satisfied. The said decision has absolutely no applicability to the instant case for the simple reason that the definition of 'dealer' in the Madras Act did not contain a provision corresponding to explanation II of the Andhra Pradesh Act which is now in question. I do not, therefore, agree that this decision at all supports the petitioners' contention. The learned counsel for the petitioners also invited my attention to certain cases arising under the Income-tax Act as to what is meant by agricultural income. No useful purpose will be served by referring to these decisions, as the Income-tax Act deals with taxation on income while the taxable event under the Sales Tax Act is a sale and not income.
18. For all the above reasons, I hold that explanation II to Section 2(1) (e) of the Andhra Pradesh General Sales Tax Act, 1957, is valid. The further contention that even if the explanation is valid it is still necessary to establish in every case whether the person has been carrying on business, cannot be accepted. It follows, therefore, that all the writ petitions are dismissed with costs. Government Pleader's fees Rs. 50 in each.