Appeals Nos
1153 to 1160 and 1161 to 1168 of 1968
Appeals by special leave from the judgment and order dated November 16 1967 of the Madhya Pradesh High Court in Misc
Civil Cases Nos 96 to 103 of 1967
I N Shroff for the appellant in CAs
Nos 115 3 to 1160 of 1968 and the respondent in CAs
1161 to 1168 of 1968
ST Desai BL Neema and Anjali Varma for the appellant in CAs
1161 to 1168 of 1968 and the respondent CAs
1153 to 1160 of 1958
ND Karkhanis and 11
G Ratnaparkhi for the intervener in C Pa Nos 1153 to 1160 of 1968
The judgment of the Court was delivered by Grover J
This judgment will dispose of two sets of cross appeals Nos
1153 1160  1161 116868 which are from a common judgment of the Madhya Pradesh High Court and have been entertained by special leave
The relevant assessment years for the purpose of levy of sales tax are from April 1 1957 to March 31 1958
and April 1 1964 to March 31 1965
For the assessment years prior to April 1 1959 the enactment in force was the CP and Berar Sales Tax Act 1947 No XXI of 1947 and for the subsequent two years it is the Madhya Pradesh General Sales Tax Act Act No 2 of 1959 which would be applicable
material facts may be shortly stated The assessee Madhya Pradesh Electricity Board hereinafter called the Electricity Board  is a body constituted under section 5 of the Electricity Supply Act 1948
Under section 944 18 of that Act it was the general duty of the Electricity Board to promote coordinated development of the generation supply and distribution of electric energy within the State of Madhya Pradesh in the most efficient and economical manner
In the assessment years in question the Electricity Board sold supplied and distributed electric energy to various consumers
It also sold coal ash a waste product and Supplied steam to Nepa Mills of Burhanpur
It further supplied specification and tender forms on payment to persons desirous of submitting tenders for the works undertaken by the Electricity Board
It purchased articles like Gitti Murram sand etc
from unregistered dealers
It is common ground that under the provisions of Act XXI of 1947 and H of 1959 read with the  Schedule contained therein sale of electricity is exempt from sales tax
For the purpose of determining the gross turnover however the sale of electric energy is to be taken into account
The Assistant Commissioner of Sales tax assessed the Electricity Board to tax on its turnover of sale of coal ash and specification and tender forms and the supply of steam to Nepa Mills
The Board was further assessed to purchase tax on Gitti Murram etc
purchased from unregistered dealers
In appeal the Deputy Commissioner Sales Tax upheld the assessment orders
On second appeal the Sales Tax Tribunal which was the Board of Revenue Madhya Pradesh held that the Electricity Board was not a dealer within the meaning of that term as defined in the two Acts and that the coal ash was not produced for the purpose of sale with the result that sales of coal ash could not be subjected to tax
As regards the supply of steam to Nepa Mills the tribunal on examining the terms of the agreement under which the Electricity Board supplied the steam came to the conclusion that such supply was an isolated transaction and that such activity which had been undertaken on no profit no loss basis could not be assessed to sales tax
The specification and tender forms were held not to be marketable goods involving any profit element and for that reason could not be taxed
As regards the purchase tax the tribunal held that as the Electricity Board was not a dealer in respect of the sale and supply of electric energy no purchase tax could be imposed on goods purchased by it and consumed in furtherance of and in aid of the business activity of generating supplying and distributing electricity
 Both the Electricity Board and the Commissioner of Sales Tax
Madhya Pradesh filed applications requiring the Tribunal to refer to the High
Court certain questions of law arising out of its common order
The tribunal drew up a common statement of case and referred five questions of law
On the first question the High Court held that the Electricity Board could not be held to be dealer as defined in section 2c of Act XXI of 1947 or section 2d 942 of Act H of 1959 in respect of its activity of generation distribution sale and supply of electric energy
On the second question it was held that as the Electricity Board regularly and continuously produced coal ash as a subsidiary product and sold it regularly it was a dealer in regard to the sale of coal ash and the sale transactions relating to this product were liable to be assessed to sales tax
The third question was answered in favour of the Electricity Board
It was found that stem was not being supplied to the Nepa mills with profit motive although it fell within the definition of goods given in the two Acts
As regards the specification and tender forms the High Court was of the view that the Electricity Board was not carrying on any business of selling such forms and therefore no sales tax could be levied in respect of them
The fifth question was answered by holding that as the Electricity Board was not a dealer in respect of sale and supply of electric energy it was not entitled to purchase any taxable goods for consumption or use for producing such energy without paying sales tax to the selling dealer under section 46 of Act XXI of 1947 and section 7 of Act II of 1959 and therefore there
was no liability to pay purchase tax
Mr Shroff who has argued the appeals of the Commissioner of Sales Tax has not quite properly and rightly pressed the matter relating to imposition of sales tax on supply of specification and tender forms
Mr ST Desai who has
appeared for the Electricity Board after a certain amount of argument has submitted that he had nothing much to say on the question relating to coalash except that it should be held to be exempt from payment of sales tax because electric energy is exempt from such tax as stated before
As regards the fifth question relating to the imposition of purchase tax Mr Desai has not pressed for any decision being given by us
Arguments which have been addressed by both sides have therefore centered on question nos
1 and 3 which are as follows  1 On the facts and circumstances of the case whether or not the Madhya Pradesh Electricity Board is a dealer within the meaning of section 2c of the CP  Berar Sales Tax Act and section 2d of the Madhya Pradesh General Sales Tax Act 1958 in respect of its activity of generation distribution sale and supply of electrical energy  2 3 On the facts and circumstances of the case whether or not steam is saleable goods and if they are saleable goods is the turnover representing the supply thereof liable to be assessed to sales tax m the hands of the assessee  943 it is somewhat curious that both sides are almost agreed that the decision of the
High Court on the first question is not correct
Since enunciation of the true position is involved we proceed to give our opinion in the matter
The definition of a dealer as given in the two Acts substantially is that any person who carries on the business of buying selling supplying or distributing the goods as a dealer and goods are defined by s2d of Act of 1947 as meaning all kinds  of movable property other than actionable claims  and include all materials articles and commodities whether or not to be used in the construction fitting out improvement or repair of immovable property
The definition contained in section 2g of Act II of 1959 is almost in similar terms except that there are certain additions with which we are not concerned
Reference may be made at this stage to the definition of movable property which has not been defined in the two Acts given in section 224 of the Madhya Pradesh General Clauses Act
It has been defined to mean property of every description except immovable property
Section 218 of that Act says that immovable property includes land
benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth
 The High Court went into a discussion from the point of view of mechanics relating to transmission of electric energy
It was of the view that electricity could not be regarded as an article or matter which could be possessed or moved or delivered
It relied on certain decisions and referred to Entries Nos 53 and 54 in List II of Seventh Schedule to the Constitution and held that electricity did not fall within the meaning of goods in the two Acts and therefore the Electricity Board could not be held to be a dealer in respect of its activity of generation distribution sale and supply of electric energy
Mr IN Shroff has relied on certain decisions in which the same point was involved as in the present case
namely whether electricity is goods for the purpose of imposition of sales tax  In Kumbakonam Electric Supply Corporation Ltd vs Joint Commercial Tax Officer Esplanade Division Madras1 the Madras High Court was called upon to decide whether electricity is goods for the purposes of the Madras General Sales Tax Act 1959 and the 
After referring to the definition of goods as given in the  it was observed that under that definition goods must be property and it must be movable
According to the learned Madras Judge any kind of property which is movable would fall within the definition of goods provided it was transmissible or transferable from hand to hand or capable of delivery which need not necessarily be in a tangible or a physical sense
Reference was also 1 14 STC 600
L6 Sup
C I169 9 944 made to the definition given in the General Clauses Act which was quite wide and it was held that if electricity was property and it was movable it would be goods
The learned Judge found little difference between electricity and gas or water which would be property and could be subjected to a particular process bottled up and sold for consumption
It was observed that electricity was capable of sale as property as it was sold purchased and consumed everywhere
A dealer was defined by the practically in the same way as in the Madras General Sales Tax Act and it meant a person who carried on business of buying and selling goods
In the opinion of the learned Judge the concept of dealer goods and sale comprehended all kinds of movable property
He further relied on certain decisions which have been cited before and which will be presently noticed
A similar view was expressed by Tek Chand J of the Punjab  Haryana High Court in Malerkotla Power Supply Company vs The Excise  Taxation Officer Sangrur  Ors1 It was held that electric energy fell within the definition of goods in both the Punjab Sales Tax Act 1948 and the 
According to the learned Judge electric energy has the commonly accepted attributes of movable property
It can be stored and transmitted
It is also capable of theft
It may not be tangible in the sense that it cannot be touched without considerable danger of destruction or injury but it was perceptible both as an illuminant and a fuel and also in other energy giving forms
Electric energy may not be property in the sense of the term movable property as used in the Punjab  Central General Clauses Acts in contra distinction to immovable property but it must fall within the ambit of goods even if in a sense it was intangible or invisible
As pointed out in the Madras case the statement contained in American Jurisprudence2 recognises that electricity is property capable of sale and it may be the subject of larceny
In Naini Tal Hotel vs Municipal Boarda it was held that for the purpose of article 52 of the Indian Limitation Act electricity was property and goods
In Erie County Natural Gas  Fuel Co Ltd vs Carroll4 a question arose as to the measure of damages for a breach of contract to supply gas
Lord Atkinson delivering the judgment of the Privy Council applied the same rule which is applicable where the contract is one for sale of goods
In other words gas Was treated to be goods
The High Court in the present case appears to have relied on Rash Behari vs Emperor5 in which approval was accorded to the statement in Pollock  Mulla s Commentary on Sale Goods Act 1913 that it was doubtful whether that Act was applicable to such goods as gas water and electricity
The context 1 22 STC 325
2 18 American Jurisprudence 407 section 2 Electy 3 AIR 1946 All 502
4 5 AIR 945 which this matter is discussed in the Calcutta case is altogether different and distinguishable and what was being decided there was the scope and ambit of section 39 of the Electricity Act 1910 As regards the Entries in List 11 of the Seventh Schedule to the Constitution the relevant ones may be produced 53
Taxes on the consumption or sale of electricity
Taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of List I
The reasoning which prevailed with the High Court was that a well defined distinction existed between the sale or purchase of goods and consumption or sale of electricity otherwise there was no necessity of having Entry No 53
But under Entry 53 taxes can be levied not only on sale of electricity but also on its consumption which could not probably have been done under Entry 54
It is difficult to derive much assistance from the aforesaid entries
What has essentially to be seen is whether electric energy is goods within the meaning of the relevant provisions of the two Acts
The definition in terms is very wide according to which goods means all kinds of movable property
Then certain items are specifically excluded or included and electric energy or electricity is
not one of them
The term movable property when considered with reference to goods as defined for the purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like for instance a piece
of wood or a book it cannot cease to be movable property when it has all the attributes of such property
It is needless to repeat that it is capable of abstraction consumption and use which if done dishonestly would attract punishment under section 39 of the 
It can be transmitted transferred delivered stored possessed etc
in the same way as any other movable property
Even in Banjamin on Sale 8th Edn reference has been made at page 171 to County of Durham Electrical etc Co vs Inland Revenue1 in which electric energy was assumed to be goods
If there can be sale and purchase of electric energy like any other movable object we see no difficulty in holding that electric energy was intended to be covered by the definition of goods in the two Acts
If that had not been the case there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedules to the two Acts
It cannot be denied that the Electricity Board carried on principally the business of selling supplying or distributing electric energy
It would therefore clearly fall within the meaning of the expression dealer   in the two Acts
1 946 As regards steam there has been a good deal of argument on the question whether it is liable to be assessed to sales tax in the hands of the Electricity Board
According to Mr Shroff the Electricity Board carried on the business of selling steam to the Nepa Mills and that this has lasted for a number of years
It has been submitted that simply because the Electricity Board does not have any profit motive in supplying steam it cannot escape
payment of sales tax because the steam is nevertheless being sold as goods
The High Court was of the view that the water which the Nepa Mills supplied free to the Electricity Board became the property of the Board and in return for this free supply the Board agreed to give steam to Nepa Mills at a rate based solely on the coal consumed in producing steam
The mills had also agreed to reimburse the Electricity Board for the loss sustained on account of the mills not taking the full demand of steam
According
to the High Court there was no contract for the sale of steam as such and it was only for the labour and cost involved in its supply to the mills
The High Court relied on the findings of the Tribunal on this point and held that the turnover in respect of steam was not taxable
The tribunal in its order dated June 16 1966 referred to certain conditions of working arrangement which was reduced to writing but which had not been properly executed as a contract which showed that the mills was supplying water free and the Electricity Board was making a pro rata charge of conversion of water into steam
It seems to us that the High Court was right in coming to the conclusion on the finding of the tribunal that the real arrangement was for supplying steam on actual cost basis and in that sense it was more akin to a labour contract than to sale
Mr Shroff has argued that the document which was relied upon by the tribunal could not be looked at as it was neither admissible in evidence nor had it been properly executed as a contract between the Electricity Board and the mills and it happened to be a mere draft of an agreement which was proposed to be entered into
It is too late for Mr Shroff to take these objections because these should have been raised before the Tribunal and the High Court
It is stated in Halsbury s Laws of England III Edn
34 page 6 that a contract of sale of goods must be distinguished from a contract for work and labour
The distinction is often a fine one
A contract of sale is a contract whose main object is the transfer of the property in and the delivery of possession of a chattel as a chattel to the buyer
Where the main object of work undertaken by the payee
of the price is not the transfer of a chattel qua chattel the contract is one for work and labour
It has been laid down by this Court in The Government of Andhra Pradesh vs Guntur Tobaccos Ltd1 that in business transactions 1 16 STC 240
947 the works contracts are frequently not recorded in writing setting out all the covenants and conditions thereof and the terms and incidents of the contracts have to be gathered from the evidence and attendant circumstances
The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances
On the findings of the tribunal and the High Court we are of the opinion that the arrangement relating to supply of steam in return for the water supplied by the mills on payment of actual cost was not one of sale but was more in the nature of a works contract
In the result the answer of the High Court to the first question is discharged and it is held that the Electricity Board is a dealer within the meaning of the relevant provisions of the two Acts in respect of its activities of generation distribution sale and supply of electric energy
The answers to the second third and fourth questions are affirmed
The answer given by the High Court to the fifth question is discharged
It is unnecessary to express any opinion on that question because Mr Desai has not pressed for any decision being given by us and has accepted the liability in respect of the purchase tax as determined by the assessing authorities for the assessment orders in question
The appeals are allowed to the extent indicated above
In view of all the circumstances the parties are left to bear their own costs
Appeals allowed in pan


Summary:
The assessee Electricity Board constituted under the Electricity Supply Act 1948 supplied and distributed electric energy within the State of Madhya Pradesh
In the assessment years in question the Electricity Board sold supplied and distributed electric energy to various consumers It also supplied steam to Nepa Mills
The mill was supplying water free and the Electricity Board was making a pro rata charge of conversion of water into steam
The mill had also agreed to re imburse the Board for the loss sustained on account of the mills not taking the full demand of steam
In proceedings under the CP  Bearar Sales Tax Act 1947 and the Madhya Pradesh General Sales Tax Act 1959 the question for consideration inter alia were i whether electricity was goodS  within the meaning of the two Acts and whether the Board was a dealer  within the meaning of section 2c of the 1947 Act and section 2d of the 1959 Act and ii whether the supply of steam amounted to sale  and was therefore taxable
The High Court in reference held that electricity was not goods  that the Board was not a dealerin electricity and that the supply of steam was not taxable as it was not supplied With a profit motive
In appeal by special leave to this Court by the Commissioner of Sales Tax HELD i The Electricity Board carried on the business of selling supplying and distributing electricity which fell within the meaning of the expression goods  in the two Acts and was therefore a dealer 
945 H The definition of goods is very wide and includes all kinds of movable property
The term movable property  when considered with reference to goods  as defined for the purposes of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like for instance a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property
It is capable of abstraction consumption and use which if done dishonestly would attract punishment Under section 39 of the 
It can be transmitted transferred delivered stored possessed etc
in the same way as any other movable property
If there can be sale and purchase of electric energy like any other movable object it st be held that electric energy was intended to be covered by the definition of goods  in the two Acts
If that had not been the case there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedule to the two Acts
945E H 940 Kumbakonam Electric Supply Corporation Ltd vs Joint Commercial Tax Officer Esplanade Division Madras 14 STC 600 Malerkotla Power Supply Company vs The Excise  Taxation Officer Sangrur  Ors
22 STC 325 Naini Tal Hotel
Municipal Board AIR 1946 All
502 Erie County Natural Gas  Fuel Co Ltd vs Carroll  County of Durham Electrical etc
Co vs Inland Revenue  referred to
Rash Behari vs Emperor AIR 1936 Cal
753 distinguished
ii On the facts of the present case the arrangement relating to supply of steam in return of water supplied by the mills on payment of actual cost was not one of sale but was more in the nature of a workS contract Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel the contract is one for work and labour
946 G H The Government of Andhra Pradesh vs Guntur Tobaccos Ltd 16 STC 240 and HaLsbury s Laws of England HI Edn
34 page 6 referred to