ppeal No 237 of 1961
Appeal by special leave from the judgment and order dated September 30 1958 of the Patna High Court in MJC No 5 of 1956
ST Desai and B P Maheshwari for the appellant
section P Varma for the respondent
461 1962
November 26
The judgment of Kapur and Shah JJ was delivered by Shah J Hidayatullah J delivered a separate judgment
SHAH J MS New India Sugar Mills Ltdhereinafter called the assessees own a factory at Hasanpur in the State of Bihar
During the assessment period April 1 1947 to March 31 1948 the assessees who were registered as dealers under the relevant Sales Tax Acts despatched sugar valued at Rs 6 89482 to the authorised agents of the State of Madras in compliance with the directions issued by the Controller exercising powers under the Sugar and Sugar Products Control Order 1946
The Sales Tax Officer Darbhanga rejected the plea of the assessees that despatches of sugar to the Province of Madras in compliance with the instructions of the Controller were not liable to be included in the taxable turnover and ordered the assessees to pay sales tax on a taxable turnover of Rs 2762226
The order of assessment was confirmed by the Deputy Commi ssioner but the Board of Revenue exercising jurisdiction in revision set aside the order in so far as it related to the inclusion into the taxable turnover the value of sugar despatched to the Province of Madras
The Board of Revenue observed that the  Controller passed orders in exercise of statutory powers which as a result of mere compliance could not create a contract in law and there was no evidence justifying the view that there could  possibly be any contract between the assessees and some dealers in Madras or between the assessees and the Sugar Controller
The Board of Revenue under the direction of the High Court of judicature at Patna submitted under section 253 of the Bihar Sales Tax Act 1947 the following question for the opinion of the High Court  Whether in the facts and circumstances of the case the disposal of sugar to the Province of Madras is liable to be taxed
 462 The High Court answered the question in the affirmative observing that the sugar despatched by the assessees to different Provinces including the Province of Madras under orders of the Controller was liable to be taxed under the provisions of the Bihar Sales Tax Act 1947
With special leave the assessees have appealed to this Court against the judgment of the High Court
The only question arising in the appeal is whether there was a sale by the assessees of sugar despatched by them to the Provincial Government of Madras in compliance with the directions issued by the Controller in exercise of authority under the Sugar and Sugar Products Control Order promulgated on February 18 1946 by the Central Government under powers conferred by sub rule 2 of r 81 of the Defence of India Rules
The material clauses of the Order concerning sugar are these
By cl 3 of the Order producers of sugar were prohibited from disposing of or agreeing to dispose of or making delivery of any sugar except to or through a recognised dealer or persons specially authorised in that behalf by the Controller to acquire sugar on behalf of the Central Government or of a Provincial Government or of an Indian State
Clause 5 enjoined upon every producer or dealer duty to comply with such directions regarding production sales stocks or distribution of sugar as may from time to time be issued by the Controller
By cl 6 the Controller was authorised to fix the price at which sugar may be sold or delivered and upon fixation of the price all persons were prohibited from selling or purchasing or agreeing to sell or purchase sugar at a price higher than the fixed price
By sub clause 1 of cl 7 the Controller was authorised inter alia to allot quotas of sugar for any specified province or area or market and to issue directions to any producer or dealer to supply sugar to such provinces areas or markets or such persons or organisations in such 463 quantities of such types or grades at such time at such prices and in such manner as may be specified by the Controller an sub clause 2 provided that every producer shall notwithstanding any existing agreement with any other person give priority to and comply with directions issued to him under subclause 1
Clause 11 provided that against a person contravening the provisions of the Order without prejudice to any other punishment to which he may be liable an order of forfeiture of any stocks of sugar in respect of which the Court trying the offence was satisfied that the offence was committed may be passed
By sub rule 4 of Rule 81 of the Defence of India Rules 1939 contravention of orders made under the Rule was liable to be punished with imprisonment for a term which may extend to three years or with fine or with both
The course of dealings between the assessees and the State of Madras to which sugar was under the directions of the Controller supplied by the assessees is stated by the High Court as follows  The admitted course of dealing between the s was that the Government of various consuming States used to intimate to the Sugar Controller of India from time to time their requirement of sugar and similarly the factory owners used to send to the Sugar Controller of India statements of stock of sugar held by them
On a consideration of the requisitions received from the various State Governments and also the statements of stock received from the various factories the Sugar Controller used to make allotments
The allotment order was addressed by the Sugar Controller to the factory owner directing him to supply sugar to the State Government in question in accordance with the despatch instructions received from the competent officer of the State Government
A copy 464 of the allotment order was simultaneously sent to the State Government concerned on receipt of which the competent authority of the State Government sent to the factory concerned detailed instructions about the destinations to which the sugar was to be despatched as also the quantities of sugar to be despatched to each it is admitted that it also laid down the procedure of payment and the direction was that the draft should be sent to the State Bank and it should be drawn on Parry and Company or any other party which had been appointed as stockist importer on behalf of the Madras Government
 The assessees contend that sugar despatched pursuant to the directions of the Controller was not sold by them to the Government of Madras and sales tax was therefore not exigible in respect of those dispatches under the relevant Sales Tax Acts of the province of Bihar
The assessment period in respect of which the dispute is raised is one year April 1 1947 to March 31 1948 for the first three months the relevant law imposing liability to pay tax was Bihar Act 6 of 1944 and from July 1 1947 to March 31 1948 liability to pay tax had to be determined under Bihar Act 19 of 1947
It is common ground that the scheme of the two Acts for levy of tax was similar and the definition of sale on which primarily the dispute centred under the two Acts was identical
We will therefore refer in dealing with this appeal as if the liability arose under Act XIX of 1947
The expression sale as defined under section 2g of the Bihar Sales Tax Act at the material time stood as follows  Sale means with all its grammatical variations and cognate expressions any transfer of property in goods for cash or deferred payment 465 or other valuable consideration including a transfer of property in goods involved in the execution of contract but does not include a mortgage hypothecation charge or pledge  Provided that a transfer of goods on hire purchase or other instalment system of payment shall notwithstanding the fact that the seller retains a title to any goods as security for payment of the price be deemed to be a sale  Provided further that notwithstanding anything to the contrary in the Indian 111 of 1930 the sale of any goods which are actually in Bihar at the time when in respect thereof the contract of sale as defined in section 4 of that Act is made shall wherever the said contract of sale is made lie deemed for the purpose of this Act to have been made in Bihar
 Apparently in the first paragraph of the definition a transaction other than a transaction expressly specified in which there is a transfer of property in goods for valuable consideration was included as a sale within the meaning of the Act
By the first proviso transfer of goods on hire purchase or other instalment system of payment are to be deemed sales
The second proviso which has since been repeated dealt with the situs of the sale and was not in truth a part of the definition of sale
What constituted a sale the second proviso did not purport to say  it merely fixed for the purpose of the Bihar Sales Tax Act the place of sale in the circumstances mentioned therein
Tax is leviable under the Bihar Sales Tax Act on the gross turnover exceeding a prescribed Minimum on sales which have taken place in 466 Bihar
Counsel for the assessees says that the value of sugar despatched in compliance with the directions of the Controller is not liable to be included in the taxable turnover for there was no sale of sugar despatched by the assessees and that in any event the sale did not take place in Bihar
In elaborating his submission counsel says  Under the Government of India Act 1935 the Provincial Legislature had power to legislate for levy of tax on  sale of goods under Entry 48 of List II of the Seventh Schedule that the expression  sale of goods in the Entry was used not in the popular but in the narrow and technical sense in which it is used in the Indian  that power under the entry could be exercised for taxing only those transactions in which by mutual assent between parties competent to contract property in goods was transferred absolutely from one person to another in consideration of price paid or promised and the transactions in which there was no mutual assent as a result of negotiations express or implied are not sales within the meaning of the and therefore not sales within the meaning of the Bihar Sales Tax Act
Counsel alternatively submits that even if the despatches resulted in sales as the sales did not take place in Bihar the same were not liable to be taxed under the Bihar Sales Tax Act
In popular parlance sale  means transfer of property from one person to another in consideration of price paid or promised or other valuable consideration
But that is not the meaning of sale  in the 
Section 4 of the provides by its first sub section that a contract of sale of goods is a contract where the seller agrees to transfer the property in goods to the buyer for a price
Price by cl
10 of section 2 meanS the money consideration for sale goods and  where Under a contract of sale property in the goods is transferred from the seller to the buyer 467 the contract is called a sale but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulled the contract is called an agreement to sell sub section 3 section 4
It is manifest that under the Sales of Goods Act a transaction is called sale only where for money consideration property in goods is transferred under a contract of sale
Section 4 of the was borrowed almost verbatim from section 1 of the English 56  57 Vict
c 71
As observed by Benjamin in the 8th Edn of his work on sale  to constitute a valid sale there must be a concurrence of the following elements viz 1 Parties competent to contract 2 mutual assent 3 a thing the absolute or general property in which is transferred from the seller to the buyer and 4 a price in money paid or promised
The Provincial Legislature by Entry 43 List II of the Seventh Schedule of the Government of India Act 1935 was invested with power to legislate in respect of   Taxes on sale of goods
The expression  sale of goods was not defined in the Government of India Act but it is now settled law that the expression has to be understood in the sense in which it is used in the 
In the State of Madras vs Gannon Dunkerley  Co 1 this Court in considering whether section 2 1 Explanation I i of the Madras General Sales Tax Act IX of 1939 as amended by the Madras General Sales Tax Amendment Act XXV of 1947 was intra vires the Provincial Legislature has decided that the expression sale of goods  in entry 48 List 11 is used not in the Popular but in the restricted sense of the Sale of Goods Act 1931
The primary question which fell to be determined in that case was whether in a building contract which was one entire and indivisible there was sale of goods of the building materials used in the execution liable to be taxed under the Madras General Sales Tax Act 1  468 which by section 2 c defined goods  as meaning all kinds of movable property except certain kinds which arc not material in this case and included all materials commodities and articles including those to be used in the construction fitting out improvement or repair of immovable property and by section 2 h defined the expression sale  as meaning every transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods involved in the execution of a works contract
Power of the Provincial Legislature of Madras to legislate in respect of a levy of tax on the value of goods used in the execution of a works contract was challenged by a firm of building contractors and this Court held that the power under Entry 48 List 11 Seventh Schedule did not include power to legislate for levying tax on the value of goods used  in the course of a building contract which was one entire and indivisible
The Court held that the expression  sale of goods in Entry 48 List II was used not in the popular sense but in the strictly limited sense in which it was defined in the Sale of Goods Act and that the Madras Provincial Legislature had no power to legislate under the power derived under Entry 48 in List II for taxing transactions other than those of sales strictly so called under the Sale of Goods Act
It was observed the expression  sale of goods  in Entry 48 is a nomen juris its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement
In a building contract which is as in the present case one entire and indivisible and that is its norm there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale
 In Gannon Dunkerley  Company s case 1 the Court was 1  469 concerned to adjudicate upon the validity of the provisions enacted in acts of Provincial Legislatures imposing liability to pay sales tax on the value of goods used in the execution of building contracts and the judgment of the Court proceeded on the ground that power conferred by Entry 48 List II was restricted to enacting legislation imposing tax liability in respect of sale of goods as understood in the Sale of Goods Act 1930 and that the Provincial Legislature under the Government of India Act 1935 had no power to tax a transaction which was not a sale of goods as understood in the Sale of Goods Act
The ratio decidendi of that decision must govern this case
According to S4 of the Sale of Goods Act to constitute a sale of goods property in goods must be transferred from the the seller to the buyer under a contract of sale
A contract of sale between the parties is therefore a pre requisite to a sale
The transactions of despatches of sugar by the assessees pursuant to the directions of the Controller were not the result of any such contract of sale
It is common ground that the Province of Madras intimated its requirements of sugar to the Controller and the Controller called upon the manufacturing units to supply the whole or part of the requirement to the Province
In calling upon the manufacturing units to supply sugar the Controller did not act as an agent of the State to purchase goods  he acted in exercise of his statutory authority
There was manifestly no offer to purchase sugar by the Pro vince and no acceptance of any offer by the manufacturer
The manufacturer was under the control Order left no volition  he could not decline to carry out the order if he did so lie was liable to be punished for breach of the order and his goods were liable to be forfeited
The Government of the Province and the manufacturer had no opportunity to negotiate and sugar was despatched pursuant to the direction of the Controller and not in acceptance of any offer by the Government
470 The High Court observed as soon as an application for allotment is made there is an implication of an offer to purchase the quantity of sugar at the price fixed by the Controller from the producer to whom the allotment order is to be made by the Controller
It is also clear that if the allotment order is communicated by the Controller to the assessee and the latter appropriates the sugar  in accordance with the allotment order and in accordance with the despatch instructions of the competent officer appointed by the Madras Government there is in the eye of law an acceptance of the offer by the assessee and a contract is immediately brought into existence between the parties
We are with respect unable to hold that this view is correct
The Provincial Government of Madras gave intimation of its requirements of sugar to the Controller and applied for allotment of sugar  thereby the Government was not making any offer to purchase sugar
Evidently the offer could not be made to the Controller because the Controller was not a manufacturer of sugar or his agent
The communication of the allotment order to the assessees was again not of any offer made by the State which it was open to the asscssecs to accept or decline
Mere compliance with the dispatch instructions issued by the Controller which in law the assessees could not decline to carry out did not amount to acceptance of an offer
A contract of sale postulates exercise of volition on the part of the contracting parties
and there was in Complying With the orders passed by the Controller no such exercise of volition by the assessees
By the Indian Contract Act 9 of 1872 a proposal or an offer is defined as signification by one person to another of his willingness to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or abstinence
When the person to whom the proposal is made or signified assents thereto the proposal is said to be accepted
The person making the proposal is called the 471 promisor and the person accepting the
proposal is called the promisee and every promise or every set of promises forming the consideration for each other is an agreement
These provisions of the Contract Act are by section 2 15 of the Sale of Goods Act incorporated therein
There was on the part of the Province of Madras no signification to the assessees of their willingness to do or to abstain from doing anything with a view to obtaining the assent of the assessees to such act or abstinence and the Controller did not invite any signification of assent of the assesses to the intimation received by them
He did not negotiate a sale of sugar  he in exercise of his statutory authority ordered the assesses to supply sugar to the Government of Madras
We are unable to hold that from the intimation of order of the Controller and compliance therewith by the assessees any sale of goods resulted in favour of the State of Madras
Mr Varma appearing for the State of Bihar contended that even if there was no offer and no acceptance when intimation was sent by the Government of Madras to the Controller and the Controller directed the assessees to deliver specified quantities of sugar still by the conduct of the assessees in despatching sugar to Madras in pursuance of the directions of the Controller and acceptance of price by them a contract of sale resulted
But the action on the part of the assessees in despatching the goods
was not voluntary  they were compelled to send the goods
They could not be deemed by despatching sugar to have made any offer to supply goods and in the absence of any offer no contract resulted by the acceptance of goods by the Provincial Government
To infer a contract from the compulsory delivery of sugar and acceptance thereof would be to ignore the true position of the parties and the circumstances in which goods were delivered
Mr Varma contended that in any event the 472 Legislature had by the definition included in the expression sale of  goods  all transfers of property in goods for consideration and the transactions which are sought to be taxed by the State of Bihar fell within that definition
Counsel submitted that a literal meaning should be given to the words of the Act without any pre disposition as to what the expression sale  means under the Sale of Goods Act
But if the Bihar Legislature had under the Government of India Act 1935 no power to legislate in respect of taxation of Transactions other than those of sale of goods as understood in the Sale of Goods Act a transaction to be liable to pay sales tax had to conform to the requirements of the 
Attributing a literal meaning to the words used would amount to imputing to the Legislature an intention deliberately to transgress the restrictions imposed by the Constitution Act upon the Provincial Legislative authority
It is a recognised rule of interpretation of statutes that the expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuate the object of the Legislature
If an expression is susceptible of a narrow or technical meaning as well as a popular meaning the Court would be justified in assuming that the Legislature used the expression in the sense which would carry out its object and reject that which renders the exercise of its power invalid
If the narrow and technical concept of sale is discarded and it be assumed that the Legislature sought to use the expression sale in a wide sense as including transactions in which property was transferred for consideration from one person to another without any previous contract of sale it would be attributing to the Legislature an intention to enact legislation beyond its competence
In interpreting a statute the Court cannot ignore its aim and object
It is manifest that the Bihar Legislature intended to erect machinery within the frame work of the Act for 473 levying sales tax on transactions of sale and the power of the Legislature being restricted to imposing tax on sales in the limited sense it could not be presumed to have deliberately legislated outside its competence
In the definition of the expression sale  in section 2 g of the Bihar Sales Tax Act it must be regarded as implicit that the transaction was to have all the elements which constitute a sale within the meaning of the 
Use of the expression including a transfer of property in goods involved in the execution of the contract in the first paragraph of the definition also does not justify the inference that the transfers of property in goods under the earlier part of the definition were not to be the result of a contract of sale If any such intention was attributed to the Legislature the legislation may for the reasons already stated be beyond the competence of the Legislature
The non obstante clause in the second proviso is in truth in the nature of an explanation to the charging section  it merely fixes the situs of sale
If there is no sale the second proviso will have no application
Mr Varma finally contended that in the Tata Iron  Steel Co Ltd vs The State of Bihar1 by implication it was decided that the definition of sale  in section 2g of the Bihar Sales Tax Act included transactions in which good  were supplied in compliance with directions which left no volition to the manufacturers But this argument is not borne out by what was actually decided in that case
The Tata Iron  Steel Company Ltd which carried on the business of manufacturing iron and steel in its factory at Jamshedpur in Bihar was assessed to sales tax under the Bihar Sales Tax Act 1947
Tile company sent its goods from its factory to different Provinces and Indian States by rail the railway receipts being obtained by the company in its own name as consignor and consignee
The Branch Offices of the company or its Bankers at the destination handed 1  474 over the railway receipts to the purchasers against payment of the price
The Sales Tax Officer of the State of Bihar included in the gross turnover of the Company the value of goods manufactured in Bihar but delivered and consumed outside the State of Bihar in the manner already stated
The contention of the company that the goods delivered were not liable to be included in the taxable turnover was negatived by the taxing authorities and the High Court of Patna
The matter was then carried in appeal to this Court and it was held that the provisions of section 41 read with section 2g proviso 2 of the Bihar Sales Tax Act was within the legislative competence of the Province of Bihar
It was pointed out that the second proviso to the definition of sale in section 2g of the Act did not extend the meaning of sale so as to include therein a contract of sale what it actually did was to lay down certain circumstances in which a sale although completed elsewhere was to be deemed to have taken place in Bihar
Those circumstances did not constitute a sale but only located the situts of such sale
The Court in that case was not called upon to consider whether a transaction to be a sale must be preceded by a contract of sale  the Court was merely considering the vires of the second proviso to section 2g of the Bihar Sales Tax Act
Das C J in delivering the judgment of the majority of the Court observed the basis of liability under section 41 remained as before namely to pay tax on sale 
The fact of the goods being in Bihar at the time of the contract of sale or the production or manufacture of goods in Bihar did not by itself constitute a sale  and did not by itself attract the tax
The taxable event still remained the sale  resulting in the transfer of ownership in the thing sold from the seller to the buyer
No tax liability actually accrued until there was a concluded sale in the sense of transfer of title
It was only when the property passed and the sale  took place that the liability for paying the sales tax under the 1947 Act arose
There 475 was no enlargement of the meaning of sale  but the proviso only raised a fiction on the strength of the facts mentioned therein and deemed the sale  to have taken place in Bihar
Those facts did not by themselves constitute a sale  but those facts were used for locating the situs of the sale in Bihar
It follows therefore that the provisions of section 41 read with section 2g second proviso were well within the legislative competency of the Legislature of the Province of Bihar
In Tata Iron  Steel Company Ltd s case 1the question as to the true content of the expression sale  in the Bihar Sales Fax Act did not fall to be determined and the principle of the case can have no application in deciding the present case
It would be fruitless to enter upon a detailed discussion of the two decisions of the House of Lords cited at the Bar  The Commissioner of In lan Revenue vs New Castle Breweries Ltd 2  and Kirkness Inspector of Taxes vs John Hudson  Company Ltd 3
It may be sufficient to observe that in the first of these cases goods belonging to the assessee were taken over by order of the Admiralty acting under the relevant regulations and in compliance with the order of a Compensation Court the assessee was paid an amount exceeding pound 5000 being the difference between the amount originally paid and the amount settled as due under the order of the Compensation Court
House of Lords held that the transaction under which the Administrative took over the goods was a sale in the business and although no doubt it affected the circulating capital of the assessee it was none the less proper to be brought into the profit and loss account arising from the assessee s trade for the purpose of computation of liability to pay Excess Profits duty
In Kirkness Inspector of Taxes vs John Hudson s case 3 it was held by the House of Lords that the vesting of a company s railway wagons in the Transport Commission under section 29 of the Transport Act 1947 with compensation fixed in 1   2 1927 3 476 the form of transport stock under the relevant sections of that Act did not constitute a sale for the purpose of section 17 of the Income tax Act 1945 so as to render the company liable to a balancing charge under that section
The cases turned upon the meaning of or sale  for the purposes of the Excess Profits Tax legislation and the Income tax Act 1945 8  9 Geo 6 c 32 and observations made therein have little relevance in determining the limits of the legislative power of the Provincial legislature under the Government of India Act 1935 and the interpretation of statutes enacted in exercise of that power
The second contention raised by counsel for the assessees requires no elaborate consideration
If it be assumed that the intimation of the requirement by the State of Madras to the Controller amounted to an offer delivery of sugar by the assessee pursuant to such an order would constitute a sale within the meaning of section 2g of the Bihar Sales Tax Act by the second proviso which has been held intra vires by this Court in Tata
Iron  Steel Company Ltd s case 1 the assessees would be liable to pay sales tax for it is not in dispute that at the time when the orders were received from the Controller the goods were within the State of Bihar and the condition prescribed by section 2g second proviso for locating the situs of the sale is fulfilled
But the intimation by the Province of Madras of its requirements did not amount to an offer and the supply of goods pursuant thereto could not amount to a sale consequently liability to pay sales tax under the Bihar Sales Tax Act on the amounts received by the assessees from the Government of Madras for sugar supplied did not arise
HIDAYATULLAH J I regret my inability to agree that Gannon Dunkerley s case 2 can be 1  2  477 extended to cover the facts here
I would confirm the decision of the High Court and dismiss these appeals for the reasons proceed to give
These reasons are applicable to all the appeals in today s group
This case is concerned with the levy of sales tax under the Bihar Sales Tax Act 1944 VI of 1944 for a period of three months April 1 1947 to June 30
1947 and another of the nine months following under the Bihar Sales Tax Act 1947 XIX of 1947
The assessee companies in all these appeals run sugar mills and are admittedly dealers under these Acts and the commodity on the sale of which tax was sought to be levied was sugar
The disputed tax relates to supplies of sugar made by the assessee companies under the orders of the Sugar Controller of India to certain Provincial Governments in the relevant periods
There is only one contention of the assessee companies in these appeals and it is that in the circumstances of the case there was no sale  of sugar regard being had to the decision of this Court in Gannon Dunkerley s case 1 and the amounts received from the Provincial Governments should not be included in the taxable turnover
I have already mentioned that the assessment period in this case is one whole year April 1 1947 to March 31 1948 and that it is divided into two parts of three months and nine months respectively governed by the Acts
There was however no difference in the mode of dealing in this case in the two periods
In the other cases the assessment periods were different but there was no other difference
The transactions were stereotyped being under the Sugar and Sugar Products Order 1946 which was passed by the Government of India on February 18 1946 in the exercise of powers conferred by sub rule 2 of Rule 81 of the Defence of India Rules
The mode which has been accepted by the 1  478 parties as correctly summarised was as follows The admitted course of dealing between the parties was that the Governments of various consuming States used to intimate to the Sugar Controller of India from time to time their requirement of Sugar and similarly
the factory owners used to send to the Sugar Controller of India statements of stock of sugar held by them
On a consideration of the requisitions received from the various State Governments and also the statements of stock received from the various factories the Sugar Controller used to make allotments
The allotment order was addressed by the Sugar Controller to the factory owner directing him to supply sugar to the State Government in question in accordance with the despatch instructions received from the competent office of the State Government
A copy of the allotment order was simultaneously sent to the State Government concerned on receipt of which the competent authority of the State Government sent to the factory concerned detailed instructions about the destinations to which the sugar was to be despatched as also the quantities of sugar to be despatched to each place
In the case of the Madras Government it is admitted that it also laid down the procedure of payment and the direction was that the draft should be sent to the State Bank and it should be drawn on Party and Company or any other party which had been appointed as stockist importer on behalf of the Madras Government
It should be added that in this case the assessee was called upon to produce nessary documents relating to the transactions in question but the assessee lid not produce the documents
The assessee however admitted 479 that general arrangement between the parties was the one set out in this paragraph Two typical documents in this connection may be read and they are the permit by the Controller and the despatch order sent by the Provincial Government
They were not produced in this case but can be seen in the record of C A No 633 of 1961 at pages 15 16
First the permit  No 78 p 1467132 Office of the Sugar Controller for India GOVERNMENT OF INDIA Department of Food
Dated Simla the 12 11 56 ORDER In exercise of the power conferred by clause 7 of the Sugar and Sugar Products Control Order 1943
1Shashi Kiran Assistant Sugar Controller for India having been duly authorised in this regard under clause 2 of the said order by the Sugar Controller for India hereby direct you to supply 1200 tonsmaunds of Sugar by 31 1 47 to Bengal in accordance with the despatching instructions of the Director of Civil Supplies Bengal Calcutta
2A permit No 1988 to enable you to despatch sugar in compliance with this order is attached
Sd Shashi Kiran Asstt
Sugar Controller for India
480 To the Motilal Padampat Sugar Mills Co Ltd Majhawlia District Champaran
And now the despatch order  EXPRESS STATE MOTIPAT MAJHOWALIA UNDERSTAND SUGAR CONTROLLER ISSUED PERMIT FOR 600 TONS SUGAR THIS PROVINCE FULLSTOP DESPATCH IMMEDIATELY 300 TONS MANGALORE DRAFTS ON ME THROUGH CENTRAL BANK CALICUT 300 TONS COIMBATORE DRAFTS OF ME THROUGH CENTRAL BANK MADRAS FULLSTOP SEND RAIL RECEIPTS FOR EACH WAGON LOAD OR 100 BAGS LOAD WAGONS FULL CAPACITY FULLSTOP BOOK AT RAILWAY RISK IF NO SPECIAL RATES IN FORCE
PRICES TRL Narsinmhan Assistant Secretary
Post copy in confirmation to Motilal Padampat Sugar Mills Ltd Majhowlia Cliamparan District
ForwardedBy Order Sd Illegible Supdt
Board of Revenue Civil Supplies Chepauk Madras
Kitta 10 5 47
481 These documents between them disclose that free trading in sugar was not possible
All Provinces intimated their requirements to the Controller who was kept informed by the Mills about the supplies available
The price was controlled and the Controller directed the supply of a certain quantity from a particular Mill to an indenting Province
After giving his permit and sending a copy of this permit to each party the Controller passed out of the
Picture and the Mill supplying aid the Province receiving the supply I am avoiding the words seller  buyer since that is the point to decide arranged the rest of the affair including the issue of despatch instructions regarding the quantity and the quality to be sent to different areas and the payment of price
The question is whether there was a sale  in the circumstances and the price should be included in the turnover for purposes of Sales tax under the Bihar Sales Tax Act for the time being in force
The definition of sale in the two Bihar Acts at all material times was  2g  sale means with all its grammatical variations and cognate expressions and transfer of property in goods for cash or deferred payment or other valuable consideration including a transfer of property in goods involved in the execution of contract but does not include a mortgage hypothecation charge or pledge Provided that a transfer of goods on hire purchase other instalment system of payment shall notwithstanding the fact that the seller retains a title to any goods as security for payment of the price be deemed to be a sale  Provided further that notwithstanding anything to the contrary in the Indian Sales of Goods Act 1930 the sale of any good which 482 are actually in Bihar at the time when in respect thereof the contract of sale as defined in section 4 of that Act is made shall wherever the said contract of sale is made be deemed for the purposes of this Act to have taken place in Bihar In the present case we arc required only to decide whether regard being had to the decisions of this Court expounding the ambit of entry No 48 of List II Seventh Schedule of the Government of India Act 1936 the tax could not be demanded as there was no sale of sugar at all
The entry in question is 48
Taxes on the sale of goods and on advertisement Goods was defined in section 311 as follows Goods include all materials commodities and articles
 The white Paper had the entry taxes on the sale of commodities and on the turnover
It was altered to  taxes on the sale of goods and as pointed out by Gwyer C J In re The Central Province  Berar Act No 
XIV of 1938 1 it is idle to speculate what the reason was
The expression  sale of commodities would not have taken the mind to the as the redrafted entry does
There is no provision in the whole of the Government of India Act 1935 which expressly seeks to limit the meaning of the plain words taxes on the sale of goods which include all materials commodities and articles
Such a limitation could of course arise from a competing entry in List No 1
Otherwise the entry conferred powers as large and plenary as those of any sovereign legislature
The ambit of 1 483 the entry prior to the inauguration of the Constitution was the subject of three leading decisions by the Federal Court in one of which there was also an appeal to the Privy Council
The first case was In re The Central Provinces and Berar Act No XIV of 1938 1 a reference under section 213 of the Constituting of 1936
In that case the imposition of sales tax on retail sales of motor spirit and lubricants was questioned on the ground that though described as tax on the sale of motor spirit etc
 the tax was in effect a duty of excise under entry 45 of List I and there being an overlap between the two entries that in List I must prevail
Legislative practice in respect of Excise Duty was invoked but as sales tax legislation did not exist in India before 1938 there was no legislative practice to consider on the meaning of the express tax on sale of goods
The Government of India claimed that the entry 48 List II must be limited to a direct tax like a turnover tax which is not identifiable in the price
Taxes on retail sales it was argued being indirect and identifiable in the price were more of the nature of an excise duty and the pith and substance of the Act being this the impugned Act was bad
The main argument on behalf of the provinces which was accepted was that the Constitution Act must not be construed in any narrow and pedantic sense
Gwyer CJ expressed himself forcefully on this point in the following words   I conceive that a broad and liberal spirit should inspire those whose duty it is to interpret it    The essence of the argument on the part of the Provinces was that if only a turnover tax which was a species of sales tax was meant why was a wider expression used in the entry  It was therefore contended that the entry should not be truncated and the 1 484 plain words of the entry should be given their normal and ordinary meaning
The contention of the Provinces prevailed
Though the learned judges pointed out that the words were taxes on the sale of goods and not sales tax simpliciter thereby excluding taxes on services which in some systems are regarded also as sales tax the words were wide enough to include more than a mere turnover tax
It was held that the power included a power to levy a tax or duty on the retail sale of goods and this did not impinge upon the power of the Legislative Assembly to make laws with respect to duties of excise
In the next case the Province of Madras vs Boddu Paidanna  Sons 1
Government of India reversed its stand and contended that the power of the Provincial Legislatures did not extend to levying sales tax on first sales but only after the goods were released by the producer or manufacturer
The argument of the Government of India was not accepted and it was declared that the power of a Provin cial Legislature to levy a tax on the sale of goods extended to sales of every kind and at all stages between a producer or manufacturer and a consumer
The Central Government had filed a suit and the third case before the Federal Court was an appeal from that decision
The Federal Court followed its own decision in Boddu Paidanna s Case
1 The Central Government appealed to the judicial Committee and the judgment is to be found in Governor General in Council vs Province of Madras
2 The Judicial Committee examined in detail the provisions of the Madras General Sales Tax Act 1938 to emphasize its essential character and observed that Its real nature its pith and substance is that it imposes a tax on the sale of goods
No other succinct description could be given of it 1 2 PC 485 except that it is a tax on the sale of goods  It is in fact a tax which according to the ordinary canons of interpretation appears to fall precisely within entry No 48 of the Provincial Legislative List In repelling the contention that first sales were not included in the entry their Lordships observed that it did violence to the plain languages and implied the addition of the words other than first sale of goods manufactured or produced in India
 The judicial Committee expressed itself in complete agreement with the two decisions of the Federal Court
The ambit of the entry was thus settled to be that it included all sales of goods  though not services  from the first sale by the producer or manufacturer to the last sale to the consumer and that the tax could be collected on wholesales or retail sales as well as on the turnover
It was however pointed out that the expressions sales tax and taxes on the sale of goods were not the same the first including sales other than those of goods
No definition of what is  sale was attempted in these cases either with or without reference to the 
Thus it was firmly established that the entry taxes on the sale of goods authorised the making of laws for the imposition of tax on all transactions of sale of goods from the manufacturer or producer to consumer
It also could be imposed on the turnover which meant the sum total of prices for which taxable goods were sold in a particular period
The definition of goods was enlarged to include commodi ties materials and articles
 The word commodities indicated articles of trade the word ire materials indicated matter from which things are made the use of the word being the same as in the expression raw materials  and by articles was meant any particular thing
 in this way it was 486 clearly indicated that articles sold by way of a trade or otherwise were equally within the expression goods  and also finished articles and raw materials from which finished articles are made
The entry was framed in 1935 in the form with which we are concerned
Previously it read in the white paper taxes on sale of commodities and turnover
 The reframed entry was wider in one respect it included materials and articles in the sense explained and apparently narrower in another by omitting turnover  than the original entry
There was no occasion to expound the meaning of goods  in the two Federal Court decisions but the decisions laid down that turnover  was included even though not expressly mentioned
I have already said above that prior to 1938 a tax on the sale of goods was not imposed in India
It is claimed that in ancient times sales tax was levied in India but we do not have to delve into these matters
The tax as it is known today is of comparatively modem growth though economists have traced it to Ptolemies Greeks and Romans
Findlay Shirras and other writers give us the history of the tax
It was imposed in a recognisable form in Spain in 1342 and was known as the skabala
This notorious tax continued for five hundred years
In France it was also imposed in the fourteenth century but was soon given up
We are not con cerned with these ancient progenitors of the modem tax
They could not have influenced the selection of the tax or its form
The modem tax was the result of the First World War
Germany imposed in 1916 a turnover tax called die Umatzsteuer  and that is the form in which the tax is collected there
France followed a year later but with a transaction tax which was known as L impot sur le chiffre d affaires 
Soon other countries followed as it was almost as productive as Customs and income tax
487 By the time the Government of India Act 1935 was passed no less than thirty countries had imposed this tax in different forms
India however was not one of them
The period in India following the First World War opened with the Government of India Act with its Devolution Rules and the allocation of taxes by  the Scheduled tax Rules to the Provinces framed in 1920
The latter Rules contained only octroi and taxes on markets and trades professions and callings which resembled very distantly the modem sales tax
 Indeed sales tax was first visualized in the Report of the Taxation Enquiry Committee 1924 25 but only as a modification of the octroi through the intermediate steps of taxing markets and slaughterhouses
It was hoped that price competition would stop inclusion of the tax in the price
It would have been a vain attempt to convert an indirect tax into a direct one
The Committee visulised it as a composition tax from traders but it was realised that the tax would soon get converted into a tax on sales of goods or of services like those of a doctor or goldsmith and that it would be difficult to separate services from goods in case where the two were combined
It was also recognised that turnover taxes imposed on persons in respect of raw materials and finished goods tended to be cumulative but taxes imposed at one point did not have that vicious tendency The difficulty of entrepot trade in octroi where goods bore the tax whether or not consumed sold or used was avoided because the tax under retail sales tax scheme was payable only when the goods were actually sold and being ad valorem bore lightly on cheap goods
The suggestions were 1 A turnover tax on retail merchants 2 registration of such dealers 3 collection of taxes quarterly 488 4 licensing of and charging of fees from petty traders and hawkers whose
turnovers were uncertain as no accounts were maintained by them
Sales tax particularly that imposed on goods assumed by 1935 different forms in different countries
Its incidence was sometimes the turnover sometimes wholesale and sometimes the retail sale
In Canada and Australia it was a producers  or manufacturers  tax almost of the nature of excise
In France the excise and sales tax were interchangeable the former being a replacement tax on the turnover of the manufacturer
In Germany the tax included both goods and services in France services were excluded unless there was a commercial element  In England it took the form of a purchase tax
France also devised a simpler method by imposing a forfait a lump sum which represented so to speak a quit tax
In Belgium it was collected by stamps from both the seller and the buyer according to their respective invoices
In America the position was unique
It can be stated from a passage from Beuhler s Public Finance 3rd Edn page 410  A sale tax is an excise in so far as it is imposed upon domestic transaction of commodities and it may also have some of the aspects of customs duties because national sales taxes commonly fall upon importing and sometimes upon expor ting
The popular name for American excises is sales taxes
Not all excises are imposed upon sales or the privilege of selling however for they may be placed upon the purchase or use of commodities including services
 The varieties this elastic tax took in that country is illustrated from the following passage from the same author  Here again there is no standard usage for selected sales taxes are often called sales taxes 489 limited sales taxes selective sales taxes and special sales taxes while general sales taxes may be called sales taxes turnover taxes manufacturers  sales taxes retails sales taxes and gross receipts or gross income taxes
 It was in the background of these laws of foreign countries and the recommendations of the Taxation Inquiry Committee that the entry in the Government of India Act 1935 was framed
Taxes on the sale of goods being a kind of commodity taxes had to be demarcated from other commodity taxes like excise octroi terminal tax market dues etc
The difficulty was solved by viewing the goods as the subject of taxation in different stages
These stages were production movement sale and consumption
Taxes on production of goods which were excise proper were given to the centre with certain exceptions Entry 45 list I and Entry 40 of list II taxes on sale of goods were given to the Provinces Entry 48 List II while taxes on movement of goods were divided those carried by railway and air being allotted to the centre as terminal taxes Entry 58 List 1 and those carried by inland waterways being allotted to the Provinces Entry 52 List II
Taxes on the entry of goods in a local area for consumption use or sale octrois were allotted to the Provinces Entry 49 List II
This was the demacation of commodity taxes in addition to local taxes for local purposes
The two cases of the Federal Court to which detailed reference has been made above outlined the scope of competing entries relating to duties of excise and taxes on the sale of goods
It was pointed out that though there was an overlap the taxes were different
In the recent case of The Automobile Transport Rajasthan Ltd vs The state of Rajasthan 1
I have given the history of the distribution of the heads of revenue on the eve of the Government of India Act 1935 and have there 1 1963 1 SCR 491 490 pointed out that the attempt was to give adequate resources to the Provinces  to enable Provincial Governments to undertake nation building activities
It was there pointed out by me that experts at that time were in favour of alloting an elastic tax like sales tax to the Provinces as the main source of revenue and abolish altogether the category of deficit Provinces and the subventions
It was expected that land revenue would have to be reduced and income tax could not be increased beyond a point
The only tax that was new and fell imperceptibly upon consumers was the sales tax and it was allotted to the Provinces
It was expected to be a very productive tax an expectation which has been amply fulfilled
In 1954 55 this tax alone yielded about 60 crores and it has been even more productive since
The inroads upon the tax were many but they were resisted in the pre Constitution period by the Provinces both in Courts and in administration
Indeed appeals were made in cases before the Federal Court not to cut down unduly the ambit of the natural words and Mr justice jayakar mentioned them in his judgment with sympathy
I feel that what he said will bear repetition here A powerful appeal was made to us by the Advocates General of the Provinces that consistently with its terminology we should so interpret entry No41 List II as to give it a content sufficiently extensive for the growing needs of the Provinces
It was argued that the provincial autonomy granted by the new scheme of government would be unmeaning and empty unless it was fortified by adequate sources of revenue
Whatever value such an appeal may have in a judicial decision I personally appreciate it and I feel no doubt that the interpretation that I am placing on 491 entry No 48 list II is sufficiently practical to leave an adequate source of revenue in the hands of the Provinces without making inroads on Central preserves
I may add here that the several authors I have been able to consult on this point agree in their opinion that since the War a tax on the sale of goods has proved to be both productive and practicable in many countries under circumstances not very diffe rent from those prevailing in the Provinces of India
The yield naturally varies with the scope and rates of the tax business conditions and administrative efficiency but it is stated that the tax itself has become a major source of revenue in a number of countries yielding more than the income tax in a few instances and nearly as much as other sources of revenue in others
 In re The Central Provinces  Berar Act No XIV of 1938 1
The two cases of the Federal Court having established the area of operation of entry No 48 List II in relation to the competing entry relating to excise the Provinces attempted to extend the tax to cover all situations
This was done by incorporating definitions of sale  which in some respects were inconsistent with the definition in the Indian 
The Taxation Enquiry Commission 1953 54 gave in its report an analyses of how these definitions ran and I find it convenient to quote from the report page 10 para 24 Vol
III  In Madras Mysore Travancore Cochin and Hyderabad sale means transfer of property in the course of trade or business
By implecation all other sales are excluded
Casual sales by individuals sales of food by hotles attached educational institutions sales of old furniture for example by firms not dealing 11939 FCR 19 at p 119
492 in furniture and so on are therefore not liable for the tax in these States
The States of Bengal and Delhi define sale as transfer of property in goods for money consideration which accordingly excludes transfers for other consideration like exchange or barter
According to the Acts of certain States the Sale is deemed to have taken place in the territory of the State if at the time when the contract of sale or purchase was made the goods were actually in those States
In certain States the transfer of property in goods supplied in the execution of a contract is also included in the definition of sale
 The definitions led to a variety of decisions on the meaning of the word sale which were likely to bewilder the common man
The Taxation In Commission summed up the situation in the following words  The layman who asks  What is a sale would not have to go without an answer he would find plenty of replies in the reported judgments of courts of law and he would not be a layman if piecing them together he was able to say when where and how a sale because a sale which a sales tax may tax
 From the earliest times the extension of the word sale was in three recognisable directions
Firstly the definition by a fiction took in transactions of sale in which the goods were produced in the Provinces or were in the Province at the time the contract of sale took place no matter where the contract could in law be said to have taken place
In other words by a fiction incorporated in the definition of sale  the situs of sale could be established in the Province
Secondly forward transactions in which the passing of property was postponed to a future date if at all it took place were included in the definition of  sale
Thirdly 493 materials in a works contract where the bargain was for a finished thing were treated as the subject matter of sale
Laws in which transactions of sale were sought to be taxed on the ground that goods were in the province or some part of the component elements of a contract of sale took place in the Province were generally upheld by the High Courts
In these cases the doctrine of nexus was extended to sales tax legislation following the analogy of the decision of the Privy Council in Wallace Brothers etc
 Co vs Commissioner of Income tax Bombay
1 The cases recognised the sovereignty of Provincial Legislatures which were erected by the British Parliament in its own image and which within the jurisdiction conferred by a legislative entry enjoyed powers as large and ample as those of the British Parliament
It was generally held that in the Plenitude of that power it was open to the Provincial Legislatures to tax transactions of sale in which there was a sufficient nexus between the Province and the taxable event namely the sale and that the Provincial law could by a function bring the whole transaction into the Province for purposes of tax
The Supreme Court also took substantially the same view in the State of Bombay vs The United Motors Ltd 2 Bengal Immunity Co Ltd vs State of Bihar 3 Tata Iron and Steel Co Ltd vs State of Bihar 4 and Commissioner of Sales tax vs Husenali 5
The meaning of the world sale  in the Entry was laid down in several cases but I shall refer to only one of them
In Poppatlal vs State of Madras 6 Venkatarama Ayyar J Rajamannar C J concurring observed as follows   The word sale  has both a legal and a popular sense
In the legal sense it imports 1 1948 FCR I PC 2 1953 SCR 1069
3 5 1959 Supp 2 SCR 702
4  6 AIR 1953 Mad
494 passing of property in the goods
In its popular sense it signifies the transactionswhich results in the passing of property
To alawyer the legal sense would appear to be thecorrect one to be given to the word in  the Sales Tax Act
That is the conception which is familiarised in the provisions of 
If one leaves out of account sales tax legislation which is of comparatively recent origin questions relating to sale of goods usually come up before the Courts only in connection with disputes between the sellers and purchasers
If the goods perish on whom is the loss to fall If the purchaser becomes insolvent before payment of price can the goods be claimed by the trustee in bankruptcy For deciding these and similar questions it is necessary to determine at what point of time the property in goods passed to the purchaser
Sometimes when the point for determination is as to jurisdiction of Courts to entertain suits based on contract it may be material to consider where property in the goods passed that being part of the cause of action
These being the questions which are accus tomed to be debated in connection with sale of goods it is natural that a lawyer should as a matter of first impression approach the question of sale under the Sales Tax Act with the same concept of a sale But if the matter is further considered it will be seen that considerations which arise under the Sales Tax Act are altogether different from those which arise under the 
The object of the Sales Tax Act is to impose a tax on all sales and it is a tax imposed on the occasion of sale 
So far as the Government is concerned it would be 495 immaterial at which point of time property in the goods actually passed from the seller to the buyer
Of course there must be a completed sale before tax can be levied and there would be a completed sale when property passes
That is the scope of the definition of sale  in section 2 h
But when once there is a comp leted sale the question when property passed in the goods would be a matter of no concern or consequence for purposes of the Sales Tax Act
The Government is interested only in collecting tax due in respect of the sale and the only fact about which it has to satisfy itself is whether the sale took place within the Province of Madras
In this context the popular meaning of the word is the more natural and there is good reason for adopting it 
Our conclusion accordingly is that the word sale  in the Madras General Sales Tax Act must be understood in a popular sense and sales tax can be levied under the Act if the transaction substantially takes place within this Province notwithstanding that the property in the goods does not pass within the State
 Against the decision of the High Court of Madras an appeal was filed in this Court and the judgment of this Court is reported in  The appeal was allowed
On the question of territorial nexus this Court agreed with the Madras High Court but on the question of the meaning of the word sale  it expressed itself differently
In an earlier case State of Travancore Cochin vs The Bombay Co Ltd 1 this Court had reserved the question whether the word sale  had the same meaning as in the law relating to the sale of goods or a wider meaning
In Poppatlal Shah s case 2 the Supreme Court referred to the decision of the Madras High Court that the word was used in a popular sense and without any expression of 1  2 AIR 1953 Mad
496 disapproval held that there was no indication of the popular meaning of sale in the definition in the Madras General Sales Tax Act where unmistakably stress was laid on the clement of transfer of property in a sale and no other  The Bench held that the presence of goods within the province at the time of the contract would have made the sale if subsequently completed a sale within the province by reason of the Explanation added by Act XXV of 1947 but as the Explanation was not in operation during the relevant period the assessment of sale tax was held to be illegal and unwarranted by the law as it then stood
It would appear from this that this Court took the view that the word sale  in the entry Taxes on the sale of goods was used in a sense wider than that commonly accepted in the law relating to sale of goods and the judgment of Venkatarama Ayyar J in the Madras High Court on this part was not questioned
Then came a decision of the Allahabad High Court from which an appeal was brought to this Court
The judgment of this Court is reported in the Sales Tax Officer Pilibhit vs Messrs Budh Prakash Jai Prakash 1
The definition of the word  sale  in the UP Sales Tax Act XV of 1948 included forward contracts  and this part of the definition was declared ultra vires entry 48 in List I of the Government of India Act 1935 and Explanation III to section 2 h of that Act which provided that forward contract  shall be deemed to have been completed on the date originally agreed upon for delivery and also section 3 B taxing turnover of dealers in respect of transactions of forward contracts were also declared ultra vires
Venkatarama Ayyar J speaking for this Court held that under the statute law of England and also of India there was a well recognised distinction between sales and  agreement to sell though they were grouped under the generic name of contract of sale
 The distinction it was pointed out lay in the transfer of property which if simultaneous 1  497 with agreement made for a sale but if in the future operated only for an agreement to sell
In the latter case property could only pass as required by section 23 of the 
Relying on the observation of Benjamin on Sale that In order to constitute a sale there must be 1 An agreement to sell by which alone the property does not pass and 2 an actual sale by which the property passes the learned judge observed that though the definition of a contract of sale included a mere agreement to sell as well as an actual sale there was a distinction between the two which led to different remedies and entry No 48 when it spoke of sale  meant a completed sale involving transfer of title
The question whether the legislature in the exercise of its sovereign powers for purposes of taxing the event of sale could treat a sale as complete when there was a final agreement for purchase and sale even though price was not paid was apparently not mooted before this Court
Emphasis was laid on the definition of turnover  as the aggregate of the proceeds of sale by a dealer  and it was pointed out that there could be no aggregate of prices unless the stage had been reached when the seller could recover the price under the contract it being well settled in the law under the sale of goods that an action for price is maintainable only when there is a sale involving transfer of the property in the goods to the purchaser and that where there is only an agreement to sell then the remedy of the seller is to sue for damages for breach of contract and not for the price of the goods
The exceptional circumstance when under an agreement between the parties the price is payable on a day certain irrespective of delivery was considered not material for the purpose of the discussion
498 In these cases by the application of the legislative practice relating to sale of goods the meaning of the expression taxes on sale of goods was determined and future contracts in which delivery and payment of price were deferred were held to be outside the purview of the Entry
There can hardly be any doubt that the entry is concerned with a completed sale because it is only a sale  which can be taxed and not anything which is short of a sale and if a transaction which is sought to be taxed is merely in the region of an agreement de futuro there is no taxable event
The opinion that if there be a completed sale then the law dealing with taxation would be indifferent whether price was paid or not
expressed by Venkatarama AyyarJ in Poppatlal Shah s case1 of the Madras High Court was not accepted
Then came the third batch of cases
This batch was concerned with the taxing of materials which were supplied and used as part of building or repair operations like bricks timber and fittings in buildings girders beams rails etc
in bridges spare parts in repair of motor vehicles etc
Two distinct views were held by the High Courts
The Madras High Court in sub nom Gannon Dunkerley  Co vs State of Madras 2  held that such transactions did not involve a sale of goods and there could be no tax
A contrary view was expressed in Pandit Banarsi das vs State of Madhya Pradesh s where it was held that such contract  involved both labour as well as materials and in as much as materials were goods and property in them passed it wag within the competence of the Provincial legislatures to separate the sale of goods from the composite and entire transactions and to tax them
It was pointed out that legislative practice in relation to the was not conclusive and though it could not be doubted that a limited legislature could not create a power for itself which did not flow from an entry the entry itself must be given the widest amplitude 1 AIR 1953 Mad 91
2 1954 5 STC 216
3 1955 6 STC 93
499 possible and its scope should not be cut down by anything not found in the Constitution Act 1935
It was therefore concluded  The text being explicit the text is conclusive alike in what it directs and what it prohibits
The necessary conditions for the impost however were that there should be a sale of goods
The selection of the taxable event and the severance of transactions of sale from other transactions in which they might be embedded was a necessary part of the power
The legislature could not say that a contract of service amounted to a sale of services goods but it could tax a genuine transaction of sale of goods whatever form it took
 x x x x x  If a building contract was not split up into its component parts that is to say material and labour in legislative practice relating to the ordinary regulation of sale of goods there is no warrant for holding that it could not be so split up even for purposes of taxation
 Some High Courts accepted the decision in Gannon Dunkerley s case and some others the decision in Pandit Banarsidas s case1 In all these cases there were appeals to this Court
All these appeals were heard together
The leading Judgment was delivered in Gannon Dunkerley s case
The Madras view was accepted and the view expressed in Pandit Banarsidas s case 1 was not accepted
It is contended for the appellants that this view of the Supreme Court controls the present case and it is therefore necessary to follow the reasoning in some detail
Before I do so I shall refer to a case of the House of Lords which influenced in no small measure the decision of this Court that case is Kirkness vs John Hudson  Co Ltd 2
 1 1955 6 STC 93
2 500 Under section 29 of the Transport Act 1947 10  11 Geo
C49 the company s railway wagons were vested on January 1 1948 in the British Transport Commission
These wagons were already under requisition to the Ministry of Transport under the powers contained in Regulation 53 of the Defence General Regulations 1939
Later the company received compensation
This amount was higher than the written down value
A balancing charge of pound 29021 was made under section 17 of the Income tax Act 1945 8  9 Geo
6 C 32 in an assessment under clause I of schedule D to the Income tax Act 1918
The company appealed against the balancing charge and succeeded
Section 17 1 of the Income tax Act 1945 which in its purport resembled section 10 2 vii of the Indian Income tax Act 1922 ordained that a balancing charge or allowance should be made if certain events occured one such event being a the machinery or plant is sold whether still in use or not
The question was whether there was such a  sale  justifying a balancing charge
It was contended for the Revenue that the word sale had a wider meaning than a contract and a conveyance of pro perty and that in its legal meaning it did not involve a contract at a but just the transfer of the property in or ownership of something from A to B for a money price whether voluntary or affected by operation of law or compulsory
Passages were cited from Benjamin on sale 2nd Edn
p 1 Halsbury s Laws of England 2nd Edn
xxi p5 Blackstones Commentaries 19th Edn
1836 vol
If p 446 and Chalmer s Sale of Goods11th Edn
p 161 to show that a bargain only shows a mutual assent but it is the transfer of property which is the actual sale
Analogy of Lands Clauses Consolidation Act 1845 Stamp Act and other Acts was invoked and later Finance Acts were also called in aid where such compulsory transactions were described as sale or purchase
The House of  Lords by a majority of 501 4 to 1 overruled these contentions
It was held that the vesting of the wagons in the Transport Commission by operation of section 29 of the Transport Act and the payment of compensation in the shape of transport stock did not constitute a sale and the analogy of compulsory acquisition of land did not apply since the procedure there was entirely different
The word sale  in section 17 of the Income tax Act 1945 it was held imported a consensual relation and the meaning of the section being plain it was not possible to go to later Acts to construe the section
I shall quote a few passages from the speeches to show how this conclusion was reached so as to be able to show how the same reasoning was used in connection with the building contracts
Viscount Simonds pointed out that what was to be construed were the two words is sold  in section 17 1 a of the Income tax Act 1945 that there was nothing in the Act to give a special colour or meaning to the words and that analogous transactions could net help to decide that should be the meaning
Agreeing with Singleton L J where he said what would anyone accustomed to the use of the words sale  or sold  answer  It seems to me that everyone must say Hudsons did not sell Viscount Simonds went on to say  When Benjamin said in the passage quoted by Singleton and Birkett
JJ from his wellknown book on sale 2nd
edp1 that by the common law a sale of personal property was usually termed a bargain and sale of goods  he was by the use of the word bargain  perhaps unconsciously emphasizing that the consensual relation which the word bargain  imports is a necessary element in the concept
In this there is nothing new the same principle is exhibited in the Roman Law for the opening words of Title 23 of the third book of the 502 Institutes of Justinian De Emptione et venditione are emptio et venditio contrahitur simulatque de pretio convenerit  sometimes the contract for sale is itself the sale as so often in the sale of goods  sometimes and particularly in the sale of land it is regarded as a part of the sale as for example when it is said by a modern writer that the first step in the sale of land is the contract for sale see Cheshire Modern Real Property 7th Edp631
But it is immaterial whether the contract is regarded as the sale itself
 or as a part of it or a step in the sale or as a prelude to the sale  there is for the present purpose no substance in any such distinction
The core of it is that the consensual relation is connoted by the simple word sale  
Lord Reid also emphasised the consensual relation in sale  as its vital element and observed   Sale  is in my opinion a nomen juris it is the name of a particular consensual contract
The law with regard to sale of chattels or corporeal movables is now embodied in the Sale of Goods Act 1893
By section I 1 A contract of sale of Goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for money consideration called the price and by section 1 3  where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell As a contract of sale as distinct from an agreement 
to sell and unlike other contracts operates by itself and without delivery to transfer the property in the thing sold the 503 word  sale connotes both a contract and a conveyance or transfer of property Lord Reid agreed that sale  is a word which has become capable in an appropriate context of having a meaning wider than its ordinary and correct meaning
But it is only permissible to give to a word some meaning other than its ordinary meaning if the context so requires
Lord Tucker in agreeing observed  I feel that the answers must be that the word is unambiguous and denotes a transfer of property in the chattel in question by one person to another for a price in money as the result of a contract express or implied
This is in substance the definition of sale given in the second edition of Benjamin on sale but for present purposes it is sufficient to emphasize that natural assent is an essential element in the transaction
It is no doubt true that the contract or agreement to sell may precede the formal instrument or act of delivery under which the property passes but to describe a transfer of property in a chattel which takes place without the consent of transferor and transfer as a sale would seem to me a misuse of language
By express enactment or by necessary implication from the context any word may be given a meaning different from or wider than that which it ordinarily bears and this may apply to the word sale where it appears in a context relating to the process of compulsory acquisition of land   I do not find it necessary to quote from the minority view of Lord Morton of Henryton but he did point out that the word sale  for 100 years was being used in connection with transactions by which the property of A had been transferred to B on payment of compensation to the owner but without 504 the consent of the owner and said of the question posed by Singleton L J that if it were put to ten persons unconnected with the company five of them might say No the wagons were taken over under the Transport Act and the other five might sayYes adding possibly  but it was a compulsory sale or  because they had to do it
I have paused long over this case but only because the line of reasoning of this case has been closely followed in Gannon Dunkerley s case
The decision of the Court of Appeal later approved by the House of Lords had also influenced in a large measure the decision of the Madras High Court earlier in the same case
In Gannon Dunkerley s case Venkatarama Aiyar J posed the question thus  The sole question for determination in this appeal is whether the provisions of the Madras General Sales Tax Act are ultra vires in so far as they seek to impose a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor and the answer to it must depend on the meaning to be given to the words  sale of goods in Entry 48 in List II of Sch
VII of the Government of India Act 1935
 His Lordship accepted that building materials were goods  in view of the definition and narrowed the inquiry to whether there was a sale of those materials within the meaning of that word in Entry 48 The learned judge then pointed out that in interpreting a Constitution a liberal spirit should inspire courts and the widest amplitude must be given to the legislative entries and they should not be cut down by resort to legislative practice and that subjects of taxation in particular should be 505 taken in rerum natura irrespective of previous laws on the subject
The learned judge next asked the question in what sense the words sale of goods  were used Whether popular or legal and what its connotation is either in the one sense or the other After noticing meanings of sale as given by divars authors it was laid down that it meant transfer of property in a thing from one person to another for a money price
It was next pointed out that in popular sense a sale is said to take place when the bargain is settled between the parties though property in the goods may not pass at that stage and the Observations of Sankey J later Viscount Sankey L C  in Nevile Reid  Co Ltd vs C 1
R 1 that the words sale  in the British Finance Act 1918 should not be construed in the light of the Sale of Goods Act 1893 but in a commercial and business sense were rejected as obiter and opposed to the decisions of this Court in Poppatlal Shah s Case and Budh Prakash s Case
3 where  executory agreements were not held to be sales within the Entry
It was observed  We must accordingly hole that the expression sale of goods  in Entry 48 cannot be construed in its popular sense and that it must be interpreted in its legal sense
What its connotation in that sense is must now be ascertained
For a correct determination it is necessary to digress somewhat into the evolution of the law relating to sale of goods
The learned judge next referred to Roman Law of emptio venditio and pointed out that the consideration of sale could not be anything but only money or something valuable and that it was so recorded in the Institutes of Justinian Title XXIII and that Emptio Venditio was a consensual contract
The learned judge next referred to Benjamin on sale and observed that according to that learned author to Constitute a valid sale there must be a concurrence 1 2 Ar
R 3  506 of the following elements vis 1Parties competent to contract 2 mutual assent 3 a thing the absolute or general property in which is transferred from the seller to the buyer and 4 a price in money paid or promised Vide 8th edn
p 2 In 1893 the Sale of Goods Act 56  57 Vict
c 71 codified the law on the subject
 and section 1 of the Act which embodied the rules of the common law runs as follows  1  1 A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price
There may be a contract of sale between one part owner and another
2A contract of sale may be absolute or conditional
3Where under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled the contract is called an agreement to sell
4An agreement to sell becomes a sale when the time elapses or the condition are fulfilled subject to which the property in the goods is to transferred
 It was then pointed out that in section 77 of the sale was defined as the exchange of property for a price involving the 507 transfer of ownership of the thing sold from seller to buyer
It was then held that in view of the scheme of the sections 1 75 a bargain was an essential element and that even after the Indian Sale of Goods Act the position had not changed
It was next pointed out that Thus if merely title to the goods passed but not as a result of any contract between the parties express or implied there is no sale
So also if the consideration for transfer was not money but other valuable consideration it may then be exchange or barter but not sale
And if under the contract of sale title to the goods has not passed then there is an agreement to sell and not a completed sale
The State in the case urged four points to resist the conclusion that the words  sale of goods in Entry 48 must be interpreted in the sense which they bear in the Indian 
These contentions were examined seriatum and rejected and it was concluded thus  To sum up the expression sale of goods in Entry48 is a nomen juris its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement
In a building contract which is as in the present case one entire and indivisible and that is its norm there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale 
 In so far as building contracts were concerned two reasons why there could not be a sale of goods were mentioned
The first was that there was no agreement express or implied to sell goods 
It was observed    
We are concerned here with a building contract and in the case of such a 508 contract the theory that it can be broken up into its component parts and as regards one of them it can be said that there is a sale must fail both on the grounds that there is no agreement to sell materials as such and that property in them does not pass as movables
 The second reason was that the property in the building materials does not pass in the materials regarded as goods  but as part of immovable property
It was observed  When the work to be executed is as in the present case a house the construction imbedded on the land becomes an accretion to it on the principle quicquid Plantatur solo solo cedit and it vests in the other party not as a result of the contract but as the owner of the land
 I shall refer to two other cases which were decided with Gannon Dunkerley s case
In Pandit Banarasi Das vs State of Madhya Pradesh 1 it was observed at page 437
It should be made clear however in accordance with what we have already stated that the prohibition against imposition of tax is only in respect of contracts which are single and indivisible and not of contracts which are a combination of distinct contracts for sale of materials and for work and that nothing that we have said in this judgment shall bar the sales tax authorities from deciding whether a particular contract falls within one category or the other and imposing a tax on the agreement of sale of materials where the contract belongs to the latter category In Mithanlal vs State of Delhi 2 from a composite transaction involving work and materials the 1  2 509 materials were held liable to sales tax under a law made by Parliament for a State
This was held to fall within the residuary powers of Parliament without any specific reference to any particular entry or entries in Legislative Lists
I shall now proceed to discuss the facts of the present case in relation to the decisions on Entry 48 of List 11 Seventh Schedule of the Government of India Act 1935
Before considering the facts of this case in the light of the Sugar and Sugar Products Order 1946 I shall summarise what I have said so far
Sales tax is a tax which may be laid on goods or services
It assumes numerous shapes and forms
It is a modern tax being the product of the First World War
The concept of sale  is of course much older and even the English Sale of Goods Act 1893 on which our own statute is based was prior to the first imposition of tax in modern times
In India the tax was first levied in 1937 under laws made under entry No 48 which read  Taxes on the sale of goods
It was introduced as the main source of revenue to the Provinces under a scheme of Provincial Autonomy
Being a commodity tax it came into competition with other commodity taxes like excise but it was held that the entry comprised wholesale retail and turnover taxes from the stage of manufacture or production to consumption
Later textual interpretation based on statutes relating to sale of goods and books on the subject of sale pointed out intrinsic limitations
One such limitation was that the term sale  was used in the limited sense it bears in that part of the law of contract which is now incorporated in the Sale of Goods Act
As a result of this fundamental con sideration forward contracts  were held to be outside the scope of the Entry
The sale it was held had to be a completed sale with passing of property before the tax could become payable
A further limitation was pointed out in certain cases relating to building 510 contracts in which it was held that though property in materials passed it did so without an agreement express or implied in that behalf and only when the materials ceased to be goods and became immovable property
It was held that the supremacy of the Provincial Legislatures did not extend to levying a tax on sales in these circumstances by modifying the definition of sale
It was however held that if the parties agreed to divide a works contract into labour plus materials the tax might be leviable
It was also held that a tax on building materials was leviable by the legislature having power to levy a tax not expressly mentioned
It was however held that if the taxing Province had the goods at the time of the contract or there was other substantial connection with the contract by reason of some element having taken place there the Legislature could validly make a law which treated the whole transaction as having taken place in the Province
The argument in this case is that the tax can only be placed upon a transaction of sale which is the result of mutual assent between the buyer and seller and observations in Gannon Dunkerley s case where stress is laid upon the consensual aspect of  sale  are relied upon
It is true that consent makes a contract of sale because sale is one of the four consensual contracts recognised from early times Consensu fiunt obligationes in emptionibus venditionibus and Ideo autem isti modis Consensu dicimus obligationes contrahi
But consent may be express or implied and it cannot be said that unless the offer and acceptance are there in an elementary form there can be no taxable sale
The observations in Gannon Dvnkerley s case were made in connection with materials utilised in the construction of buildings roads bridges etc
It was there pointed out that there must at least be an agreement between the parties express or implied in respect of some goods  as goods  and the levy of the tax on building 511 materials was struck down because there is no agreement to sell materials as such and that property in them does not pass as movables
 The commodity with which we are concerned is sugar and it is delivered as sugar
Thus one part of the reasoning from Gannon Dunkerley s Case which rested on the passing of property in building materials as a part of realty does not apply
It is also quite clear that the tax is being demanded after the sugar has changed hands or expressing it in legal phrase when property in it has passed
It is argued that by reason of the Control Order there was no bargaining
It is pointed out that the control of sugar operated to fix ex factory price to determine who should be the supplier and who should receive the supply to fix the quantity quality and the time of delivery
The question which we are deciding is not a question arising under the Sale of Goods Act but under a taxing entry in a Constitution
The entry described a source of revenue to the Provinces
The Provincial Legislature made its laws taxing sales of commodities like sugar
In a period of emergency the Federal Government imposed certain controls to regulate prices and supplies
This control involved a permit system under which every Province had to indent its requirements to the Controller and every sugar mill had to inform the Controller of the existing and future stocks
What the Controller did was to permit a particular mill to supply sugar of a stated quality and quantity to a named Province
The mill then had to send the sugar on pain of prosecution and forfeiture and receive price according to the fixed rates
Bargaining it is said was not possible but bargaining in the sense of offer and acceptance may be express or implied
That after the permit was obtained the two parties agreed to sell  and purchase  sugar admits of no doubt
I shall now analyse the whole transaction and see how the element of compulsion and control affect 512 the existence of a sale
First there is the fixation of price by the Controller
Can it be said that there is no sale because the price is fixed by a third person and not by the buyer and seller
This is the old controversy between Labeo and Proculus that if price is fixed by a third person a contract of sale results or not
Labeo with whom Cassius agreed held that there was not while Proculus was of the contrary opinion  Pretium autem certum esse debet
nam alioquin si its inter nos convenerit ut quanti Titius rem aestemasuerit tanti sit empta Labeo negavit ullam uim hoc negotium habere cuius opinionem Cassius probat
Ofilius et earn emptionem et uenditionem cuius opinionem Proculus secutus est Gaius III 140
This was solved by justinian holding that there was  Sed nostra decisio its hoc constituit Inst III 23 1 I do not think the modem law is any different
long as the parties trade under controls at fixed rice and accept these as any other law of the realm because they must the contract is at the fixed price both sides having or deemed to have agreed to such a price
Consent under the law of contract need not be express it can be implied
There are cases in which a sale takes place by the operation of law rather than by mutual agreement express or implied
See Benjamin on Sale 8th Edn
p 91
The present is just another example of an implied contract with an implied offer and implied acceptance by the parties
What I have said about price applies also 10 quantity and quality
The entry in No 48 of List II Seventh Schedule dealt with sale of goods in all its forms
We have seen above how numerous are these forms
The entry was expressed in six simple words but was meant to include a power to 513 tax sale of goods an all its forms
It was apt meant to operate only in those elementary cases where there is offer by A and an acceptance by B with the price as consideration
The concept of taxes on sale of goods is more complicated and the relations of people do not always take elementary forms
When the Province after receiving the permit telegraphed instructions to despatch sugar and the mill despatched it a contract emerged and consent must be in on both side s though not expressed antecedent the permit
The indent of the Province was the offer to purchase sugar of such and such quality and quantity
The mills by quoting their stocks offered to sell sugar
The controller  brought the seller and purchaser together and gave them his permission with respect to a particular quantity and quality
There was thus an implied contract of sale in the words of the Digest XII 1 IX 4  Si cui libera universorum negotiorum administratio a domino permissa fuerit isque ex hic negotiis rem vendiderit et tradiderit facit cam accipientis
 No doubt there is compulsion in both selling and buying perhaps more for the mills than for the Provinces
But a compelled sale is nevertheless a sale as was held by the House of Lords in New Castle Breweries vs inland Revenue Commissioner The case in Kitkness V John Hudson  Co Ltd was different because the section there interpreted required a sale  and there was no sale express or implied when the wagons were taken away and compensation was paid in the shape of transport stock
There a sale in its ordinary forms wag obviously meant though it was recognise that sale  in other context has other meanings
It was argued that there must be mutuality
That one party must be free to offer and must offer and the other side must be free to accept and must 514 accept the offer before a sale tan be said to arise
But sales often take place without volition of a party
A sick man is given medicines under the orders of his doctor and pays for them to the chemist with tax oil the price
He does not even know the names of the medicines
Did he make an offer to the chemist from his sick bed  The affairs of the world are very complicated and sales are not always in their elementary forms
Due to short supply or maldistribution of goods controls have to be imposed
There are permits price controls rationing and shops which are licensed
can it be said that there is no sale because mutuality is on one account or another It was not said in the Tata Iron and Steel case 1 which was a case of control that there was no sale
The entry should be interpreted in a liberal spirit and not cut down by narrow technical considerations
The entry in other words should not be shorn of all its content to leave a mere husk of legislative power
For the purposes of legislation such as on sales tax it is only necessary to see whether there is  a sale express or implied  Such a sale was not found in forward contracts and in respect of materials used in building contracts
But the same cannot be said of all situations
I for one would not curtail the entry any further
The entry has its meaning and within its meaning there is a plenary power
If a sale express or implied is found to exist then the tax must follow
I am of the opinion that in these transactions there was a sale of sugar for a price and the tax was payable
I would therefore dismiss these appeals with costs
BY COURT Having regard to the judgment of the mojority all these appealsNos 237 and 633 636 of 1961 would be allowed with costs one hearing fee


Summary:
Under the Sugar and Sugar Products Control Order 1946 the consuming States intimated to the Sugar Controller of India their requirements of sugar and the factory owners sent statements of stocks of sugar held by them
The Controller made allotments to various States and addressed orders to the factory owners directing them to supply sugar to the States in question in accordance with the despatch instructions from the State Governments
Under such allotment orders the assesses a sugar factory in Bihar despatched sugar to the State of Madras
The State of Bihar treated these transactions as sales and levied sales tax thereon under the Bihar Sales Act 1947
The assesses contended that the despatches of the sugar pursuant to the directions of the Controller did not amount to sales and that no sales tax was exigible on such transactions
Held per Kapur and Shah JJ
Hidayatullah J dissenting that the transactions did not amount to sales and were not liable to sales tax
Under Entry 48 List II of Government of India Act 1935 the Provincial Legislature had no power to levy sales taxes on a transaction which was not of the nature of a sale of goods as understood in the Sale of Goods act
To constitute a sale of goods 
property in the goods must be transferred from the seller to the buyer under a contract of sale
A contract of sale between the seller and the buyer is a prerequisite to a sale
Despatches of sugar under the directions of the Controller were not the result of any such contract of sale
There was no offer by the assesses to the State of Madras and no acceptance by the latter the assessee was under the Control Order compelled to carry out the directions of the Controller and it had no volition in the matter
Intimation by the State 460 of its requirement of sugar to the controller or communi cation of the allotment order to the assesses did not amount to an offer
Nor did the mere compliance with despatch instructions issued by the Controller which the assessee could not decline to carry out amount to acceptance of an offer or to making of an offer
A contract of sale postulates exercise of volition on the part of the contracting parties
State of Madraa vs Gannon Dunkerky  Co 1959 section C R 379 relied on
The Tata Iron  Steel Co Ltd vs The State of Bihar   explained
Per Hidayatullah J
In these transactions there was a sale of sugar for a price and sales tax was payable in respect thereof
Though consent is necessary for a sale it may be express or implied and it cannot be said that unless the offer and acceptance are in an elementary direct form there can be no taxable sale
The controller permitted the assesses to supply sugar of a Stated quality and quantity to the State of Madras thereafter the two parties agreed to sell and purchase the sugar
So long as the parties trade under controls at fixed price they must be deemed to have agreed to such a price there wasan implied contract with an implied offer and an implied acceptance
The same is the position with respect to the quality and quantity fixed by the Controller
when the State  after receiving the permit sent instructions to the assesses to despatch sugar and the assesses despatched it a contract emerged and consent must be implied on both sides though not expressed antecedently to the prmit
State ofMadras vs Gannon Dunkerky Co  andThe Tata Iron and SPA Co Ltd vs The State of Bihar   explained