Appeals Nos 2483 and 2484 of 1969
Appeals by special leave from the judgment and order dated April 11 1969 of the Allahabad High Court in Sales Tax References Nos
580 and 581 of 1966
J P Goyal and Sobhagmal Jain for the appellants in both the appeals
C B Agarwala and 0
P Rana for the respondent in both the appeals
The Judgment of the Court was delivered by Shah J The appellants who are dealers in food grains supplied to the Regional Food Controller diverse quantities of wheat in compliance with the provisions of the UP Wheat Procurement Levy Order 1959
The Sales Tax Officer levied tax under the UP Sales Tax Act on the aggregate of the price of wheat by the appellants rejecting the contention raisedby the appellants that the wheat supplied was not sold by them to the Controller
In appeal the Assistant Commissioner Judicial Sales Tax held that the turnover resulting from supplies of wheat was not taxable since there was no sale within the meaning of the UP Sales Tax Act 1948
The order was confirmed by the Additional Judge Revisions Sales Tax
The Additional Judge Revisions Sales Tax referred the following questions to the High Court of Allahabad for opinion 1 Whether the sales made to the Regional Food Controller under the UP Wheat Procurement Levy Order 1959 are sales within the meaning of sale under section 2h of the UP Sales Tax Act  2 Whether in the circumstances of the case the assesses are liable to pay sales tax on the sales made to the Regional Food Controller under the provisions of the UP Wheat Procurement Levy Order 1959  The questions raised were defective in form
The word sales when it first occurs in Question No 1  should be supplies
The expression sales made in Question No 2 should be on the price for wheat supplied
We modify the questions accordingly
The High Court of Allahabad following their earlier judgment in Commissioner of Sales Tax UP Lucknow vs  an Bilas 673 Ram Gopal1 answered the two questions in the affirmative
The appellants have appealed to this Court with special leave
The expression sale is defined in section 2h of the UP Sales Tax Act 1948 as meaning any transfer of property in goods for cash deferred payment or other valuable consideration but not including a mortgage hypothecation charge or pledge
Power of the Provincial Legislature by virtue of Entry 48 List 11 of the Government of India Act 1935 was restricted
The Legislature was competent to legislate for levy of tax only on transactions which were sales within the meaning of the Indian  State of Madras vs Gannon Dunkerley and Co Madras Ltd  Ms New India Sugar Mills Ltd vs Commissioner of Sales Tax Bihar 
It was observed in Ms New India Sugar Mills  case   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 of goods and where under a contract of sale 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 sub section 3 section 4
It is manifest that under the 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 I 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
It was also observed that the expression sale of goods in the Constitution must be understood in the same sense in which it is 1 1969 All LJ 424
2  3 1963 Suppl
2 SCR 459
13Sup
C 170 14 674 used in the 
The UP Legislature could therefore legislate for levy of sales tax on a transaction which amounted to a sale within the meaning of the  and not on any other transaction which was deemed by fiction to be a sale
It is necessary then to determine whether the stocks of wheat supplied by the appellants in compliance with the provisions of the UP Wheat Procurement Levy Order 1959 to the Regional Food Controller were sold to that Officer within the meaning of the definition of the word sale  in section 2h of the UP Sales Tax Act 1948
The relevant provisions of the UP Wheat Procurement Levy Order 1959 may first be read
The preamble to the Order states  Whereas the State Government is of the opinion that it is necessary and expedient so to do for maintaining the supplies of wheat and for securing its equitable distribution and availability at fair prices Now THEREFORE in exercise of the powers conferred by clauses e f h i and j of sub section 2 of section 3 of the 10 of 1955 the Governor of the State of Uttar Pradesh is pleased to make the following order Clause 3 provides 1 Every Licensed dealer shall sell to the State Government at the controlled prices a Fifty 50 per cent if wheat held in
stock by him at the commencement of this Order and b Fifty 50 per cent of wheat procured or purchased by him every day beginning with the date of commencement of this Order and until such time as the State Government otherwise directs
2 The wheat required to be sold to the State Government under sub clause 1 shall be delivered by the licensed dealer to the Controller or to such other person as may be authorised by the Controller to take delivery on his behalf
 Clause 4 confers powers of entry search seizure upon Enforcement Officers  insofar as it is material it provides 1 Any Enforcement Officer may with a view to securing compliance with this Order or to satisfying himself that this order has been complied with 675 i enter with such assistance as may be necessary any premises where he has reason to believe that wheat is procured purchased or stocked  iiask of any person all necessary questions iii examine any books or documents iv search any premises vehicles vessels and aircraft and seize wheat in respect of which he has reasons to believe that a contravention of the order has been is being or is about to be committed and thereafter take or authorise the taking of all measures necessary for securing the production of stocks so seized in a court and for their sale custody pending such production
By cl 3 of the Order every licensed dealer is directed to sell to the State Government 50 of the wheat held in stock by him on the date of the commencement of the Order at the controlled prices
Again out of the stock of wheat procured or purchased by him every day beginning with the date of commencement of the Order he is directed to sell 50 of that stock
The Order enjoins the licensed dealer to deliver the quantities specified in subcl
1 of cl 3 either to the Controller or to such other person as may be authorised by the Controller to take delivery on his behalf
To ensure that the licensed dealer carries out his obligation the Enforcement Officers may enter any premises where they have reason to believe that wheat is procured purchased or stocked and may make necessary enquiries examine any books or documents and search any premises vehicles vessels and aircraft and seize wheat in respect of which they have reason to believe that a contravention of the Order has been is being or is about to be committed
Obligation to deliver wheat of the quantity specified arises out of the statute
The Order takes no account of the volition of the licensed dealers and until the State Government directs otherwise of the Controller or the authorised officer
The Order imposes an obligation upon the licensed dealer who is defined in cl 2d as meaning a person holding a valid licence under the UP Food grains Dealers Licensing Order 1959 to deliver the quantities of wheat specified in the Order
The State Government is directed by the Order to pay for the wheat supplied at the controlled rate
The source of the obligations to deliver the specified quantities of wheat and to pay for them is not in any contract but in the statutory order
In our judgment cl
3 sets up a machinery for compul 676 sory acquisition by the State Government of stocks of wheat belonging to the licensed dealers
The Order it is true makes no provision in respect of the place and manner of supply of wheat and payment of the controlled price
It contains a bald injunction to supply wheat of the specified quantity day after day and enacts that in default of compliance the dealer is liable to be punished it does not envisage any consensual arrangement
It does not require the State Government to enter into even an informal con tract
A sale predicates a contract of sale of goods between persons competent to contract for a price paid or promised  a transaction in which an obligation to supply goods is imposed and which does not involve an obligation to enter into a contract cannot be called a sale  even if the person supplying goods is declared entitled to the value of goods which is determined or determinable in the manner prescribed
Assuming that between the licensed dealer and the Controller there may be some arrangements about the place and manner of delivery of wheat and the payment of  controlled price the operation of cl 3 does not on that account become contractual
The High Court relied upon the following observations in Ram Bilas Ram Gopal s case  Analysing clause 3 of the Levy Order it is clear that a licensed dealer is obliged to sell to the State Government fifty per cent of the wheat held in stock by him at the commencement of the Order and thereafter fifty per cent of the wheat daily procured or purchased by him beginning with the date of commencement of the Order until such time as the State Government otherwise directs
The price at which the wheat is sold is the maxi mum price fixed in the Wheat Uttar Pradesh Price Control Order 1959 as notified by the Government of India
Delivery of the wheat has to be given by the dealer to the Regional Food Controller or a person authorised by him in that behalf
The dealer has no option but to sell the specified percentage of wheat to the State Government
The State Government has also no option but to purchase fifty per cent of the wheat held in stock by the dealer at the commencement of the Levy Order
As regards the wheat procured or purchased daily by the dealer thereafter it is open to the State Government to say that from any particular date it will not purchase any or all of the specified percentage of wheat
Therefore as regards that wheat the Levy Order leaves it open to one of the parties namely the State Government to decide when it will stop purchasing wheat from the dealer
That in substance is clause 3 of 1961 All
LJ 424 677 the Levy Order and it embodies the total sum of obligations imposed on the dealer and the State Government
All other details of the transaction are left open to negotiation
It leaves it open to the parties to negotiate in respect of the time and the mode of payment of the price the time and mode of delivery of wheat and other conditions of the contract
 Clause 3 of the Order compels the licensed dealer to deliver to the Controller or his authorised agent every day 50 of the wheat procured or purchased by him
There is no scope for negotiations there
Assuming that the Controller may designate the place of delivery and the place of payment of price at the controlled rate and the licensed dealer acquiesces therein or even when in respect of those two matters there is some consensual arrangement in our judgment supply of wheat pursuant to cl 3 of the Order and acceptance thereof do not result in a contract of sale
The High Court observed that  whatever compulsive or coercive force is used to bring about a transaction under clause 3 of the Levy Order it must be traced to legislation
It cannot be attributed to the State Government as a party to the transaction
This then is clear
There is nothing in the Levy Order which can be accused of vitiating the free consent of the parties as defined under Sec
14 of the Indian Contract Act when entering into the contract of sale
 But these observations assume a contract of sale which the Order does not contemplate
If there be a contract the restrictions imposed by statute may not vitiate the consent
But the contract cannot be assumed
We may refer to certain decisions of this Court on which reliance was placed at the Bar
In Ms New India Sugar Mills  case  under the Sugar and Sugar Products Control Order 1946 a scheme was devised for equitable distribution of sugar
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 the allotment orders Ms New India Sugar Mills Ltd in Bihar despatched stocks of sugar to the State of Madras
The State of Bihar treated the transaction as a sale and levied tax thereon under the 1 1963 Supp 2 SCR 459
678 Bihar Sales Tax Act 1947
The tax payer contended that the supplies of sugar pursuant to the directions of the Controller did not result in sales and that no tax was exigible on such transactions
A majority of the Court observed that despatches of sugar pursuant to the directions of the Controller were not made in pursuance of any contract of sale
There was no offer by the tax payer to the State of Madras and no acceptance by the latter the tax payer 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 of its requirements of sugar to the controller or communication of the allotment order to the assessee did not amount to an offer
Nor did the mere compliance with despatch instructions issued by the Controller which the assessee had not the option to refuse to comply with amount to acceptance of an offer Or to making of an offer
A contract of sale of goods postulates a voluntary arrangement regarding goods between the contracting parties
It was held that in the case before the Court there was no such voluntary arrangement
In two later decisions of this Court the true character of transactions in which supplies of commodities were made pursuant to Control Orders was examined
In Indian Steel  Wire Products Ltd vs State of Madras  the tax payer supplied certain steel products to various persons in the State of Madras pursuant to the directions given by the Steel Controller exercising powers under the Iron and Steel Control of Production and Distribution Order 1941
The authorities of the State of Madras assessed the turnover of the tax payer resulting from those transactions to sales tax under the Madras General Sales Tax Act
The tax payer contended that the transactions of supply did not result in sales and were on that account not exposed to sales tax because steel products were supplied pursuant to the directions of the Iron and Steel Controller made under cl
10B of the Order there being no mutual assent between the parties to the transaction
This Court held that the supplies were made pursuant to the directions issued under cl 5 of the Order and not pursuant to the directions issued under cl
10B of the Order
It was observed that the Orders were in respect of goods not yet manufactured whereas under cl
10B directions could be given only in respect of goods already in stock and since cl 5 did not require the Controller to regulate or control every facet of a transaction between a producer and the person to whom the taxpayer supplied iron and steel products the transactions were consensual
Clause 5 of the Order read as follows No producer or stock holder shall dispose of or agree to dispose of or export or agree to export from British India any iron or steel except in accordance with 1  679 the conditions contained or incorporated in a general or special written order of the Controller
 Clause 10B provided The Controller may by a written order require any person holding stock of iron and steel acquired by him otherwise than in accordance with the provisions of clause 4 to sell the whole or any part of the stock to such person or class of persons and on such terms and conditions as may be specified in the Order Comparing the terms of cl 5 with the terms of cl 10 the Court observed that liberty of contract in large measure was reserved to the producer or stockholder and to the purchaser in the matter of disposal of iron  steel
The obligation imposed by cl 5 was it was said not to dispose of or agree to dispose of or export or agree to export any iron or steel except in accordance with the conditions contained or incorporated in the order of the Controller and that since there was liberty of contract between the parties but subject to restrictions the transaction could be regarded as a sale
It was observed at p 489  But under clause 5 he can authorise a producer or a stockholder to dispose of any iron or steel whether the same is in stock or not in accordance with the conditions contained or incorporated in a sp ecial or general written order issued by him
In the instant case as can be gathered from the correspondence already referred to the order issued by the Controller could be complied with only after manufacturing the required material
Hence the order issued by the Controller could not have been issued under clause 10B The Court then observed    the area within which there can be bargaining between a prospective buyer and PA intending seller of steel products is greatly reduced
Both of them have to conform to the requirements of the order and to comply with the terms and conditions contained in the order of the Controller
Therefore they could negotiate only in respect of matters not controlled by the order or prescribed by the Controller
 The Court also observed  It would be incorrect to contend that because law imposes some restrictions on freedom to contract there is no contract at all
So long as mutual assent is not completely excluded in any dealing in law it is a con tract
On the facts of this case for the reasons already 680 mentioned it is not possible to accept the contention of the learned counsel for the appellant that nothing was left to be decided by mutual assent
 The Court in that case distinguished the case in Ms New India Sugar Mills  case  and expressly reserved their opinion on the question whether supplies of goods pursuant to the directions issued under cl
10B of the Order may be regarded as sales
The decision in Indian Steel  Wire Products Ltd s case  does not justify the view that even if the liberty of contract in relation to the fundamentals of the transaction is completely excluded a transaction of supply of goods pursuant to directions issued under a Con trol Order may be regarded as a sale
In Andhra Sugars Ltd  Anr
vs State of Andhra Pradesh  Ors3 again in the view of the Court liberty of contract between parties to transactions relating to supply of sugarcane was not ruled out
Under the Andhra Pradesh Sugarcane Regulation of Supply and Purchase Act 1961 the occupier of a sugar factory had to buy sugarcane from cane growers in conformity with the directions of the Cane Commissioner
Under section 21 of the Act the State Government had power to tax purchases of sugarcane for use consumption or sale in a sugar factory
Certain owners of sugar factories contended that section 21 was invalid They contended that they were compelled by law to buy cane from the cane growers and since purchases made by them were not under agreements the price paid for sugarcane could not be taxed under a statute enacted in exercise of the power in Entry 54 List II of the Seventh Schedule to the Constitution
This Court held that under Act 45 of 1961 and the rules framed thereunder the cane grower in the factory zone was free to make or not to make an offer of sale of cane to the occupier of the factory if the cane grower made an offer the occupier of the factory was bound to accept it and the agreement resulting therefrom was recorded in writing and was signed by the parties
 The consent of the occupier of the factory was free as defined in section 14 of the Indian Contract Act
The compulsion of law is it was said not coercion as defined in section 15 of the Act
The agreements were enforceable by law and were regarded as contracts of sale as defined in section 4 of the Indian 
In a later decision of this Court State of Rajasthan  Anr
vs Ms Karam Chand happar  Bros Ltd 4 the assessee who had acquired monopoly rights to supply coal in Rajasthan and sold coal to the State of Rajasthan
The Sales Tax Officer sought to 1 1963 Supp 2 SCR 459
3   2  4  681 tax the turnover from supplies of coal made to the State of Rajasthan
It was held by this Court that the colliery Control Order super imposed upon the agreement between the parties the rate fixed by the Control Order and by reason of such super imposition of the rate fixed by the Control Order the mutual assent of the parties and the voluntary character of the transactions were not affected
The decision of this Court  in Ms New India Sugar Mills  case  was distinguished on the ground that there was in the case then in hand mutual assent between the parties to the transaction of supply of coal
The decision of the House of Lords in Kirkness Inspector of Taxes vs John Hudson  Co Ltd  is instructive
In that case liability to pay income tax on the difference between the compensation received for requisition of certain wagons by the Minister of Transport was in issue
A majority of the House held that there was no sale of the wagons and no income tax was payable
Viscount Simonds observed  the taxpayers  wagons were not sold and it would be a grave misuse of language to say that they were sold
To say of a man who has had his property taken from him against his will and been awarded compensation in the settlement of which he has had no voice to say of such a man that he has sold his property appears to me to be as far from the truth as to say of a man who has been deprived of his property without compensation that he has given it away
Alike in the ordinary use of language and in its legal concept a sale connotes the mutual assent of two parties
So far as the ordinary use of language is concerned it is difficult to avoid being dogmatic but for my part I can only echo what Singleton LJ said in his admirably clear judgment 19541 All ER at page 32 What would any one accustomed to the use of the words sale  or sold  answer  It seems to me that every one must say the taxpayer did not sell   On the date of the commencement of the UP Wheat Procure ment Levy Order upon the licensed dealer was imposed a liability to deliver half the quantity of wheat on hand and he had also to supply to the State Government 50 of the quantity of wheat procured or purchased by him every day beginning with the date of commencement of the Order
If he failed to carry out the obligation he was liable to be penalized
To ensure that he carried out his obligation his premises were liable to be searched and 1 1963 Supp 2 SCR 459
2 682 his property sequestered
The order ignored the volition of the dealer
We are unable to hold that there was any contract between the assessee and the State pursuant to which the goods were sold within the meaning of the UP Sales Tax Act
The appeals are allowed
The order passed by the High Court is set aside
The answer to the two questions as reframed by us will be in the negative
The appellants will be entitled to their costs in this Court and in the High Court
One hearing fee
YP Appeals allowed


Summary:
The assesses who were dealers in food grains supplied to the Regional Food Controller diverse quantities of wheat in compliance with the provisions of the UP Wheat Procurement Levy Order 1959
The Sales tax Officer levied tax under the UP Sales tax Act on the aggregate of the price of wheat supplied by the assesses rejecting the assesses  contention that the wheat supplied was not sold to the Controller
In appeal the Assistant Commissioner Judicial Sales Tax held the supply was not taxable since there was no sale within the UP Sales tax Act
This order was confirmed by the Additional Judge Revision Sales Tax
On reference the High Court answered the question against the assesses
Allowing the assesses  appeal by special leave this Court
HELD  The supply pursuant to cf 3 of the UP Wheat Procurement Levy Order 1959 and acceptance thereof does not result in a contract of sale
Clause 3 of the order sets up a machinery for compulsory acquisition by the State Government of stocks of wheat belonging to the licensed dealers
The Order contains a bald injunction to supply wheat of the specified quantity day after day and enacts that in default of compliance the dealer is liable to be punished it does not envisage any consensual arrangement
To ensure that the dealer carries out his obligation his premises are liable to be searched and his property sequestered
The order does not require the State Government to enter into even an informal contract
Sale of goods predicates a contract of sale between persons competentto contract for a price paid or promised  a transaction
in which an obligation to supply goods is imposed and which does not involve an obligation to enter into a contract cannot be called a sale  even if the person supplying goods is declared entitled to the value of goods which is determined or determinable in the manner prescribed
Assuming that between the licensed dealer and the Controller there may be some arrangement about the place and manner of delivery of wheat and the payment of controlled price the operation of cl 3 does not on that account become contractual
675 H 676 D Commissioner of Sales Tax UP Lucknow vs Ram Bilas Ram Gopal 1969 All
LJ 424 State of Madras vs Gannon Dunkerlev and CoMadras Ltd 1959SCR 379 Ms
New India Sugar Mills Ltd vs
Commissioner of Sales Tax Bihar 1963 Suppl
2 SCR 459 Indian Steel  Wire Products Ltd vs State of Madras  Andhra Sugars Ltd Anr
vs State of Andhra Pradesh  Ors
  State ofRajasthan  Anr
vs Ms Karan Chand Thappar  Bros Ltd 1969 ISCR 861 Kirkness inspector of Taxes vs john Hudson  Co Ltd 1955 AC 696 referred to 672