Appeal No 49 of 1972
Appeal from the Judgment and Order dated 24th December 1970 of the Madhya Pradesh High Court in Mic
Petition No 47468
Panjwani HS Parihar and 1
N Shroff for the Appel lants
B Sen Mrs Leila Seth TM Sen Praveen Kumar and OP Khanan for Respondent
The Judgment of the Court was delivered by KRISHNA IYER J
The State of Madhya Pradesh blessed with abundant forest wealth whose exploitation for reasons best known to that government was left in part to the private sector viz the respondent Orient Paper Mills which is the appellant in this appeal by certificate
The subject matter of this litigation however is the competen cy to collect sales tax from the respondent for the bamboo and salai wood extracted by it under a transaction relating to some government forests in Vindhya Pradesh which on states reorganisation  in 1956 became part of Madhya Pradesh
The transaction itself was dressed up as a lease deed executed by the then State of Vindhya Pradesh on August 4 1956 in favour of Orient Paper Mills the respondent herein
At that time no sales tax could be levied under the law from the forest department of the appellant State or the respondent mills
However on April 1 1959 the MP Gener al Sales Tax Act 1958 hereinafter referred to acronymi cally as MPGST Act came into force
On the footing that the Forest Department was a dealer it got itself regis tered as such under the sales tax law on November 3 1962
The respondent of course is a registered dealer under the same law
Subsequently the Chief Conservator of For ests representing the appellant demanded of the respondent that it pay sales tax on the timber extracted under the lease deed  whereupon the claim was repudiated by the respondent
In consequence 151 the appellant proceeded to
levy the sum representing the sales tax on the value of the timber cut and removed as per the terms of the contract resorting to revenue recovery proceedings authorised by Sec 82 of the Indian Forest Act
Thereupon the respondent moved the High Court for the issu ance of a writ under article 226 of the Constitution of India against the State
to forbear from collecting sales tax illegally
Holding that the State Government and its Forest Department were not dealers wthin the sense of the sales tax law the writ petition was allowed notwithstand ing the adverse findings against the petition respondent on some other vital points
The State has challenged this finding in the appeal before us
The validity of the attempted exaction is the gut issue in these proceedings although the centre of gravity on this forensic stage has shifted from the question of the forest department being a dealer to whether the transaction styled lease  does at all involve sale of goods
From no dealer no sales tax  to no sale no sales tax  is the shift in the epicentre of the argument caused by an amendment to the sales tax statute legislated after and on account of the very judgment under appeal
Suffice it to say for the present no sale no sales tax is a legal tru ism
It may be mentioned right here that the respondent before us is not directly liable to pay sales tax even assuming that the lease deed  involves sale of goods
The forest department of government is admittedly a registered dealer for the relevant period and it is claimed by the appellant State that it was liable qua dealer to pay tax on sales of timber and by virtue of section 64 A of the Sale of Goods Act such sums which became leviable only after the agreement was entered into in 1956 could be recovered from the purchaser respondent
It is virtually admitted in this appeal as stated earlier that both parties are registered dealers under the relevant sales tax Act
Nor is it in dispute that if the appellant forest department were liable to pay sales tax for the sales of timber which were alleged to have taken place the respondent in turn would be liable to make good that sum in view of the plain provision in section 64A of the Sale of Goods Act
But to attract that provision there has to be sale of goods
Was there any sale of wood under the lease deed  That is the core of the legal quarrel agitated before us
We may straight proceed to consider the questions canvassed before the High Court since both sides have had to challenge one or other of the findings
We may borrow the formulation of the four points set out in the judgment of the High Court
i The transaction is not a sale of goods and no sales tax is payable in respect of bamboos and salai wood extracted thereunder by the petitioner
ii No sales tax is payable under the terms of the lease deed dated August 4 1956 and therefore such tax cannot be recovered
iii Neither the State Government nor the Forest Department of that Government is or could be a dealer and for this reason also no sales tax is payable or recoverable
152 iv The sales tax even if payable is not recoverable as arrears of land revenue particularly when the revenue recovery certificate was issued by the Divisional Forest Officer
 The time is set true for stating the decisive statutory changes which occurred after the High Court ruled against the State calculated to undo the disability discovered by that pronouncement
This development deserves attention as the sole point on which the State lost in the High Court viz that the Forest Department is not doing business ceases to have relevance today on account of the amendment to the Madhya Pradesh
General Sales Tax Act by the MPGST Amendment and Validation Act 13 of 1971
The definition of dealer  and other related provisions were touched up and redefined in such manner that the finding on point No 3 formulated by the High Court was effectively nullified
Indeed the legislation is a sequel to the decision and has squarely undone the impediment in the way of the State collecting sales tax from the respondent
So long as that law holds good the State s claim cannot be bowled out
Of course Sri B Sen for the respondent desired to challenge the vires of the Amending Act but the Presidential Proclama tion during the Emergency suspending the operation of article 14 handcuffs the respondent from seeking to strike down this legislation
When the Presidential Proclamation sterilising article 14 lapses then it may be time enough to assail  this law
So far as this appeal is concerned article 14 is under eclipse and the ground of challenge unavailable
The amendatory provisions must therefore be held impregna ble on this score and we proceed on that footing
Its post Emergency validity will be decided if attacked at that time since we leave that aspect untouched
To abbre viate the discussion thanks to Act 13 of 1971 the Forest Department of the State shall be deemed to be dealer
If it is a dealer the levy of sales tax from it is legal and the controversy on this score is silenced
The meat of the matter is the judicial determination of the true character of the transaction of lease  from the angle of the MPGST Act and the Sale of Goods Act whose combined operation is pressed into service for making the tax exigible from the Forest Department and in turn from the respondent mills
It is the part of judicial prudence to decide an issue arising under a specific statute by confining the focus to that  statutory compass as far as possible
Diffusion into wider jurisprudential areas is fraught with unwitting conflict or confusion
We there fore warn ourselves against venturing into the general law of real property except for minimal illumination thrown by rulings cited
In a large sense there are no absolutes in legal propositions and human problems and so in the jural cosmos of relativity our observations here may not be good currency beyond the factual legal boundaries of sales tax situations under a specific statute
The major plea to bomb the tax demand having been shot down by retroactive legislative missiles the respondent has sought a manouvre to victory by reliance on the contention covered by formulation No 1 set out at the beginning
Point 2 hinges on the result of point No 1 and deserves no separate discussion
153 The High Court s holding on these twin points is in favour of the respondent on the basic submission of non exigibility of tax on the score that the transactions in question are not sales at all and the payments not price of goods at all but mere royalty under a lease
A short legal survey will take us to an easy solution of this issue
Section 64A of the Sale of Goods Act enables the seller under certain circumstances to recover as sale price any sales tax which the vendor has had to pay
So if in the present case the Forest Department of the State is liable to pay sales tax on the bamboo
and salai wood cut and removed by the respondent the claim to recover it from the buyer is good under the said s64A
The next logical series of questions are whether the Forest Department is liable to sales tax on the timber covered by demise  Can the timber s0 extracted and the royalty paid at the rates stipulated be called goods and sale price respectively under Sec
20 of the MPGST Act  Can the levies made by the Forest Department become its turnover of sales under Sec 2t  Does removal of timber by the lessee constitute sale of goods under section 2n of the MPGST Act or section 64A of the Sale of Goods Act  The ignition point which sets in motion the chain reac tion is the character of the transaction whereby bamboo etc
are cut and removed and money paid measured by the weight of the timber extracted
If it is a sale the tax is leviable from the Forest Department and the amount in turn recoverable from the lessee and vice versa
We must set out parts of the lease deed  so that its basic structure and essential nature may be decoded
Is it really a lease of forest or is it a sale of certain timber with ancilliary licences  No doubt the deed styles itself a lease
But it is argued that a soi disant lease may well be a mere contract of sale of goods
Theoretical ly this is perfectly possible in law as in literature What s in a name  that which we call a roseBy any other name would smell as sweet  But what is there in the document to detract from the prima facie validity of the label  Here the clarity of the reasoning lies in the correct approach t0 the question which is not so much whether the contract is one of lease but whether it works out a sale of goods under the two concerned statutes
Sales tax is payable by a dealer
The Forest Department by force of the statutory amendment is admittedly a dealer
Such tax is computed on the turnover as defined in section 2t of the MPGST Act which reads 2
In this Act unless there is anything repugnant in the subject or context X X X X t turnover  used in relation to any period means the aggregate of the amount of sale prices received and receivable by a dealer in respect of any sale or supply or distribu 154 tion of goods made during that period whether or not the whole or any portion of such turnover is liable to tax but after deducting the amount if any refunded by the dealer to a purchaser in respect of any goods purchased and returned by the purchaser within the prescribed period
 The essential ingredients of turnover are thus sale of goods  and sale prices 
The latter concept has received definitional expression in s20 and the former in s2n
They may be read here o sale price  means the amount payable to a dealer as valuable consideration for the sale of any goods less any sum allowed as cash discount according to  ordinary trade practice but including any sum charged for anything done by the dealer in respect of the goods at the time or before delivery thereof other than the cost of freight or delivery or the cost of installation when such cost is Separately charged and the expression purchase price  shall be construed accordingly
n Sale  with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes a transfer of property in goods involved in the supply or distribution of goods by a society or club or any association to its members but does not include a mortgage hypothecation charge or pledge and the word purchase  shall be construed accordingly For all these words to apply the pivotal factor is goods  which is defined in substantially similar manner in both the Sale of Goods Act and in section 2g of the MPGST Act which latter reads 2 g goods means all kinds of movable property other than actionable claims newspapers stocks shares securities or Government stamps and includes all materials articles and commodities whether or not to be used in the construction fitting out improvement or repair of movable or immovable property and also includes all growing crops grass trees plants and things attached to or forming part of the land which are agreed to be severed before sale or under the  contract or sale The key expressions which unlock the mystique of turn over curesale of goods are the last inclusive limb of the clause also includes  trees which are agreed to be severed under the contract of sale 
The crunch issue thus is whether the self styled lease deed is in substance a contract of sale of timber
The true import of the document may be gathered from its terms not from rulings on other documents
There is a serious limitation on the service of case law in this area
It depends firstly on the actual issue in each case and the angle of vision adopted and secondly on the clauses pur poses and surrounding circumstances of each tran 155 saction
While therefore we may cite some rulings later we bear in mind the limits of their use
Shri Sen rightly stressed the importance of the deliber ate description of the deed as a lease
He drew our atten tion with emphasis to annual payments of royalty not price
Royalty has a slight fedual flavour with a tell tale demise relish if we may say so while price is a mercantile concept smacking of commercial relations
By the deed the forest lands of the lessor are hereby demised 
There are frequent references to the leased area 
The period of the lease is stated to be a long 20 years later substituted by 30 years
There is also refer ence to discharge of lease royalties compensation and other monies suggestive of a demise rather than of a sale
The provision for payment of a minimum royalty runs in these terms lm15 Provided that the minimum royalty payable by the lessees to the State Government during the first year of this lease shall not be less than 15 lakhs of rupees and for the next and subsequent years shall during the term of this demise be not less than two lakhs of rupees per annum
 Whether there is cutting of timber or not Shri Sen argues the minimum royalty has to be paid thus showing that the provision for payment is sometimes de linked from the ex ploitation of the forest or the value of the timber cut
Considerable reliance was placed for taking the document out of the category of mere sale of goods on clause 5 of the Deed which reads The lessees shall with the previous permission in writing of the State Government be at liberty to make dams cross streams cut canals make water course irrigation works construct roads railways and tramways and do any other works useful or necessary for the purposes of the business connected with these presents in or upon the leased area provided that they are in accordance with the plan approved by the State Government and also with the like approval to widen or deepen any existing creeks or channels of waterways for the purposes of the said business and all timbers required for the above purposes shall be allowed half royalty rates in the case of timbers of reserved species and free in case of timbers of unreserved species by the State Government
 There is also provision for renewal of the lease deed which savours again of a transaction of real property since renewals cannot obtain for sales
The face value of these features tends to fix the trans action as a lease but lift the veil and feel the reality behind Shri Shroff urged us only to discover that the lease is no more than a simple sale of goods viz of bamboo and salai wood
He dismissed tags and labels as of the least consequence when the heart of the matter turned on the crucial terms of the document which were in his submis sion loudly 156 obtrusive of the sale of goods  character of the transac tion
Of course if in essence there is a sale of goods covered by the deed we have to locate the taxing event which occurs when the title to the goods is transferred
The description of the document as a lease deed  the reference to royalty the right to construction of buildings etc cannot hamper a contrary conclusion if there are luminous characterstics of a sale of goods  in what is but a lease deed in name
From this angle Shri Shroff has high lighted certain principal provisions in the deed
There is no doubt he says that if one scans the document closely one finds that possession of the land is not given which means that parties have slurred over the demise part of it notwithstanding the dubious expressions used
What is authorised under the deed is the exclusive liberty  to enter upon the leased area to fell cut or extract bamboos and salai wood and to remove store and utilise the same for meeting the full requirements of the Paper Mill
This reads more like a sale of standing timber coupled with a licence to enter and do certain things on another s land
Counsel also emphasised that an insightful understanding of cl
2g of the deed would bring out the price fixed for the goods sold viz a fiat rate of Rs 6 per ton on air dry bamboo and Rs 2 per ton on air dry salai wood  actually extracted and removed from the leased area on the weighment at the weighbridge of the said Paper Mill and in case of export at the weighbridge or weighbridges to be installed at suitable places by the lessees in which case the royalty shall be Rs 780 rupees seven and eight annas and Rs 280 rupees two and annas eight per ton of air dry bamboo and salai wood respectively
In this context supportive strength was sought to be drawn from cl 2h which reads h The lessees shall keep an account of all bamboos and salai wood cut and removed in the manner as may mutually be settled and such account shah be open to inspection by the Forest Officer authorised in this behalf by the Divisional Officer concerned
 Shri Shroff went to the extent of saying that the real nature of the transaction was disclosed in the deed itself in clause 2k k The lessees in conducting their operation on the leased area shall not in any way interfere with the surface of land save and in so far as may be necessary in connection with and for the purposes of this licence Clause 4 bears on its bosom in his submission the imprint of a contract for sale of goods and it may be read 4 Without prejudice to the provisions of this lease the rights liberties and privileges of the lessees hereinbefore mentioned shall extend only to bamboos and salai wood within the leased area and nothing herein shall in any way be deemed to authorise the lessees to interfere with the working of the forest areas within the leased area or the rights liberties privileges of other contractors of the said forest lands
 157 We are considerably impressed with this analysis
The upshot of the whole transaction is that for a price fixed bamboos and salai wood are permitted to be removed from the forest of the appellant by the respondent
For the exercise of the right under this contract certain necessary licences are conceded
It is made perfectly plain that the posses sion of the land qua land is not given and there is a fool proof provision that the rights of the lessees  shall extend only to bamboos and salai woods within the leased area and nothing herein shall in any way be deemed to autho rise the lessees to interfere with the working of the forest area  of other contractors of the said forest lands
Can there be a lease without exclusive possession of the lands  Can there be a lease to A of lands when the only right is to cut certain species of timber above a certain height and according to
stipulated conditions  Can there be a lease of lands where similar right to cut timber from the same land co exist in other contractors  There are mere circumstances than these but we need not be exhaus tive especially when we agree with the conclusion reached by the High Court
We are satisfied that despite its description the deed confers in truth and substance a right to cut and carry timber of specified species
Till the trees are cut they remain the property of the owner namely the appellant
Once the trees are severed the property passes
The Royalty  is a feudalistic euphemism for the price  of the timber
We may also observe that the question before us is not so much as to what nomenclature would aptly describe the deed but as to whether the deed results in sale of trees after they are cut
The answer to that question as would appear from the above has to be in the affirmative
Now to a brief reference to two out of several cases cited at the Bar
Sri Sen relied heavily upon Raja Bahadur Kamakshya Narain Singh1
That was a case under the Income Tax law
The assessee there received large payments by way of royal ty under various mining leases
The leases purported to be for 999 years and related to the coal mining rights set Out in the Schedule to the lease
The lessees were to pay a sum by way of salami or premium and an annual sum as royalty computed at a certain rate per ton on the amount of coal raised and coke manufactured
It was contended on behalf of the assessee that the sums received as salami and royalty did not constitute income  but were capital receipts representing the price of the minerals removed
There was also a provision for minimum royalty which was pressed into service by the party
The Judicial Committee held that the royalty payable under the lease was not the price of the actual coal extracted but represented compensation which the lessees paid to the lessor for that species of occupa tion which the contract allowed and it was therefore in come  from other sources  within the meaning of the relevant Income tax Act
We must point that the legal setting in which a question is considered colours the ratio of the case
The Judicial Committee was considering an issue arising under the Income Tax Act and interpreting the clauses of a deed with particular terms to ascertain wheth er the payments made thereunder fell within the meaning of income  understood in its broadest connotation 1943 11 TR 513 158 in England and in India
Construing as we do a special statute and a differently worded deed and the signification of the words used therein we are unable to draw any legiti mate instructional inferences from a decision contextually different concerned with a different branch of law and dealing with different issues although with seeming resem blances in superficial respects
Another decision which perhaps has some helpful reasoning is by this Court in Badri Prasad1
We need not discuss the details of that case except to point out that it has been recognised in that ruling that trees which are to be severed before sale or under the contract of sale are goods  for the purposes of the Sales of Goods Act
On the facts of that case property in the cut timber could pass to the plaintiff under the contract at the earliest when the trees were felled but before that happened the trees had vested in the state under an agrarian reform measure
The crutches of case law are not always necessary in Court
While direct light on the legal situation present before us is not available from Badri Prasad or Kamakshya Narain Singh supra there is not the slightest doubt that going by the definition of sale of goods  under 8
27 of the Sale of Goods Act and of s2g of the MPGST Act stand ing timber is movable property  if under the contract of sale they are to be severed
But the severance must take place when the timber still vests in the contracting party
Ultimately the case before us has to
be decided on the facts and the law which form the backdrop to the deci sion
We have already held that the crucial fact to be found before we can designate the transaction as sale of goods  is to scan and see whether the lease deed  really deals with sale of timber
We are clear that there is sale of bamboo and salai wood under the contract and in the contemplation of the parties they are to be cut and severed pursuant to the contract itself
It follows that the find ing of the High Court on this point is correct
The appeal deserves to be allowed on account of the statutory amendment
The Madhya Pradesh Legislature had taken great care and responded with prompt attention to deal with a situation where considerable revenue would be lost to it on account of inadequate expression of its intendment in the MPGST Act
A diligent and considered amendment has fulfilled the legislative purpose
Had the State lost the appeal before Us on another point that is as to whether royalty was price for sale of goods  the whole amendatory effort would have been an exercise in futility or a legisla tive brutum fulmen
In view of our finding that there is a sale of goods  under the contract the State is entitled to succeed
Counsel for the respondent when we briefly indicated our mind and even otherwise by way of abundant caution
rightly urged that his client had a good case for reduction of the quantum of tax even if sales tax was payable by the Forest Department which could be shift 1  159 ed to the respondent by virtue of s64A of the Sale of Goods Act
He prayed for an opportunity to establish that he was being called upon to foot a larger bill than was legally tenable
We regard this a reasonable request and indeed Shri Shroff for the State has very rightly agreed with this prayer of the respondent
For one thing the amending Bill whereby the liability was being de novo fastened was enacted into law after the judgment of the High Court
Read with s82 of the Indian Forests Act the amount was being recovered as if it were land revenue
This process deprived the respondent of his right to challenge the quantification of the tax
It is fair and the State agrees to be fair that the respondent should be enabled to prove his case that the sum claimed was much higher than could be legitimately recovered
Shri B Sen brought to our notice that the rate of tax on sales to a registered dealer if the commodity was to be consumed within the State in view of Section 8 of Madhya Pradesh General Sales Tax Act for manu facturing purposes was less than the general rates
The appellant on the other hand was seeking to recover at the higher rate
Moreover even the lesser rate varied over the years from 1 to 2 and on to 3 
Thus the arithmetics of the case had also to be gone into before the actual sum due from the Forest Department to the Sales Tax Department was fixed
More could not be exacted from the respondent
These reasons persuade us to allow the appeal and remand the case for consideration of the quantum of tax that the State in the Forest Department was legally liable to pay as a dealer to the Sales Tax Department
Shri Shroff took up a point that when the Forest Depart ment made a demand on the respondent and required him to furnish a declaration necessary to reduce the rate of tax the latter ignored the request
This according to him had an impact on the eventual liability
We do not propose to investigate this aspect at the present stage but leave it to be raised by the State before the High Court
In this view we allow the appeal and remand the case for disposal after recording a finding on the limited issueissues above indicated
We may mention that although the High Court has not properly adjudicated upon the recov erability of the Sales Tax as and by way of arrears of land revenue it is not necessary to go into the matter afresh especially because once the tax amount is settled the payment by the respondent will follow
However we are not upsetting the finding of the High Court in this behalf in the present case
The appeal is allowed and remanded to be disposed of in the light of the directions given above
Parties will bear their costs throughout
PBR Appeal allowed


Summary:
Under section 2g of the Madhya Pradesh General Sales Tax Act the term goods  means all kinds of movable property and includes all growing crops trees plants and things at tached to
or forming part of the land which are agreed to be severed before sale or under the contract of sale
Under el
n Sale  means any transfer of property in goods for cash or deferred payment
Clause 0 defines sale price  as the amount payable by a dealer as valuable consideration for the sale of goods and under cl
t turnover  means the aggregate of the amount of sale price received and receiva ble by a dealer
The respondent Mills entered into a lease with the Forest Department of the State for the cutting of bamboo and salai wood from the leased forest area in the State
The lease deed provided that the lessee shall pay a minimum royalty every year whether there was cutting of timber or not the lessee could construct roads railways etc
for the purposes of business should pay the price fixed for the wood removed from the leased area should keep an account of all wood cut and removed and that the rights and privi leges of the lessees shall extend only to bamboos and salai wood within the leased area
The appellant Forest Department which was a registered dealer under Sates Tax Act demanded front the respondent also a registered dealer sales tax in respect Of timber extracted from the leased area
When the respondent repudi ated the Department s claim it paid the tax and proceeded to recover the tax under the revenue recovery proceedings under section 82 of the Indian Forests Act
Allowing the respondent s writ petition under article 226 of the Constitution the High Court held that the State Govern ment and its Forest Departments were not a dealer  within the meaning of the sales tax law and as such were not enti tled to recover the amount from the respondent
Thereupon the definition of the dealer under the Act was altered to undo the effect of the High Court s decision
In appeal to this Court the appellant contended that though apparently the transaction was a lease in reality the lease was no more than a simple sale of standing timber coupled with a licence to enter and do certain things on another s land and the transaction in essence was a sale of goods within the meaning of the Act
Allowing the appeal to this Court
HELD Going by the definition of sale of goods  under s27 of the Sale of Goods Act and section 2g of the Sales Tax Act standing timber is movable property  if under the contract it is to be severed
But the severence must take place when the timber still vests in the contracting party
158D In the instant case there was sale of bamboo and salai wood under the contract and in the contemplation of the parties they were to be cut and severed pursuant to the contract itself
Raja Bahadur Kamakshya Narain Singh 1943 11 ITR 513 Badri Prasad 1969 2 S C R 380 held inapplicable
150 1
a Despite its description the deed conferred in truth and substance a right to cut and carry timber of specified species
Till the tress were cut they remained the property of the appellant
Once the trees were severed the property passed
Royalty is a euphemism for the price of the timber
157D b From the terms of the lease it was clear that for a price fixed bamboo and salai wood were permitted to be removed by the respondent from the forest of the appellant
Possession of the land qua land was not given and there was a provision that the rights of the lessess shall extend only to bamboos and wood within the leased area and nothing therein shall in any way be deemed to authorise the lessees to interfere with the working of the forest area of other contractors of the forest lands
157A B 2 The amending bill whereby the liability was being de novo fastened was enacted into law  after the judgment of the High Court
Read with section 82 of the Indian Forests Act the amount was being recovered as if it were land revenue
This process deprived the respondent of his right to chal lenge the qualification of the tax
The respondent should be enabled to prove his case that the sum claimed was much higher than could be legitimately recovered
159B The case was remanded for consideration of the quantum of tax that the Forest Department was legally liable to pay as a dealer to the Sales Tax Department
Once the tax is settled the payment by the respondent will follow