Case: Commissioner Of Sales Tax, Madhya Pradesh,Indore Vs. Madhya Pradesh Electricity Board, Jabalpur

not probably have been done under Entry 54. It is difficult to derive much assistance from the aforesaid entries. What has essentially to be seen is whether electric energy is "goods" within the meaning of the relevant provisions of the two Acts. The definition in terms is very wide according to which "goods" means all kinds of movable property.Then certain items are specifically excluded or included and electric energy or electricity is not one of them. The term "movable property" when considered with reference to "goods" as defined for the purposes of sale tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. It is needless to repeat that it is capable of abstraction, consumption and use which, if done dishonestly, should attract punishment under Sec. 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other movable property. Even in Benjamin on Sale, 8th Edn., reference has been made at page 171 to County of Durham Electrical, etc., Co. v Inland Revenue, Commrs., (1909) 3 KB 604 in which electric energy was assumed to be "goods". If there can be sale and purchase of electric energy like any other movable object we see no difficulty in holding that electric energy was intended to be covered by the definition of "goods" in the two Acts.If that had not been the case there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedules to the two Acts. It cannot be denied that the Electricity Board carried on principally the businesses of selling, supplying or distributing electric energy. It would therefore clearly fall within the meaning of the expression "dealer" in the two Acts.10. As regards steam there has been a good deal of argument on the question whether it is liable to be assessed to sales tax in the hands of the Electric Board. According to Mr. Shroff the electricity Board carried on the business of selling steam to the Nepa Mills and that this has lasted for a number of years. It has been submitted that simply because the Electricity Board does not have any profit motive in supplying steam it cannot escape payment of sales tax because the steam is nevertheless being sold as "goods". The High Court was of the view that the water which the Nepa Mills supplied free to the Electricity Board became the property of the Board and in return for this free supply the Board agreed to give steam to Nepa Mills at a rate based solely on the coal consumed in producing steam. The mills had also agreed to reimburse the Electricity Board for the loss sustained on account of the mills not taking the "full demand of steam". According to the High Court there was no contract for the sale of steam as such and it was only for the labour and cost involved in its supply to the mills. The High Court relied on the findings of the Tribunal on this point and held that the turnover in respect of steam was not taxable. The tribunal in its order dated June 16, 1966 referred to certain conditions of working arrangement which were reduced to writing but which had not been properly executed as a contract which showed that the mills were supplying water free and the Electricity Board was making a pro rata charge of conversion of water into steam. It seems to us that the High Court was right in coming to the conclusion, on the finding of the tribunal, that the real arrangement was for supplying steam on actual cost basis and in that sense it was more akin to a labour contract than to sale.11. Mr. Shroff has argued that the document which was relied upon by the tribunal could not be looked at as it was neither admissible in evidence nor had it been properly executed as a contract between the Electricity Board and the mills and in happened to be a mere draft of an agreement which was proposed to be entered into.It is too late for Mr. Shroff to take these objections because these should have been raised before the Tribunal and the High Court.12. It is stated in Halsburys Laws of England, III Edn. Vol. 34 , page 6 that "a contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one.A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. It has been laid down by this court in Govt. of Andhra Pradesh v. Guntur Tobaccos Ltd., 16 STC 240 = (AIR 1965 SC 1396 ), that in business transactions the works contracts are frequently not recorded in writing meeting out all the covenants and conditions thereof, and the terms and incidents of the contracts have to be gathered from the evidence and attendant circumstances. The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all attended circumstances.On the findings of the tribunal and the High Court we are of the opinion that the arrangement relating to supply of steam in return for the water supplied by the mills on payment of actual cost was not one of sale but was more in the nature of a works contract.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. The High Court went into a discussion from the point of view of mechanics relating to transmission of electric energy. It was of the view that electricity could not be regarded as an article or matter which could be possessed or moved or delivered. It relied on certain decisions and referred to Entries Nos. 53 and 54 in List II of Seventh Schedule to the Constitution and held that electricity did not fall within the meaning of "goods" in the two Acts and therefore the Electricity Board could not be held to be a "dealer" in respect of its activity of generation, distribution, sale and supply of electric energy.The reasoning which prevailed with the High Court was that a well-defined distinction existed between the sale or purchase of "goods" and consumption or sale of electricity otherwise there was no necessity of having Entry No. 53. But under Entry 53 taxes can be levied not only on sale of electricity but also on its consumption which could not probably have been done under Entry 54. It is difficult to derive much assistance from the aforesaid entries. What has essentially to be seen is whether electric energy is "goods" within the meaning of the relevant provisions of the two Acts. The definition in terms is very wide according to which "goods" means all kinds of movable property.Then certain items are specifically excluded or included and electric energy or electricity is not one of them. The term "movable property" when considered with reference to "goods" as defined for the purposes of sale tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. It is needless to repeat that it is capable of abstraction, consumption and use which, if done dishonestly, should attract punishment under Sec. 39 ofthe Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other movable property.As regards steam there has been a good deal of argument on the question whether it is liable to be assessed to sales tax in the hands of the Electric Board. According to Mr. Shroff the electricity Board carried on the business of selling steam to the Nepa Mills and that this has lasted for a number of years. It has been submitted that simply because the Electricity Board does not have any profit motive in supplying steam it cannot escape payment of sales tax because the steam is nevertheless being sold as "goods". The High Court was of the view that the water which the Nepa Mills supplied free to the Electricity Board became the property of the Board and in return for this free supply the Board agreed to give steam to Nepa Mills at a rate based solely on the coal consumed in producing steam. The mills had also agreed to reimburse the Electricity Board for the loss sustained on account of the mills not taking the "full demand of steam". According to the High Court there was no contract for the sale of steam as such and it was only for the labour and cost involved in its supply to the mills. The High Court relied on the findings of the Tribunal on this point and held that the turnover in respect of steam was not taxable. The tribunal in its order dated June 16, 1966 referred to certain conditions of working arrangement which were reduced to writing but which had not been properly executed as a contract which showed that the mills were supplying water free and the Electricity Board was making a pro rata charge of conversion of water into steam. It seems to us that the High Court was right in coming to the conclusion, on the finding of the tribunal, that the real arrangement was for supplying steam on actual cost basis and in that sense it was more akin to a labour contract than to sale.11. Mr. Shroff has argued that the document which was relied upon by the tribunal could not be looked at as it was neither admissible in evidence nor had it been properly executed as a contract between the Electricity Board and the mills and in happened to be a mere draft of an agreement which was proposed to be entered into.It is too late for Mr. Shroff to take these objections because these should have been raised before the Tribunal and the High Court.