Case: Bhopal Sugar Industries Ltd.Madhya Pradesh, And Another Vs. D.B. Dube, Sales Tax Officer, Bhopal Region, Bhopal An

law with respect to tax on sale of goods under entry 48 must, to be intra vires be one relating in fact to sale of goods and accordingly, the Provincial Legislature cannot, in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be deemed to be sales. 5. In Gannon Dunkerley and Companys case, 1959 SCR 379 : (AIR 1958 SC 560 ) this Court was called upon to consider whether in a building contract which is one, entire and indivisible, there is sale of goods. It was held by the Court that the Provincial Legislature was not competent under Entry 48 List II, Sch. VII of the Government of India Act, 1935, to impose tax on the supply of materials used in such a contract treating it as a sale. The decision of the Court did not rest upon any peculiar character of a building contract. It was held on the larger ground canvassed in that case that the expression sale of goods within the meaning of the relevant legislative entry had the same connotation as sale of goods in the Indian Sale of Goods Act, 1930, and therefore the State Legislature had no power to enact legislation to levy tax under Entry 48 of List II in respect of transactions which were not of the nature of sales of goods strictly so called; and a building contract not being a transaction in which there was a sale of materials by the contractor who constructed the building, the State was not competent to enact legislation to impose tax on the supply of materials used in a building contract treating it as a sale. It was therefore held that the definition of sale in the Madras General Sales Tax Act IX of 1939 was to the extent of the extension invalid. 6. In Gannon Dunkerley and Companys case, 1959 SCR 379 : (AIR 1958 SC 560 ) the validity of S. 2(h) (ii) of the Madras General Sales Tax Act, 1939 as amended by Act XXV of 1947, in so far as it included goods included in a works contract fell to be determined, in the fight of the competence of the Provincial Legislature under Entry 48, List II in Seventh Schedule of the Government of India Act, 1935.Under the Constitution the relevant entry conferring legislative power upon States to tax sale of goods is Entry 54 of List II. As the scheme of division of legislative power under the Constitution has remained unaltered, the principle of Gannon Dunkerleys case, 1959 SCR 379 : (AIR 1958 SC 560 ) applies in adjudging the validity of the provisions of the Madhya Pradesh Act 4 of 1958. 7. Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not sale of goods within the meaning of Entry 54, List II, Sch. VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for retail sale is beyond the competence of the State Legislature. But the clause in the definition in S. 2(1) and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant sold to him for retail sale which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II, Sch. VII of the Constitution is severable, from the rest of the definition, and that clause alone must be declared invalid. 8. The Sales Tax Officer has sought to impose liability for payment of tax in respect of motor spirit and lubricants consumed by the company for his own vehicle relying solely upon the definition in S. 2(1) of the Act. He has observed : The definition under the said section clarifies the retail sale and consumption by a retail dealer. Since the retail sale has been clearly defined and consumption by itself has been included in the retail sale; I do not agree with the contention of dealers counsel (that the goods consumed for the vehicles of the dealer are not liable to tax under S. 3) and taxed on the goods consumed by the dealer, as above. The order of the Sales Tax Officer founded upon a part of the statute which is ultra vires cannot be sustained. 9. Counsel for the State of Madhya Pradesh contends in this petition that the Company is not the owner of the motor spirit and lubricants in which it deals: it is merely a commission agent for sale in respect of the goods supplied to it by the Caltex (India) Ltd. and on that account consumption for his own purpose of goods belonging to his principal amounts to sale within the meaning of the first part of the definition of S. 2(1) of the Act. But the Sales Tax Officer has not decided the case under the first part of the definition of retail sale : he has expressly founded his decision on the second part of the definition. In the circumstances we do not feel called upon to express any opinion on the question whether the Company is liable to pay sales-tax in respect of goods consumed for its motor-vehicles during the period in question. If it is competent to the Sales Tax Officer to adopt a proceeding to bring to tax consumption of goods by the Company for its own vehicles, relying upon the first part of the definition of retail sale in S. 2(1), because of the terms of the agreement and other relevant surrounding circumstances, it will be open to him to do so.

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

Explanation:
1[ds]7. Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not sale of goods within the meaning of Entry 54, List II, Sch. VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for retail sale is beyond the competence of the State Legislature. But the clause in the definition in S. 2(1) and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant sold to him for retail sale which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II, Sch. VII of the Constitution is severable, from the rest of the definition, and that clause alone must be declared invalidBut the Sales Tax Officer has not decided the case under the first part of the definition of retail sale : he has expressly founded his decision on the second part of the definition. In the circumstances we do not feel called upon to express any opinion on the question whether the Company is liable to pay sales-tax in respect of goods consumed for its motor-vehicles during the period in question. If it is competent to the Sales Tax Officer to adopt a proceeding to bring to tax consumption of goods by the Company for its own vehicles, relying upon the first part of the definition of retail sale in S. 2(1), because of the terms of the agreement and other relevant surrounding circumstances, it will be open to him to do so.