Case: M/S New India Sugar Mills Ltd Vs. Commissioner Of Sales Tax, Bihar

1. M/s. New India Sugar Mills Ltd. herein after called the assesseesown 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. 6,89,482/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.The order of assessment was confirmed by the Deputy Commissioner, but the Board of Revenue exercising jurisdiction in revision set aside the order, in so tar 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 and the Sugar Controller. The Board of Revenue under the direction of the High Court of Judicature at Patna submitted under S. 25 (3) of the Bihar Sales Tax Act, 1947, the following question for the opinion of the High Courtin the facts and circumstances of the case, the disposal of sugar to the Province of Madras is liable to beHigh 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.

Reasoning:
HIDATATULLAH, J.13. I regret my inability to agree that Gannon Dunkerleys case, (1959) SCR 379  : (AIR 1958 SC 560  ) can be extended to cover the facts here. I would confirm the decision of the High Court and dismiss these appeals for the reasons I proceed to give. These reasons are applicable to all the appeals in. I have paused long over this case but only because the line of reasoning of this case has been closely followed in Gannon Dunkerleys case 1959 SCR 379  : (AIR 1958 SC 560  ). 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.50. In Gannon Dunkerleys case, 1959 SCR 379  : (AIR 1958 SC 560  ) Venkatarama Aiyar J. posed the questionsole 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,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 taken in rerum nature 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 others." After noticing meanings of "sale" as given by diverse authors, it was laid down that it meant transfer of property in thing from one person to another for a money price. It was next pointed out that in the 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 and Co. Ltd. v. Commissioners of Inland Revenue, (1928) 12 Tax Cases 545 that the word 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 orbiter and opposed to the decisions of this Court in Poppatlal Shahs case 1953 SCR 677  : (AIR 1953 SCR 274 and Budh Prakash case (1955) 1 SCR 243  : (AIR 1954 SC 459  ) where "executory agreements" were not held to be sales within the Entry. It was observed"We must accordingly hold 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.Before considering the facts of this case in the light of the Sugar and Sugar Products Control Order 1946, I shall summaries 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 terms 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 consideration 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 contracts in which it was held that though property in material 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.55. 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 Dunkerleys case, 1959 SCR 379  : (AIR 1958 SC 560  ) 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 obligations in emptionibus venditionibus" and "Ideo autem istis 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 Dunkerleys case 1959 SCR 379  : (AIR 1958 SC 560  ) 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 materials was struck down because "there is no agreement to sell materials as much, and that property in them does not pass as movables."56. The commodity with which we are concerned is sugar and it is delivered as sugar. Thus one part of the reasoning from Gannon Dunkerleys case, 1959 SCR 379  : (AIR 1958 SC 560  ) 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 here was no bargaining. It is pointed out that the control of sugar operated to fixprice, 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.57. I shall now analyse the whole transaction and see how the element of compulsion and control affects 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 contraryautem certum esse debut. Nam alioquin si ita inter nos convenerit. ut guanti Titius rem aestemauerit, tanti sit empta, Labeo negavit ullam uim hoc negotium habere, cuius optnionem Cassius probat. Ofilius et eam emptionem et uenditionem; cuius opinionem Proculus secutusIII, 140).This was solved by Justinian holding that therenostra decisio ita hoc constituit.III, 23,1).58. I do not think the modern law is any different. So long as the parties trade under controls at fixed price 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 to 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 tax sale of goods in all its forms. It was not meant to operate only in those elementary cases where there is an 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 dispatch sugar and the mill dispatched it, a contract emerged and consent must be implied on both sides though not expressed antecedently to 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 offer 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 (XL 1,1, IX,cui libera universorum negotiorum administratio a domino permissa fuerit, isque ec hic negotris rem vendiderit et tradiderit facit eam 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 v. Inland Revenue Commissioner, (1927) 97 LJ KB 735. The case in 1955 AC 696   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 was obviously meant though it was recognised that sale in other context has other meanings.60. It was argued that there must be mutuality. The one party must be free to offer and must offer and the other side must be free to accept and must accept the offer before a sale can 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 on 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 misdistribution 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 lost on one account or another? It was not said in the Tata Iron and Steel case, (1958) SCR 1355  : (AIR 1958 SC 452  ) 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 consent 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.