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

1. Bhopal Sugar Industries Ltd. (the first petitioner) is a public limited Company incorporated under the Indian Companies Act, 1913, and the second petitioner is a shareholder and a Director of the Company. The Company is a manufacturer of sugar and owns a fleet of motor trucks and other motor vehicles. The Company also carries on the business of selling motor spirit, high speed diesel oil, and lubricants and maintains a petroleum pump at Sehore in the State of Madhya Pradesh. Between April 1, 1959 and March 31, 1960 the Company used, for its motor vehicles 8908 gallons of petroleum, 40719 gallons of high speed diesel oil and lubricants of the value of Rs. 2,453.47 nP. The first respondent who is the assessing authority under the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act, 4 of 1958, assessed the Company to pay sales tax in respect of motor-spirit and lubricants used by the Company out of the stock held by it for its own vehicles, because in his view such consumption amounted to sales within the meaning of the Act2. By this petition under Art. 32 of the Constitution it is claimed that the definition of retail sale in S. 2(1) of the Act which seeks to render consumption by the owner of motor-spirit liable to tax under the Act by virtue of S. 3 is beyond the competence of the State Legislature and hence void and the order of the first respondent seeking to impose liability upon the Company for payment of tax infringes the fundamental rights of the Company under Article 19(1)(f) and (g) of the Constitution.

Reasoning: 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.