Case: Indian Steel &amp; Wire Products Limited Vs. State of Madras

The Indian Steel and Wire Products Ltd., a joint stock public limited company is the appellant in all these appeals2. At the instance of the steel controller, the appellant supplied certain steel products to various persons in the Madras State during the financial years 1953-54, 1954-55 and part of 1955-56 (from April 1, 1955 to September 6, 1955). The State of Madras assessed the turnovers of the appellant relating to those transactions to sales tax under th Madras General Sales tax Act, 1939 (Madras Act 9 of 1939) (to be hereinafter referred to as the Act), the law in force at that time. The appellant has been assessed to tax on the basis of best judgment. The authorities under the Act have determined the appellants turnover during the year 1953-54 at Rs. 31,29,520 and levied a tax of Rs. 16,298/4 annas. During the financial year 1954-55, its turnover was determined at Rs. 37,59,216 and the assessment levied is Rs. 58,737-12-0. For the broken period in the financial year 1955-56, the appellants turnover was determined at Rs. 14,53,292 and the same was assessed to tax at Rs. 22,707-12-0, Even according to the appellant its turnovers during 1953-54 was Rs. 29,12,533-14-0, in 1954-55. Rupees 39,71,493-7-0 and in 1955-56, Rupees 17,25,400-5-0. Therefore, there is little room for controversy about its turnovers in the relevant yearsAccording to the appellant, the turnovers in question could not have been considered as sales and consequently they could not have been brought to tax under the Act. The appellant asserts that deliveries in question were made under compulsion of law and there was no agreement between the parties. They were made in pursuance of the orders of the Controller exercising powers under the Iron and Steel (Control of Production and Distribution) Order, 1941 (which will hereinafter be referred to as the order), which was issued under the Defence of India Act,. It wasargued on behalf of the appellant that it was the controller who determined the persons to whom the goods were to be supplied, the price at which they were to be supplied, the manner in which they were to be transported, and the mole in which the payment of the price was to be made. In short, it was said that every facet of those transactions were prescribed by the controller and therefore those transactions cannot be considered as sales. On the basis of those assertions support was sought from the decision of the House of Lords in Kirkness v. John Hudson and Co. Ltd., 1955 AC 696 the decision of this Court in M/s. New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, (1963) Supp 2 SCR 459: (AIR 1963 SC 1207  ) the decision of the Calcutta High Court in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, West Bengal, 1951-19 ITR 406  : (AIR 1951 Cal 151  ) the decision of the Orissa High Court in Messrs. Cement Ltd. v. The State of Orissa, 1961-12 STC 205   (Ori) and a few other. It wasfurther argued that even if those transactions re considered as sales the State before exercising its taxing power should have had in its possession material to show that the goods delivered by the appellant were delivered in that State for consumption which circumstance alone can make those transctions sales within that State; as no material was placed on record to show that the goods in question were delivered in that State for consideration it could not have brought the turnovers in respect of those transactions to tax under the Act. These contentions of the appellant have been rejected by the authorities under the Act as well as by the High Court.

Court's reasoning:
Therefore, it is obvious that he gets that power from Clause 4 itself. The language employed in clauses 4 and 5 is similar. If the controller gets power to authorise a buyer to buy iron and steel products under Clause 4, there is no reason why he should be held to have no power under Clause 5 to authorise a producer or stock-holder to dispose of iron and steel products. Further, under Clause 10B, the controller can only require any person holding stock of iron and steel to sell the whole or part of his stock to such person or class of persons and on such terms and conditions as may be specified in the order. That clause does not empower him to direct any manufacturer to manufacture any steel or iron product and to dispose of the same to any person. In other words, a direction under Clause 10B can only be given to a person holding stock of iron and steel. But under Clause 5 he can authorise a producer or a stock-holder to dispose of any iron or steel whether the same is in stock or not in accordance with the conditions contained or incorporated in a special or general written order issued by him. In the instant case, as can be gathered from the correspondence already referred to, the order issued by the controller could be complied with only after manufacturing the required material. Hence, the order issued by the controller could not have been issued under Clause 10B. In this view of the matter it is not necessary for us to find out the true scope of Clause 10B. So far as Clause 5 is concerned, admittedly it does not require the controller to regulate or control every facet of a transaction between a producer and the person whom he supplies iron and steel productsIt is true that in view of the order the area within which there can be bargaining between a prospective buyer and an intending seller of steel products, is greatly reduced. Both of them have to conform to the requirements of the order and to comply within the terms and conditions contained in the order of the controller.Therefore, they could negotiate only in respect of matters not controlled by the order or prescribed by the controller. It is true, in these circumstance, the doctrine of Laissez faire can have only a limited application. That is naturally so. In certain quarter the validity of that doctrine is seriously challenged. Under the existing economic compulsions - all essentials goods being in short supply-in a welfare State like ours, social control of many of our economic activities is inevitable. That does not mean that there is no freedom to contract.The concept of freedom of contract has under- gone a great deal of change even in those countries where it was considered as one of the basic economic requirements of a democratic life. Full freedom to contract was never there at any time. Law invariably imposed some restrictions on freedom to contract. But due to change in political outlook and as a result of economic compulsions, the freedom to contract is now being confined gradually to narrower and narrower limitsIt would be incorrect to contend that because law imposes some restrictions on freedom to contract, there is no contract at all. So long as mutual assent is not completely excluded in any dealing, in law it is a contract. On the facts of this case for the reasons already mentioned, it is not possible to accept the contention of the learned counsel for the appellant that nothing was left to be decided by mutual assent. On the other hand, we agree with the learned Advocate General of Madras and Mr. Setalvad who appeared for the State of West Bengal, the intervener, that the controllers directions were confined to narrow limits and there were several matters which the parties could decide by mutual assentOn the basis of those facts, the Court came to the conclusion that there was no room for mutual assent in those transactions. The facts of the present case are materially different from the facts of that case. Hence the ratio of that decision does not apply to the facts of the present case. Whether in a given case there was mutual assent or not is a matter to be decided on the facts of that caseFor the reasons already stated, we are unable to accept the contention that the transactions with which we are concerned in these cases are not sales. Out of the four elements mentioned earlier, three were admittedly established, namely, the parties were competent to contract, the property in the goods was transferred from the seller to the buyer and price in money was paid. The only controversy was whether there was mutual assent. Our finding is that there was mutual assent in several respects. Hence, we agree with the High Court that the transactions before us are salesStrangely enough, the High Court at the first instance thought that this finding was unsupported by evidence. Consequently it remanded the case back to the Tribunal for a fresh finding on that aspect after giving both the parties opportunity to adduce further evidence, oral and documentary. No fresh material was placed before the tribunal after the case was sent back to it. But on the basis of the material already on record, the tribunal again came to the very conclusion that it had come earlier. When the cases again came back to the High Court, that finding was accepted as correct. In our opinion, the High Court was not right in rejecting that finding at the first instance. The finding of the tribunal is a reasonable finding. The inferences drawn by it are reasonable inferences from the facts proved or admitted. It is reasonable to assume that the supplies of iron and steel products were being made to stockists in a State for consumption in that State. It may be, as found in this case, that a small portion of the supplies had gone out of the State. But that is not a relevant circumstanceOn that question the finding of the Tribunal is conclusiveThe contentions of the appellant that the findings of the tribunal about the quantum of the turnover were not based on any evidence, or that those findings were arrived at in violation of the principles of natural justice or that the decision of the High Court is perverse, are wholly untenable contentions. At the time of the hearing no reasons were advanced in support of those contentions. Hence those contensions do not merit any detailed examination.