Case: Sales Tax Officer, Pilibhit Vs. Budh Prakash Jai Prakash

1. This is an appeal by the Sales Tax Officer, Pilibhit, against the judgment of the High Court of Allahabad granting firstly, a writ of certiorari quashing certain assessment orders made against the respondent, and secondly, a writ of prohibition in respect of certain other proceedings for assessment of tax under the provisions of the U. P. Sales Tax Act (Act XV of 1948).The respondent is a firm doing business in forward contracts, and was assessed in respect of such contracts to a tax of Rs. 1,082-8-0 for the year 1948-1949 by an order dated 27-2-1950, Ex. A, and to a tax of Rs. 7,369 for the year 1949-1950 by an order dated 23-5-1950, Exhibit B. For the period, 1-4-1950 to 31-1-1951, the respondent paid a sum of Rs. 845-4-0 as tax. Assessment proceedings were also started by the appellant in respect of certain forward contracts relating to gur and peas.The respondent challenged the legality of these proceedings and of the assessment orders on the ground that the Act in so far as it imposed a tax on forward contracts was ultra vires the powers of the Provincial Legislature. The learned Judges agreed with this contention, and issued a writ of certiorari quashing the orders of assessment, Exhibits A and B and a writ of prohibition in respect of the proceedings for assessment of tax on forward contracts in gur and peas.The matter now comes before us in appeal under a certificate of the High Court under Article 133 (1) of the Constitution.

Court's reasoning:
6. This conclusion is further strengthened, when regard is had to the nature of the levy.Section 3 of the Act provides for a tax being imposed at three pies in the rupee on the turnover of the assessee, and "turnover" is defined in section 2(i) as "the aggregate of the proceeds of sale by a dealer", and that would consist of the price and any charges paid at the time of the delivery of the goods, as provided in Explanation I.The substance of the matter is that the sales tax is a levy on the price of the goods, and the reason of the thing requires that such a levy should not be made, unless the stage has been reached when the seller can recover the price under the contract. It is well settled that an action for price is maintainable only when there is a sale involving transfer of the property in the goods to the purchaser. Where there is only an agreement to sell. then the remedy of the seller is to sue for damages for breach of contract and not for the price of theposition therefore is that a liability to be assessed to sales tax can arise only if there is a completed sale under which price is paid or is payable and not when there is only an agreement to sell, which can only result in a claim for damages. It would be contrary to all principles to hold that damages for breach of contract are liable to be assessed to sales tax on the ground that they are in the same position as salepower conferred under Entry 48 to imposed a tax on the sale of goods can therefore be exercised only when there is a sale under which there is a transfer of property in the goods, and not when there is a mere agreement to sell. The State Legislature cannot, by enlarging the definition of "sale" as including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution Act, and the definition of "sale" in section 2(h) of Act XV of 1948 must, to that extent, be declared ultrathe same reason, Explanation III to section 3(h) which provides that forward contracts "shall be deemed to have been completed on the date originally agreed upon delivery", and section 2-B which an acts that,"Notwithstanding anything contained in section 3, the turnover of any dealer in respect of transaction of forward contracts, in which goods are not actually delivered, shall be taxed at a rate not exceeding rupees two per unit as may bealso he held to be ultra vires.