PETITIONER:
BHOPAL SUGAR INDUSTRIES LTD.MADHYA PRADESH, AND ANOTHER
Vs.
RESPONDENT:
D.B. DUBE, SALES TAX OFFICER, BHOPAL REGION, BHOPAL AND
DATE OF JUDGMENT:
21/12/1962
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SINHA, BHUVNESHWAR P.(CJ)
GAJENDRAGADKAR, P.B.
WANCHOO, K.N.
GUPTA, K.C. DAS
CITATION:
1964 AIR 1037
CITATOR INFO :
R 1968 SC 838 (4)
F 1985 SC1293 (45)
ACT:
Sales Tax-Consumption by seller-Tax on sale of goods-
LegisLative competence–Government of India Act, 1935 (25
and 26 Geo. 5, Ch. 42), Sch. 7, Entry 54, List II-Madhya
Pradesh Sales of Motor Spirit and Lubricants Taxation Act,
1957 (M. P. 4 of 1958), ss. 2 (1), 3.
HEADNOTE:
The first petitioner, a company, manufacturer. sugar and
also sells motor spirit, high speed diesel oil and
lubricants and maintains a petroleum pump in the State of
Madhya Pradesh. In the assessment proceedings in respect of
sales of motor spirit and diesel oil, the petitioner was
sought to be assessed in respect of petroleum and oil
consumed by the petitioner for its own motor vehicles out of
the stock held by it. The petitioner challenged that part
of the assessment on the grounds that the definition of
“retail sale” by s. 2 (1) of the Act which seeks to render
consumption by the owner of motor spirit liable to be taxed
by virtue of S. 3 of the Act is beyond the legislative
competence of the State and that the unconstitutional levy
infringes the fundamental rights of the petitioner under
Art. 19(1)(f) and (g) of the Constitution of India.
Held, that a sale for the purpose of entry “Tax on the sale
of goods” requires the concurrence of four elements (1)
parties competent to contract; (2) mutual assent; (3) a
thing, the absolute or general property in which is
transferred from the seller to the buyer; and (4) a price in
money paid or promised; and that the transaction which does
not conform to the traditional concept of sale cannot be
regarded as one within the competence of the State
Legislature to tax.
The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
[1959] S, C. R. 379; referred to.
482
Held, further, that by s. 2(1) the normal concept of sale is
sought to be erlarged by bringing in the consumption by the
owner of the goods in which lie deals which was not a “sales
within the meaning of Entry 54, List 11, Sch. 7 of the
Government of India Act, 1935, and therefore, the order of
the Sales Tax officer which was founded on an ultra vires
provision was itself unconstitutional and could not be
sustained.
JUDGMENT:
ORIGINAL JURISDICTION : Petition No. 85 of 1961.
Petition under Art. 32 of the Constitution of India for the
enforcement of Fundamental Rights.
S.T. Desai, J. B. Dadachanji, O. C. Mathur and Ravinder
Narain, for the petitioners.
B.Sen, K. L. Hathi and I. N. Shroff, for the respondents.
1962. December 21. The Judgment of the Court has delivered
by
SHAH, J.-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 Shores 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
483
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 Act.
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 Art. 19 (1) (f) and
(g) of the Constitution.
Section 2 (k) of the Madhya Pradesh Sales of Motor Spirit
and Lubricants Taxation Act defines a ‘retail dealer’ as
meaning “any person who, on commission or otherwise, sells
or keeps for sale motor spirit or lubricant for the purpose
of consumption by the person by whom or on whose behalf it
is or may be purchased”. Section 2 (1) defines “retail
sale’ as meaning “‘a sale by a retail dealer of motor spirit
or lubricant to a per-son for the’ purpose of consumption by
the person by whom or on whose behalf it is or may be
purchased and includes the consumption by a retail dealer
himself or on his behalf of motor spirit or lubricants sold
to him for retail sale;” (The definition is followed by an
explanation which is not material for the purpose of this
appeal.) Section 3 is the charging section. It provides
that subject to the provisions of the Act, there shall be
levied on all retail sales of motor spirit and lubricants
effected after the commencement of the Act, tax at the rates
specified in the table set out therein.
The Company is registered under s. 4 of the Act as a retail
dealer. By s. 2 (1) consumption by a retail dealer himself
or on his own behalf of motor spirit or lubricants sold to
him for retail sale is included in the defition of “retail
sale. Thereby the
484
Legislature has attempted to enlarge the normal concept of
sale, and has included therein consumption for his own
purposes by the retail dealer of motor spirit and lubricants
sold to him for retail sale, and by s. 3 such consumption is
made taxable as sale. But this Court held in The State of
Vadras v. Gannon Dunkerley & Co. (Madras) Ltd. (1), that the
expression ‘sale of goods’ in Entry 48, List II, in Sch.
VII of the Government of India Act, 1935, has the same
meaning as in the Indian Sale of Goods Act, 1930, and
therefore in a transaction of sale of goods which is liable
to tax there must be concurrence of the following four
elements. viz :
(1) Parties competent to contract;
(2) mutual assent;
(3) a thing, the absolute or general
property in which is transferred from the
seller to the buyer; and
(4) a price in money paid or promised.
A transaction which doe; not conform to this traditional
concept of sale cannot be regarded as one in respect of
which the State Legislature is competent to enact an Act
imposing liability for payment of tax. It was observed at p.
407
“A power to enact a 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.”
In Gannon Dunkerley & Company’s case
this Court was called upon to consider whether in a
(1) [1959] 1 S.C.R. 379.
485
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 relevant legislative entry had the same connot-
ation 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.
In Gannon Dunkerley & Company’s case the validity of s. 2
(b) (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
light of the competence of the Provincial Legislature under
Entry 48, List II, in Seventh Schedule of the Governmentof
India Act, 1935. Under the Constitution therelevant entry
conferring legislative power uponStates to tax sale of
goods in Entry 54, List 11. As the scheme of division of
legislative power under the Constitution has remained
unaltered, the principle of Gannon Dunkerley’s case applies
(1) [1999] S. C. R. 379.
486
in adjudging the validity of the provisions of the Madhya
Pradesh Act 4 of 1958.
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 11, 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 Indian 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.
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 its own vehicles 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 self has
been included in the retail sale; I do not
agree with the contention of dealer’s counsel
(that the goods consumed for the vehicles of
the dealer are not liable to tax under s. 3)
and taxed on
487
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 cannot be sustained.
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’ : lie 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.
The petition will therefore be allowed and a writ will issue
declaring that the order of assessment made by the first
respondent dated December 26, 1960, in so far as it relates
to levy of tax on motor spirit and lubricants consumed
during the period of assessment for the vehicles of the
Company is invalid. The respondents will pay the costs of
this petition to the Company.
Petition allowed,
488