PETITIONER:
BHOPAL SUGAR INDUSTRIES LTD.,MADHYA PRADESH
Vs.
RESPONDENT:
D. P. DUBE, SALES TAX OFFICER, BHOPAL REGION, BHOPAL
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-Nature of transaction-High Court’s Jurisdiction to
go into-Constitution of India, Art. 226.
HEADNOTE:
The appellant, a manufacturer of sugar and a dealer in
petroleum products, was assessed to sales tax in respect of
the consumption by it for its own motor vehicles of the
petroleum products in which it dealt. The appellant
challenged the assessment in respect of the consumption by
it by way of a petition under Art. 226 of the Constitution
before the High Court of Madhya Pradesh on the grounds that
its own consumption did not amount to a sale under the
relevant provisions of the Madhya Bharat Sales of Motor
Spirit Taxation Act, 1953, and that if such a transaction
was held to be taxable under the provisions of the Act the
provisions were unconstitutional and beyond the legislative
competence of the State and therefore the assessment would
be an infringement of the rights of the petitioner under
Art. 19 (1) (f) and (g) of the Constitution. The High Court
called for the agreement between the appellant company and
Caltex (India) Limited and by construing the agreement came
to the conclusion that the appellant was not the owner of
the petrol and rejected the petition though no point was
taken by the Sales Tax Officer before it that tile appellant
was not the owner.
Held, that the investigation of the nature of the trans-
action was not a matter for the High Court but one for
determination by the taxing authorities and that the High
Court was in error in having itself determined the nature of
the transaction. The order passed by the High Court cannot
therefore, be upheld.
JUDGMENT:
CIVIL APPELLATE JURISDICTION Civil Appeal No. 578 of
1962.
489
Appeal by special leave from the judgment and order dated
January 25, 1961, of the Madhya Pradesh High Court in Misc.
Petition No. 223 of 1960.
S.T. Desai, J. B. Dadadhanjli, O. C. Mathur and Ravinder
Narain, for the appellant.
B.Sen, K. L. Hathi and I. N. Shroff, for the respondent.
1962. December 21. The judgment of the Court was delivered
by
SHAH, J.-This is an appeal against the judgment of the
Madhya Pradesh High Court dismissing a petition filed by the
Bhopal Sugar Industries Ltd. hereinafter called ’the
Company’-for a writ under Art. 226 of the Constitution
quashing the order of the Sales Tax Officer dated May 1,
1960, which imposed liability upon the Company for payment
of sales-tax under the Madhya Bharat Sales of Motor Spirit
Taxation Act, 20 of 1953 in respect of motor spirit and
lubricants used for its own vehicles.
The Company carries on the business of manufacturing sugar,
and maintains for the purpose of that business a fleet of
motor trucks and other motorvehicles. The Company is also
registered under the Act as a retail dealer of motor spirit
and lubricants. During the period April 1, 1957, and March
31, 1958, the Company consumed a part of its stock-intrade
of motor spirits and lubricants for its own vehicles. The
Sales Tax Officer, Bhopal Region, by order dated May 1,
1960, assessed the Company to pay tax in respect of motor
spirits and lubricants consumed for its vehicles. The
Company then filed a petition in the High Court of Madhya
Pradesh at Jabalpur under Art. ’226 of the Constitution for
a
490
writ in the, nature of certiorari quashing the order dated
May 1, 1960, passed by the Sales Tax Officer and the ‘notice
of demand issued in pursuance thereof, and for a writ of
prohibition or mandamus restraining the Sales Tax Officer
from recovering.. any tax in pursuance of the order.
The Company set up two grounds in support of its petition :
(1) That the Sales Tax Officer had power to
levy tax on “sale’ only i. c. on transfer of
property for a price, and as there was no sale
of motor oil and lubricants consumed by the
Company for its own vehicles there being no
transfer of property to any one, and no price
being paid or promised, consumption of the
articles was not taxable. That it was
submitted is manifest from the charging
section 3 read with the definition under s.
2(k) of the Act of `retail sale’ which does
not include consumption by a retail dealer of
his own goods.
(2) That power of the State to levy tax on
the sale or purchase of goods (other than
news-papers could be exercised only under
Entry 54 of List II of the 7th Schedule to the
Constitution. Therefore the attempted levy of
tax was illegal and without authority of law,
and infringed the Company’s fundamental right
to carry on business and to hold and acquire
property as guaranteed by Art. 19(1) (f) and
(g) of the Constitution.
At he hearing of the petition the High Court did not
consider the grounds set up in support of the petition, but
called upon the Company to produce ‘a
491
copy of its agreement with Caltex (India) Ltd., under which
the supply of motor-spirits and lubricants was obtained by
the Company, and proceeded to adjudicate the claim for
relief in the light of the covenants of the agreement. The.
High Court dismissed the petition holding that the
assumption made in the petition that the Company was the
owner of the motor spirits and lubricants obtained from
Caltex (India) Ltd., was not warranted. It was observed
“These clauses and other clauses relating to the
responsibility for loss, safeguard against contamination of
petrol, sale by the dealer of the products of Caltex (India)
Limited only, settlement of accounts–all point to the fact
that the petitioner (the Company) was not constituted a full
and absolute owner of the petrol supplied by Caltex (India)
Limited at the petrol pump maintained by the petitioner at
Sehore. The petrol remained the property of Caltex (India)
Limited, and the petitioner sold it as an agent of the
supplying _Company. When, therefore, the petitioner obtain-
ed petrol for itself at the pump and used it in its own
vehicles, there was a sale of the petrol by the petitioner
as an agent of Caltex (India’) Limited to the petitioner-
company as a consumer. It was nothing but a purchase by the
agent of property belonging to the principal. That being
so, there was retail sale by the petitioner as agent of
Caltex (India) Limited of the petrol consumed in its
vehicles.”
Against the order dismissing the petition this appeal is
preferred with special leave.
In our judgment the High Court was in error in proceeding to
decide the petition on a ground which was not set up in the
affidavit of the Sales Tax Officer. The Company claimed
relief on the
492
assumption that motor spirits and lubricants used by it for
its own vehicles were of its ownership, and appropriation by
a retail dealer of the stock in-trade owned by him for his
own use does not constitute sale within the meaning of the
Act. The Sales Tax Officer submitted that the consumption
of motor spirits and lubricants by the Company amounted to
sale, because there was transfer of property “from one
establishment of the retail dealer to another.” On the
pleadings two questions arose for determination :-
(a) whether the appropriation of goods
amounted to transfer of property by the retail
dealer to another peison; and
(b) whether such transfer amounted in law to
sale.
The Legislature has set up an elaborate and selfcontained
machinery for investigating whether a transaction is liable
to be taxed because it is of the nature of a retail sale
within the meaning of the Act. The taxing Officer is
invested with authority to determine the nature of the
transaction and its liability to tax, and against his
decision there is an appeal to the appellate authority and a
further right of revision to the Commissioner. It is true
that the jurisdiction of the High Court under Art. 226 is
extensive, but normally the High Court does not exercise
that jurisdiction by entertaining petitions against the or-
ders of taxing authorities, when the statute under which tax
is sought to be levied provides a remedy by way of an appeal
or other proceeding to a party aggrieved and thereby by-pass
the statutory machinery. That is not to say that the High
Court will never entertain a petition against the order of
the taxing Officer. The High Court has undoubtedly
jurisdiction to decide whether a statute under which a tax
is sought to be levied is within the legislative
493
competence of the Legislature enacting it or whether the
statute defies constitutional restrictions or infringes any
fundamental rights, or whether the taxing authority has
arrogated to himself power which he does not possess, or has
committed a serious error of procedure which has affected
the validity of his conclusion or even where the taxing
authority threatens to recover tax on an interpretation of
the statute which is erroneous. The High Court may also in
appropriate cases determine the eligibility to tax of trans-
actions the nature of which is admitted, but the High Court
normally does not proceed to ascertain the nature of a
transaction which is alleged to be taxable. The High Court
leaves it to the tax payer to obtain an adjudication from
the taxing authorities in the first instance.
In the present case the Company invoked the jurisdiction of
the High Court on question of fact as well as on the
constitutionality of the taxing statute and breach of
fundamental rights. The High Court instead of determining
the Constitutional questions, on which alone the petition
could normally be entertained, proceeded to investigate the
correctness of an assumption made by the Company, and
thereby decided the case which was not expressly raised by
the other party. In doing so the High Court fell into an
error : it assumed jurisdiction to decide the dispute which
had to be decided by resort to the machinery provided under
the Act after ascertainment of the true nature of the
transaction in the light of the agreement and surrounding
circumstances. The order passed by the High Court cannot
therefore be upheld.
The next question is about the order to be passed in this
appeal. For that purpose we must consider the two grounds
set up in the petition by the Company. The challenge to the
action of the Sales Tax Officer on the plea of infringement
of fundamental
494
rights must fail. It is common ground that the State of
Madhya Pradesh had power to levy tax on sale or purchase of
motor spirits and such power could be exercised only in
respect of sales traditionally so understood. The State of
Madras v. Gannon Dunkarley & Co. (Madras) Ltd. (1). Section
2 (k) of the Act defines a ‘retail sale’ as meaning “a sale
of motor spirit by a retail dealer for the purpose of
consumption by the person by whom or on whose behalf it is
or may be purchased, and the expression ‘sell in retail’
shall be construed accordingly. But there is nothing in the
definition of s. 2 (k) ‘retail sale’ nor in the charging
section (s. 3) which indicates that the Legislature had
enacted legislation beyond its competence. If the taxing
authority had sought to bring to tax a transaction which is
made taxable by a competent enactment it would not be open
to the High Court exercising power under Art. 226 of the
Constitution to consider whether the taxing authority was
justified in taxing the transaction. Levy of a tax lawfully
imposed under a statute within the competence of the
Legislature cannot be deemed to infringe the fundamental
rights guaranteed by Art. 19 (1) (f) and (g), and whether
the tax is properly levied in respect of a transaction is
for the taxing authority to determine and not for the High
Court.
The levy and collection of sales tax on motor spirits and
lubricants consumed by the Company cannot therefore be
regarded as illegal unless it is found. that the goods were
of the ownership of the Company; and for reasons already set
out the question whether the goods consumed belonged to the
Company must be left to be determined under the Act. The
first question raised in the petition cannot therefore be
determined by this Court as it could not be determined by
the High Court.
On the view taken by us this appeal must fail and is
dismissed. It will of course be open to the
(1) [1959] S. C, R. 379.
495
Company in an appeal properly filed before the taxing
authorities to contend that under the terms of the agreement
with Caltex (India) Ltd., the Company is the owner of the
goods received by it and that on that account consumption of
those goods by it for its own vehicles did not amount to
sale and the Sales Tax Officer will be entitled to consider
that question on its merits and will not be bound by any
expression of opinion by the High Court as to the
interpretation of the agreement produced before it. Having
regard to the circumstance, there will be no order as to
costs.
Appeals dismissed.
495