PETITIONER:
VISHNU AGENCIES (PVT.) LTD. ETC.
Vs.
RESPONDENT:
COMMERCIAL TAX OFFICER & ORS. ETC.
DATE OF JUDGMENT16/12/1977
BENCH:
BEG, M. HAMEEDULLAH (CJ)
BENCH:
BEG, M. HAMEEDULLAH (CJ)
CHANDRACHUD, Y.V.
BHAGWATI, P.N.
KRISHNAIYER, V.R.
UNTWALIA, N.L.
FAZALALI, SYED MURTAZA
KAILASAM, P.S.
CITATION:
1978 AIR 449 1978 SCR (2) 433
1978 SCC (1) 520
CITATOR INFO :
F 1979 SC1158 (3,4,5)
RF 1980 SC 674 (4)
R 1980 SC1124 (30)
F 1985 SC1199 (6)
R 1988 SC1487 (48)
C 1989 SC1371 (15)
ACT:
Sales-tax-Statutory sale-If sale for the purposes of Sales-
tax Acts.
Cement sold to holders of permits issued under the West
Bengal Cement Control Act 1948-Sale, if exigible to tax.
Transactions between growers and procuring agents and rice
miller and whole-sale agents under A. P. Paddy Procurement
(Levy) Order-If exigible to sales-tax.
HEADNOTE:
The Cement Control Order promulgated under the West Bengal
Cement Control Act, 1948 prohibits storage for sale and sale
by a seller and purchase by a consumer of cement except in
accordance with the conditions specified in a licence issued
by a designated officer. It also provides that no person
shall sell cement at a higher than the notified price and no
person to whom a written order has been issued shall refuse
to sell cement “at a price not exceeding the notified
price”. Any contravention of the order becomes punishable
with imprisonment or fine or both.
Under the A.P. Procurement (Levy and Restriction on Sale)
Order, 1967, (Civil Appeals Nos. 2488 to 2497 of 1972) every
miller carrying on rice milling operation is required to
sell to the agent or an officer duly authorised by the
Government minimum quantities of rice fixed by the
Government at the notified price, and no miller or other
person who gets his paddy milled in any rice-mill can move
or otherwise dispose of the rice recovered by milling at
such rice mill except in accordance with the directions of
the Collector. Breach of these provisions becomes
punishable.
It was contended in this Court on behalf of the appellants
that the word ,sale” in the Bengal Finance Sales Tax Act,
1941, must receive the same meaning as in the Sale of Goods
Act, 1930 since the expression “sale of goods” was, at the
time when the Government of India Act, 1935 was enacted, a
term of well recognised legal import in the general law
relating to sale goods and in the legislative practice
relating to that topic both in England and in India and (2)
since under the Sale of Goods Act there can be no sale
without a contract of sale and since the parties had no
volition but were compelled by law to supply the goods at
prices fixed under the Control Orders by the authorities the
transactions were not sales and so were not exigible to tax.
Disssing the appeals.
HELD : Per curiam Sale of cement by the allottees to the
permit-holders and the transactions between the growers and
procuring agents as well as those between the rice millers
on the one band and the wholesalers or retailers on the
other, are sales exigible to sales-tax in the respective
States. [465-F-G]
Per Beg. C.J,
The transactions in the instant cases are sales and are
exigible to tax on the ratio of Indian Steel and Wire
Products Ltd.. Andhra Sugar Ltd. and Karam, Chand Thapar.
In cases like New India Sugar Mills, the substance of the
concept of a side itself disappears because the transaction
is nothing more than the execution of an order. Deprivation
of property for a compensation called price does not amount
to a sale when all that is done is to carry out an order so
that
434
the transaction is substantially a compulsory acquisition.
On the other hand, a merely regulatory law, even if it
circumscribes the area of free choice, does not take away
the basic character or core of sale from the transaction.
Such a law which governs a class obliges a seller to deal
only with parties holding licences who may buy particular or
allotted quantities of goods at specified prices, but an
essential element of choice is still left to the parties
between whom agreements take place. The agreement despite
considerable compulsive elements regulating or restricting
the area of his choice, may still retain the basic character
of a transaction of sale. In the former type of case, the
binding character of the transaction arises from the order
directed to particular parties asking them to deliver
specified goods and not from a general order or law
applicable to a class. In the latter type of cases, the
legal tie which binds the parties, to perform their
obligations remains contractual. The regulatory law merely
adds other obligations, such as the one to enter into such a
tie between the parties. Although the regulatory law might
specify the terms, such as price, the regulation is
subsidiary to the essential character of the transaction
which is consensual and contractual. The parties to the
contract must agree upon the same thing in the same sense.
Agreement on mutuality of consideration, ordinarily arising
from an offer and acceptance, imparts to it enforceability
in courts of law. Mere regulation or restriction of the
field of choice does not take away the contractual or
essentially consensual binding core or character of the
transaction. [438B-D, EG, 439A-C, 440B]
New India Sugar Mills v. Commissioner of Sales Tax, Bihar,
AIR 1963 SC 1207; [1963] Supp. 2 SCR 459 explained.
Commissioner, Sales tax, U.P. v. Ram Bilas Ram Gopal, AIR
1970 All 518, Chittar Mal Narain v. Commissioner of Sales
Tax, [1971] 1 SCR 671, Indian Steel and Wire Products Ltd.
v. State of Madras, [1968] 1 SCR 479, Andhra Sugar Ltd. v.
State of Andhra Pradesh [1968] 1 SCR 705 and State of
Rajasthan v. Karam Chand Thapar, AIR 1969 SC 343 referred
to.
[Per Chandrachud, Bhagwati, Krishna Iyer, Untwalia, Murtaza
Fazal Ali and Kailasam, JJ.]
According to the definitions of “Sale” in the two Acts the
transactions between the appellants and the allottees or
nominees are patently sales because in one case the property
in cement and in the other property in the paddy and rice
was transferred for cash consideration by the appellants.
[445D]
1. When essential goods are in short supply, various types
of Orders are issued under the Essential Commodities Act,
1955 with a view to making the goods available to the
consumer at a fair price. Such Orders sometimes provide
that a person in need of an essential commodity like cement,
cotton, coal or iron and steel must apply to the prescribed
authority for a permit for obtaining the commodity. Those
wanting to engage in the business of supplying the commodity
are also required to possess a dealer’s licence. The
permit-holder can obtain the supply of goods, to the extent
of the quantity specified in the permit, from the named
dealer only and at a controlled price. The dealer who is
asked to supply the stated quantity to the particular permit
holder has no option but to supply the stated quantity of
goods at the controlled price. [440 E-G]
2. In State of Madras v. Gannon Dunkerley & Co. Ltd.,
[1959] SCR 379 after considering a variety of authorities on
the subject, this Court held that the expression sale of
goods in Entry 48 List 11 Government of India Act, 1935
cannot be construed in its popular sense and that it must be
interpreted in its legal sense. Whereas in popular parlance
a sale is said to take place when the bargain is settled
between the parties through property in the goods may not
pass at that stage, as where the contract relates to future
or unascertained goods, the essence of sale in the legal
sense is the transfer of property in a thing from one person
to another for a price. It was further held that according
to the law both of England and India in order to constitute
a sale, it is necessary that there should be an agreement
between the parties for the purpose of transferring title to
the goods which pre-supposes capacity to contract, supported
by valuable consideration and that as a result of the
transaction property must actually pass
435
in the goods. “Unless all these elements are present, there
can ‘be no sale.” The effect of the construction which the
Court put on the words of Entry 48 in Gannon Dunkerley is
that a sale is necessarily a consensual transaction and if
the parties have no volition or option to bargain, there can
be no sale. If this view is assumed to reflect the correct
legal Position, the transactions in these cases will amount
to sales. [447B-C, D-F, 449D-E]
3. Offer and acceptance need not always be in an
elementary form, nor does the law of contract or of sale of
goods require that consent to a contract must be express.
Offer and acceptance can be spelt out from the conduct of
the parties which covers not only their acts but omissions
as well. On occasions, silence can be more eloquent than
eloquence itself. Just as correspondence between the
parties can constitute or disclose an offer and acceptance,
so can their conduct. This is because law does not require
offer and acceptance to conform to any set pattern or
formula. [450D-E]
4. In the instant case, it is not correct to say that the
transactions between the dealer and the consumer were not
consensual. The limitations imposed by the Control Order on
the normal right of the dealers and consumers to supply and
obtain goods, the obligations imposed on the parties and the
penalties prescribed by the order do not militate against
the position that eventually, the parties must be deemed to
have completed the transactions under an agreement by which
one party bound itself to supply the stated quantity of
goods to the other at a price not higher than the notified
price and the other party consented to accept the goods on
the terms and conditions mentioned in the permit or the
order of allotment issued in its favour by the concerned
authority. in order, to determine whether there was any
agreement or consensuality between the parties regard must
be had to their conduct at or about the time when the goods
changed hands. In the first place, it is not obligatory on
a trader to deal in cement nor on the consumer to acquire
it. The primary fact is that the decision of the trader to
deal in an essential commodity is volitional. Such volition
carries with it the willingness to trade strictly on the
terms of the Control Order. The consumer who is under no
legal compulsion to acquire or Possess cement, decides as a
matter of his volition to obtain it on the terms of the
permit or the order of allotment issued in his favour. That
brings the two parties together, one of whom is willing to
supply the essential commodity and the other to receive it.
When the allottee presents his permit to the dealer, he
signifies his willingness to obtain the commodity from the
dealer on the terms stated in the permit. His conduct
reflects his consent. And when, upon the presentation of
the permit the dealer acts upon it, he impliedly agrees to
supply the commodity to the allottee on the terms by which
he has voluntarily bound himself to trade in the commodity.
His conduct too reflects his consent. Thus, though both
parties are bound to comply with the legal requirements
governing the transaction, they agree as between themselves
to enter into the tranaction on statutory terms, one
agreeing to supply the commodity to the other on those terms
and the other agreeing to accept from him on the very terms.
[449E-H, 450C, E-H,451A]
5. Secondly, though the terms of the transaction are
mostly predetermined by law, it cannot be said that there is
no area at all for bargain. The conditions provided in the
order that cement shall not be sold at a higher than the
notified price and that no dealer shall refuse to sell it at
a price not exceeding the notified price leaving it open to
the individuals to charge and pay a price which is less than
the notified price or charge a lesser price. Within the
bounds of reasonableness, it would be open to the parties to
fix the time of delivery. The consumer has a right to ask
for weighment of goods which shows that he may reject the
goods if found short in weight or are not of the requisite
quality. The consumer has a right to ask for weighment of
goods which shows that he tions have the freedom to bargain
militates against the view that the transactions are not
consensual. [451-AE]
6. In New India Sugar Mills Ltd. the question was whether
sugar supplied by the mills on the orders of the Sugar
Controller was exigible to tax. The majority held that a
contract of sale between the buyer and the seller, which is
a pre-requisite to a sale, being absent the transaction was
not exigible to sales
436
tax. But the principle on which the problem should be
approached was set out in the dissenting judgment which said
that consent may be express or implied and that it could not
be said that unless offer and acceptance were present in an
elementary form, there could be no taxable sale. Taking the
view that on obtaining the necessary permit the seller on
the one hand and the buyer on the other agreed to sell and
purchase sugar it was pointed out that when the buyer, after
receiving the permit, telegraphed instructions to despatch
sugar and the seller despatched it, ‘a contract emerged and
consent must be implied on both sides though not expressed
antecendently to the permit”. So long as the parties trade
under controls at fixed price and accept these as any other
law of the realm, the contract is at the fixed price, both
sides having or deemed to have agreed to such a price.
Consent under the law of contract need not be express; it
could be implied. [453B-G; 454A-C]
7.In coming to its conclusion the majority in New India
Sugar Mills followed the decision of this Court in Gannon
Dunkerley that in a building contract there was no agreement
express or implied to sell goods and secondly that property
in the building materials does not pass in the materials
regarded as goods” but it passes as part of immovable
property. The majority in-New India Sugar Mills was in
error in saying that the ratio govern that case because the
questions involved in both different. In New India Sugar
Mills the commodity with concerned was sugar and was
delivered as sugar just as in commodity is cement, which was
delivered as cement Dunkerley tax was demanded after the
commodity had after property in it had passed. The question
in this case which was question involved in New India Sugar
Mills namely decidendi of Gannon Dunkerley must cases were
altogether which the Court was the instant case the
Secondly, in Gannon changed hands, that is, the very whether
a transaction effected in accordance with the obligatory
terms of a statute can amount to a sale, did not arise in
Gannon Dunkerley, Gannon Dunkerley is not an authority for
the proposition that there cannot at all be a contract of
sale if the parties to a transaction are obliged to comply
with the terms of a statute. [456C-E]
8. In Gannon Dunkerley this Court was influenced largely
by the observations in the 8th edn. of Benjamin on “Sale?’
that to constitute a valid sale there must be a concurrence
of four elements, one of which is “mutual assent”. The
majority judgment in New India Sugar Mills also derived
sustenance from the same passage in Benjamin’s 8th edn.
Gannon Dunkerley involved an altogether different point and
is not an authority for the proposition that there cannot at
all be a contract of sale if the parties to a transaction
are obliged to comply with the terms of a statute. [464E-F ,
465C-D]
9. With the high ideals of the Preamble and the directive
principles of our Constitution, there has to be a
fundamental change in the judicial outlook. Freedom of
contract has largely become an illusion. The policy of the
Parliament in regard to the contracts including those
involved in sale of goods, has still to reflect recognition
of the necessity for a change, which could be done by a
suitable modification of the definition of sale of goods.
[464C-D]
Majority decision in New India Sugar Mills v. Commissioner
of Sales Tax, Bihar, AIR 1963 SC 1207; [1963] Supp. 2 SCR
459 overruled.
Minority opinion in India Steel & Wire Products v. State of
Madras [1968] 1 SCR 479, Andhra Sugar Ltd. v. State of
Andhra Pradesh, [1968] 1 SCR 705, Salar Jung Sugar Mills
Ltd. v. State of Mysore [1972] 2 SCR 228 and Oil and Natural
Gas Commission v. State of Bihar [1977] 1 SCR 354 approved.
State of Tamil Nadu v. Cement Distributors Pvt. Ltd. [1973]
2 SCR 1019 partly approved.
Chhitter Mal Nazrain Das. v. Commissioner of Sales Tax
[1971] 1 SCR 671 explained.
State of Madras v. Gannon Dunkerley [1959] SCR 379 explained
and distinguished.
Kirkness v. John Hudson and Co. Ltd. [1955] A.C. 696 held
inapplicable.
Ridge No miness Ltd. v. Inland Revenue Commissioners [1962]
Ch. 376 referred to.
Commissioner, Sales Tax U.P. v. Ram Bilas Ram Gopal AIR 1970
Allahabad 318 referred to.
43 7
JUDGMENT:
CIVIL APPELLATE JURISDICTION: civil Appeal No. 724 of
1976.
Appeal by Special Leave from the, Judgment and Order dated
13th Dec. 1974 of the Calcutta High Court in Appeal from
Original Order No. 240 of 1973.
AND
Civil Appeals. Nos. 2488-2497 (NT) 1972 (From the Judgment
and Order dated the 31st March, 1970 of the Andhra Pradesh
High Court in Writ Petitions Nos. 3005, 3006, 3085, 3086,
3088, 3090, 4232, 4243 and 4244 of 1969.
Sachin Chowdhary, B. Sen, S. S. Bose, K. K. Chakraborty, A.
G. Manzes, J. B. Dadachanji and k. J. John for the Appellant
in C.A. 724/76.
L. N. Sinha, D. N. Mukherjee, G. S. Chatterjee and A. K.
Ganguli for respondents 1 to 4 in C.A. 724/76.
B. Kanta Rao for the Appellants in C.As 2488-97 of 1972.
Soli J. Sorabjee, Addl. Sol. Genl. (In 2488-97) 72, P.
Parameshwara Rao A. K. Ganguli and T. V. S. Narasimhachari
for the Respondents in CAs. Nos. 2488-97/72.
A. Subba Rao for the Intervener.
The following Judgment were delivered
BEG, C.J.–I am in general agreement with my learned brother
Chandrachud who has discussed all the authorities so
admirably and comprehensively. I, however, would like to
add a few observations stating the general conclusion, as I
see it, emerging from an application of general principles
and accumulation of case law on the subject of what may be
called “statutory” or “compulsory” sales. Are they sales at
all so as to be exigible to sales tax or purchase tax under
the relevant statutory provisions ?
The term ‘sale? is defined as follows in Eenjamin on Sale
(Eighth Edn.) :
“To constitute a valid sale there must be a
concurrences of the following elements, namely
:-
(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.”
It is true that a considerable part of the field over which
what are called ‘sales’ take place under either ‘regulatory
orders or levy orders passed or directions given under
statutory provisions is restricted and controlled by these
orders and directions. If, what is called a “sale”
438
is, in substance, mere obedience to a specific order, in
which the so called “price” is only a compensation for the
compulsory passing of property in goods to which an order
relates, at an amount fixed by the authority making the
order, the individual transaction may not be a ,,sale”
although the compensation is determined on some generally
fixed principle and called “price”. This was, for example,
the position in New India Sugar Mills v. Commissioner of
Sales Tax, Bihar(1). That was a case of a delivery
according to an order given by the Govt. which could amount
to a compulsory levy by an executive order although there
was no legislative “levy order” involved in that case. On
the other hand,, in Commissioner, Sales Tax, U.P. v. Ram
Bilas Ram Gopal,(2) the order under consideration was
actually called a levy order, but the case was
distinguishable from New India Sugar Mills v. Commissioner
of Sales Tax, Bihar (supra) on facts. It was held in the
case of Ram Bilas (supra) that the core of what is required
for a “sale” was not destroyed by the so called “levy” order
which was legislative. It is true that passages from the
judgement of Pathak, J., in the case of Ram Bilas Ram Gopal
(supra) were cited and specifically disapproved by a Bench
of this Court in Chittar Mal Narain v. Commissioner of Sales
Tax(3). But, perhaps the view of this Court in Chittar Mal
Narain, Das (supra) goes too far in this respect. It is not
really the nomenclature of the order involved, but the
substance of the transaction under consideration which
matters in such cases.
In the first typo of case mentioned above the substance of
the concept of a sale, as found under our Law, itself
disappears because the transaction is nothing more than the
execution of an order. Deprivation of property for a
compensation, which may even be described as “price”, does
not amount to, a sale when all that is done is to, carry out
an order so that the transaction is substantially a
compulsory acquisition. On the other hand, a merely
regulatory law, even if it circumscribes the area of free
choice, does not take away the basic character or core of
sale from the transaction. Such a law, which governs a
class, may oblige sellers to deal only with parties holding
licences who may buy particular or allotted quantities of
goods at specified prices, but an essential element of
choice is still left to the parties between whom agreements
take place. The agreement, despite considerable compulsive
elements regulating or restricting the area of free choice,
may still retain the basic character of a transaction of
sale. This was the position in Indian Steel and Wire
Products Ltd. v. State of Madras(4). Andhra Sugar Ltd. v.
State of Andhra Pradesh(5) and State of Rajasthan v. Karam
Chand Thapar(6): There might be borderline cases in which
it- may be difficult to draw the line.
(1) AIR 1963 SC 1207 : [1963] (Supp) 2 SCR 459.
(2) AIR 1970 All 518.
(3) [1971] 1 S.C.R. 671.
(4) [1968] 1 S.C.R. 479.
(5) [1968] 1 S.C.R. 705.
(6) A.I.R. 1969 S.C. 343.
439
In the former type of case, the binding character of the,
transaction arises from the order directed to particular
parties asking them to deliver specified goods and not from
a general order or law applicable to a class. In the latter
type of cases, the legal tie (vinculum juris) which binds
the parties to perform their obligations remains contrac-
tual. The regulatory law merely adds other obligations,
such as the one to enter into such a tie between the parties
indicated there. Although the regulatory law might specify
the terms, such as price, or parties, the regulation is
subsidiary to the essential character of the transaction
which is consensual and contractual. The basis of a con-
tract is : “consensus adem”. The parties to the contract
must agree upon the same thing in the ‘same sense.
Agreement on mutuality of consideration, ordinarily arising
from an offer and acceptance, imparts to it enforceability
in Courts of law. Mere regulation or restriction of the
field of choice does not take away the contractual or
essentially consensual binding core or character of the
transaction.
I may be forgiven for citing a passage from my judgment in
Commissioner of State Tax v. Ram Bilas Ram Gopal,(supra) to
indicate the setting of such transactions
“It appears to me to be necessary to
distinguish between a restriction in the area
of choice of parties and the transaction
itself in order to, determine the true
character of the transaction. Limitation of
the field of choice is a necessary concomitant
of a controlled or mixed economy which ours
is. Absolute freedom of contract or
unregulated operation of the laws of- supply
and demand, which an apotheosis of the lais-
sez-faire doctrine demanded, led really to a
shrinking of the area of freedom in the
economic sphere, producing gross inequalities
in bargaining powers and recurrent crises.
Therefore, a regulated or a socialistic
economy seeks to regulate the play of forces
operating on the economic arena so that
economic freedom of all concerned, including
employers and employees, is preserved and so
that the interests of consumers are also not
sacrificed by any exploitation of conditions
in which there is scarcity of goods,. I think
that the regulation or restriction of the area
of choice, cannot be held to take away the
legal character of the transactions which take
place within the legally restricted field. It
is too late in the day, when so much of the
nation’s social and economic activities are
guided and governed by control orders,
allotment orders, and statutory contracts, to
contend that mere State regulation of the
economic sphere of life results in the
destruction of the nature of the transactions
which take place within that sphere.” (P. 524)
In Roman Law the contract of sale was classed as a
“consensual” contract. The consent could, no doubt, be
express or implied. I find that Hidayatullah J., in his
very learned dissenting judgment in New India Sugar Mills
Case (supra), where some Roman Law is. referred to, thought
that even in a case of a ‘specific order directing delivery
of
440
goods there could be an implied consent so as to constitute
a safe. I find it, with great respect, difficult to go so
far as that. What could be implied, upon the facts of a
particular case, must still be a consent to a proposal if
the transaction is to be construed as a “sale”. Mere
compliance with an order may imply an acceptance of an order
but acceptance of a proposal to purchase or sell are of a
juristically different genus. It is, however, not necessary
for us, in this case, to accept the correctness of the
minority view of Hidayatullah, J. in New India Sugar Mills
case (supra). The transactions before us are sales on an
application of the ratio decidendi of Indian Steel and Wire
Products Ltd’s case (supra) and other cases decided on
similar grounds.
The difficulty arises from the fact that, although the
ingredients of a “sale,” as defined in Benjamin’s treatise
on “Sale?’, may seem to be satisfied even if delivery of
goods is in obedience to “an order to deliver them for a
consideration, fixed or to be fixed if we stretch mutual
assent to cover assent resulting from orders given, yet, it
is difficult to see how such a transaction would be based on
a contractual tie. According to Sec. 4(3) of our Sale of
Goods Act, a sale results only from a contract which
presupposes a minimal area of freedom of choice where the
ordinary mechanism of proposal and acceptance operates.
For the reasons indicated above, while I agree with the
answer given by my learned brother Chandrachud to the
question before us and also practically with all the views
expressed by my learned brother, yet, I hesitate to hold
that the majority opinion expressed by Shah J., in New India
Sugar Mills case (supra), is erroneous. I think the case is
distinguishable. Ibis, however, makes no difference to the
common conclusion reached by us on the facts of the cases
before us.
CHANDRACHUD, J. These appeals have been placed for hearing
before a seven-Judge Bench in order to set at rest, to the
extent foreseeable, the controversy whether what is
conveniently, though somewhat loosely, called a ‘compulsory
sale? is exigible to sales tax. When essential goods are in
short supply, various types of Orders are issued under the
Essential Commodities Act, 1955 with a view to making the
goods available to the consumer at a fair price. Such
Orders sometimes provide that a person in need of an
essential commodity like cement, cotton, coal or iron and
steel must apply to the prescribed authority for a permit
for obtaining the commodity. Those wanting to engage in
the-business of supplying the commodity are also required to
possess a dealer’s licence. The permit holder can obtain
the supply of goods, to the extent of the quantity specified
in the permit, from the named dealer only and at a
controlled price. The dealer who is asked to supply the
stated quantity of goods at the particular permit holder has
no option but to supply the stated quantity of goods at the
controlled price. The question for our consideration not
easy to decide, is whether such a transaction amounts to a
sale in the language of the law.
We will refer to the facts of civil appeal 724 of 1976, in
which a company called M/s Vishnu Agencies (Pvt.) Ltd., is
the appellant. It carries on business. as an agent and
distributor of cement in the
441
State of West Bengal and is a registered dealer under the
Bengal Finance (Sales Tax) Act, 1941, referred to
hereinafter as the Bengal Sales Tax Act. Cement being a
controlled commodity, its distribution is regulated by the
West Bengal Cement Control Act, 26 of 1948, referred to
hereinafter as the Cement Control Act, and by the Orders
made under section 3 (2) of that Act. Section (3) (1) of
the Cement Control Act provides, inter alia, for regulation
of production, supply and distribution of cement for
ensuring equitable supply and distribution thereof at a fair
price. By the Cement Control Order, 1948 framed under the
Cement Control Act, no sale, or purchase of cement can be
made, except in accordance with the conditions contained in
the written order issued by the Director of Consumer Goods,
West Bengal or the Regional Honorary Adviser to the
Government of India at Calcutta or by officers authorised by
them, at prices not exceeding the notified price.
The appellant is a licensed stockist of cement and is
permitted to stock cement in its godown, to be supplied to
persons in whose favour allotment orders are issued, at the
price stipulated and in accordance with the conditions of
permit issued by the authorities concerned. The authorities
designated under the Cement Control Order issue permits
under which a specified quantity of cement is allotted to a
named permit-holder, to be delivered by a named dealer at
the price mentioned in the permit. A permit is generally
valid for 15 days and as soon as the price of cement
allotted in favour of an allottee is deposited with the
dealer, he is bound to deliver to the former the specified
quantity of cement at the specified price.
A specimen order issued in favour of an allottee, under
which the appellant had to supply 10 metric tons of cement
at Rs. 144.58 per M.T., exclusive of sales tax, reads thus
“LICENCE FOR CEMENT
The quantities of cement detailed below are
hereby allotted to M/s. Marble & Cement
products Co. Pvt. Ltd., 2, Braboume Road,
Calcutta-1 to be supplied by M/s. Vishnu
Agencies Pvt. Ltd., 3, Chittaranjan Avenue,
Calcutta-13, on conditions detailed below.
The price of material involved must be
deposited with the Stockist within 15 days and
the actual delivery must be taken within 15
days from the date of issue of the permit.
The licence is issued only for the purpose of
Mfg. of Mosaic Tiles at 188, Netaji Subhas
Road, Calcutta-40.
Under no circumstances will the validity of
the permit be extended beyond the period of 15
days from the date of its issue.
Cement
Total Tonnge
Country Cement at Rs. 144.58 Ton Cwt. per M.T.
exclusive of S. T. 10 M/T (Ten M/T only)”
442
The appellant supplied cement to various allottees from time
to time in pursuance of the allotment orders issued by
appropriate authorities and in accordance with the terms of
the licence obtained by it for dealing in cement. The
appellant was assessed to sales tax by the first respondent,
the Commercial Tax Officer,, Sealdah Charge, in respect of
these transactions. It paid the tax but discovered on
perusal of the decision of this Court in New India Sugar
Mills Ltd. v. Commissioner of Sales Tax(1) that the
transactions were not exigible to sales tax. Pleading that
the payment was made under a mistake of law, it filed
appeals against the orders of assessment passed by res-
pondent 1. It contended in appeals before the Assistant
Commissioner of Commercial Taxes that by virtue of the
provisions of the Cement Control Act and the Cement Control
Order, no volition or bargaining power was left to it and
since there was no element of mutual consent aggreement
between it and the allottees, the transactions were not
sales within the meaning of the Sales Tax Act. The
appellant further contended that if the transactions were
treated as sales, the definition of “sale” in the Sales Tax
Act was ultra vires the legislative competency of the
Provincial Legislature under the Government of India Act,
1935 and of the State Legislature under the Constitution.
The appellate authority rejected the first contention and
upheld the assessments. It did not, as it could not, go
into the second contention regarding legislative competence.
The appellant adopted the statutory remedies open to it but
since the arrears, of tax were mounting up and had already
exceeded a sum of rupees eight lacs, it filed a writ
petition in the Calcutta High Court praying that the various
assessment orders referred to in the petition be quashed and
a writ of prohibition be issued directing the sales tax
authorities to refrain from making any further assessments
for the purpose of sales tax on the transactions between the
appellant and the allottees.
A learned single Judge of the High Court allowed the writ
petition and issued a writ of mandamus restraining the
respondents from imposing sales tax on the transactions.
between the appellant and the allottees. That judgment
having been set aside in appeal by a Division Bench of the
High Court by its judgment dated December 13, 1974, the
appellant has filed appeal No. 724 of 1976 by special leave.
Civil appeals No. 2488 to 2497 of 1972 raise a similar
question under the Andhra Pradesh Paddy Procurement (Levy)
Orders, under which paddy growers in the State are under an
obligation to sell the paddy to licensed agents appointed by
the State Government at the prices fixed by it. The High
Court of Andhra Pradesh by its judgment dated March 31, 1970
has taken the, same view as the Calcutta High Court, namely,
that the transactions amount to sales and are taxable under
the Sales Tax Act. Counsel appearing in the Andhra Pradesh
appeals agree that the decision in the Calcutta case will
govern those appeals also.
(1) [1963] Supp. 2 S.C.R. 459.
443
Since the crux of the appellant’s contention is that the
measures adopted to control the supply of cement leave no
consensual option to the parties to bargain, it is necessary
first to notice the relevant provisions of law bearing on
the matter. The West Bengal Cement Control Act, 26 of 1948,
was enacted in order. to “confer powers to control the
production, supply and distribution of, and trade and com-
merce in, cement in West Bengal.” Section 3(1) of the Act
empowers the Provincial Government to provide, by order in
the Official Gazette, for regulating the supply and
distribution of cement and trade and commerce therein.
Section 3(2) provides by clauses (b) to (o) that an order
made under sub-section (1) may provide for regulating or
controlling the prices at which cement may be purchased or
sold and for prescribing the conditions of sale thereof,
regulating by licences, permits or otherwise, the storage,
transport, movement, possession, distribution, disposal,
acquisition, use of consumption of cement; prohibiting the
withholding from sale of cement ordinarily kept for sale;
and for requiring any person holding stock of cement to sell
the whole or specified part of the stock at such prices and
to such persons or classes of persons or in such
circumstances, as may be specified in the order. If any
person contravenes an order made under section 3, he is
punishable under section 6 with imprisonment for a term
which may extend to three years or with fine or with both,
and, if the order so provides, any Court, trying such con-
tranvention, may direct that a property in respect of which the
Court is satisfied that the order been
contravened shall be forfeited to the Government.
In exercise of the powers erred by section 3(1) read with
clauses (b) to (h) of section (2) of the Act, an Order
which may conveniently be called the Cement Control Order
was promulgated by the Governor on August 18, 1948. The
relevant clauses of that Order contain the following
provisions. By paragraph 1, no person shall after the
commencement of the order sell or store for sale any cement
unless he holds a licence and except in accordance with the
conditions specified in such licence obtained from the
Director of Consumer Goods, West Bengal, or any officer
authorised by him in writing in this behalf. By paragraph
2, no person shall dispose of or agree to dispose of any
cement except in accordance with the conditions contained in
a written order of the Director of Consumer Goods, West
Bengal or the authorities specified in the paragraph. By
paragraph 3, no person shall acquire or agree to acquire any
cement from any person except in accordance with the
conditions contained in a written order of the Director of
Consumer Goods, West Bengal, or the authorities specified in
the paragraph. By paragraph 4, no person shall sell cement
at a “higher than notified price”. By Paragraph 8, no
person or stockist who has any stock of cement in his
possession and to whom a written order has been issued under
paragraph 2 shall refuse to sell the same, “at a price not
exceeding the notified price”, ‘and the seller shall deliver
the cement to the buyer “within a reasonable time after the
payment of price”. By paragraph 8A, every stockist or every
person employed by him shall, if so re
3-1146 SCI/77
444
quested by the person acquiring cement from him under a
written order issued under paragraph 3, weigh the cement in
his presence or in the presence of his authorised
representative at the time of delivery.
We are not concerned with the amendments made by the Govern-
ment of West Bengal to the, Cement Control Order on December
30, 1965 by which, inter alia paragraphs 2, 3, 4, 8 and 8A
of that Order were deleted. The,appeal from the decision of
the Calcutta High Court is limited to the transactions
between the appellant and the allottees from the years 1957
to 1960.
As regards the batch of appeals from Andhra Pradesh, the
levy of tax was challenged by three sets of persons, the
procuring agents, the rice-millers and the retailers with
the difference that the procuring agents were assessed to
purchase tax, while the others to sales tax under the Andhra
Pradesh General Sales Tax Act, 1957. By virtue of the
provisions of the, Andhra Pradesh Paddy Procurement (Levy)
Orders, the paddy-growers can sell their paddy to licensed procuring age
nts appointed by the State Government only and
at the prices fixed by the Government. The agriculturist
has the choice to select his own procuring agent but he
cannot sell paddy to a private purchaser. The procuring
agents in their turn have to supply paddy to the rice-
millers at controlled prices. The millers, after converting
paddy into rice, have to declare their stocks to the Civil
Supplies Department. Pursuant to the Orders issued by the
Department, the rice-millers-have to supply a requisite
quantity of rice to the wholesale or retail dealers at
prices fixed by the Department. Orders for such supply by
the millers are passed by the authorities under the A.P.
Procurement (Levy) and Restriction on Sale Order, 1967.
Under this Order, every miller carrying on rice-milling
operations is required to sell to the agent or officer duly
authorised by, the Government the minimum quantities fixed
by the Government at the notified price; and no miller or
other person who gets his paddy milled in any price mill can
move or otherwise dispose of the, rice recovered by milling
at such rice mill except in accordance with the, directions
of the Collector. A breach of these provisions is liable to
be punished under section 7 of the Essential Commodities Act
1955 and the goods are liable to be forfeited under section
6A of that Act. The A.P. sales tax authorities levied
purchase tax on the purchase of paddy made by the procuring
agents from the agriculturists and they levied sales tax on
the transactions relating to the sup of rice by the millers
to the wholesale and retail dealers and on the supply made,
by the retailers to their customers. The case as regards
the sales tax imposed on the transactions between the retail
dealers and the consumers stood on an altogether different
footing, but the writ petitions filed by the procuring
agents and rice-millers raised questions similar to those
involved in the writ petition filed in the Calcutta High
Court.
These then are the provisions of the respective Orders
passed by the Governments of West Bengal and Andhra Pradesh.
445
We may now notice the provisions of the Sales Tax Acts.
Section 2(g) of the Bengal Finance (Sales Tax) Act, 6 of
1941, defines a sale” to mean “any transfer of property in
goods for cash or deferred payment or other valuable
consideration, including a transfer of ,property in goods
involved in the execution of a contract, but does not
include a mortgage, hypothecation, charge or pledge.”
Section 2 (1) provides that the word ”turnover” used in
relation to any period means “the aggregate of the sale-
prices or parts of sale-prices receivable, or if a dealer so
elects, actually received by the dealer…….. By clause
(h) of section 2, “sale-price” is defined to mean the amount
payable to a dealer as valuable consideration for “the sale
of any goods”. By section 4(1), every dealer whose gross
turnover during the year immediately preceding the
commencement of the Act exceeded the taxable quantum is
liable to pay tax under the Act on all “sales” effected
after the date notified by the State Government.
Section 2(n) of the Andhra Pradesh General Sales Tax Act
1957 defines a “sale” as “every transfer of the property in
goods by one person to another in the course of trade or
commerce, for cash, or for deferred payment or for any other
valuable consideration. Section 5 of that Act is the
charging section.
According to these definitions of ‘sale’ in the West Bengal
and Andhra Pradesh Sales Tax Act, transactions between the
appellants on one hand and the allottees or nominees on the
other are patently ,sales because indisputably, in one case
the property in cement and in the other, property in paddy
and rice was transferred for cash consideration by the
appellants; and in so far as the West Bengal case is
concerned, property in the goods did not pass to the
transferees by way of mortgage, hypothecation, charge or
pledge. But that is over- simplification. To counteract
what appears on the surface plain enough, learned. counsel
for the appellants have advanced a two fold contention.
They contend, in the first place,’ that the word ‘sale’ in
the Sales Tax Acts passed by the Provincial or State
legislatures must receive the same meaning as in the Sale of
Goods Act, 1930; or else, the definition of sale in these
Sales ‘Tax Acts will be beyond the legislative competence of
the Provincial and’ State legislatures. Secondly, the
appellants contend that since under the Sale of Goods Act,
there can be no sale without a contract of sale and since
the parties in these matters had no volition of their own
but were compelled by law to supply and receive the goods at
prices fixed under the Control Orders by the prescribed
authorities, the transactions between them are not sales
properly so palled and therefore are not exigible to sales
tax.
For examining the validity of the first contention, it is
necessary to turn to the appropriate entries in the
legislative lists of the Constitution Acts, for the
contention is founded on the premise that the word sale’
which occurs in those entries must receive the same meaning
as in the Sale of Goods Act, 1930 since the expression “sale
of goods” was, at the time when the Government of India Act
was enacted, a term of well-recognised legal import in the
general law relating to sale
446
of goods and in the legislative practice relating to that
topic both in England and in India. Entry 48 in the
Provincial List, List II of Schedule VII to the Government
of India Act, 1935 relates to; “Taxes on the sale of goods.”
Entry 54 of List II, of the Seventh Schedule to the
Constitution reads to say: “Taxes on the sale or purchase of
goods other than newspapers, subject to the provisions of
entry 92A of the Union List but we may refer to it in order
to complete the picture. It refers to: “Taxes on the sale
or purchase of goods other than newspapers, where such sale
or purchase takes place in the course, of inter-State trade
or commerce.”
The contention of the appellants that the expression ‘sale
of goods’ in entry 48 in the Provincial List of the, Act of
1935 and in entry 54 in the State List of the constitution
must receive the same meaning as in the Sale of Goods Act
is repelled on behalf of the State Governments with the
argument that constitutional provisions which confer
legislative powers must receive a broad and liberal
construction and therefore the expression ‘sale of goods’
in entry 48 and its successor, entry 54, should not be
construed in the narrow sense in which that expression is
used in the Sale of Goods Act, 1930 but in a broad sense.
The principle that in interpreting a constituent or organic
statute, that construction most beneficial to- the widest
possible amplitude of its powers must be adopted has
been examined over the years by various courts, including
this Court, and is too firmly established to merit
reconsideration. Some of the leading cases on this point
are the Privy Council decisions in British Coal Corporation
v. king(1), Edwards v. A. G. for Canada(2) and James v.
Commonwealth of Australia(“); the Australian decisions
in Morgan v. Deputy Federal Commissioner of Land Tax,
N.S.W.(4) and Broken Hill South Ltd. v. Commissioner of
Taxation (N.S.W.) (5) ; the Federal Court decisions in In re
the Central Provinces and Berar Act No. XIV of 1938(6) and
United Provinces v. Atiqa Begum;(7) and the decisions of
this Court in Navinchandra Mafatlal v. The Commissioner of
Income-tax, Bombay City(8) and The State of Madras v.
Gannon Dunkerley & Co. (Madras), Ltd. (9) These decisions
have taken the view that a constitution must not be
construed in a narrow and pedantic sense, that a board and
liberal spirit should inspire those whose duty it is to
interpret it, that a Constitution of a Government is a
living and organic thing which of all instruments has the
greatest claim to be construed ut res magis valeat quam
pereat, that the legislature in selecting subjects of
taxation is entitled to take things as it finds them in
remum natura and that it is not proper that a Court
should deny to such a legislature the right of solving
taxation problems unfettered by a priori legal
categories which often derive from the exercise of
legislative power in the same constitutional unit.
(1) [1935] A.C. 500. (6) [1939] F.C.R. 18.
(2) [1930] A.C. 124. (7) [1940] F.C.R. 110.
(3) [1936] A.C. 578. (8) [1955] 1 S.C.R. 529..
(4) [1912] 15 C.L.R.661. (9) [1959].S.C.R. 379.
(5) [1937] 56 C.L.R. 33.
447
On a careful examination of various decisions bearing on the
point this Court speaking through Venkatarama Aiyar J. in
Gannon Dunkerley (supra) upheld the contention of the State
of Madras that the words “sale of goods” in Entry 48 which
occur in-the Constitution Act and confer legislative powers
on the State Legislature in respect of a topic relating to
taxation must be interpreted not in a restricted but broad
sense. But as observed by the learned Judge in that case,
this conclusion opens up questions as to what that sense is,
whether popular or legal, and what its connotation is,
either in the one sense or’ the other. After considering
text-book definitions contained in Blackstone, Benjamin on
Sale, Halsbury’s Laws of England, Chalmer’s Sale of Goods
Act, Corpus Juris, Williston on Sales and the Concise Oxford
Dictionary, the Court held that the expression ‘sale of
goods’ in Entry 48 cannot be construed in its popular sense
and that it must be interpreted in its legal sense. Whereas
in popular parlance a sale is said to take place when the
bargain is settled between the parties though property in
the goods may not pass at that stage, as where. the contract
relates to future or unascertained goods, the essense of
‘sale’ in the legal sense is the transfer of the property in
a thing from one person to another for a price.
The Court then proceeded to determine, the connotation of
the expression ‘sale of goods’ in the legal sense and held,
having regard lo the evolution of the law relating to sale
of goods, the scheme of the Indian Contract Act and the
provisions of the Sale of Goods Act, 1930, which repealed
Chapter VII of the Indian Contract Act relating to sale of
goods, that according to the law both of England and of
India, in order to constitute a sale it is necessary that
there should be an agreement between the parties for the
purpose of transferring title to the goods, which pre-
supposes capacity. to contract, that the contract must be
supported by valuable consideration and that as a result of
the transaction property must actually pass in the goods.
“Unless all these elements are present, there can be no
sale,”
Basing itself on this position, the Court finally concluded
in Gannon Dunkerley (supra) that the expression ‘sale of
goods’ was, at the, time when the Government of India Act
was enacted, a term of wellrecognised legal import in the
general law relating to sale of goods and in the legislative
practice relating to that topic both in England and in India
and therefore that expression, occurring in entry 48, must
be interpreted in the sense which it bears in the Sale of
Goods Act, 1930. In coming to this conclusion, the Court
relied upon the, American decisions in United States v. Wong
Kim Ark, South Carolina v. United States(2 ) and Ex Parte.
Grossman(3); the Privy Council decisions in L’Union St.
Jacques De Montreal v. Be Lisle (4) , Royal Bank of Canada
v. Larue,(5) The Labour Relations Board of
(1) [1898] 169 U.S. 649.
(2) [1905] 199 U.S. 437.
(3) [1925] 267 U.S. 87.
(4) [1874] L.R. 6 P.C.31.
(5) [1928] A.C. 187.
448
Saskatochewan v. John East Iron Works Ltd.(1); Croft v.
Dunphy(2), and Wallace Brothers and Co. Ltd. v. Commissioner
of Income-tax, Bombay City and Bombay Suburban District;(3)
the decision of the Federal Court in In re The Central
Provinces and. Berar Act No. XIV of 1938; (supra); and the
decisions of this Court in The State of Bombay v. F. N.
Balsara(4) and The Sales Tax Officer, Pilibhit v. Messrs
Budh Prakash Jai Prakash(5). In a nutshell, these decisions
have taken the view that the Constitution must be
interpreted in the light of the common-law, the principles
and history of which were familiarly known to the framers of
the Constitution, that the language of the Constitution
cannot be understood without reference to the common law,
that to determine the extent of the grants of power, the
Court must place itself in the position of the men who
framed and’ adopted the Constitution and inquire what they
must have understood to be the meaning and scope of those
grants, that when a power is conferred to legislate on a
particular topic it is important, in determining the scope
of the power, to have regard to what is ordinarily treated
as embarced within that topic in-legislative practice and
particularly in the legislative practice of the State which
has conferred that power, that the object of doing so is
emphatically not to seek a pattern to which a due exercise
of the power must conform, but to ascertain the general
conception involved in the words of the Act, and finally,
that Parliament must be presumed to have had Indian
legislative practice in mind and unless the context
otherwise clearly requires, not to have conferred a
legislative power intended to be interpreted in a sense not
understood by those to whom the Act was to apply.
The view expressed in Gannon Dunkerley (supra) that the,
words “sale of goods” in entry 48 must be interpreted in the
sense which they bear in the Sale of Goods Act, 1930 an$
that the, meaning of those words should not be left to
fluctuate with the definition of ‘sale in laws relating to
sales of goods which might be in force for the, time being.
may, with respect, bear further consideration but that may
have. to await a more suitable occasion. It will then be
necessary to examine whether the words “sale of goods” which
occur in entry 48 should not be construed so as to extend
the competence of the legislature to enacting laws in
respect of matters which might- be unknown in 19 3 5 when
the Government of India Act was passed but which may have
come into existence later, as a result of a social and
economic evolution. In Attorney General v. Edison
Telephone, Company of London(,,) a question arose whether
the Edison Telephone Company London, infringed by
installation of telephones, the, exclusive privilege, of
transmitting telegrams which was conferred; upon- the
Postmaster-General under an Act of 1869. The decision
depended on the meaning of the
(1) [1949] A.C. 134.
(2) [1933] A.C. 156.
(3) [1948] L.R. 75 I.A. 86.
(4) [1951] S.C.R. 682.
(5) [1955] 1 S.C.R. 243.
(6) [1880] L.R. 6 Q.B.D. 244.
449
word “telegraph” in the Acts of 1863 and 1869. The company
contended that since-telephones were unknown at the time
when these Acts were passed, the definition of ‘telegraph’
could not comprehend ’telephones. That contention was
negatived by an English Court. In the Regulation and
Control of Radio Communication in Canada, In re(1) a similar
question arose as to whether ‘broadcasting” was covered by
the expression “telegraph and other works and undertakings”
in section 92(10) (a) of the Constitution Act of 1867. The
Privy Council answered the question in the affirmative and
was apparently not impressed by the contention that
broadcasting was not known as a means of communication at
the time when the Constitution Act was passed. These
decisions proceed on the principle that if after the
enactment of a legislation, new facts and situations arise
which could not have been in the contemplation of the
legislature, statutory provisions can justifiably be applied
to those facts and situations so long as the words of the
statute are in a broad sense capable of containing them.
This principle, according to the view expressed in Gannon
Dunkerley, (supra) did not apply to the interpretation of
Entry 48, a view which in our. opinion is capable of further
scrutiny. It is, however, unnecessary in these appeals to
investigate the matter any further because, the position
which emerges after putting on the words of Entry 48 the
same meaning which those words’-bear in the Sale of Goods
Act, 1930 is that in order to constitute a sale, it is
necessary that there should be an agreement between the
parties. In other words, the effect of the construction
which the Court put on the words of Entry 48 in Gannon
Dunkerley (supra) is that a sale is necessarily a consensual
transaction and if the parties have no volition or option to
bargain, there can be no sale. For the present purposes,
this view may be assumed to reflect the correct legal
position but even so, the transactions which are the subject
matter of these appeals will amount to sales.
Applying the ratio of Gannon Dunkerley, (supra) the true
question for decision, therefore, is whether in the context
of the Control Orders issued by the Government of West
Bengal for regulating the supply and distribution of cement,
the transactions under which the, appellant supplied cement
to persons who were issued permits by the authorities to
obtain the commodity from the appellant, involved an element
of volition or consensuality. If they did, the transactions
would amount to sales, but not otherwise. It is undeniable
that under paragraph 2 of the West Bengal Order of 1948,
which we have for convenience designated as the Cement
Control Order, no person can dispose of or agree to dispose
of any cement except in accordance with the conditions
contained in a written order of the Director of Consumer
Goods or the authorities specified in that paragraph. That
is a limitation on the dealer’s right to supply cement.
Correspondingly by paragraph 3, no person can acquire or
agree to acquire cement from any person except in accordance
with the conditions contained in a written order of the
Director of Consumer Goods or the authorities specified in
that paragraph. That is a limitation on the consumer’s
right to obtain cement. Paragraph 4 puts a restriction on
the price which a dealer
(1) [1932] A.C. 304.
45 0
may charge for the commodity by providing that no person
shall sell cement at a price higher than the notified price.
Paragraph 8 imposes on the dealer the obligation to supply
cement by providing that no person or stockist who has any
stock of cement in his possession and to whom a written
order has been issued under paragraph 2 shall refuse to sell
the same at a price not exceeding the notified price. person
who contravenes the provisions of the Cement Control Order
is punishable under section 6 of the West Bengal Cement
Control Act, 1948 with imprisonment for a term which may
extend to three years
These limitations on the normal right of dealers and
consumers to supply and obtain the goods, the obligations
imposed on the parties and the penalties prescribed by the
Control Order do not, in our opinion, militate against the
position that eventually, the parties must be deemed to have
completed the transactions under an agreement by which one
party bound itself to supply the stated quantity of goods to
the other at a price not higher than the notified price and
the other party consented to accept the goods on the terms
and conditions mentioned in the permit or the order of
allotment issued in its favour by the concerned authority.
Offer and acceptance need not always be in an elementary
form, nor indeed does the Law of Contract or of Sale of
Goods require that consent to a contract must be express.
It is commonplace that offer and acceptance can be spelt out
from the conduct of the parties which covers not only their
acts but omissions as well. Indeed, on occasions, silence
can be more eloquent than eloquence itself. Just as
correspondence between the parties can constitute or
disclose an offer and acceptance, so can their conduct.
This is because, law does not require offer and acceptance
to conform to any set pattern formula.
In order, therefore, to determine whether there was any
agreement or consensuality between the parties, we must have
regard to their conduct at or about the time when the goods
changed hands. In the first place, it is not obligatory on
a trader to deal in cement nor on any one to acquire it.
The primary fact, therefore, is that the decision of the
trader to deal in an essential commodity is volitional. Such
volition carries with it the willingness to trade in the,
commodity strictly on the terms of Control Orders. The
consumer too, who is under no legal compulsion to acquire or
possess cement, decides as a matter of’ his volition to
obtain it on the terms of the permit or the order of
allotment issued in his favour. That brings the two parties
together, one of whom is willing to supply the essential
commodity and the other to receive it. When the allottee
presents his permit to the dealer, he signifies his
willingness to obtain the commodity from the dealer on the
terms stated in the permit. His conduct reflects his
consent. And when, upon the presentation of the permit, the
dealer acts upon it, he impliedly agrees to supply the
commodity to the allottee on the terms by which he has
voluntarily bound himself to trade in the commodity. his
conduct too reflects his consent. Thus, though both parties
are bound to comply with the legal requirements governing
the transaction, they agree as between themselves to enter
into the transaction on statutory terms,
451
one agreeing to supply the commodity to the other on those
terms and the other agreeing to accept it from him on the
very terms. It is therefore not correct to say that the
transactions between the appellant and the allottees are not
consensual. They, with their free consent, agreed to enter
into the transactions.
We are also of the opinion that though the terms of the
transaction are mostly predetermined by law, it cannot be
said that there is no area at all in which there is no
scope, for the parties to bargain. The West Bengal Cement
Control Act, 1948 empowers the Government by section 3 to
regulate or control the prices at which cement may be
purchased or sold. The Cement Control Order, 1948 provides
by paragraph 4 that no person shall sell cement at a “higher
than notified price”, leaving it open to the parties to
charge and pay a price which is less than the notified
price, the notified price being the maximum price which may
lawfully be charged. Paragraph 8 of the Order points in the
same direction by providing that no dealer Who has a stock
of cement in his possession shall refuse to sell the same
“at a price not exceeding the notified price”, leaving it
open to him to charge a lesser price, which the allottee
would be only too agreeable to pay. Paragraph 8 further
provides that the. dealer shall deliver the cement “within a
reasonable time” after the payment of price. Evidently,
within the bounds of reasonableness, it would be open to the
parties to fix the time of delivery. Paragraph 8A which
confers on the allottee the right to ask for weighment of
goods also shows that he may reject the goods on the ground
that they are short in weight just as indeed, he would have
the undoubted right to reject them on the ground that they
are not of the requisite quality. The circumstance that in
these areas, though minimal, the parties to the transactions
have the freedom to bargain militates against the view that
the transactions are not consensual.
While on this aspect, we may usefully draw attention to two
important decisions of this Court, the first of which is
Indian Steel & Wire Products Ltd. v. State of Madras(1).
The appellant therein supplies certain steel products to
various persons in Madras at the instance of the Steel
Controller exercising powers under the Iron and
Steel’(Control of Production and Distribution) Order, 1941.
The State of Madras assessed the turnover of the appellant
to sales tax upon which, the appellant contended that the
deliveries of steel products were made under compulsion of
law since 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 mode in which the payment of the
price was to be made. Since every facet of the transaction
was prescribed by the controller, so it was argued, there
was no agreement between the parties and therefore the
transaction could not be considered as a sale. Rejecting
this contention, it was observed by Hegde J., who spoke for
the Constitution Bench, that though the controller fixed the
base price of the steel products and determined the
(1) [1968] 1 S.C.R. 479.
452
buyers, the parties were stiff ‘free to decide the other
terms of the bargain, as for example, the time and date of
delivery and the time and mode of payment and therefore it
could not be said that there was no agreement between the
parties to sell and buy the goods. It was held that though
the area within which it was possible for the parties to
bargain was greatly relieved on account of the Iron and
Steel Control Order, it was not correct to contend that
because law imposes restrictions on freedom of contract,
there could be no contract at all. “So long as mutual
assent is not completely excluded in any dealing, in law it
is a contract.”
The second decision is reported in Andhra Sugar Ltd. v.
State of Andhra Pradesh(1). In that case, the occupier of a
sugar factory had to buy sugarcane from cane-growers in
conformity with the directions. of the Cane Commissioner
issued under the Andhra Pradesh (Regulation of Supply and
Purchase) Act, 1961. Under section 21 of that Act, sales
and purchase of sugarcane were exempt from tax under the
Andhra Pradesh General Sales Tax Act, 1957, but under
section 2(1), of the Act of 1961, the State Government had
power by notification, to levy a tax “on the purchase of
cane required for use, consumption or sale in a sugar
factory”. Various sugar factories in the State filed writ
petitions under Article 32 of the Constitution challenging
the- validity of section 21 mainly on the ground that since
they were compelled by law to buy cane from the cane-
growers, their purchases were not- made under
agreements and were not taxable under entry 54, List 11 of
the Seventh Schedule to the Constitution having regard to-
the decision in Gannon Dunkerley (supra). The writ petitions
were- decided by a Constitution Bench of this Court
which delivered its un- animous judgment through
Bachawat J. It is necessary in the first place to state
that though it was argued on behalf of the State Government
in that case that the occupier of the factory had some
option of not buying the sugarcane from the grower and
had some freedom of bargaining about the terms and
conditions of the agreement, that point was not pursued any
further and the writ petitions proceeded on the basis that
there was no option left for any bargain in the transaction.
After referring to the definition of “contract of sale of
goods” in section 4(1) of the Indian Sale of Goods Act,
1930, and the relevant provisions of the Contract Act
relating to offer and acceptance,. the Court observed
that under section 10 of the Contract Act, an agreements
are contracts if they are made by the free consent of the
parties competent to contract, for a lawful consideration
and with a lawful object, and are not by the Act
expressly declared to be void. Section 13 of the
Contract Act defines “consent” and section 14 says that
consent is said to be free when it is not caused by
coercion, undue influence, fraud, misrepresentation or
mistake as defined in sections 15 to 22. In the background
of those provisions, the Court observed that the cane-
grower in the factory zone was free to make or, not to
make an offer of sale of cane ‘to the occupier of the
factory. But if be made an offer, the occupier of the
factory was bound to accept it and the consent of the
occupier not being caused by coercion, undue influence,
fraud, misrepresentation or mistake was “free
(1) [1968] 1 S.C.R. 705.
453
consent as defined in section 14 of the Contract Act, even
though he was obliged by law to enter into the agreement.
“The compulsion of law is not coercion as defined in section
15 of the Act” and “in the eye of the law, the agreement is
freely made.” Since the, parties were competent to contract,
the agreement was made for a lawful consideration and with a
lawful object, the agreement was not void under any
provision of law and it was enforceable at law, the Court
held that the purchases of sugarcane were taxable by the
State legislature under Entry 54, List 11 of the Seventh
Schedule of the Constitution.
Strong reliance was placed by the factory owners in Andhra
Sugars (supra) on the majority’ judgment of Kapur and Shah
JJ. in New India Sugar Mills Ltd. v. Commissioner of Sales
Tax (supra) to which we must refer here. The “admitted
course of dealing” between the parties in that case was that
the Governments of various consuming States used to intimate
to the Sugar Controller of India, from time to time, their
requirements of sugar and similarly, the factory owners used
to send to the Sugar Controller of India statements of
stocks of sugar held by them. On a consideration of the
requests received from the State Governments and the
statements of stock received from the factories, the Sugar
Controller used to make allotment of sugar. The. allotment
order was addressed by the Sugar Controller to the factory
owner directing him to supply sugar to the State Government
in question in accordance with the despatch instructions
received from the competent officer of the State Government.
A copy of the allotment order was simultaneously sent to the
State Government concerned on receipt of which the competent
authority of the State Government sent to the factory
concerned detailed instructions about the destinations to
which the sugar was to be despatched as also the quantities
of sugar to be despatched to each place. The Madras
Government which, under this arrangement, received its quota
of sugar from the New India Sugar Mills, also laid down the’
procedure of payment. The Patna High Court having held that
the supply of sugar by the mills to the Province of Madras
was liable to be taxed under the Bihar Sales Tax Act, 1947,
the mills filed an, appeal to this Court which was decided
by a Bench of three learned Judges. Kapur and Shah J. held
that since the mills were compelled to carry out the
directions of the Controller and since they had no volition
in the matter of supply of sugar to the State of Madras,
there was no offer by them to the State Government and no
acceptance by the latter. Shah J., speaking for the
majority observed that a contract of sale between the seller
and the buyer is a prerequisite to a sale and since there
was no such contract, the transaction in question which the
Bihar Sales Tax authorities sought to tax was not exigible
to sales tax.
Hidayatullah J. who ’delivered a dissenting opinion
observed-after reviewing the position both under the English
and the Indian Law, that though it was true that consent
makes a contract of sale, such consent “may be express or
implied and it cannot be said that unless the offer and
acceptance are there in an elementary form, there can be no
taxable sale.” Taking the view that on obtaining the
necessary permit, the sugar mills on the one hand and the
Government of
454
Madras on the other agreed to “sell” and “purchase” sugar
could admit of no doubt, the learned Judge said that when
the Province of Madras after receiving the permit,
telegraphed instructions to despatch sugar and the mills
despatched it, “a contract emerged and consent must be
implied on both sides though not expressed antecedently to
the permit.” The Controller brought the seller and the
purchaser together, gave them permission to supply and
receive sugar leading thereby to an implied contract of sale
between the parties. The learned Judge accepted that there
was an element of compulsion in both selling and buying,
perhaps more for the supplier than for the receiver, but,
according to him, “a compelled sale is nevertheless a sale”
and “sales often take place without volition of party.” The
learned Judge summed up the matter pithily thus : “So-long
as the parties trade under controls at fixed price and
accept these as any other law of the realm because they
must, the contract is at the fixed price both sides having
or deemed to have agreed to’ such a price. Consent under
the law of contract need not be express, it can be im-
plied.. . . . The present is just another example of an
implied contract with an implied offer and implied
acceptance by the parties.” Adverting to the construction of the legislat
ive entry 48 of List 11, VII Schedule to the
Government of India Act, 1935, the learned Judge observed
that the entry had to be interpreted in a liberal spirit and
not cut down by narrow technical consideration. “The entry
in other words should not be shorn of all its content to
leave a mere husk of legislative power. For the purposes of
legislation such as on-sales tax it is only necessary to see
whether there is a sale, express or implied….. The
entry has its meaning and within its meaning there is a
plenary power. If a sale express or implied is found to
exist then the tax must follow.”
We are of the opinion that the true position in law is as is
set out in the dissenting judgment of Hidayatullah J., and
that, the view expressed by Kapur and Shah JJ. in the
majority judgment, with deference, cannot be considered as
good law. Bachawat J. in Andhra Sugar (supra) was, with
respect, right in cautioning that the majority judgment of
Kapur and Shah JJ. in New India Sugar Mills (supra) “should
not be treated as an authority for the proposition that
there can be no contract of sale under compulsion of a
statute.” (pages 715-716). Rather than saying what, in view
of the growing uncertainty of the true legal position on the
question, we: are constrained to say, namely, that the
majority judgment in New India Sugar Mills (supra) is not
good law, Bachawat J. preferred to adopt the not unfamiliar
manner of confining the majority decision to “the special
facts of that case.”
The majority judgment in New India Sugar Mills (supra) is
based predominantly on the decision of this Court in Gannon
Dunkerley (supra) to which we have referred at length in
another context. In fact, Shah J. observes at page 459 of
the report after discussing the judgment in Gannon Dunkerley
(supra) that “the ratio decidendi of that decision must
govern this case.” The decision in Gannon Dunkerley (supra)
really turned on a different point, the question for
consideration therein being whether the value of the
materials used in the execution
455
of building contracts could be included within the taxable
turnover of the company. It was contended on behalf of the
company that the power of the Madras Legislature to impose a
tax on sales under entry 48, List 11 of Schedule VII of the
government of India Act, 1935 did not extend to unposing a
tax on the value of materials used in construction works, as
there was no transaction of sale in respect of those goods,
and that the provisions introduced in the Madras General
Sales Tax Act, 1939, by the Madras General Sales Fax
(Amendment) Act, 1947, authorising the imposition of such
tax were ultra vires. Venkatarama Aiyar J. posed the
question thus : “The sole question for determination in this
appeal is whether the provisions of the Madras General Sales
Tax Act are ultra vires, in so far as they seek to impose a
tax on the supply of materials in execution of works
contract treating it as a sale of goods by the
contractor. . . . . . “. The Court accepted that building
materials were ‘goods’ and limited the inquiry to whether
there was “a sale of those materials within the meaning of
that word in entry 48″. Reference was then made to Benjamin
on Sale in which it is said that in order to constitute a
‘sale, four elements must concur “(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 (c) a price in money paid or promised.” (Vide
8th Edn., p.. 3). On the strength of this statement and on
a consideration of the provisions of the Contract Act and
the Sale of Goods Act, 1930 it was concluded that “according
to the law both of England and of India, in order to
constitute a sale it is necessary that there should be an
agreement between the parties for the purpose of
transferring title to goods”. The Court then proceeded to
examine the true nature of a building contract and held
“It has been already stated that, both tinder
the common law and the statute law relating to
sale of goods in England and in India, to
constitute A transaction of sale there should
be an agreement, express or implied, relating
to goods to be completed by passing of title
in those goods. It is of the essence of this-
concept that both the agreement and the sale,
should relate to the same subject-matter.
Where the goods delivered under the contract
are not the goods contracted for,, the
purchaser has got a right to reject them, or
to accept them and claim damages for breach of
warranty. Under the law, therefore, there
cannot be an agreement relating to one kind of
property and a sale as regards another. We
are accordingly of opinion that on the true
interpretation of the expression`sale of
goods’ there must be an agreement between the
parties for the sale of the very goods in
which eventually property passes. In a
building contract, the agreement between the
parties is that the contractor should
construct a building according to the
specifications contained in the agreement, and
in consideration therefor receive payment as
provided therein, and as will presently be
shown there is in such An agreement neither a
contract to sell the materials used in the
construction, nor does property pass therein
as movables. It is therefore impossible to
maintain that there
456
is implicit in a building contract a sale of
materials as understood in law.” (pages 413-
414)
The final conclusion on the point involved in
the appeal was expressed thus
“To sum up, the expression ‘sale of goods’ in
Entry 48 is a nomen juris, its essential
ingredients being an agreement to sell
movables for a price and property passing
therein pursuant to that agreement. In a
building contract which is, as in the present
case, one entire and indivisible–and that is
its norm, there is no sale of goods, and it is
not within the competence of the Provincial
Legislature under Entry 48 to impose a tax on
the supply of the materials used in such a
contract treating it as a sale.” (pages 425-
426)
Thus, the, two reasons given by the Court in support of its
conclusion were, firstly, that in a building contract there
was no agreement, express or implied, to sell ’goods’ and
secondly, that property in the building materials does not
pass in the materials regarded a; ‘goods’ but it passes as
part of immovable property. In New India Sugar Mills.
(supra) the commodity with which Court was concerned was
sugar and was delivered as sugar just as in the instant case
the commodity with which we are concerned is cement which
was delivered as cement. That meets the first reason in
Gannon Dunkerley (supra). As regards the second, it is
quite clear that the tax was demanded after the commodity
had changed hands or putting it in the words of the Sale of
Goods law, after property in it had passed. With great
respect therefore, the majority in New India Sugar Mills
(supra) was in error in saying that “the ratio decidendi of
that decision (Gannon Dunkerley) must govern this case’.
The question before us which was the very question involved
in New India Sugar Mills (supra) viz., whether a transaction
effected in. accordance with the obligatory terms of a
statute can amount to a ‘sale did not arise in Gannon
Dunkerley. (supra). Just as the, majority Judges in New
India Sugar Mills (supra) applied to the case before
them the ratio of Gannon Dunkerley, (supra) the Court in the
latter case applied the ratio of the House of Lords
decision in Kirkness v. John Hudson and Co. Ltd.(1)
observing categorically that “the derision in Kirkness must
be hold to conclude the matter” (P. 412). We think it
necessary to lay particular emphasis on this aspect because
it shows how the question for decision in Gannon Dunkerley
(supra) was basically different from the question in New
India Sugar Mills (supra) or in, the appeals before us.
In Kirkness (supra), railway wagons belonging to the
respondent company were taken over by the Transport
Commission compulsorily it) exercise of the powers conferred
by section 29 of the Transport Act, 1947, and compensation
was paid therefor. The question was whether this amount was
liable to income-tax on the footing of sale of the wagons by the company.
The contention on behalf of the revenue if
was that compulsory acquisition being treated as sale under
the English law, the taking over of the wagons and payment
of compensation
(1) [1955] A.C. 696.
457
therefor must also be regarded as sale for purpose of
income-tax and therefore, the company was liable to a
balancing charge under section 17 of the Income-tax Act,
1945. The case turned on the meaning of the word sale’ for
the purposes of the Excess Profits Tax legislation and the
income-tax Act, 1945 (8 & 9 Geo. 6, c. 3). Lord Morton in
his dissenting speech found it “impossible to say that the
only construction which can fairly be given to the word
‘sold’ in section- 17(1) (a) of the Income Tax Act, 1945, is
to limit it to a transaction in which the element of mutual
assent is present.” But the majority of the House came to A
different conclusion, and held that the element of bargain
was essential to constitute a sale’ and to describe
compulsory taking over of property as a sale was a misuse of
that word. We are not concerned in these appeals with
‘Compulsory acquisition’ of goods nor indeed, was the Court
concerned with it in Gannon Dunkerley (supra). The majority
in New India Sugar Mills (supra) was right in saying that
the decision in Kirkness (supra) and the “observations made
therein have little relevance in determining the limits of
the, legislative power of the Provincial legislature under
the Government of, India Act, 1935, and the interpretation
of statutes enacted in exercise of that power.” In fact, if
we may say so with great respect’, the observation in Gannon
Dunkerley (supra) that the decision in Kirkness (supra)
concluded the question before the Court. seems to us
somewhat wide of the mark. Since Kirkness (supra) involved
an altogether different point, we would have avoided
referring to it put the reliance upon it ‘in Gannon
Dunkerley (supra) may lead to a misunderstanding regarding
its true ratio which needs to be clarified. Besides
Kirkness (supra) has been referred to in various decisions
and has been considered as an authority for apparently
conflicting propositions, which too made it necessary to
understand the decision in a proper perspective.
It is not the decision in Kirkness (supra) but another
English decision which may with advantage be noticed. That
is the decision of the Court of Appeal in Ridge Nominees
Ltd. v. Inland Revenue Commissioners.(1) The question in
that case was whether a transfer of shares executed under
section 209 of the Companies Act, 1948 on behalf of a
stockholder who declined to accept the offer of purchase was
required to be stamped as a transfer on sale. Under section
209, the transferee company was entitled in certain
circumstances to give a notice to a dissenting shareholder
that it desired to acquire his shares. Upon such notice
being given, the transferee company became entitled to
acquire the shares of the dissenting shareholder at a
particular price. If the dissenting shareholder did not
transfer the shares, then subsection (3) provided for the
execution of a transfer on behalf of the shareholder by a
person appointed by the transferee company. In the First
Schedule to the Stamp Act, 1891 was included the item
“Conveyance or transfer on sale of any property…….. In
the light of this entry under which stamp duty was payable,
the question which the Court had to consider was whether a
transfer executed on behalf of a dissenting
shareholderwasa”transferonsale”. Theanswerdepended upon
whether there could be a sale even though the essential
element
(1) [1962] Ch 376.
45 8
of mutual assent was totally absent. Lord Evershed M.R.
observed in his judgnient that what the Companies Act had
done, by file machinery it had created, was that in truth it
brought into being a transaction which ex facie in all its
essential characteristics and effect was a transfer on sale.
Donovan L.J. in his concurring judgment said that when the
legislature by section 209 of the C Act empowered the trans-
feree company to appoint an agent on behalf of a dissenting
shareholder 3 for thempurpose of executing a transfer of
his shares against a price to be paid to the transferor
company and held in trust for the dis- senting-shareholder,
it was clearly shring his dissent and putting him in the
same position as if he had. For the purpose of considering
whether the transaction amounted to a sale, one must,
according to the learned Judge, regard the dissent of the
shareholder as overriden by an assent which the statute
imposed upon him, fictional though it may be.
Danckwerts L.J., also by a concurring judgment, said
that a sale may not always require the consensual element
and that there may, in truth, be a compulsory sale of
property in which the owner is compelled to part with
Ws property for a price, against his will.
We will proceed to refer to the Other decisions of this
Court bearing on the point under discussion. In State
of Rajasthan v. M/s Karam Chand Thapper & Bros. Ltd.(1) the
respondent-assessee which was registered as a
dealer under the Rajasthan Sales Tax Act, 1954, entered into
a contract with the Equitable Cod Company under which it
acquired monopoly rights to supply coal in_Rajasthan as an
agent of the Coal Company. The respondent supplied coal to
the State of Rajasthan under an agreement with it and that
transaction was included in the respondent’s turnover by the
Sales Tax Officer, Jaipur. The High Court of Rajasthan
allowed the respondents writ petition against the
order of assessment on the,, ground, inter alia, that the
supply of coal by the respondent to the State of
Rajasthan did not constitute salt as the, supply was
controlled by a statutory order, namely, the Colliery
Control Order, 1945. In appeal to this Court by the State of
Rajasthan, it was held that under the Colliery Control
Order, coal could be supplied under a contract and
the effect of the Control Order was only to
superimpose upon the agreement between the parties the rate
fixed by the Control Order. The four elements required to
constitute a sale, namely, competency of parties, mutual
assent of the parties, passing of property in the goods
supplied to the purchaser, and lastly, payment or promise of
payment of price were all present to render the turnover
liable to sales tax” Shah J. who spoke for the Court relied
upon the judgments in Indian Steel and Wire Products,
(supra) and Andhra Sugar (supra) observing that in these two
cases the Court had held that “when goods, supply of which
is controlled by statutory orders, are delivered pursuant to
a contract of & The, the principle of the case in M/s New
India Suqar Mills Ltd. case (supra) has no application..”
The Court distinguished the decision in New India Sugar
Mills (supra) on the ground that it was founded on a
different principle since the condition requiring mutual
assent of the parties was lacking in that case.
(1) [1969]. 1 S.C.R. 861.
459
In Chhitter Mal Narain Das v. Commissioner of Sales Tax(1)
the appellants who were dealers in food grains supplied to
the Regional Food Controller diverse quantities of wheat in
compliance with the provisions of the U.P. Wheat Procurement
(Levy) Order, 1959. The High Court held in a reference made
to it under the Sales Tax Act that the transaction amounted
to a sale And was exigible to sales tax. In appeal to this
Court it was held by a Bench consisting of Shah and Hegde
JJ. that clause 3 of the U.P. Procurement (Levy) Order, 1959
sets up a machinery for compulsory acquisition by the State
Government of stocks of wheat belonging to the licensed
dealers, that the Order contains a bald injunction to supply
wheat of the specified quantity day after day, that it did
not envisage any consensual arrangement and that the Order
did not even require the State Government to enter into an
informal contract with the supplier. Delivering the
judgment of the Bench, Shah J. observed that the transaction
in which an obligation to supply goods is imposed, and which
does not involve an obligation to enter into a contract,
cannot be called a ‘sale’, even if the person supplying
goods is declared entitled to the value of goods which is
determined in the prescribed manner. It was observed that
the decision in Indian Steel and Wire Products (supra) does
not justify the view that even if the liberty of contract in
relation to the fundamentals of the transaction is
completely excluded, a transaction of supply of goods
pursuant to directions issued under a Control Order may be
regarded as a sale. This decision is clearly
distinguishable since the provisions of the Wheat
Procurement Order were construed by the Court as being in
the nature of compulsory acquisition of property obliging
the dealer to supply wheat from day to day. Cases of
compulsory acquisition of property by the State stand on a
different footing since there is no question in such cases
of offer and acceptance nor of consent, either express or
implied.
We would, however, like to clarify that though compulsory
acquisition of property would exclude the element of mutual
assent which is vital to a sale, the learned Judges were,
with respect, not right in holding in Chitter Mal(1) that
even. if in respect of the place of delivery and the place
of payment of price, there could be a consensual arrangement
the transaction will not amount to a sale (p. 677). The
true position in law is as stated above, namely, that so
long as mutual assent, express or implied, is not totally
excluded the transaction will amount to a sale. The
ultimate decision in Chitter Mal (supra) can be justified
only on the view that clause 3 of the Wheat Procurement
Order envisages compulsory acquisition of wheat by the State
Government from the licensed dealer. Viewed from this
angle, we cannot endorse the Court’s criticism of the Full
Bench decision of the Allahabad High Court in Commissioner,
Sales Tax U.P. v. Ram Bilas Ram Gopal(2) which held while
construing clause 3 that so long as there was freedom to
bargain in some areas the transaction could amount to a sale
though effected under compulsion of a statute. Looking at
the scheme of the U.P. Wheat Procurement Order, particularly
clause 3 thereof. this Court in Chitter Mal (supra) seems to
have concluded that the transaction was, in truth and
substance, in the nature of
(1) [1971] 1 S.C.R. 671.
(2) AIR 1970 Allahabad 518.
4– 1146SCI Allhabad 518
460
compulsory acquisition, with no real freedom to bargain in
any area. Shall J. expressed the Court’s interpretation of
clause 3 in no uncertain terms by saying that “it did not
envisage, any consensual arrangement.”
In Salar Jung Sugar Mills Ltd. v. State of Mysore, (supra)
which was decided by a Bench of seven learned Judges, the
appellants were subjected to levy of tax on purchase of
sugarcane after the inclusion of sugarcane in the Third
Schedule to the; Mysore Sales Tax Act, 1957. They challenged
the levy on the ground that on account of the Central and
State Control Orders applicable to the transactions, there
was no mutual assent between them and the growers of
sugarcane in regard to supply of sugarcane by the latter and
since there was no purchase and sale of sugarcane, they were
not dealers within the meaning of section 2(k) of the Mysore
Sales Tax Act. After referring to the cases which we
have considered above, it was held by the Court that the
decisions relating to ‘compulsory sales? establish that
statutory orders regulating. the supply and distribution of
goods do not absolutely impinge on the freedom of contact.
In spite of the fact that under the relevant Control
Orders the parties, the minimum price and the minimum
quantity of supply were, determined or regulated, the Court
held that the Control Orders left to the parties the
option in regard to a higher quantity then was stipulated
in the Orders, It higher price than the minimum as also
the form and manner of payment. A factory could reject
goods after inspection which indicated not only freedom in
the formation but also in the performance of the contract. A
combination of all these factors, according to Ray- J. who
spoke for a unanimous Court, indicated with unerring
accuracy that the parties entered into agreement with
mutual assent and with volition for transfer of’ goods in
consideration of price. The transactions were accordingly
held as amounting to sales within the meaning of section
2(t) of the, Mysore Sales Tax Act. In coming to this
conclusion the Court relied on the statement in
Benjamin on Sale, 8th ed. page 68 that though a contract of
sale requires mutual assent, “The assent need not as a
general rule be express” and that, it may be implied from
the language of or conduct of parties and indeed it
may even be inferred from the silence on the part of
parties in certain cases. As an instance, the Court
referred to the common case of a person buying rationed
articles from a ration shop. “The parties, the price, the
shop, the supply and the acceptance of goods in
accordance with the provisions of the Ration Order ,ire
all regulated.” All the same, said the Court, when the
customer presents the ration card to the shopkeeper, the
shopkeeper delivers the rationed articles, the customer
accepts the articles and pays their price “there is
indisputably a sale”.
In State of Tamil Nadu v. Cement Distributors Private Ltd.()
the principal question which arose for decision was whether
producers who supplied cement to the State Trading
Corporation or its agents in gunny bass in pursuance of the
directions given by the Government were liable to pay sales
tax on the turnover relating to the price of gunny bags. In
some of the connected appeals the question also arose
whether the
(1) [1973] 2 S.C.R. 1019.
461
selling agents of the, State Trading Corporation were liable to, pay sales
lax in respect of the price of the gunny bags
in which, they sold cement to, the consumers. As regards
the question whether the transactions between producers and
the State Trading Corporation in so far as the supply of
cement was concerned amounted Lo sales within the meaning of
the Madras General Sales Tax Act, 1959, Hegde, J. who spoke
for the three Judge Bench observed that there was “no
dispute” that those transactions could not amount to sales
in view of the Cement Control Order, 1958. On the question
whether the gunny bags, in which the cement was supplied,
can be considered to have been sold it was observed that
there was “no dispute’ that if the price of gunny bags was
held to have been wholly controlled, then the supply of
gunny bags also could not be considered as sales. This
position was held to have been concluded by the decisions in
New India Sugar Mills Ltd. (supra) and Chittar Mal Narain
Das (supra). The only question which the Court considered
was whether, in fact, the price of the gunny bags in which
cement was supplied to the State Trading Corporation was
controlled by the Cement Control Order of 1958. On that
question it was held that since the Central Government had
fixed the actual price of the gunny bags also, the supply of
gunny bags did not amount to sales. In the first place,
the, decision proceeds on a concession in so far as the
supply of cement is concerned as is shown by the statement
that there was “no dispute’ that “the same cannot be
considered as sales”. As regards the other question
concerning gunny bags, the Court did not allow the Advocate-
General of Tamil Nadu to contend that since. tinder clause
6(4) of the Cement Control Order the Central Government
could have fixed the maximum and not the actual price of
gunny bags, was scope for bargaining between the parties.
That question not having been raised in the High Court or in
the appeal memo filed in this Court and the Central
Government not having put in its appearance in this Court,
permission was declined to raise the questions Thus the
decision is not an authority for the, proposition for which
the appellant contends. Besides. the judgment rests partly
on the decision in New India Sugar Mills (Supra) which we
have dissented from and partly on Chitter Mal (supra) which,
by reason of the ‘compulsory acquisition’ inferred therein,
was distinguishable.
In oil and Natural Gas Commission v. State of Bihar(1) a
three Judge Bench speaking through Ray CJ. held, following
the judgment in Salar Jung Sugar Mills Ltd., (supra) that
the supplies of crude oil by the Oil and Natural Gas
Commission to a refinery of the Indian Oil Corporation
amounted to sales, even though the supplies were made
pursuant to the directions and orders of the Central
Government and the Commission had no volition in the matter.
Law presumes assent of parties, it was observed, when there
is transfer of goods from one party to the other.
This resume of cases, long as it is, may yet bear
highlighting the true principle underlying the decisions of
this Court which have
(1) [1977] 1 S.C.R. 354.
462
taken the view that a transaction which is effected in
compliance with the obligatory terms of a statute may
nevertheless be a safe in the eye of law. The Indian
Contract Act which was passed in 1872 contained provisions
in its seventh chapter comprising sections 76 to 123
relating to sale of goods which were repealed on the
enactment of a comprehensive law of sale of goods in 1930.
The Contract Act drew inspiration from the English law of
contract which is almost entirely the creation of English
courts and whose growth is marked by features which are
peculiar to the social and economic history of England.
Historically the English law of contract is largely founded
upon the action on the case for assumpsit, where the
essence of the matter was the undertaking. The necessity
for acceptance of the undertaking or the promise led the
earlier writers on legal theories to lay particular emphasis
on the consensual nature of contractual obligations. It was
out of the importance, which political philosophers of the
eighteenth century gave to human liberty that the doctrine
was evolved that every person should be free to pursue his
own interest in the way he thinks best and therefore law
ought to give effect to the will of the parties as expressed
in their agreement. Adam Smith in his famous work on “The-
Wealth of Nations” propounded in 1776 the view that the
freedom of contract must as far as possible be left
unimpaired. Gradually, as would appear from Friedman’s
statement in Law in a Changing Society (1959), ch. 4 freedom
of contract the freedom to contract on whatever
terms might seem most advantageous to the
individuals-become a cornerstone of nineteenth
centuary laissez faire economics. Champions of individualist
social philosophy who protested against legal and social
restrictions in order to advance the policies of expansion
and exploitation pursued by I industry and commerce won
their battle and “freedom of contract was one of the
trophies of victory” (see Anson’s Law of Contract,
23rd Ed. page 3). The freedom and sanctity of contract
thus became “the necessary instruments of laissez faire, and
it was the function of the courts to foster the one and to
vindicate the other. Where a man sowed, there he
should be able to reap”. is Cheshire and
Fifoot’s Law of Contract, 8th Ed. page 19). it is
significant that the maxim itself laissez faire, laissez
passer which derived from eightenth century France has
been commonly attributed to Gournay, at first a
merchant and later one of the intendants of commerce and a
friend of Turgot. Turgot attributes the phrase laissez nous
faire to another merchant, Legendre, who is said to
have used it in impressing upon Colbert the desire on the
part of the mercantile community for non-interference by the state
.
When Colbert asked a meeting of French businessmen what the
state might do to assist them, Legendre pointedly replied,
“laissez-nous faire” The underlying assumption-of the
laissez faire doctrine turns on an optimistic view of
the nature of the universe and on the conception of a
“natural order’ or system of economic harmonies which
will prevail and work out to mankind’s advantag
e
in the absence of positive regulation. (see International Encyclo
paedia
of the Social Sciences, 1968 Ed. edited by David L. Sills,
Vol. 8, page 546 and Encyclopaedia of the Social Sciences
edited by Edwin R. A. Seligman, Vol. IX, pages 15-16).
463
Towards the close of the nineteenth century it came to be
realised that private enterprises, in order to be socially
just, had to ensure economic equality.
“The very freedom on contract with its
corollary, the freedom to complete, was
merging into the freedom to combine; and in
the last resort competition and combination
were, incompatible. Individualism was yield-
ing to monopoly, where strange things might
well be done in the name of liberty. The
twentieth century has seen its progressive
erosion on the one hand by opposed theory and
on the other by conflicting practice. The
background of the law, social, political and
economic, has changed Laissez fare as an ideal
has been supplanted by, ‘social security’; and
social security suggests status. rather than
contract. The State may thus compel persons
to make contracts, as where, by a series of
Road Traffic Acts from 1930 to 1960, a
motorist must insure against third party
risks; it may, as by the Rent Restriction
Acts, prevent one party to a contract from
enforcing his right under it; or it may
empower a tribunal either to reduce or to in-
crease the rent payable under a lease. In
many instances a statute prescribes the
contents of the contract. The Moneylenders
Act 1927 dictates the terms of any loan caught
by its provisions; the Carriage of Goods by
Sea Act 1924, contains six pages of rules to
be incorporated in every contract for ’the
carriage of goods by sea from any port in
Great Britain or Northern Ireland to any other
port;’ the Hire-Purchase Act 1965, inserts
into hire-purchase contracts a number of terms
which the parties are forbidden to exclude;
successive Landlord and Tenant Acts from 1927
to 1954 contain provisions expressed to apply
,notwithstanding any agreement to the
contrary’. The erosion of contract by statute
continues briskly; and there are no immediate
signs of a reaction.” (Cheshire and Fifoot’s
Law of Contract, 8th Ed. pages 21-22).
In the words of Anson,
“Freedom of contract is a reasonable social
ideal only to the extent that equality of
bargaining power between contracting parties
can be assumed, and no injury is done to the
economic interests of the community at large.
In the more complicated social and industrial
conditions of a collectivist society it has
ceased to have much idealistic attraction. It
is now realised that economic equality Often
does not exist in any real sense, and that
individual interests have to be made to
subserve those of the cornmunity. Hence there
has been a fundamental change both in our
social outlook and in the policy of the
legislature towards contract, and the law
today interferes at numerous points with the
freedom of the parties to make what contract
they like . … … …
464
“ This intervention is especially necessary
today when most contracts entered into by
ordinary people are not the result of
individual negotiation. It is not possible
for a private person to settle the terms of
his agreement with the British Railways Board
or with the local electricity authority. The
‘standard form contract is the rule. He must
either accept the terms of this contract in
toto, or go without. Since, however, it is
not feasible to deprive oneself of such
necessary services, the individual is
compelled to accept on those terms. In view
of this fact, it is quite clear that freedom
of contract is now largely an illusion.”
(Anson’s Law of Contract, 23rd Ed. pages 3-4).
Anson is perhaps over-optimistic in saying that there has
been a fundamental change in social outlook and in the
legislative policy towards contract. Anyway, with the high
ideals of the Preamble and the directive principles of our
Constitution there has to be such a fundamental change, in
judicial outlook. Instances given in Cheshire and Anson
have their parallels in India too, wherein freedom of
contract has largely become an illusion. The policy of our
Parliament in regard to contracts, including those involved
in sale of goods, has still to reflect recognition of the
necessity for a change, which could be done by a suitable
modification of the definition of ‘sale of goods.
It all began with the reliance in Gannon Dunkerley (supra)
(pages 396-398) on the statement in the 8th Edition (1950)
of Benjamin on Sale. that to constitute a valid tale there
must be a concurrence of four elements, one of which is
“mutual assent”. That statement is a reproduction of what
the celebrated author had said in the 2nd and last edition
prepared by himself in 1873. The majority judgment in New
India Sugar Mills (supra) (page 467) also derives,
sustenance from the same passage in Benjamin’s 8th edition.
But as observed by Hidayatullah J. in his dissenting
judgment in that case, consent may be express or implied and
offer and acceptance need not be in an elementary form (page
510). It is interesting that the General Editor of the 1974
edition of ‘Benjarnin’s Sale of Goods” says in the preface
that the editors decided to produce an entirely new work
partly because commercial institutions, modes of transport
and of payment, forms of contract, types, of goods, market
areas and marketing methods, and the extent of legislative
and governmental regulation and intervention, had changed
considerably since 1868, when the 1st edition of the book
was published. The formulations in Benjamin’s 2nd edition,
relating to the conditions of a valid ‘sale’ of goods, which
are reproduced in the 8th edition evidently require modi-
fication in the light of regulatory measures of social
control. Hidayatullah J., in his minority judgment referred
to above struck the new path; and Bachawat J. Who spoke for
the Court in Andhra Sugars (supra) went a step ahead by
declaring that “the contract is a contract of sales and
purchase of cane, though the buyer is obliged to give his
assent under compulsion of a statute”. (page 716). The
concept of freedom of contract, as observed by Hedge J. in
Indian Steel and
4 6 5
Wire Products, (supra) has undergone a great deal of
change even in those countries where it was considered
as one of the basic economic requirements of a democratic
life. (page 490). Thus, in Ridge Nominees Ltd., (supra) the
Court of Appeal, while rejecting the argument that there was
no sale because the essential element of mutual assent was
lacking, held that the dissent of the shareholder was
overridden by an assent which the statute imposed on him,
fictional though it may be, that a sale may not always
require the consensual element mentioned in Benjamin on
Sale, 8th Edition, page 2, and that there may in truth be a
compulsory sale of property with which the owner is
compelled to part for a price against his will. (pages 405-
406). Decisions in case of ‘compulsory acquisition, where
such acquisition is patent as in Kirkness (supra) or is
inferred as in Chitter Mal (supra) fall in a separate and
distinct class. The observations of Lord Reid in Kirkness
(supra) that ‘sale’ is a women juris the name of a
particular consensual contract-have therefore to be under-
stood in the context in which they were made, namely, that
compulsory acquisition cannot amount to sale. In Gannon
Dunkerley, (supra) Venkatarama Aiyar J. was influenced
largely by these observations (see pages 411, 412 and 425)
and by the definition of ‘sale’ in Benjamin’s 8th edition’
Gannon Dunkerley _(supra) involved an altogether different
point and is not an authority for the proposition that there
cannot at all be a contract of sale, if the parties to a
transaction are obliged to comply with the terms of a
statute. Since we are putting in a nutshell what we have
discussed earlier, we would like to reiterate in the
interest of uniformity and certainty of law that, with great
deference the majority decision in New India Sugar Mills
(supra) is not good law. The true legal position is as is
stated in the minority judgment in that case and in Indian
Steel and Wire Products, (supra) Andhra Sugars, (supra)
Salar Jung Sugar Mills (supra) and Oil and Natural Gas
Commission. (supra). To the extent to which Cement
Distributors Pvt. Ltd. (supra) is inconsistent with these
judgments, it is also, with respect, not good law.
The conclusion which therefore emerges is that the
transactions between the appellant, M/s. Vishnu Agencies
(Pvt.) Ltd., and the allottees are sales within the meaning
of section 2(g) of the Bengal Finance (Sales Tax) Act, 1941.
For the same reasons, transactions between the growers and
procuring agents as also those between the rice-millers on
one hand and the wholesalers or retailers on the other are
sales within the meaning of section 2(n) of the Andhra
Pradesh General Sales Tax Act, 1957. The turnover is
accordingly’exigible to sale tax or purchase tax as the case
may be.
The appeals are accordingly dismissed with costs, with one
hearing fee.
P.B.R.
Appeals dismissed.
466