Case Recap: SC held State govt’s order to transfer goods to it’s agent or license holders is ‘Sale’ under TPA & exigible to tax

Case Name: 

ACT REFERRED:

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.

FACTS:

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.

ISSUE RAISED:

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.

JUDGMENT SUMMARY   :           

As 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.

Chief Justice Beg:

The  transactions  in the instant cases are sales and are exigible to tax.

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 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.

As Per Justice Chandrachud, Bhagwati, Krishna Iyer, Untwalia,  Murtaza Fazal Ali and Kailasam:

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.

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 were accordingly dismissed with costs, with one hearing fee.