Bhopal Sugar Industries Ltd., Madhya Pradesh v. D. P.

ORIGINAL JURISDICTION : Petition No. 85 of 1961. Petition under Art. 32 of the Constitution of India for the enforcement of Fundamental Rights.

S.T. Desai, J. B. Dadachanji, O. C. Mathur and Ravinder Narain, for the petitioners.

B.Sen, K. L. Hathi and I. N. Shroff, for the respondents. 1962. December 21. The Judgment of the Court has delivered by SHAH, J.-Bhopal Sugar Industries Ltd. (the first petitioner) is a public limited Company incorporated under the Indian Companies Act, 1913, and the second petitioner is a shareholder and a Director of the Company. The Company is a manufacturer of sugar and owns a fleet of motor trucks and other motor vehicles.The Company also carries on the business of selling motor spirit, high speed diesel oil, and lubricants and maintains a petroleum pump at Shores in the State of Madhya Pradesh. Between April 1, 1959, and March 31, 1960, the Company used, for its motor vehicles 8908 gallons of petroleum, 40719 gallons, of high speed diesel oil and lubricants of the value of Rs. 2,453-47 nP. The first respondent who is the assessing authority under the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act. 4 of 1958. assessed the Company to pay sales tax in respect of motor-spirit and lubricants used by the Company out of the stock held by it for its own vehicles, because in his view such consumption amounted to sales within the meaning of the Act.

By this petition under Art. 32 of the Constitution it is claimed that the definition of 'retail sale' in s. 2 (1) of the Act which seeks to render consumption by the owner of motor-spirit liable to tax under the Act by virtue of s. 3 is beyond the competence of the State Legislature and hence void and the order of the first respondent seeking to impose liability upon the Company for payment of tax infringes the fundamental rights of the Company under Art. 19 (1) (f) and (g) of the Constitution.

Section 2 (k) of the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act defines a 'retail dealer' as meaning "any person who, on commission or otherwise, sells or keeps for sale motor spirit or lubricant for the purpose of consumption by the person by whom or on whose behalf it is or may be purchased". Section 2 (1) defines "retail sale' as meaning "'a sale by a retail dealer of motor spirit or lubricant to a per-son for the' purpose of consumption by the person by whom or on whose behalf it is or may be purchased and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricants sold to him for retail sale;" (The definition is followed by an explanation which is not material for the purpose of this appeal.) Section 3 is the charging section. It provides that subject to the provisions of the Act, there shall be levied on all retail sales of motor spirit and lubricants effected after the commencement of the Act, tax at the rates specified in the table set out therein.

The Company is registered under s. 4 of the Act as a retail dealer. By s. 2 (1) consumption by a retail dealer himself or on his own behalf of motor spirit or lubricants sold to him for retail sale is included in the defition of "retail sale. Thereby the Legislature has attempted to enlarge the normal concept of sale, and has included therein consumption for his own purposes by the retail dealer of motor spirit and lubricants sold to him for retail sale, and by s. 3 such consumption is made taxable as sale. But this Court held in The State of Vadras v. Gannon Dunkerley & Co. (Madras) Ltd. (1), that the expression 'sale of goods' in Entry 48, List II, in Sch. VII of the Government of India Act, 1935, has the same meaning as in the Indian Sale of Goods Act, 1930, and therefore in a transaction of sale of goods which is liable to tax there must be concurrence of the following four elements. viz :

(1) Parties competent to contract;

(2) mutual assent;

(3) a thing, the absolute or general

property in which is transferred from the

seller to the buyer; and

(4) a price in money paid or promised.

A transaction which doe; not conform to this traditional concept of sale cannot be regarded as one in respect of which the State Legislature is competent to enact an Act imposing liability for payment of tax. It was observed at p.

"A power to enact a law with respect to tax on

sale of goods under Entry 48 must, to be intra

vires, be one relating in fact to sale of

goods, and accordingly, the Provincial

Legislature cannot, in the purported exercise

of its power to tax sales, tax transactions

which are not sales by merely enacting that

they shall be deemed to be sales."

In Gannon Dunkerley & Company's case this Court was called upon to consider whether in a (1) [1959] 1 S.C.R. 379.

building contract which is one, entire and indivisible, there is sale of goods. It was held by the Court that the Provincial Legislature was not competent under Entry 48, List II, Sch. VII of the Government of India Act, 1935, to impose tax on the supply of materials used in such a contract treating it as a sale. The decision of the Court did not rest upon any peculiar character of a building contract. It was held on the larger ground canvassed in that case, that the expression 'sale of goods' within the meaning of relevant legislative entry had the same connot-ation as 'sale of goods' in the Indian Sale of Goods Act, 1930, and therefore the State Legislature had no power to enact legislation to levy tax under Entry 48 of List II in respect of transactions which were not of the nature of sales of goods strictly so called; and a building contract not being a transaction in which there was a sale of materials by the contractor who constructed the building, the State was not competent to enact legislation to impose tax on the supply of materials used in a building contract treating it as a sale. It was therefore, held that the definition of sale in the Madras General Sales Tax Act IX of 1939 was to the extent of the extension invalid. In Gannon Dunkerley & Company's case the validity of s. 2 (b) (ii) of the Madras General Sales Tax Act, 1939, as amended by Act XXV of 1947, in so far as it included goods included in a works contract fell to be determined, in the light of the competence of the Provincial Legislature under Entry 48, List II, in Seventh Schedule of the Governmentof India Act, 1935. Under the Constitution therelevant entry conferring legislative power uponStates to tax sale of goods in Entry 54, List 11. As the scheme of division of legislative power under the Constitution has remained unaltered, the principle of Gannon Dunkerley's case applies (1) [1999] S. C. R. 379.

in adjudging the validity of the provisions of the Madhya Pradesh Act 4 of 1958.

Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not 'sale of goods' within the meaning of Entry 54, List 11, Sch. VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Indian Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for retail sale is beyond the competence of the State Legislature. But the clause in the definition in s. 2 (1) "and includes the consumption by a retail dealer himself or on his. behalf of motor spirit or lubricant sold to him for retail sale" which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II, Sch. VII of the Constitution is severable, from the rest of the definition, and that clause alone must be declared invalid.

The Sales Tax Officer has sought to impose liability for payment of tax in respect of motor spirit and lubricants consumed by the company for its own vehicles relying solely upon the definition in s. 2 (1) of the Act. He has observed :

"The definition under the said section

clarifies the retail sale and consumption by a

retail dealer. Since the retail sale has been

clearly defined and consumption by self has

been included in the retail sale; I do not

agree with the contention of dealer's counsel

(that the goods consumed for the vehicles of

the dealer are not liable to tax under s. 3)

and taxed on

the goods consumed by the dealer, as above."

The order of the Sales Tax Officer founded upon a part of the statute which is ultra cannot be sustained. Counsel for the State of Madhya Pradesh contends in this petition that the Company is not the owner of the motor spirit and lubricants in which it deals it is merely a commission agent for sale in respect of the goods supplied to it by the Caltex (India) Ltd., and on that account consumption for his own purpose of goods belonging to his principal amounts to sale within the meaning of the first part of the definition of s. 2 (1) of the Act. But the Sales Tax Officer has not decided the case under the first part of the definition of 'retail sale' : lie has expressly founded his decision on the second part of the definition. In the circumstances we do not feel called upon to express any opinion on the question whether the Company is liable to pay sales tax in respect of goods consumed for its motor-vehicles during the period in question. If it is competent to the Sales Tax Officer to adopt a proceeding, to bring to tax consumption of goods by the Company for its ,own vehicles, relying upon the first part of the definition of "retail sale' in s. 2) (1), because of the terms of the agreement and other relevant surrounding circumstances, it will be open to him to do so.

The petition will therefore be allowed and a writ will issue declaring that the order of assessment made by the first respondent dated December 26, 1960, in so far as it relates to levy of tax on motor spirit and lubricants consumed during the period of assessment for the vehicles of the Company is invalid. The respondents will pay the costs of this petition to the Company.

Petition allowed,

SHAH, J.

This is an appeal against the judgment of the Madhya Pradesh High Court dismissing a petition filed by the Bhopal Sugar Industries Ltd. hereinafter called 'the Company'-for a writ under Art. 226 of the Constitution quashing the order of the Sales Tax Officer dated May 1, 1960, which imposed liability upon the Company for payment of sales-tax under the Madhya Bharat Sales of Motor Spirit Taxation Act, 20 of 1953 in respect of motor spirit and lubricants used for its own vehicles.

The Company carries on the business of manufacturing sugar, and maintains for the purpose of that business a fleet of motor trucks and other motorvehicles. The Company is also registered under the Act as a retail dealer of motor spirit and lubricants. During the period April 1, 1957, and March 31, 1958, the Company consumed a part of its stock-intrade of motor spirits and lubricants for its own vehicles. The Sales Tax Officer, Bhopal Region, by order dated May 1, 1960, assessed the Company to pay tax in respect of motor spirits and lubricants consumed for its vehicles. The Company then filed a petition in the High Court of Madhya Pradesh at Jabalpur under Art. '226 of the Constitution for a writ in the, nature of certiorari quashing the order dated May 1, 1960, passed by the Sales Tax Officer and the 'notice of demand issued in pursuance thereof, and for a writ of prohibition or mandamus restraining the Sales Tax Officer from recovering.. any tax in pursuance of the order. The Company set up two grounds in support of its petition :

(1) That the Sales Tax Officer had power to

levy tax on "sale' only i. c. on transfer of

property for a price, and as there was no sale

of motor oil and lubricants consumed by the

Company for its own vehicles there being no

transfer of property to any one, and no price

being paid or promised, consumption of the

articles was not taxable. That it was

submitted is manifest from the charging

section 3 read with the definition under s.

2(k) of the Act of `retail sale' which does

not include consumption by a retail dealer of

his own goods.

(2) That power of the State to levy tax on

the sale or purchase of goods (other than

news-papers could be exercised only under

Entry 54 of List II of the 7^th Schedule to the

Constitution. Therefore the attempted levy of

tax was illegal and without authority of law,

and infringed the Company's fundamental right

to carry on business and to hold and acquire

property as guaranteed by Art. 19(1) (f) and

(g) of the Constitution.

At he hearing of the petition the High Court did not consider the grounds set up in support of the petition, but called upon the Company to produce 'a copy of its agreement with Caltex (India) Ltd., under which the supply of motor-spirits and lubricants was obtained by the Company, and proceeded to adjudicate the claim for relief in the light of the covenants of the agreement. The. High Court dismissed the petition holding that the assumption made in the petition that the Company was the owner of the motor spirits and lubricants obtained from Caltex (India) Ltd., was not warranted. It was observed "These clauses and other clauses relating to the responsibility for loss, safeguard against contamination of petrol, sale by the dealer of the products of Caltex (India) Limited only, settlement of accounts–all point to the fact that the petitioner (the Company) was not constituted a full and absolute owner of the petrol supplied by Caltex (India) Limited at the petrol pump maintained by the petitioner at Sehore. The petrol remained the property of Caltex (India) Limited, and the petitioner sold it as an agent of the supplying _Company. When, therefore, the petitioner obtain-ed petrol for itself at the pump and used it in its own vehicles, there was a sale of the petrol by the petitioner as an agent of Caltex (India') Limited to the petitioner-company as a consumer. It was nothing but a purchase by the agent of property belonging to the principal. That being so, there was retail sale by the petitioner as agent of Caltex (India) Limited of the petrol consumed in its vehicles."

Against the order dismissing the petition this appeal is preferred with special leave.

In our judgment the High Court was in error in proceeding to decide the petition on a ground which was not set up in the affidavit of the Sales Tax Officer. The Company claimed relief on the assumption that motor spirits and lubricants used by it for its own vehicles were of its ownership, and appropriation by a retail dealer of the stock in-trade owned by him for his own use does not constitute sale within the meaning of the Act. The Sales Tax Officer submitted that the consumption of motor spirits and lubricants by the Company amounted to sale, because there was transfer of property "from one establishment of the retail dealer to another." On the pleadings two questions arose for determination :-

(a) whether the appropriation of goods

amounted to transfer of property by the retail

dealer to another peison; and

(b) whether such transfer amounted in law to

sale.

The Legislature has set up an elaborate and selfcontained machinery for investigating whether a transaction is liable to be taxed because it is of the nature of a retail sale within the meaning of the Act. The taxing Officer is invested with authority to determine the nature of the transaction and its liability to tax, and against his decision there is an appeal to the appellate authority and a further right of revision to the Commissioner. It is true that the jurisdiction of the High Court under Art. 226 is extensive, but normally the High Court does not exercise that jurisdiction by entertaining petitions against the or-ders of taxing authorities, when the statute under which tax is sought to be levied provides a remedy by way of an appeal or other proceeding to a party aggrieved and thereby by-pass the statutory machinery. That is not to say that the High Court will never entertain a petition against the order of the taxing Officer. The High Court has undoubtedly jurisdiction to decide whether a statute under which a tax is sought to be levied is within the legislative competence of the Legislature enacting it or whether the statute defies constitutional restrictions or infringes any fundamental rights, or whether the taxing authority has arrogated to himself power which he does not possess, or has committed a serious error of procedure which has affected the validity of his conclusion or even where the taxing authority threatens to recover tax on an interpretation of the statute which is erroneous. The High Court may also in appropriate cases determine the eligibility to tax of trans-actions the nature of which is admitted, but the High Court normally does not proceed to ascertain the nature of a transaction which is alleged to be taxable. The High Court leaves it to the tax payer to obtain an adjudication from the taxing authorities in the first instance. In the present case the Company invoked the jurisdiction of the High Court on question of fact as well as on the constitutionality of the taxing statute and breach of fundamental rights. The High Court instead of determining the Constitutional questions, on which alone the petition could normally be entertained, proceeded to investigate the correctness of an assumption made by the Company, and thereby decided the case which was not expressly raised by the other party. In doing so the High Court fell into an error : it assumed jurisdiction to decide the dispute which had to be decided by resort to the machinery provided under the Act after ascertainment of the true nature of the transaction in the light of the agreement and surrounding circumstances. The order passed by the High Court cannot therefore be upheld.

The next question is about the order to be passed in this appeal. For that purpose we must consider the two grounds set up in the petition by the Company. The challenge to the action of the Sales Tax Officer on the plea of infringement of fundamental rights must fail. It is common ground that the State of Madhya Pradesh had power to levy tax on sale or purchase of motor spirits and such power could be exercised only in respect of sales traditionally so understood. The State of Madras v. Gannon Dunkarley & Co. (Madras) Ltd. (1). Section 2 (k) of the Act defines a 'retail sale' as meaning "a sale of motor spirit by a retail dealer for the purpose of consumption by the person by whom or on whose behalf it is or may be purchased, and the expression 'sell in retail' shall be construed accordingly. But there is nothing in the definition of s. 2 (k) 'retail sale' nor in the charging section (s. 3) which indicates that the Legislature had enacted legislation beyond its competence. If the taxing authority had sought to bring to tax a transaction which is made taxable by a competent enactment it would not be open to the High Court exercising power under Art. 226 of the Constitution to consider whether the taxing authority was justified in taxing the transaction. Levy of a tax lawfully imposed under a statute within the competence of the Legislature cannot be deemed to infringe the fundamental rights guaranteed by Art. 19 (1) (f) and (g), and whether the tax is properly levied in respect of a transaction is for the taxing authority to determine and not for the High Court.

The levy and collection of sales tax on motor spirits and lubricants consumed by the Company cannot therefore be regarded as illegal unless it is found. that the goods were of the ownership of the Company; and for reasons already set out the question whether the goods consumed belonged to the Company must be left to be determined under the Act. The first question raised in the petition cannot therefore be determined by this Court as it could not be determined by the High Court.

On the view taken by us this appeal must fail and is dismissed. It will of course be open to the (1) [1959] S. C, R. 379.

Company in an appeal properly filed before the taxing authorities to contend that under the terms of the agreement with Caltex (India) Ltd., the Company is the owner of the goods received by it and that on that account consumption of those goods by it for its own vehicles did not amount to sale and the Sales Tax Officer will be entitled to consider that question on its merits and will not be bound by any expression of opinion by the High Court as to the interpretation of the agreement produced before it. Having regard to the circumstance, there will be no order as to costs.

Appeals dismissed.