- (1.) THE petitioner is a company incorporated under the Indian Companies Act, 1913. It carries on business as producer and distributor of iron rods, galvanised iron wires and other commodities made of iron and steel. It is stated in the petition that the articles produced and sold by the petitioner are products made at its workshop and factory at Indra Nagar, District Singbhum in Bihar. Its registered office is, however, situated at 7, Wellesley Place, Calcutta. The production and sale of the articles produced by the petitioner are controlled by the 'iron and Steel (Control of Production and Distribution) Order, 1941' (hereinafter referred to as the "said order") which was promulgated by the Central Government in exercise of powers conferred by sub-rule (2) of rule 81 of the Defence of India Rules.
(2.) NOTIFICATIONS under the said order have from time to time been issued by the Iron and Steel Controller, laying down the conditions and prices at which the articles produced by the petitioner are to be sold to customers according to the directions of the said Iron and Steel Controller. It is alleged that in a proceeding under the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as the 'said Act') an order was passed on the 23rd September, 1946 by the Assistant Commissioner of Commercial Taxes, Calcutta North, holding that no 'sale' was effected by the petitioner from Calcutta, and therefore, it was not a dealer within the meaning of section 2 (c) of the said Act. It is further stated that inspite of the said order, the Commercial Tax Officer, Esplanade Charge, Calcutta, has issued a notice dated 9th August, 1955 under section 11 (2) of the said Act, a copy whereof is exhibit 'b' to the petition. In the said notice it has been alleged that the Commercial Tax Officer was satisfied on information which had come into his possession that the petitioner was liable to pay tax under the said Act for the period commencing from 1. 2. 1951 to 31. 3. 1951 and subsequent period. In this case we are concerned with the period from 1st February, 1951 to 8th August, 1955. The petitioner appeared before the Commercial Tax Officer and objected to the assessment on various grounds but the Commercial Tax Officer threatened to continue the proceeding, whereupon this rule was taken out on or about 6th September, 1955. A number of grounds have been taken in the petition but only two grounds have been pressed before me. The first and the more important ground is that the dealings of the petitioner, being regulated by the Iron and Steel (Control of Production and Distribution) Order, 1941 (hereinafter referred to as the 'said Order'), the petitioner was obliged to acquire its raw materials and carry on its manufacturing operation according to the directions of the Controller. It was also compelled to dispose of its products to parties nominated by the Controller and at prices fixed by him. These dealings, therefore, did not constitute a 'sale' as defined under the said Art and under the Sale of Goods Act, and therefore did not come within the purview of the said Act and no sales tax could be assessed thereon. The second point taken is that section 2 (g) of the said Act, extending the concept of sale so as to embrace inter-state sales, was in violation of Art. 286 of the Constitution. Before dealing with the first point it will be necessary to consider the provisions of the said order. As slated above, the said order was promulgated by the Central Government under the Defence of India Rules. A Steel Controller has been appointed under it. A 'producer' means a person carrying on business of iron and steel. A 'stockholder' means a person holding stocks of iron or steel for sale who is registered as a stockholder by the Controller. A 'registered producer' means a producer who is registered as such by the Controller and a 'controlled stockholder' means a stockholder appointed by the Controller to hold stocks of iron or steel under such terms and conditions as he may prescribe from time to time. It is provided that no person shall acquire or agree to acquire any iron or steel from a producer or a stockholder except under the authority of and in accordance with the conditions contained in or incorporated in a general or special written order of the Controller. No producer or stockholder is allowed to dispose of or agree to dispose of or export any iron or steel except in accordance with the conditions contained in or incorporated in a special or general order of the Controller. The Controller has power to fix prices. The Controller has power to control the creation of new productive capacity.
(3.) THE result is that the petitioner is under the control of the Steel Controller both in the manufacture and disposal of its manufactured goods. It must fabricate goods as it Is directed. It must sell to customers as ordered, at prices which are compulsorily fixed, and in none of these matters has it any independent volition. The question is whether in such a case, the dealings can be said to constitute a 'sale' under the said Act. The first case cited is a Division Bench decision of this High Courtcalcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, West Bengal (1) (1951) 19 I. T. R. 406. The facts in that case were as follows: The assessee was the Calcutta Electric Supply Corporation. During the war, Government requisitioned an electric generating plant belonging to the assessee under rule 83 (1) of the Defence of India Rules. The assessee was not willing to sell the plant but was compelled to do so. The amount which the assessee eventually received as compensation exceeded the written down value of the plant by over Rs. 3,00,000/ -. The taking authority treated the excess as the assessee's profit under section 10 (2) (viii) of the Indian Income Tax Act, 1922 and assessed the amount to tax, whereupon the assessee took a reference to this High Court under section 66 (1) of the Income tax Act. Harries, C. J. said as follows: "can plant or machinery requisitioned under this rule be regarded as plant or machinery sold or made the subject-matter of a sale?. . . . . . The word 'sale' is not defined in the Indian Income tax Act and, therefore, it must be given its ordinary grammatical meaning. According to the Oxford Dictionary 'sale' means 'an act of selling or making over to another for a price'. It has also been defined as an exchange of a thing for a price. Making over anything for a price or exchanging it for a price suggests that the act is voluntary. The ordinary conception of 'sale' is that something is handed over for a price as a result of negotiation and agreement. . . . . . In short, a sale ordinarily means a voluntary act, the transferring of property voluntarily by the seller to the buyer at a price. 'price' is defined in the Oxford Dictionary as 'money or other equivalent for which anything is bought or sold' and, therefore, it is clear that it is something which is handed over for property as the result of agreement. " it was held that compulsory acquisition of plant by the Government could never be a 'sale' within the meaning of the word ordinarily used in the English language. There was nothing voluntary about the transaction which was, in reality, a compulsory deprivation of property which the owner wanted to retain. The learned Chief Justice proceeded to state as follows:-"dr. Gupta concedes that the transaction was not a voluntary sale, but he contends that the word 'sale' covers compulsory sale. It seems to me that the phrase, 'compulsory sale' is a contradiction in terms. The word 'sale' in its ordinary meaning means a voluntary transaction and, therefore, a compulsory sale is really a contradiction and is no sale at all. " the next case cited is a decision of the Supreme Court-State of Madras v. Messrs. Gannon Dunkerley and Co. (Madras) Ltd. (2) A. I. R. (1958) S. C. 560. The respondents in. that case, a private limited company, were doing business in the construction of buildings, roads and other works and in the sale of sanitary wares and other sundry goods. The point in dispute was as to whether sales tax was payable under the Madras General Sales Tax Act in respect of a sum of Rs. 29,51528/7/4 representing the value of the materials used by the respondents in the execution of their works contracts. The important point which was decided in this case was the interpretation of the expression 'sale' as used in the Madras General Sales Tax Act. The judgment of Aiyar, J. , may be summarised as follows: -1. The authority of the Provincial Legislature of Madras to enact the Madras General Sales Tax Act (Madras Act 9 of 1939) was based on the Government of India Act, 1935, Schedule 7, List II, Entry 48, under the heading 'sale of goods'. 2. The word 'sale' in entry 48 must be construed as having the same meaning which it has in the Sale of Goods Act, 1930. The words 'sale of goods' in Entry 48 cannot be construed in the popular sense but must be interpreted in its legal sense. 3. 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 the Provincial Legislature cannot in the purported exercise of its power tax sales which are not sales under the Sales of Goods Act by merely enacting that they shall be deemed to be so. For, 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 goods which pre-supposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Thus, if merely title to goods passes but not as a result of any contract between the parties, express or implied, there is no sale. The next case to be considered is a Bench decision of the Orissa High Court-Messrs. Cement Ltd. v. State of Orissa (3) (1961) 12 S. T. C. 205. The facts in that case were shortly as fallows: The petitioner was a limited company manufacturing cement and other products. In 1951, Parliament passed an Act known as the Industries Regulation and Development Act, for the purpose of providing for the regulation and development of certain industries in India. Section 18-G of that Act conferred power on the Central Government, by a notified order, to provide for the equitable distribution and availability, at fair prices, and for regulating the supply and distribution, of certain articles, which included cement. In exercise of the power conferred by that section the Government of India passed the Cement Control Order in June, 1956. According to the said order, every producer of cement was compelled to sell its entire quantity of cement held in stock, and the entire quantity of cement which may be produced by it during the period of two years from the commencement of the said order, to a statutory corporation known as the State Trading Corporation, and deliver the same to such person or persons as may be specified by the Corporation. The prices at which cement could be sold was specified to a Schedule of the said order. The petitioner, under the said order was compelled to sell its entire turnover in favour of the said Trading Corporation. The question that arose for determination was whether such a sale was liable for assessment to sales tax, under the Orissa Sales Tax Act. Narasimham, C. J. said as follows: -"here neither party has any choice in the matter. The concerns were manufacturing cement long before the Cement Control Order came into force. All of a sudden the order directed that notwithstanding any contract to the contrary they must deliver all their cement to the Corporation. The Corporation also had no choice in the matter except to accept the cement so delivered at the price fixed. As between the two there is no room for any negotiation. . . . . . As between the petitioner and the Corporation the entire transaction is in the nature of compulsory transfer of title to the goods from one person to another on payment of the stipulated prices. In my opinion, such a transaction will be directly covered by the aforesaid Supreme Court decision (Gannon Dunkerley's case) and would not amount to a 'sale' within the meaning of the Orissa Sales Tax Act. " the next case cited is a decision of the Supreme Court-New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar (4) (1963) 14 S. T. C. 316. The facts in that case were as follows: The assessees were manufacturers of sugar in Bihar. The Sugar and Sugar Products Control Order was promulgated by the Central Government on February 18, 1946 under powers conferred by sub-rule (2) of rule 81 of the Defence of India Rules. By clause (3) of the order producers of sugar were prohibited from disposing of or agreeing to dispose of or making delivery of any sugar except to, or through, a recognised dealer or persons specially authorised in that behalf by the Controller to acquire sugar onbehalf of the Central Government or of a Provincial Government of an Indian State. Clause (5) enjoined upon every producer or dealer duty to comply with such directions regarding production, sales, stocking or distribution of sugar as may from time to time be issued by the controller. By clause (6) the Controller was authorised to fix the price at which sugar may be sold or delivered, and upon fixation of the price all persons were prohibited from selling or purchasing or agreeing to sell or purchase sugar at a price higher than the fixed price. By sub-clause (I) of clause (7), the Controller was authorised inter alia to allot quantities of sugar for any specified province or area or market and to issue directions to any producer or dealer to supply sugar to such provinces, areas or markets or such presons or organisations, in such quantities or such types or grades, at such time, at such prices and in such manner as may be specified by the Controller and sub-clause (2) provided that every producer shall, notwithstanding any existing agreement with any person, give priority to, and comply with the directions issued to him under sub-clause (1 ). Contravention of orders made under the rule was made penal. What happened in that case was that the Government of various consuming states used to intimate to the Sugar Controller from time to time their requirements of sugar, and similarly the factory owners used to send him statements of stock of sugar held by them. On a consideration of the requisitions received and the statements of stock, the Sugar Controller made allotments. The allotment orders were addressed by the Controller to the factory owners directing them to supply stated quantities of sugar to the State Governments in question. Messrs. New India Sugar Mills Ltd. , the assessees, contended that sugar despatched pursuant to the directions of the Controller was not 'sold' by them to the Government of Madras and sales tax was, therefore, not exigible under the relevant Sales Tax Act of the Province of Bihar. Under the Bihar Sales Tax Act the expression 'sale' was defined to mean, with all its grammatical variations and cognate expressions, any transfer of property in goods for cash or deferred payment or other valuable consideration and it was provided that notwithstanding anything to the contrary in the Indian Sale of Goods Act, the sale of any goods which was actually in Bihar at the time when, in respect thereof, the contract of sale as defined in section 4 of that Act is made shall, wherever the said contract of sale is made, be deemed for the purpose of that Act to have been made in Bihar. The majority decision may be summarised thus:-1. The power conferred by Entry 48, List II, Schedule VIII of the Government of India act, 1935, was restricted to enacting legislation imposing tax liability in respect of sale of goods as understood in the Sale of Goods Act, 1930, and the Provincial Legislature under the Government of India Act, 1935, had no power to tax a transaction which was not a sale of goods as understood in the Sale of Goods Act, 1930. 2. According to section 4 of the Sale of Goods Act, 1930, to constitute a sale of goods, property in the goods must be transferred from the seller to the buyer under a contract of sale. An agreement between the parties is, therefore, a pre-requisite to a sale and it postulates the exercise of volition on the part of the contracting parties. 3. In the definition of the expression 'sale' in section 2 (g) of the Bihar Sales Tax ,act, 1947, it must be regarded as implicit that the transaction had all the elements which constituted a sale within the meaning of the Sale of goods Act. It was held that the compulsory sales, under the provisions of the Sugar Control Order, to the Government of Madras did not constitute a sale which would be assessable to sales tax, as they were not sales within the meaning of the expression as used in the Sale of Goods Act, 1930. The parties had no volition in the matter. There was no agreement and the elements which constituted a 'sale' as defined in the Sale of Goods Act were wanting. It was argued before the Supreme Court that in Tata Iron and Steel Co. Ltd. v. State of Bihar (Ei) (1958) S. C. R. 1355, it was decided by implication that the definition of 'sale' in section 2 (g) of the Bihar Sales Tax Act included transactions in which goods were supplied in compliance with directions which left no volition to the manufacturers. It was held that in the case above-mentioned, the Court was merely considering the vires of the second proviso to section 2 (g) of the Bihar Sales Tax Act. The question as to the true content of the expression 'sale' in the Bihar Sales Tax Act did not fall to be determined. Similarly, in the case of Tata Iron and Steel Co. v. S. R. Sarkar, (6) A. I. R. (1961) S. C. 66, this point was expressly left open. In Bhupal Sugar Industries Ltd. , M. P. and anr. v. D. P. Dube and anr. (7) (1963) 14 S. T. C. 406, the Supreme Court was called upon to consider the matter from another aspect. In that case, the petitioner carried on business of selling motor spirits etc. , and maintained a petroleum pump at Seor in the State of Madhya Pradesh. The company used a substantial amount of petroleum, diesel oil and lubricants for its own motor vehicles. It was assessed to sales tax on the same. An application was made under Art. 32 of the constitution and it was claimed that the definition of 'retail sale' in section 2 (1) of the M. P. Sales of Motor Spirits and Lubricants Taxation Act which seeks to render the consumption by the owner of motor spirits liable to tax under the Act was beyond the competence of the State Legislature. Shah, J. relied on Gannon Dunkerley's case (supra) and held that consumption by the owner of goods in which he deals is not a sale within the meaning of the Sale of Goods Act, 1930, and, therefore, it was not a 'sale of goods' within the meaning of Entry 54, List II, Schedule VII of the Constitution. The legislative power for levying taxes on sale of goods being restricted to enacting legislation for levying taxes on transactions which conform to the definition of sale of goods within the meaning of 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 was beyond the competence of the State Legislature. The learned Advocate General was constrained to admit that the consensus of judicial authority was against him. He however, argued the matter on general principles and many of his arguments were founded on the dissentient decision of Hidayatullah, J. in New India Sugar Mills Ltd. v. C. I. T. , Bihar (4 ). According to the learned Judge, Entry 48, List II, Schedule VII of the Government of India Act, 1935 should be interpreted in a liberal spirit and not cut down by narrow technical considerations. The entry 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. If a sale express or implied is found to exist then the tax must follow. In the opinion of the learned Judge there was a sale of sugar for a price and tax was therefore, payable. This view was not followed by the majority of the Judges. The learned Advocate General strenuously argued that in the instant case, the word 'sale' was used as also the word 'buyer'. He failed to see how title to goods could be passed to a buyer without there being a sale as denned in the Sale of Goods Act. In this connection, Mr. Banerjee has drawn my attention to an English decision and I cannot resist the temptation of quoting Viscount Simonds, who said in John Hudson and Co. Ltd. v. Kirkness (8) (1953) 36 T. C. 28 at 60, as follows: -"my Lords, in my opinion the Company's wagons were not sold, and it would be a grave misuse of language to say that they were sold. To say of a man who has had his property taken from him against his will and been awarded compensation in the settlement of which he has had no voice, to say of such a man that he has sold his property appears to me to be as far from the truth as to say of a man who has been deprived of his property without compensation that he has given it away. Alike in the ordinary use of language and in its legal concept a sale connotes the mutual assent of two parties. . . . . . It was urged upon your Lordships that after all the result in law of a sale is to transfer the ownership of property from A to B for a consideration in money or money's worth and that this is just what the Transport Act does to the Respondent Company's wagons. But, my Lords, if I may say so without disrespect to the very able and helpful argument of the learned Attorney General, I find it in this aspect dangerously near a logical fallacy. A dog is an animal that has four legs and a tail, but not every animal that has four legs and a tail is a dog. Nor is a statutory vesting of A's property in B and the award of compensation to A a sale though its result may be the same as if A had sold that property to B. " the learned Advocate General has argued that the Iron and Steel Control Order of 1941 is not in pari with the Sugar Control Order or the Cement Control Order which were the subject matter of the decisions cited above. They are certainly not identical. But, the basic similarity is there. All the impugned statutes gave power compulsorily to direct a manufacturer, producer or a dealer to manufacture, produce and deliver goods at fixed prices to specified persons. In all these cases title [passed, but by compulsion and not by the volition of the parties. In all these cases it was held that the appropriate legislative items in the Constitution Acts which entitled the legislature to legislate on the topic, included sales as defined by the Sale of Goods Act, 1930, and did not include a compulsory transfer of title, even for a price. There is a decision of Banerji, J.-Indian Steel and Wive Products Ltd. v. State of West Bengal (9) 68 C. W. N. 401, where, in a case instituted by the same petitioner as in the instant application, in the writ jurisdiction, it was held that the so-called sales made by the petitioner under the provisions of the Iron and steel (Control of Production and Distribution) Order, 1941, would not be liable to tax under the Bengal Finance (Sales Tax) Act, 1941. I respectfully agree with that conclusion. In my opinion, the position in law may be summarised as follows: 1. The expression 'sale of goods' in Entry 48, List II, Schedule VII of the Government of India Act, 1935 is a nomen juris, its essential ingredients being an agreement to sell goods for a price and property passing therein pursuant to that agreement. 2. Entry 48 introduced a new topic of legislation with respect to which there was no legislative practice. Under the Government of India Act, 1935 the Provincial Legislature was competent to enact laws in respect of the matters enumerated in Lists II and III and though the entries thereto are to be construed liberally, and In their widest amplitude, the law must, nevertheless, be one with respect to those matters. A power to enact a law with respect to tax on sale of goods must be one relating in fact, to sale of goods under the Sale of Goods Act, 1930 and the Provincial Legislature could not in the purported exercise of its power, tax transactions which are not sales by merely enacting that they shall be sales. 3. The true legislative intent is that the expression 'sale of goods' In Entry 48 should bear a precise and definite meaning it has in law. According to the law both of England and India, in order to constitute sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, that it must be supported by money consideration, and as a result of the transaction the property must actually pass in the goods.;