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SUPREME COURT OF INDIA
J.L. KAPUR, M. HIDAYATULLAH AND J.C. SHAH, JJ.
M/s. New India Sugar Mills Ltd., Appellant
Versus
Commissioner of Sales Tax, Bihar, Respondent.
Civil Appeal No. 237 of 1961.
Advocates appeared
Mr. S.T. Desai Senior Advocate (Mr. B. P. Maheshwari, Advocate, with him, for Appellant; Mr. S. P. Varma, Advocate, for Respondent.
The judgment deals with the interpretation of Entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935, which empowers Provincial Legislatures to levy taxes on the sale of goods. The main issue is whether certain transactions involving the supply of sugar under the Sugar and Sugar Products Control Order, 1946, constitute sales of goods within the meaning of the Entry, thereby attracting sales tax. The Court examines the nature of the transactions, the role of the Sugar Controller, and the extent of compulsion involved in the process. It also considers the legislative history and judicial precedents related to the interpretation of the Entry, including the decisions in Gannon Dunkerley and Co. (Madras), Ltd. v. State of Madras and Tata Iron and Steel Co. Ltd. v. State of Bihar. The Court concludes that the transactions in question do constitute sales of goods and are therefore subject to sales tax.
Fact of the Case:
Under the Sugar and Sugar Products Control Order, 1946, the Government of India imposed controls on the production, distribution, and sale of sugar. Sugar mills were required to inform the Controller of their stocks and supply sugar to Provinces as directed by the Controller. Provinces had to indent their requirements to the Controller, who would then issue permits to the mills for the supply of sugar. The price, quantity, and quality of sugar were all controlled by the Controller. The issue before the Court was whether the transactions involving the supply of sugar under these controls constituted sales of goods subject to sales tax under Entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935.
Finding of the Court:
The Court held that the transactions in question did constitute sales of goods and were therefore subject to sales tax. The Court reasoned that, despite the element of compulsion involved in the transactions due to the controls, there was still an implied contract of sale between the Provinces and the sugar mills. The Court found that the Provinces made an offer to purchase sugar by indenting their requirements to the Controller, and the mills accepted this offer by quoting their stocks and dispatching sugar in accordance with the permits issued by the Controller. The Court also held that the fixation of price, quantity, and quality by the Controller did not negate the existence of a sale, as these factors could be determined by a third party under the law of contract. The Court further held that the decisions in Gannon Dunkerley and Co. (Madras), Ltd. v. State of Madras and Tata Iron and Steel Co. Ltd. v. State of Bihar did not support the argument that the transactions in question did not constitute sales of goods.
Issues: 1. Whether the transactions involving the supply of sugar under the Sugar and Sugar Products Control Order, 1946, constituted sales of goods within the meaning of Entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935. 2. Whether the element of compulsion involved in the transactions due to the controls negated the existence of a sale. 3. Whether the fixation of price, quantity, and quality by the Controller affected the characterization of the transactions as sales of goods.
Ratio Decidendi: 1. The Court held that the transactions in question constituted sales of goods because there was an implied contract of sale between the Provinces and the sugar mills. The Provinces made an offer to purchase sugar by indenting their requirements to the Controller, and the mills accepted this offer by quoting their stocks and dispatching sugar in accordance with the permits issued by the Controller. 2. The Court held that the element of compulsion involved in the transactions due to the controls did not negate the existence of a sale. The Court reasoned that compulsion does not necessarily negate consent, and that consent can be implied from the conduct of the parties. 3. The Court held that the fixation of price, quantity, and quality by the Controller did not affect the characterization of the transactions as sales of goods. The Court reasoned that these factors could be determined by a third party under the law of contract, and that their determination by the Controller did not alter the essential nature of the transactions as sales of goods.
Final Decision: The Court allowed the appeals and held that the transactions in question constituted sales of goods and were therefore subject to sales tax. The Court found that there was an implied contract of sale between the Provinces and the sugar mills, and that the element of compulsion involved in the transactions due to the controls did not negate the existence of a sale. The Court also held that the fixation of price, quantity, and quality by the Controller did not affect the characterization of the transactions as sales of goods.
Judgment
SHAH, J.: M/s. New India Sugar Mills Ltd. herein after called the assessees -own a factory at Hasanpur in the State of Bihar. During the assessment period April 1, 1947 to March 31, 1948 the assessees who were registered as dealers under the relevant Sales Tax Acts despatched sugar valued at Rs. 6,89,482/- to the authorised agents of the State of Madras in compliance with the directions issued by the Controller exercising powers under the Sugar and Sugar Products Control Order, 1946. The Sales Tax Officer, Darbhanga rejected the plea of the assessees that despatches of sugar to the Province of Madras in compliance with the instructions of the Controller were not liable to be included in the taxable turnover, and ordered the assessees to pay sales tax on a taxable turnover of Rs. 27-,62,226/-. The order of assessment was confirmed by the Deputy Commissioner, but the Board of Revenue exercising jurisdiction in revision set aside the order, in so tar as it related to the inclusion into the taxable turnover the value of sugar despatched to the Province of Madras. The Board of Revenue observed that the "Controller passed orders in exercise of statutory powers which, as a result of mere compliance, could not create a contract in law," and there was no evidence justifying the view that there could "possibly be any contract between the assessees" and some dealers in Madras and the Sugar Controller. The Board of Revenue under the direction of the High Court of Judicature at Patna submitted under S. 25 (3) of the Bihar Sales Tax Act, 1947, the following question for the opinion of the High Court :
"Whether in the facts and circumstances of the case, the disposal of sugar to the Province of Madras is liable to be taxed."
The High Court answered the question in the affirmative observing that the sugar despatched by the assessees to different Provinces including the Province of Madras under orders of the Controller was liable to be taxed under the provisions of the Bihar Sales Tax Act, 1947. With special leave the assessees have appealed to this Court against the judgment of the High Court.
2. The only question arising in the appeal is whether there was a sale by the assessees of sugar despatched by them to the Provincial Government of Madras in compliance with the directions issued by the Controller in exercise of authority under the Sugar and Sugar Products Control Order, promulgated on February 18, 1946 by the Central Government under powers conferred by sub-rule (2) of Rule 81 of the Defence of India Rules. The material Causes of the Order concerning sugar are these: By cl. (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 on behalf of the Central Government or of a Provincial Government or of an Indian State. Clause 5 enjoined upon every producer or dealer duty to comply with such directions regarding production sales, stocks or distribution of sugar as may from time to time be issued by the Controller. By cl. 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 (1) of c1.(7) the Controller was authorised, inter alia, to allot quotas 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 persons or organisation, in such quantities, of such types or grades, at such times, 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 other person, give priority to, and comply with directions issued to h
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