1. Retail dealer's self-consumption of motor spirit and lubricants taxed as retail sale under the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act, 1958. (Para 1 , 3 )
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1962 Supreme(SC) 443
SUPREME COURT OF INDIA
21st December, 1992
B.P. SINHA, C.J.I., P.B. GAJENDRAGADKAR, K.N. WANCHOO. K.C. DAS GUPTA AND J.C. SHAH, JJ.
Bhopal Sugar Industries Ltd., M.P. and another, Petitioners
Versus
D. P. Dube, Sales Tax Officer, Bhopal Region, Bhopal and another, Respondents.
Petition No. 85 of 1961.
Advocates appeared
Mr. S. T. Desai, Senior Advocate, (M/s. J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co. with him), for Petitioners; Mr. B. Sen. Sr. Advocate, (M/s. K. L. Hathi and I. N. Shroff, Advocates, with him), for Respondents.
The State Legislature cannot tax self-consumption of goods by a dealer by deeming it a "sale," as "sale of goods" for taxation purposes must satisfy the essential elements of a sale under the Sale of Goods Act, 1930.
Headnote:(A) Constitution of India - Entry 54, List II - Sale of Goods Act, 1930 - State Sales Tax Act - Sections 2(1), 2(k) and 3 - Definition of "retail sale" - Inclusion of self-consumption by a retail dealer as a "sale" - Legislative competence of the State - A power to tax "sale of goods" must relate in fact to a sale of goods as defined in the Sale of Goods Act, 1930 - State Legislature cannot tax transactions which are not sales by merely enacting that they shall be deemed to be sales (Paras 4, 5, 6).
(B) Sale of Goods - Essential elements - For a transaction to be a sale, there must be: (1) parties competent to contract; (2) mutual assent; (3) transfer of absolute or general property in a thing; and (4) a price in money paid or promised - Consumption of goods by the owner in which he deals does not constitute a sale (Paras 4, 7).
(C) Severability - A clause in a definition that is ultra vires for lack of legislative competence is severable from the rest of the definition (Para 7).
Facts of the case:
A company, registered as a retail dealer of motor spirit and lubricants, used a portion of its stock for its own motor vehicles. The assessing authority imposed sales tax on such consumption, treating it as a "retail sale" based on a statutory definition that explicitly included consumption by the retail dealer himself or on his behalf.
Findings of Court:
The provision including self-consumption within the definition of "retail sale" is beyond the competence of the State Legislature as it does not conform to the traditional concept of "sale of goods" required under the Constitution. The assessment order based on this invalid provision cannot be sustained.
Issues: Whether the definition of "retail sale" which includes consumption by the retail dealer himself is within the legislative competence of the State and whether such consumption can be taxed as a sale.
Ratio Decidendi: The expression "sale of goods" in the legislative entry conferring power upon States to tax sales has the same meaning as in the Sale of Goods Act, 1930. Since self-consumption lacks the essential elements of a sale—specifically the transfer of property for a price—it cannot be deemed a sale for taxation purposes.
Result: Petition allowed.
Legal Category Hierarchy
Table of Contents
2. Challenge to the constitutionality of the definition of retail sale including self-consumption as being beyond the legislative competence of the State. (Para 2 , 9 )
3. State legislative power to tax sale of goods is limited to transactions conforming to the definition of sale under the Sale of Goods Act, 1930. (Para 4 , 5 , 6 )
4. Consumption of goods by the owner is not a sale of goods; therefore, taxing such consumption by deeming it a sale is ultra vires. (Para 7 )
5. Petition allowed; assessment order regarding tax on self-consumed motor spirit and lubricants declared invalid. (Para 8 , 10 )
6. What constitutes a sale of goods for the purpose of State taxation?
A transaction must conform to the traditional concept of sale under the Sale of Goods Act, 1930, requiring competent parties, mutual assent, transfer of property, and a price in money. (Para 4 )
7. Can a State Legislature tax non-sale transactions by deeming them to be sales?
No. The State Legislature cannot, in the exercise of its power to tax sales of goods, tax transactions that are not sales by merely enacting that they shall be deemed to be sales. (Para 4 , 5 )
8. Is the self-consumption of goods by a retail dealer considered a sale of goods under Entry 54, List II of the Constitution?
No. Consumption by an owner of goods in which they deal is not a sale within the meaning of the Sale of Goods Act, 1930, and thus falls outside the State's legislative competence. (Para 7 )
Judgment
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 Sehore 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.
2. 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 Article 19(1)(f) and (g) of the Constitution.
3. 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 cl. (1) defines retail sale as meaning "a sale by a retail dealer of motor spirit or lubricant to a person 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.
4. 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 definition 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 State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. 1959 SCR 379 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 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 does 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. 407 (of SCR):
"A power to enact a law with respect to tax on sale of goods
