1. Supply of steel products under a government control order — Assessment of sales tax under the Madras General Sales Tax Act, 1939 — Dispute over nature of transactions. (Para 2 )
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1967 Supreme(SC) 256
SUPREME COURT OF INDIA
K.N. WANCHOO, C.J.I., R.S. BACHAWAT, V. RAMASWAMI, G.K. MITTER AND K.S. HEGDE, JJ.
Indian Steel and Wire Products Ltd., (In all the appeals), Appellant
Versus
State of Madras (in all the appeals), Respondent. Advocate-General for the State of West Bengal, Intervener.
Civil Appeal Nos. 1968 to 1970 of 1966,
D/- 11-9-1967.
Advocates Appeared
M/s. S. B. Banerjee and S. N. Mukherji, Advocates, for Appellant (in all the appeals); Mr. K. M. Mudaliyar, Advocate-General for the State of Madras (Mr. A. V. Rangam, Advocate, with him), for Respondent (in all the appeals); M/s. M. C. Setalvad and B. Sen, Senior Advocates (M/s. G. S. Chatterjee and P. K. Bose Advocates with him), for the Intervener (in C. A. No. 1968 of 1966).
Advocates:
A.V.RANGAM, B.SEN, G.S.CHATTERJEE, K.M.MUDALIYAR, M.C.SETALVAD, P.K.BOSH, S.B.BANERJEE, S.N.MUKHERJEE
A.V.RANGAM, B.SEN, G.S.CHATTERJEE, K.M.MUDALIYAR, M.C.SETALVAD, P.K.BOSH, S.B.BANERJEE, S.N.MUKHERJEE
A transaction constitutes a "sale" if it involves competent parties, transfer of property, a monetary price, and mutual assent. Legal restrictions on the freedom to contract do not negate a sale provided mutual assent is not entirely excluded.
Headnote:(A) Sales Tax Act - Section 2(h) - Constitution - Entry 54, List II, VII Schedule - Sale of Goods Act, 1930 - Definition of "sale" - To constitute a valid sale, there must be concurrence of four elements: (1) parties competent to contract, (2) mutual assent, (3) transfer of absolute or general property in goods, and (4) a price in money paid or promised (Para 3) - Mere restriction on freedom of contract by law does not exclude the existence of a contract so long as mutual assent is not completely excluded (Paras 10, 11).
(B) Compulsory Acquisition vs. Sale - A transaction involving compulsory acquisition of property without mutual assent, where compensation is awarded by statute, is not a sale (Paras 12, 14, 15).
(C) Inter-State Sales - For the purpose of taxing sales within a state, it is sufficient to show that goods were delivered for consumption in that state; actual consumption within the state need not be proved (Para 18).
Facts of the case:
A manufacturer supplied steel products to various buyers under a government control order. The controller fixed base prices and identified the buyers. The appellant contended that since the transactions were mandated by law and heavily regulated by the controller, they lacked mutual assent and thus did not constitute "sales" under the relevant tax act. Additionally, the appellant argued that there was no material to prove the goods were delivered for consumption within the state.
Findings of Court:
The court found that while the controller's directions limited the scope of bargaining, they did not completely exclude mutual assent. The appellant could decide the timing of supply, apply its own terms of business, and negotiate specifications with buyers. Regarding consumption, the court upheld the tribunal's reasonable inference that goods supplied to registered stockists in a state are intended for consumption within that state.
Issues: Whether transactions conducted under a government control order, where prices and buyers are predetermined, constitute "sales" requiring mutual assent, and whether delivery to stockists within a state is sufficient to establish delivery for consumption in that state.
Ratio Decidendi: A sale requires mutual assent, but this does not imply absolute freedom of contract. As long as the parties can agree on some terms, such as timing, delivery, or specifications, mutual assent exists. Compulsory acquisition is distinct from a sale. Furthermore, a reasonable inference that goods delivered to local stockists are for local consumption is sufficient for taxing purposes.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether transactions under government control orders constitute sales — Absence of mutual assent due to legal compulsion — Lack of evidence regarding consumption within the state. (Para 2 )
3. Analysis of the elements of sale — Evaluation of the extent of control exercised by the regulator — Distinction between compulsory acquisition and regulated sales. (Para 3 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 )
4. A transaction constitutes a sale if mutual assent is not completely excluded, regardless of legal restrictions on the freedom to contract. (Para 11 , 17 )
5. Appeals dismissed with costs. (Para 20 )
6. What are the essential elements for a transaction to constitute a sale?
A valid sale requires the concurrence of four elements: parties competent to contract, mutual assent, transfer of absolute or general property in goods from seller to buyer, and a price paid or promised in money. (Para 3 )
7. Does the imposition of legal restrictions on the freedom to contract preclude a transaction from being a sale?
No. So long as mutual assent is not completely excluded in the dealing, it remains a contract. Legal restrictions may narrow the limits of bargaining, but they do not eliminate the contract. (Para 10 , 11 )
8. What distinguishes a regulated sale from a compulsory acquisition for legal purposes?
A compulsory acquisition involves property taken against the owner's will without mutual assent, whereas a sale connotes the mutual assent of two parties, even if the transaction is regulated. (Para 12 , 14 )
9. How is the requirement that goods be delivered for consumption within a state determined?
It can be established via reasonable inferences from the transaction pattern, such as supplies to local registered stockists who meet local demand under a controlled distribution scheme. (Para 18 )
Judgement
HEGDE, J. : These appeals by special leave arise from the common order made by the Madras High Court in T. C. Nos. 117 to 119 (revisions Nos. 71 to 73) on its file. The Indian Steel and Wire Products Ltd., a joint stock public limited company is the appellant in all these appeals.
2. At the instance of the steel controller, the appellant supplied certain steel products to various persons in the Madras State during the financial years 1953-54, 1954-55 and part of 1955-56 (from April 1, 1955 to September 6, 1955). The State of Madras assessed the turnovers of the appellant relating to those transactions to sales tax under th Madras General Sales tax Act, 1939 (Madras Act 9 of 1939) (to be hereinafter referred to as the Act), the law in force at that time. The appellant has been assessed to tax on the basis of best judgment. The authorities under the Act have determined the appellant s turnover during the year 1953-54 at Rs. 31,29,520 and levied a tax of Rs. 16,298/4 annas. During the financial year 1954-55, its turnover was determined at Rs. 37,59,216 and the assessment levied is Rs. 58,737-12-0. For the broken period in the financial year 1955-56, the appellant s turnover was determined at Rs. 14,53,292 and the same was assessed to tax at Rs. 22,707-12-0, Even according to the appellant its turnovers during 1953-54 was Rs. 29,12,533-14-0, in 1954-55. Rupees 39,71,493-7-0 and in 1955-56, Rupees 17,25,400-5-0. Therefore, there is little room for controversy about its turnovers in the relevant years. The appellant is contesting the right of the State of Madras to levy tax on the turnovers in question. According to the appellant, the turnovers in question could not have been considered as sales and consequently they could not have been brought to tax under the Act. The appellant asserts that deliveries in question were made under compulsion of law and there was no agreement between the parties. They were made in pursuance of the orders of the Controller exercising powers under the Iron and Steel (Control of Production and Distribution) Order, 1941 (which will hereinafter be referred to as the order), which was issued under the Defence of India Act, 1939. It was argued on behalf of the appellant that it was the controller who determined the persons to whom the goods were to be supplied, the price at which they were to be supplied, the manner in which they were to be transported, and the mole in which the payment of the price was to be made. In short, it was said that every facet of those transactions were prescribed by the controller and therefore those transactions cannot be considered as sales. On the basis of those assertions support was sought from the decision of the House of Lords in Kirkness v. John Hudson and Co. Ltd. , 1955 AC 696 the decision of this Court in M/s. New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar , (1963) Supp 2 SCR 459: the decision of the Calcutta High Court in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, West Bengal , 1951-19 ITR 406: the decision of the Orissa High Court in Messrs. Cement Ltd. v. The State of Orissa , 1961-12 STC 205 (Ori) and a few other decisions. It was further argued that even if those transactions re considered as sales the State before exercising its taxing power should have had in its possession material to show that the goods delivered by the appellant were delivered in that State for consumption which circumstance alone can make those transctions sales within that State; as no material was placed on record to show that the goods in question were delivered in that State for consideration it could not have brought the turnovers in respect of those transactions to tax under the Act. These contentions of the appellant have been rejected by the authorities under the Act as well as by the High Court. Other contentions advanced on behalf of the appellant deserve to be summarily rejected for the reasons to be mentioned hereinafter.
3. T
