Judgement

RAMASWAMI, J. : The appellant is a partnership firm carrying on business in bamboos, timber and firewood at Gokavaram in the State of Andhra Pradesh. The firm had been registered as a dealer under the Andhra Pradesh General Sales Tax Act (No. VI of 1957), hereinafter referred to as the Act. For the assessment year 1962-63, the appellant submitted a return showing a gross turnover of Rs 13,89,130-70 P. and claimed exemption on a turnover of Rupees 13,68,174.39 P which according to the appellant represented the amount of sales effected by its commission agents and sales of firewood. By a notice dated November 28, 1963, the Commercial Tax Officer, Rajahmundry called upon the appellant to show cause as to why it should not be assessed for the year 1962-63 on a turnover of Rupees 13,89,130.70 P. at 2 per cent. Eleven items were comprised in the notice. Item No. 1, relating to a turnover of Rs. 96,527.10 P. was under the firewood account. It was alleged by the appellant that it paid the single point tax at 2 per cent to the Forest Department on the amounts for which the forest goods were taken in auction. As regards items 2 to 11, the appellant claimed exemption on the ground that its agents, Messrs. Kusuma Arjayya and Batlanki Veera Venkayya, Rajahmundry, paid the tax. The case of the appellant was that it sent goods for sale to its commission agents and under the contract of agency the common agents were empowered to pay sales-tax and had paid the same directly to the Sales Tax Department. In accordance with the usual commercial practice the commission agents collected Dharmam on the sales conducted by them and appropriated those collections for charitable purposes. The commission agents furnished accounts to the appellant but in these accounts the amounts co1lected towards sales-tax and Dharmam were not specifically shown as. It was understood between the parties that the amounts collected towards sales tax would be remitted to the Sales Tax Department and the amounts collected towards Dharmam would be credited to the charity account of the commission agents and suitably utilised by them. Aggrieved by the assessment notice of the respondent disallowing its claim for exemption the appellant-firm filed a writ petition No. 1404 of 1963 dated December 7, 1963 before the High Court of Andhra Pradesh under Art. 226 of the Constitution praying for the grant of a writ in the nature of certiorari calling for the records relating to sales-tax assessments of the appellant for the year 1962-63 and quashing the notice dated November 28, 1963 issued by the respondent. By its judgment dated April 16, 1964 the High Court dismissed the writ petition. This appeal is brought by a certificate granted by the High Court.

2. On behalf of the appellant it was contended, in the first place, that Explanation III to S. 2 (1) (n) of the Act enlarged the scope of the word "sale" and by means of a fiction converted what are not sales in law into taxable sales for the purpose of the Act and, therefore, the Explanation was ultra vires of the powers of the State Legislature which had no legislative competence to impose a tax under Entry 48 (Sic Entry 54) in List II of Sch. VII of the Constitution. Section 2 (1) (n) of the Act defines "sale" as follows :

" sale with all its grammatical variations and cognate expression means every transfer of the property in goods by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration, (and includes any transfer of materials for money consideration in the execution of a works contract provided that the contract for the transfer of such materials can be separated from the contract for the services and the work done, although the two contracts are embodied in a angle document) or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hyp