2006 Supreme(SC) 486

2006(5) Supreme 73
Supreme Court of India
(From Allahabad High Court)
S.B. Sinha and P.K. Balasubramanyan, JJ.
Dhampur Sugar Mills Ltd. — Appellant
versus
Commissioner of Trade Tax, U.P. — Respondent
Civil Appeal No. 2635 of 2006
(Arising out of SLP (C) No. 1811 of 2005)
Decided on 12-5-2006
Counsel for the Parties :
For the Appellant : Dushyant Dave, Sr. Advocate, Prasenjit Keswani, Bharat Singh, Amol Chitale and Mrs. V.D. Khanna, Advocates.
For the Respondent : Dinesh Dwivedi, Sr. Advocate, Rajeev Dubey and Kamlendra Mishra, Advocates.

Important point
Definition of sale under U.P. Trade Tax Act is different from provisions of the Sale of Goods Act.

Headnote:Uttar Pradesh Trade Tax Act, 1948 — Sections 2(h) and 3F — Constitution of India — Article 366 clause 29A — Tax on sale or purchase of goods — Definition of "sale" — Sale under U.P. Trade Tax Act would mean a transfer of property in goods in any way otherwise than by way of a mortgage, hypothecation, charge or pledge for cash or deferred payment or other valuable consideration — Appellant took possession of a sugar mill from a Company under a Deed of Licence and executed a performance guarantee to ensure performance of said Deed of Licence — In terms of performance guarantee agreement, a major part of licence fee was to be paid in shape of molasses — Question whether adjustment of price of molasses from amount of licence fee would amount to sale within the meaning of U.P. Trade Tax Act to attract tax under the Act ? Yes.

       Held : It is beyond any controversy that the mode and manner in which the licence fee was to be paid, is not the subject matter of the said Deed. In other words, the Deed of Licence does not contain any provision that the appellant was required to transfer to the company, the molasses produced by it, by exercising its exclusive right to use the sugar mill, in lieu of the licence fee or otherwise. The Performance Guarantee Deed entered into by the appellant herein was a mechanism to pay the licence fee. By reason of the said performance guarantee, only a provision has been made in terms whereof the appellant was required to handover the entire quantity of molasses to the Company and the appellant had no right to sell it to any other person. Clause 1 of the said Performance Guarantee Deed speaks of furnishing of the security of Rs. 50 lakhs to the Company as an interest free deposit. Out of the said sum, a sum of Rs. 6 lakhs was to adjusted towards payment of the licence fee of Rs. 56 lakhs, as a result whereof, the security amount would be reduced proportionately on completion of each year of licence. Only the unadjusted amount of security, in terms of the said Deed, was required to be refunded by the Company to the appellant at the time of handing over possession of the mill. (Para 16)

       For the purpose of supply of molasses, the rates notified by the Government was required to be taken into consideration. The quantity of supply was not fixed and would depend upon the working of the sugar mill. If there was to be any excess or shortage in molasses to be delivered towards the amount of licence fee, the same was required to be made good by either of the parties. A dispute resolution mechanism between the parties is contained in Clause 6 of the said Deed of Performance Guarantee. It is, therefore, not a case where molasses were required to be supplied, in terms of the provisions of the licence. Both molasses and sugar, were controlled commodities in the year 1988. The appellant, as also the Company, were required to sell molasses and sugar at the price notified by the Appropriate Government. In terms of the Act, the manufacturer would be a dealer. The appellant, therefore, was a dealer. It was, therefore, not correct to contend that the licence fees were being paid by the appellant by way of supply of molasses. In terms of the Deed of Licence, the appellant is responsible to manufacture in the same capacity as that of the owner. It has to pay the licence fee in the manner laid down in the deed of licence. The performance guarantee is not a part of the Deed of Licence in the sense that by reason thereof the terms and conditions for grant of the licence including that of payment of the licence fee, are not controlled by it. (Para 17)

       The definition of ‘sale’, thus, is different from the provisions of the Sale of Goods Act, 1930, as in terms thereof a contract of sale of goods would be deemed to be a contract of sale or transfer of property in the goods to the buyer for a price. However, in terms of Section 2(h) of the U.P. Trade Tax Act, 1948, a sale would mean a transfer of property in goods in any way otherwise than by way of a mortgage, hypothecation, charge or pledge for cash or deferred payment or other valuable consideration. The definition being an inclusive one must be given a broad meaning. A transfer of the right to use any goods for any purpose either for cash or deferred payment or other valuable consideration, would come within the purview of the said definition. (Para 19)

       The performance clause contained in Clause 18 of the Deed of Licence does not govern the other terms and conditions of the licence. The amount of licence fee is fixed. Only a sum of Rs. 6 lakhs is to be adjusted from the amount of security deposit. In each year, having regard to the said term, different amount of licence fee was payable. Supply of molasses would depend upon the production in the mill. The price payable therefor was also variable. In a given situation, having regard to the extent of production, the appellant, at the end of the licence year, may become entitled to some amount from the Company as it is possible, having regard to the agreed terms, that the appellant was required to transfer the entire quantity of molasses produced in the said sugar mill, the amount of molasses supplied would exceed the amount of licence fee found to be payable for a particular year. If, in respect of such excess molasses, the Company was required to pay any amount to the appellant, in our opinion, it cannot be said the parties have entered into a contract for supply of molasses produced in the sugar mill by the appellant herein in favour of the Company by way of a barter or exchange. (Para 20)

       An adjustment of price in a case of this nature, in our opinion, therefore, would come within the purview of the term "other valuable consideration", inasmuch as both the appellant and the Company, were aware that they have to fulfil their respective terms of obligations, i.e., (i) payment of licence fee on monetary terms; and (ii) payment of price of molasses supplied by the appellant to the Company, which is again on monetary terms. Parties, therefore, by mutual consent only have agreed to adjust the price of molasses supplied with the amount of licence fee. The rate for supply of molasses was to be determined by the Central Government. In that view of the matter, presumably one party or the other shall make good the shortfall or the excess upon taking into consideration the price of molasses fixed by the Central government. The transaction, in our opinion does not constitute an exchange or barter. It was not a transaction by way of transfer of stock. It was also not a transfer by way of a mortgage or lease. (Para 24)

       Molasses manufactured in the sugar mills, was the property of the appellant and it answers the description of "goods". In view of the terms and conditions of the Deed of Licence, the appellant was the owner thereof. The Company was to use the molasses for the purpose of manufacture of sugar in its factory. Transfer of such molasses by the appellant to the Company, would not be a transfer by way of transfer of stock. It is transfer of the ownership in goods wherefor the Company was to pay the price to the appellant. The transaction, therefore, beyond any doubt, answers the description of "sale" within the meaning of the provisions of the U.P. Trade Tax Act, 1948. For each supply of molasses the appellant would be entitled to the price thereof. The amount towards the price of the goods could be paid either by way of cash or deferred payment. Instead of cash, the price of molasses was to be adjusted from the amount payable by the appellant to the owner by way of consideration for use of the mill. Such a mutual arrangement is merely one for the purpose of adjusting the accounts. The transactions between the parties are in effect and substance involve passing of monetary consideration. It would, thus, come within the purview of the expression "any other valuable consideration", which expression would take colour from deferred payment being a monetary payment, but does not loose its character of some other monetary payment by way of mutual arrangement. The parties are not bartering or exchanging any goods so that the element of monetary consideration is absent. Money is a legal tender. Cash is, however, narrower than money. The words "deferred payment" and "other valuable consideration" enlarge the ambit of consideration beyond cash only. Entry 54 of List II of the Seventh Schedule to the Constitution of India provides for "sale of goods". Once a sale of goods takes place, the State becomes entitled to impose tax on sale or purchase of goods. For construction of the words "sale of goods", now the Court is not necessarily required to fall upon the definition of sale of goods, as contained in the Sale of Goods Act, 1930. It has to be governed by its enlarged definition under Clause (29-A) to Article 366 of the Constitution of India. Once an essential component of sale takes place, Sales tax would, indisputably, be payable. By reason of such an arrangement by the parties, the State is not creating a new taxable event nor imposing a new tax which was unknown in law. (Para 30)