1952 Supreme(All) 66

IN THE HIGH COURT OF ALLAHABAD
Sapru and Agarwala, JJ.
BUDH PRAKASH JAI PRAKASH - Appellant
Versus
SALES TAX OFFICER - Respondents
Writ Appln. 7297 Of 1951
Decided On : 02/27/1952

Headnote:

SALES TAX - Forward contracts - Whether assessable under the U.P. Sales Tax Act, 1948 - Whether provisions relating to taxation of sales, delivery of which was made outside the U.P. were ultra vires of the U.P. Legislature - Whether, in any case, Clause (h) read with Explanation II was invalid as it was inconsistent with Article 286 of the Constitution.

Fact of the Case:

The applicant, a firm carrying on business, inter alia, of forward contracts, was assessed to sales tax on forward contracts in the assessment years 1948-49 and 1949-50. It paid a sum of Rs. 1,082/8/- as sales tax for the year 1948-49 and Rs. 7,369/- for the assessment year, 1949-50. In addition, to these amounts, the applicant paid a sales tax on forward contracts of various commodities done from 1-4-1950 to 31-1-1951. The applicant challenged the assessment orders dated the 27-2-1950 and the 23-5-1950 relating to the assessment years 1948-49 and 1949-50 respectively and the provisional assessment order dated the 30-1-1950 relating to the assessment year 1949-50 in respect of forward contracts of peas. It also sought a writ in the nature of prohibition commanding opposite party No. 1 to desist from proceeding further with assessment proceedings relating to forward contracts of guar and peas. Also included in the relief claimed is a writ in the nature of mandamus to opposite parties calling upon them to forbear from giving effect to the provisions of the U. P. Sales Tax Act, 1948, in so far as they relate to forward contracts in respect of gold, silver and guar.

Finding of the Court:

The Court held that the reference to forward contracts in Clause (h) of Section 2 read with explanation III of the Act was beyond the legislative competence of the U. P. legislature, that the provisions relating to taxation of sales, delivery of which was made outside the U. P. were ultra vires of the U. P. Legislature and that, in any case, Clause (h) read with Explanation II was invalid as it was inconsistent with Article 286 of the Constitution.

Issues: 1. Whether forward contracts are assessable under the Act and whether the provisions in the Act relating to the taxation of those forward contracts in which delivery does not take place are constitutionally legal or not. 2. Whether the provisions relating to taxation of sales, delivery of which was made outside the U.P. were ultra vires of the U.P. Legislature 3. Whether, in any case, Clause (h) read with Explanation II was invalid as it was inconsistent with Article 286 of the Constitution.

Ratio Decidendi: 1. The definition of sale in Section 2 (h) of the Act includes forward contracts in which delivery of goods or transfer of property in goods may not take place. The power of the provincial government to make a law with regard to the taxation on sales of goods is covered by Item 48 of list II of 7th Schedule of the Government of India Act. Sales of goods is an expression which has not been used in the Government of India Act for the first time. It is a well-recognised expression used both in the Indian Sale of Goods Act as also in the English Sale of Goods Act. Section 4 of the Indian Sale of Goods Act distinguishes between a sale and an agreement to sell. Both are denominated as contracts of sale. The difference between a sale and an agreement to sell lies in the time at which the transfer of the property in the goods which are the subject-matter of a sale or an agreement to sell takes place. If the transfer of the property in the goods takes place immediately, it is a sale. If it takes place at a future time or subject to some conditions to be fulfilled in future, it is an agreement to sell. An agreement to sell becomes a sale when the future time arrives and the transfer of property takes place. A forward contract is a contract under which parties agree that property in certain goods, whether in existence or not, shall be transferred from the buyer to the seller on a future date. Such contracts usually are speculative contracts in which parties intend that they will pay and receive differences according to the market rate prevailing on the date fixed for delivery of goods. Sometimes delivery of goods is actually made but mostly it is not made. When it is not made there is always a question whether contracts were wagering or not. The expression sale of goods as used in Item 48 List II, 7th Schedule, Government of India act, could not be enlarged by an Act of the U. P. legislature to include forward contracts or agreement to sell by means of a definition of its own regardless of the fact whether transfer of property takes place or not. If the legislature attempts to do this, it clearly acts beyond its powers. 2. The provisions relating to taxation of sales, delivery of which was made outside the U.P. were ultra vires of the U.P. Legislature. 3. Clause (h) read with Explanation II was invalid as it was inconsistent with Article 286 of the Constitution.

Final Decision: The Court issued an order in the nature of certiorari to the Sales tax Officer quashing the assessment orders dated 27-2-1950 and 23-5-1950 relating to the assessment years 1948-49 and 1949-50 respectively and the provisional assessment order dated 30-1-1950 relating to the assessment year 1949-50. It also directed a writ in the nature of prohibition to issue to the opposite parties to refrain from proceeding further with the assessment proceedings relating to forward contracts of guar and peas.