Commissioner of Sales Tax, Madhya
Pradesh, Indore V. Madhya Pradesh Electricity Board, Jabalpur  INSC 291
(26 November 1968)
26/11/1968 GROVER, A.N.
CITATION: 1970 AIR 732 1969 SCR (2) 939 1969
SCC (1) 200
Electricity Supply Act, 1948, s. 18-Supply of
Electricity under-Supplier whether a 'dealer' within the meaning of s.
2(d) of C.P. & Bearar Sales Tax Act 21 of
1947 and s. 2(d) of Madhya Pradesh General Sales Tax Act 2 of 1959- Electricity
whether 'goods'-Supply of steam by Electricity Board-Nature of
transaction-Whether works contract.
The assessee-Electricity Board constituted
under the Electricity Supply Act, 1948, supplied and distributed electric
energy within the State of Madhya Pradesh. In the assessment years in question
the Electricity Board sold, supplied and distributed electric energy to various
consumers, It also supplied steam to Nepa Mills. The mill was supplying water
free and the Electricity Board was making a pro-rata charge of conversion of
water into steam.
The mill had also agreed to re-imburse the
Board-for the loss sustained on account of the mills not taking the full demand
of steam. In proceedings under the C.P. & Bearar Sales Tax Act, 1947 'and
the Madhya Pradesh General Sales Tax Act, 1959 the question for consideration,
inter alia, were (i) whether electricity was 'goods' within the meaning of the
two Acts and whether the Board was a 'dealer' within the, meaning of s. 2(c) of
the 1947 Act and s. 2(d) of the 1959 Act; and (ii) whether the supply of steam
amounted to 'sale' 'and was therefore taxable. The High Court, in reference,
held that electricity was not 'goods', that the Board was not a 'dealer"in
electricity and that the supply of steam was not taxable as it was not supplied
With 'a profit motive. In appeal by special leave to this Court by the
Commissioner of Sales Tax,
HELD: (i) The Electricity Board carried on
the business of selling, supplying and distributing electricity which fell
within the meaning of the expression 'goods' in the two Acts and was therefore
a 'dealer'. [945 H] The definition of "goods" is very wide and
includes all kinds of movable property.
The term 'movable property' when considered
with reference to 'goods' as defined for the purposes of sales tax cannot be
taken in a narrow sense and merely because electric energy is not tangible or
cannot be moved or touched, like, for instance, a piece of wood or a book, it
cannot cease to be movable property when it has all the attributes of such property.
It is capable of abstraction, consumption and use which, if done dishonestly,
would attract punishment Under s. 39 of the Indian ElectricitY Act, 1910. It
can be transmitted, transferred, delivered, stored, possessed etc. in the same
way as any other movable property. If there can be sale and purchase of
electric energy like any other movable object, it is be held that electric
energy was intended to be covered by the definition of 'goods' in the two Acts.
If that had not been the case there was no necessity of specifically exempting
sale of electric energy from the payment of sales tax by making a provision for
it in the Schedule to the two Acts. [945.E-H] 940 Kumbakonam Electric Supply
Corporation Ltd. v. Joint Commercial Tax Officer, Esplanade Division, Madras,
14 S.T.C. 600, Malerkotla Power Supply Company v. The Excise & Taxation
Officer, Sangrur & Ors. 22 S.T.C. 325, Naini Tal Hotel. Municipal Board,
A.I.R. 1946 All. 502, Erie County Natural Gas & Fuel Co. Ltd. v. Carroll,
 A.C. 105, County of Durham Electrical etc. Co. v. Inland Revenue 
2 K.B. 604, referred to.
Rash Behari v. Emperor, A.I.R. 1936 Cal. 753
(ii) On the facts of the present case the
arrangement relating to supply of steam in return of water supplied by the
mills on payment of actual cost was not one of sale but was more in the nature
of a workS ,contract Where the main object of work undertaken by the payee of
the price is not the transfer of a chattel qua chattel, the contract is one for
work and labour. [946 G--H] The Government of Andhra Pradesh v. Guntur Tobaccos
Ltd., 16 S.T.C. 240, and HaLsbury's Laws of England, HI Edn. Vol. 34 page 6,
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1153 -to 1160 and 1161 to 1168 of 1968.
Appeals by special leave from the judgment
and order, dated November 16, 1967 of the Madhya Pradesh High Court in Misc.
Civil Cases Nos. 96 to 103 of 1967.
I. N. Shroff, for the appellant (in C.As.
Nos. 115 3 to 1160 of 1968) and the respondent (in C.As. Nos. 1161 to 1168 of
S.T. Desai, B.L. Neema and Anjali Varma, for
the appellant (in C.As. Nos. 1161 to 1168 of 1968): and the respondent C.As.
Nos. 1153 to 1160 of 1958).
N.D. Karkhanis and 11. G. Ratnaparkhi, for
the intervener (in C..Pa, Nos. 1153 to 1160 of 1968).
The judgment of the Court was delivered by
Grover, J. This judgment will dispose of two 'sets of cross appeals Nos.
1153-1160 & 1161-1168/68 which are from a common judgment of the Madhya
Pradesh High Court and have been entertained by special leave.
The relevant assessment years for the purpose
of levy of sales tax are from April 1, 1957 to March 31, 1958. and April 1,
1964 to March 31, 1965.. For the assessment years prior to April 1, 1959 the
enactment in force was the C.P.
and Berar Sales Tax Act, 1947 (No; XXI of
1947) and for the subsequent two years it is the Madhya Pradesh General Sales
Tax Act (Act No. 2 of 1959), which would be applicable.
The. material facts may be shortly stated,
The assessee- Madhya Pradesh Electricity Board-hereinafter called the
"Electricity Board?' is a body constituted under s. 5 of the Electricity
Supply Act, 1948. Under s.
944 18 of that Act it was the general duty of
the Electricity Board to promote coordinated development of the generation,
supply and distribution of electric energy within the State of Madhya Pradesh
in the most efficient and economical manner. In the assessment years in
question the Electricity Board sold, supplied and distributed electric energy
to various consumers. It also sold coal-ash a waste product and Supplied steam
to Nepa Mills of Burhanpur. It further supplied specification and tender forms
on payment to persons desirous of submitting tenders for the works undertaken
by the Electricity Board. It purchased articles like Gitti, Murram, sand etc.
from unregistered dealers. It is common ground that under the provisions of Act
XXI of 1947 and H of 1959 read with the' Schedule contained therein sale of
electricity is exempt from sales tax. For the purpose of determining the gross
turnover, however, the sale of electric energy is to be taken into account.
The Assistant Commissioner of Sales tax assessed
the Electricity Board to tax on its turnover of sale of coal-ash and
specification and tender forms and the supply of steam to Nepa Mills. The Board
was further assessed to purchase tax on Gitti, Murram etc. purchased from
unregistered dealers. In appeal the Deputy Commissioner, Sales Tax, upheld the
assessment orders. On second appeal the Sales Tax Tribunal which was the Board
of Revenue, Madhya Pradesh, held that the Electricity Board was not a
"dealer" within the meaning of that term as defined in the two Acts
and that the coal-ash was not produced for the purpose of sale with the result
that sales of coal-ash could not be subjected to tax. As regards the supply of
steam to Nepa Mills the tribunal, on examining the terms of the agreement under
which the Electricity Board supplied the steam, came to the conclusion that
such supply was an isolated transaction and that such activity which had been
undertaken on no profit no loss basis could not be assessed to sales tax. The
specification and tender forms were held not to be marketable goods involving
any profit element and for that reason could not be taxed. As regards the
purchase tax the tribunal held that as the Electricity Board was not a dealer
in respect of the sale and supply of electric energy no purchase tax could be
imposed on goods purchased by it and consumed "in furtherance of and in
aid of the business activity of generating, supplying and distributing
electricity." Both the Electricity Board and the Commissioner of Sales
Tax. Madhya Pradesh, filed applications requiring the Tribunal to refer to the
High. Court certain questions of law arising out of its common order. The
tribunal drew up a common statement of case and referred five questions of law.
On the first question the High Court 'held
that the Electricity Board could not be held to be "dealer" as
defined in s. 2(c) of Act XXI of 19.47 or s. 2(d) 942 of Act H of 1959 in
respect of its activity of generation, distribution, sale and supply of
electric energy. On the second question it was held that as the Electricity
Board regularly and continuously produced coal-ash as a subsidiary product and
sold it regularly it was a "dealer" in regard to the sale of coal-ash
and the sale, transactions relating to this product were liable to be assessed
to sales tax. The third question was answered in favour of the Electricity
Board. It was found that stem was not being supplied to the Nepa mills with
profit motive although it fell within the definition of "goods" given
in the two Acts. As regards the specification and tender forms the High Court
was of the view that the Electricity Board was not carrying on any business of
selling such forms and therefore no sales tax could be levied in respect of
them. The fifth question was answered by holding that as the Electricity Board
was not a "dealer" in respect of sale and supply of electric energy
it was not entitled to purchase any taxable goods for consumption or use for
producing such energy without paying sales tax to the selling dealer under s.
4(6) of Act XXI of 1947 and s. 7 of Act II of 1959 and therefore there. was no
liability to pay purchase tax.
Mr. Shroff, who has argued the appeals of the
Commissioner of Sales Tax, has not quite properly and rightly pressed the
matter relating to imposition of sales tax on supply of specification and
tender forms. Mr. S.T.
Desai, who has. appeared for the Electricity
Board, after a certain amount of argument, has submitted that he had nothing
much to say on the question relating to coalash except that it should be held
to be exempt from payment of sales tax because electric energy is exempt from
such tax as stated before. As regards the fifth question relating to the
imposition of purchase tax Mr. Desai has not pressed for any decision being
given by us. Arguments which have been addressed by both sides have therefore
centered on question nos. 1 and 3 which are as follows :- "(1) On the
facts and circumstances of the case whether or not the Madhya Pradesh
Electricity Board is a dealer within the meaning of section 2(c) of the C.P.
& Berar Sales Tax Act, and section 2(d) of the Madhya Pradesh General Sales
Tax Act, 1958, in respect of its activity of generation, distribution, sale and
supply of electrical energy ? (2) (3) On the facts and circumstances of the
case, whether or not steam is saleable goods and if they are saleable goods is
the turnover representing the supply thereof liable to be assessed to sales tax
m the hands of the assessee ?" 943 it is somewhat curious that both sides
are almost agreed that the decision of the. High Court on the first question is
not correct. Since enunciation of the true position is involved we proceed to
give our opinion in the matter. The definition of a "dealer" as given
in the two Acts substantially is that any person who carries on the business of
buying, selling, supplying or distributing the goods as a "dealer"
and "goods" are defined by s.2(d) of Act of 1947 as meaning all
kinds' of movable property other than actionable claims ...... and include all
materials articles and commodities whether or not to be used in the
construction, fitting out, improvement or repair of immovable property.
The definition contained in s. ~2(g) of Act
II of 1959 is almost in similar terms except that there are certain additions
with which we are not concerned. Reference may be made, at this stage, to the
definition of "movable property" which has not been defined in the
two Acts given in s. 2(24) of the Madhya Pradesh General Clauses Act. It has
been defined to mean "property of every description, except immovable
Section 2(18) of that Act says that
"immovable property" includes land,. benefits to arise out of land
and things attached to the earth, or permanently fastened to anything attached
to the earth." The High Court went into a discussion from the point of
view of mechanics relating to transmission of electric energy. It was of the
view that electricity could not be regarded as an article or matter which could
be possessed or moved or delivered. It relied on certain decisions and referred
to Entries Nos. 53 and 54 in List II of Seventh Schedule to the Constitution
and held that electricity did not fall within the meaning of "goods"
in the two Acts and therefore the Electricity Board could not be held to be a
"dealer" in respect of its activity of generation, distribution, sale
and supply of electric energy.
Mr. I.N. Shroff has relied on certain
decisions in which the same point was involved as in the present case. namely,
whether electricity is "goods" for the purpose of imposition of sales
tax.' In Kumbakonam Electric Supply Corporation Ltd. v. Joint Commercial Tax
Officer, Esplanade Division, Madras(1), the Madras High Court was called upon
to decide whether electricity is "goods" for the purposes of the
Madras General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956. After
referring to the definition of "goods" as given in the Sale of Goods
Act, 1930, it was observed that under that definition goods must be property
and it must be movable. According to the learned Madras Judge any kind of
property which is movable would fall within the definition of "goods"
provided it was transmissible or transferable from hand to hand or capable of
delivery which need not necessarily be in a tangible or a physical sense.
Reference was also (1) 14 S.T.C. 600. L6 Sup. C I.169-9 944 made to the
definition given in the General Clauses Act which was quite wide and it was
held that if electricity was property and it was movable it would be
"goods". The learned Judge found little difference between
electricity and gas or water which would be property and could be subjected to
a particular process, bottled up and sold for consumption. It was observed that
electricity was capable of sale as property as it was sold, purchased and
consumed everywhere. A "dealer" was defined by the Central Sales Tax Act
practically in the same way as in the Madras General Sales Tax Act and it meant
a person who carried on business of buying and selling goods. In the opinion of
the learned Judge the concept of dealer, goods and sale comprehended all kinds
of movable property. He further relied on certain decisions which have been
cited before and which will be presently noticed. A similar view was expressed
by Tek Chand, J. of the Punjab & Haryana High Court in Malerkotla Power
Supply Company v. The Excise & Taxation Officer, Sangrur, & Ors.(1) It
was held that electric energy fell within the definition of "goods"
in both the Punjab Sales Tax Act, 1948 and the Central Sales Tax Act, 1956.
According to the learned Judge electric
energy has the commonly accepted attributes of movable property. It can be stored
and transmitted. It is also capable of theft. It may not be tangible in the
sense that it cannot be touched without considerable danger of destruction or
injury but it was perceptible both as an illuminant and a fuel and also in
other energy-giving forms. Electric energy may not be property in the sense of
the term "movable property" as used in the Punjab & Central
General Clauses Acts in contra- distinction to "immovable property"
but it must fall within the ambit of "goods" "even if in a sense
it was intangible or invisible". As pointed out in the Madras case the
statement contained in American Jurisprudence(2) recognises that electricity is
property capable of sale and it may be the subject of larceny. In Naini Tal
Hotel v. Municipal Board(a) it was held that for the purpose of Art. 52 of the
Indian Limitation Act electricity was property and goods.
In Erie County Natural Gas & Fuel Co.
Ltd. v. Carroll(4), a question arose as to the measure of damages for a breach
of contract to supply gas. Lord Atkinson delivering the judgment of the Privy
Council applied the same rule which is applicable where the contract is one for
sale of goods. In other words gas Was treated to be "goods".
The High Court, in the present case, appears
to have relied on Rash Behari v. Emperor(5) in which approval was accorded to
the statement in Pollock & Mulla's Commentary on Sale Goods Act, 1913 that
it was doubtful whether that Act was applicable to such "goods" as
gas, water 'and electricity. The context (1) 22 S.T.C. 325.
(2) 18 American Jurisprudence 407 (S. 2
Electy.) (3) A.I.R. (1946) All. 502.
(4)  A.C. 105.
(5) A.I,R.  Cal. 753.
945 which this matter is discussed in the
Calcutta case is altogether different and distinguishable and what was being
decided there was the scope and ambit of s. 39 of the Electricity Act, 1910, As
regards the Entries in List 11 of the Seventh Schedule to the Constitution, the
relevant ones may be produced:
"53. Taxes on the consumption or sale of
54. Taxes on the sale or purchase of goods
other than newspapers, subject to the provisions of entry 92A of List I".
The reasoning which prevailed with the High
Court was that a well-defined distinction existed between the sale or purchase
of "goods" and consumption or sale of electricity;
otherwise there was no necessity of having
Entry No. 53.
But under Entry 53 taxes can be levied not
only on sale of electricity but also on its consumption which could not
probably have been done under Entry 54. It is difficult to derive much
assistance from the aforesaid entries. What has essentially to be seen is
whether electric energy is "goods" within the meaning of the relevant
provisions of the two Acts. The definition in terms is very wide according to
which "goods" means all kinds of movable property. Then certain items
are specifically excluded or included and electric energy or electricity is.
not one of them. The term "movable property" when considered with
reference to "goods" as defined for the purposes of sales tax cannot
be taken in a narrow sense and merely because electric energy is not tangible
or cannot be moved or touched like, for instance, a piece. of wood or a book it
cannot cease to be movable property when it has all the attributes of such
property. It is needless to repeat that it is capable of abstraction,
consumption and use which, if done dishonestly, would attract punishment under
s. 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred,
delivered, stored, possessed etc. in the same way as any other movable
property. Even in Banjamin on Sale, 8th Edn., reference has been made at page
171 to County of Durham Electrical, etc., Co. v. Inland Revenue(1) in which
electric energy was assumed to be "goods". If there can be sale and
purchase of electric energy like any other movable object we see no difficulty
in holding that electric energy was intended to be covered by the definition of
"goods" in the two Acts. If that had not been the case there was no
necessity of specifically exempting sale of electric energy from the payment of
sales tax by making a provision for it in the Schedules to the two Acts. It
cannot be denied that the Electricity Board carried on principally the business
of selling, supplying or distributing electric energy. It would therefore
clearly fall within the meaning of the expression "dealer'' in the two
(1)  2 K.B. 604.
946 As regards steam there has been a good
deal of argument on the question whether it is liable to be assessed to sales
tax in the hands of the Electricity Board. According to Mr.
Shroff the Electricity Board carried on the
business of selling steam to the Nepa Mills and that this has lasted for a
number of years. It has been submitted that simply because the Electricity
Board does not have any profit motive in supplying steam it cannot escape.
payment of sales tax because the steam is nevertheless being sold as
The High Court was of the view that the water
which the Nepa Mills supplied free to the Electricity Board became the property
of the Board and in return for this free supply the Board agreed to give steam
to Nepa Mills at a rate based solely on the coal consumed in producing steam.
The mills had also agreed to reimburse the Electricity Board for the loss
sustained on account of the mills not taking the "full demand of
steam". According. to the High Court there was no contract for the sale of
steam as such and it was only for the labour and cost involved in its supply to
The High Court relied on the findings of the
Tribunal on this point and held that the turnover in respect of steam was not
taxable. The tribunal in its order dated June 16, 1966 referred to certain
conditions of working arrangement which was reduced to writing but which had
not been properly executed as a contract which showed that the mills was
supplying water free and the Electricity Board was making a pro rata charge of
conversion of water into steam. It seems to us that the High Court was right in
coming to the conclusion, on the finding of the tribunal, that the real
arrangement was for supplying steam on actual cost basis and in that sense it
was more akin to a labour contract than to sale.
Mr. Shroff has argued that the document which
was relied upon by the tribunal could not be looked at as it was neither
admissible in evidence nor had it been properly executed as a contract between
the Electricity Board and the mills and it happened to be a mere draft of an
agreement which was proposed to be entered into. It is too late for Mr. Shroff
to take these objections because these should have been raised before the
Tribunal and the High Court.
It is stated in Halsbury's Laws of England,
Vol. 34, page 6 that "a contract of sale
of goods" must be distinguished from a contract for work and labour. The
distinction is often a fine one. A contract of sale is a contract whose main
object is the transfer of the property in, and the delivery of possession of, a
chattel as a chattel to the buyer. Where the main object of work undertaken by
the payee. of the price is not the transfer of a chattel qua chattel, the
contract is one for work and labour. It has been laid down by this Court in The
Government of Andhra Pradesh v. Guntur Tobaccos Ltd.(1) that in business
transactions (1) 16 S.T.C. 240.
947 the works contracts are frequently not
recorded in writing setting out all the covenants and conditions thereof, and
the terms and incidents of the contracts have to be gathered from the evidence
and attendant circumstances. The question in each case is one about the true
agreement between the parties and the terms of the agreement must be deduced
from a review of all the attendant circumstances. On the findings of the
tribunal and the High Court we are of the opinion that the arrangement relating
to supply of steam in return for the water supplied by the mills on payment of
actual cost was not one of sale but was more in the nature of a works contract.
In the result the answer of the High Court to
the first question is discharged and it is held that the Electricity Board is a
"dealer" within the meaning of the relevant provisions of the two
Acts in respect of its activities of generation, distribution, sale and supply
of electric energy. The answers to the second, third and fourth questions are
affirmed. The answer given by the High Court to the fifth question is
discharged. It is unnecessary to express any opinion on that question because
Mr. Desai has not pressed for any decision being given by us and has accepted
the liability in respect of the purchase tax as determined by the assessing
authorities for the assessment orders in question. The appeals are allowed to
the extent indicated above. In view of all the circumstances the parties are
left to bear their own costs.
y.p. Appeals allowed in pan.