The Sales Tax Officer, Pilibhit Vs.
Messrs. Budh Prakash Jai Prakash [1954] INSC 56 (3 May 1954)
AIYYAR, T.L. VENKATARAMA MAHAJAN, MEHAR CHAND
(CJ) MUKHERJEA, B.K.
BOSE, VIVIAN BHAGWATI, NATWARLAL H.
CITATION: 1954 AIR 459 1955 SCR 1133
CITATOR INFO :
R 1955 SC 661 (88,131,147) D 1958 SC 452 (9)
R 1958 SC 560 (14,21) F 1958 SC 764 (5,6,8) E 1959 SC 135 (4,27) RF 1961 SC1065
(4) RF 1961 SC1534 (11) R 1962 SC1037 (10) F 1963 SC1207 (43,50) R 1965 SC1082
(9,14,16) RF 1967 SC1895 (247) RF 1970 SC 898 (46) R 1976 SC1016 (9) E 1978 SC
449 (29,42,52) D 1985 SC1293 (43) RF 1986 SC1556 (4,23,29) RF 1990 SC 313 (23)
ACT:
Government of India Act, 1935, Schedule VII,
List II, entry No. 48-Sale of goods-Meaning of---U. P. Sales Tax Act (Xv Of
1948), s. 2(h)-Explanation III to s. 2(h) and s. 3B--Ultra vires Provincial
Legislature.
HEADNOTE:
Held, that there is a well-defined and
well-established distinction between a sale and an agreement to sell.
The words "Taxes on the sale of
goods" in entry No. 48, List II, Schedule VII of the Government of India
Act, 1935, confer power on the Provincial Legislature to impose a tax only when
there has been a completed sale and not when there is only an agreement to
sell.
Accordingly section 2(b) of the Uttar Pradesh
Sales Tax Act, XV of 1948, enlarging the definition of "sale" so as
to include forward contracts must, to that extent, be declared ultra vires.
For the same reason Explanation III to
section 2(h) which provides that forward contracts "shall be deemed to
have been completed on the date originally agreed upon for delivery" and
section 3B of the Act must also be held to be ultra vires.
Colley v. Overseas Exporters ([1921] 3 K. B.
302 at 309, 310 referred to.
CIVIL APPELATE JURISDICTION: Civil Appeal No.
23 of 1954.
Appeal under article 133(1) of the
Constitution of India from the Judgment and Decree dated the 28th February,
1952, of the High Court of Judicature at Allahabad in Writ Application No. 7297
of 1951.
C. P. Lal for the appellant.
N. C. Chatterjee (Radhey Lal Aggarwal, with
him) for the respondent.
1954. May 3. The Judgment of the Court was
delivered by VENKATARAMA AYYAR J.-This is an appeal by the Sales Tax Officer,
Pilibhit, against the judgment of the High Court of Allahabad granting firstly,
a writ of certiorari quashing certain assessment orders made against the
respondent, and secondly, a writ of prohibition in respect of certain other
proceedings for 244 assessment of tax under the provisions of the Uttar Pradesh
Sales Tax Act (Act XV of 1948). The respondent is a firm doing business in
forward contracts, and was assessed in respect of such contracts to a tax of
Rs. 1,082-8-0 for the year 1948-1949 by an order dated 27th February, 1950,
Exhibit A, and to a tax of Rs. 7,369 for the year 1949-1950 by an order dated
23rd May, 1950, Exhibit B. For the period, 1st April, 1950, to 31st January,
1951, the respondent paid a sum of Rs. 845-4-0 as tax. Assessment proceedings
were also started by the appellant in respect of certain forward contracts
relating to gur and peas. The respondent challenged the legality of these
proceedings and of the assessment orders on the ground that the Act in so far
as it imposed a tax on forward contracts was ultra vires the powers of the Provincial
Legislature. The learned Judges agreed with this contention, and issued a writ
of certiorari quashing the orders of assessment, Exhibits A and B, and a writ
of prohibition in respect of the proceedings for assessment of tax on forward
contracts in gur and peas. The matter now comes before us in appeal under a
certificate of the' High Court under article 133(1) of the Constitution.
Under the Government of India Act, 1935, the
Provincial Legislature derived its power to impose a tax on the sale of goods
under entry 48 in List 11 of the Seventh Schedule, and the Uttar Pradesh Sales
Tax Act, XV of 1948, was enacted in exercise of this power. Section 2(h) of the
Act defines "sale" as follows :
"Sale" means within its grammatical
variations and cognate expressions, any transfer of property -in goods for cash
or deferred payment or other valuable consideration and includes forward
contracts but does not include a mortgage, hypothecation, charge or
pledge." It is the extended definition of sale as including forward
contracts in this section that is relied on as conferring authority on the
appellant to make the orders in Exhibits A and B. The point for decision in
this appeal is whether the power to impose a tax on the sale of goods under
entry 48 includes a power to impose a tax on forward contracts.
245 Under the statute law of India which is
based on English law on the subject, a sale of goods and an agreement for the
sale of goods are treated as two distinct and separate matters. Section 4 of
the Indian Sale of Goods Act (Act III of 1930), runs as follows:
(1) "A contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a price. There may be a contract of sale between one
part-owner and another.
(2) A contract of sale may be absolute or
conditional.
(3) Where under a contract of sale the
property in the goods is transferred from the seller to the buyer, the contract
is called a sale, but where the transfer of the property in the goods is to
take place at a future time or subject to some condition thereafter to be
fulfilled, the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled subject to which the property
in the goods is to be transferred." It will be noticed that though the
section groups both sales and agreements to sell under the single generic name
of "contracts of sale" following in this respect the scheme of the
English Sale of Goods Act, 1893, it treats them as separate categories, the
vital point of distinction between them being that whereas in a sale there is a
transfer of property in the goods from the seller to the buyer, there is none
in an agreement to sell. When the contract is to sell future goods, and under
section 6(3)of the Sale of Goods Act even if "the seller purports to
effect a present sale of future goods, the contract operates as an agreement to
sell the goods", there can be no transfer 'of title to the goods until they
actually' come into existence ; and even then, the conditions laid down in
section 23 of the Act should be satisfied before the property in the goods can
pass. That was also the law under the repealed provisions in Chapter VII of the
Indian Contract. Act, 1872. Section 77 of the Contract Act defined
"sale" as follows:
"Sale" is the exchange of property
for a price. It involves the transfer of the ownership of the thing sold from
the seller to the buyer." 246 Section 79 enacted that, "Where there
is a contract for the sale of a thing which has yet to be ascertained, made or
finished, the ownership of the thing is not transferred to the buyer, until it
is ascertained, made or finished." The corresponding provisions of the
English Act are sections 1, 16 and rule 5 of section 18. Section I is as
follows:
(1)"A contract of sale of goods is a
contract whereby the seller transfers or agrees to transfer the property in
goods to the buyer for a money consideration, called the price.
There may be a contract of sale between one
part-owner and another.
(2)A contract of sale may be absolute or
conditional.
(3)Where under a contract of sale the
property in the goods is transferred from the seller to the buyer the contract
is called a sale; but where the transfer of the property in the goods is to
take place at a future time or subject to some condition thereafter to be
fulfilled the contract is called an agreement to sell.
(4)An agreement to sell becomes a sale when
the time elapses or the conditions are fulfilled subject to which the property
in the goods is to be transferred." Section 16 enacts that, "Where
there is a contract for the sale of unascertained goods no property -in the
goods is transferred to the buyer unless and until the goods are ascertained."
Section 18, rule 5, provides for the passing of property is future goods after
they are ascertained.
The distinction between a sale and an
agreement to sell under section 1 of the English Act is thus stated by Benjamin
on Sale, Eighth Edition, 1950:
"In order to constitute a sale there
must be(1)An agreement to sell, by which alone the property does not pass; and
(2) an actual sale, by which the property passes. It will be observed that the
definition of a contract of sale, above cited includes a mere agreement to sell
as well as an actual sale." 247 This distinction between sales and
agreements to sell based upon the passing of the property in the goods is of
great importance in determining the rights of parties under a contract. The
position is thus stated in Halsbury's Laws of England, Volume 29, page 15,
paragraph 13:
"An agreement to sell, or, as it is
often stated, an executory contract of sale, is a contract pure and simple,
whereas a sale, or, as it is called for distinction, an executed contract of
sale, is a contract plus a conveyance.
Thus, by an agreement to sell a mere jus in
personam is created, by a sale a jus in rem is transferred. Where goods have
been sold, and the buyer makes default in payment, the seller may sue for the
contract price, but where an agreement to buy is broken, usually the seller's
only remedy is an action for un liquidated damages. Similarly, if an agreement
to sell be broken by the seller, the buyer has only a personal remedy against
the seller. The goods are the property of the seller and he can dispose of
them. They may be taken in execution for his debts, and if he becomes bankrupt
they pass to his trustee in bankruptcy. But if there has been a sale, and the
seller breaks his engagement to deliver the goods, the buyer has not only a
personal remedy against the seller, but also the usual proprietary remedies in
respect of the goods themselves, such as the actions for conversion and
detinue. Again, if there be an agreement for sale and the goods perish, the
loss as a rule falls on the seller, while if there has been a sale the loss as
a rule falls upon the buyer." Thus, there having existed at the time of
the enactment of the Government of India Act, 1935, a well defined and well established
distinction between a sale and an agreement to sell it would be proper to
interpret the expression sale of goods" in entry 48 in the sense in which
it was used in legislation both in England and India and to hold that it
authorises the imposition of a tax only when there is a completed sale involving
transfer of title.
This conclusion is further strengthened, when
regard is hood to the nature of the levy, Section 3 of the, Act 248 provides
for a tax being imposed at three pies in the rupee on the turnover of the
assessee, and "turnover" is defined in section 2 (i) as "the
aggregate of the proceeds of sale by a dealer", and that would consist of
the price and any charges paid at the time of the delivery of the goods, as
provided in Explanation I. The substance of the matter is that the sales tax is
a levy on the price of the goods, and the reason of the thing requires that
such a levy should not be made, unless the stage has been reached when the
seller can recover the price under the contract. It is well settled that an
action for price is maintainable only when there is a sale involving transfer
of the property in the goods to the purchaser. Where there is only an agreement
to sell, then the remedy of the seller is to sue for damages for breach of
contract and not for the price of the goods.
The law was thus stated in Colley v. Overseas
Exporters(1):
In former days an action for the price of
goods would only lie upon one or other of two counts. First, upon the
indebitatus count for goods sold and delivered, which was pleaded as follows:
'Money payable by the defendant to the plaintiff for goods sold and delivered
by the plaintiff to the defendants': Bullen and Leake, Precedents of Pleading,
3rd ed., p. 38. This count would not lie before delivery:
Boulter v. Arnott(2). The count was
applicable when upon a sale of goods the property has passed and the goods had
been delivered to the purchaser and the price was payable at the time of the
action brought. Secondly, upon the indebitat us count for goods bargained and
sold, which was pleaded as follows: Money payable by the defendant to the
plaintiff for goods bargained and sold by the plaintiff to the defendant':
Bullen and Leake, p. 39. This count was
applicable where upon a sale of 'goods the property had passed to the purchaser
and the contract had been completed in all respects except delivery, and the
delivery was not a part of the consideration for the price or a condition
precedent to its payment. If the property had not passed the count would not
lie: Atkinson v. Bell(3). In my view the law as to the (1) [1921] 3 K. B. 302
at 309 310, (2) (1833) 1 Cr, & M. 333.
(3) (1828) 8 B & C. 277, 249
circumstances under which an action will lie for the price of goods has not
been changed by the Sale of Goods Act, 1893." That is also the law in this
country under section 55 of the Sale of Goods Act. The only exception to this
rule is when, under an agreement between the parties, the price is payable on a
day certain irrespective of delivery, and that is not material for the purpose
of the present discussion.
The position therefore is that a liability to
be assessed to sales tax can arise only if there is a completed sale under
which price is paid or is payable and not when there is only an agreement to
sell, which can only result in a claim for damages. It would be contrary to all
principles to hold that damages for breach of contract are liable to be
assessed to sales tax on the ground that they are in the same position as sale
price. The power conferred under entry 48 to impose a tax on the sale of goods
can therefore be exercised only when there is a sale under which there is a
transfer of property in the goods, and not when there is a mere agreement to
sell. The State Legislature cannot, by enlarging the definition of " sale
" as including forward contracts, arrogate to itself a power which is not
conferred upon it by the Constitution Act, and the definition of
"sale" in section 2(h) of Act XV of 1948 must, to that extent, be
declared ultra vires. For the same reason, Explanation III to section 2(h)
which provides that forward contracts "shall be deemed to have been
completed on the date originally agreed upon for delivery", and section
3-B which enacts that, "Notwithstanding anything contained in section 3,
the turnover of any dealer in respect of transactions of forward contracts, in
which goods are not actually delivered, shall be taxed at a rate not exceeding
rupees two per unit as may be prescribed " must also be held to be ultra
vires.
In the result, the decision of the High Court
must be affirmed and this appeal dismissed with costs.
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