Bhopal Sugar Industries Ltd., Madhya
Pradesh Vs. D. P. Dube, Sales Tax Officer, Bhopal Region, Bhopal  INSC 379
(21 December 1962)
SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR,
GUPTA, K.C. DAS
CITATION: 1964 AIR 1037
CITATOR INFO :
R 1968 SC 838 (4) F 1985 SC1293 (45)
Sales Tax-Nature of transaction-High Court's
Jurisdiction to go into-Constitution of India, Art. 226.
The appellant, a manufacturer of sugar and a
dealer in petroleum products, was assessed to sales tax in respect of the
consumption by it for its own motor vehicles of the petroleum products in which
it dealt. The appellant challenged the assessment in respect of the consumption
by it by way of a petition under Art. 226 of the Constitution before the High
Court of Madhya Pradesh on the grounds that its own consumption did not amount
to a sale under the relevant provisions of the Madhya Bharat Sales of Motor
Spirit Taxation Act, 1953, and that if such a transaction was held to be
taxable under the provisions of the Act the provisions were unconstitutional
and beyond the legislative competence of the State and therefore the assessment
would be an infringement of the rights of the petitioner under Art. 19 (1) (f)
and (g) of the Constitution. The High Court called for the agreement between
the appellant company and Caltex (India) Limited and by construing the
agreement came to the conclusion that the appellant was not the owner of the
petrol and rejected the petition though no point was taken by the Sales Tax
Officer before it that tile appellant was not the owner.
Held, that the investigation of the nature of
the transaction was not a matter for the High Court but one for determination
by the taxing authorities and that the High Court was in error in having itself
determined the nature of the transaction. The order passed by the High Court
cannot therefore, be upheld.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
578 of 1962.
489 Appeal by special leave from the judgment
and order dated January 25, 1961, of the Madhya Pradesh High Court in Misc. Petition
No. 223 of 1960.
S.T. Desai, J. B. Dadadhanjli, O. C. Mathur
and Ravinder Narain, for the appellant.
B.Sen, K. L. Hathi and I. N. Shroff, for the
1962. December 21. The judgment of the Court
was delivered by SHAH, J.-This is an appeal against the judgment of the Madhya
Pradesh High Court dismissing a petition filed by the Bhopal Sugar Industries
Ltd. hereinafter called 'the Company'-for a writ under Art. 226 of the
Constitution quashing the order of the Sales Tax Officer dated May 1, 1960,
which imposed liability upon the Company for payment of sales-tax under the
Madhya Bharat Sales of Motor Spirit Taxation Act, 20 of 1953 in respect of
motor spirit and lubricants used for its own vehicles.
The Company carries on the business of
manufacturing sugar, and maintains for the purpose of that business a fleet of
motor trucks and other motor vehicles. The Company is also registered under the
Act as a retail dealer of motor spirit and lubricants. During the period April
1, 1957, and March 31, 1958, the Company consumed a part of its stock-in trade
of motor spirits and lubricants for its own vehicles. The Sales Tax Officer,
Bhopal Region, by order dated May 1, 1960, assessed the Company to pay tax in
respect of motor spirits and lubricants consumed for its vehicles. The Company
then filed a petition in the High Court of Madhya Pradesh at Jabalpur under
Art. '226 of the Constitution for a 490 writ in the, nature of certiorari
quashing the order dated May 1, 1960, passed by the Sales Tax Officer and the
'notice of demand issued in pursuance thereof, and for a writ of prohibition or
mandamus restraining the Sales Tax Officer from recovering.. any tax in
pursuance of the order.
The Company set up two grounds in support of
its petition :
(1) That the Sales Tax Officer had power to
levy tax on "sale' only i. c. on transfer of property for a price, and as
there was no sale of motor oil and lubricants consumed by the Company for its
own vehicles there being no transfer of property to any one, and no price being
paid or promised, consumption of the articles was not taxable. That it was
submitted is manifest from the charging section 3 read with the definition
under s. 2(k) of the Act of `retail sale' which does not include consumption by
a retail dealer of his own goods.
(2) That power of the State to levy tax on
the sale or purchase of goods (other than news-papers could be exercised only
under Entry 54 of List II of the 7th Schedule to the Constitution. Therefore
the attempted levy of tax was illegal and without authority of law, and
infringed the Company's fundamental right to carry on business and to hold and
acquire property as guaranteed by Art. 19(1) (f) and (g) of the Constitution.
At he hearing of the petition the High Court
did not consider the grounds set up in support of the petition, but called upon
the Company to produce 'a 491 copy of its agreement with Caltex (India) Ltd.,
under which the supply of motor-spirits and lubricants was obtained by the
Company, and proceeded to adjudicate the claim for relief in the light of the
covenants of the agreement. The.
High Court dismissed the petition holding
that the assumption made in the petition that the Company was the owner of the
motor spirits and lubricants obtained from Caltex (India) Ltd., was not
warranted. It was observed "These clauses and other clauses relating to
the responsibility for loss, safeguard against contamination of petrol, sale by
the dealer of the products of Caltex (India) Limited only, settlement of
accounts--all point to the fact that the petitioner (the Company) was not
constituted a full and absolute owner of the petrol supplied by Caltex (India)
Limited at the petrol pump maintained by the petitioner at Sehore. The petrol
remained the property of Caltex (India) Limited, and the petitioner sold it as
an agent of the supplying _Company. When, therefore, the petitioner obtained
petrol for itself at the pump and used it in its own vehicles, there was a sale
of the petrol by the petitioner as an agent of Caltex (India') Limited to the
petitionercompany as a consumer. It was nothing but a purchase by the agent of
property belonging to the principal. That being so, there was retail sale by
the petitioner as agent of Caltex (India) Limited of the petrol consumed in its
vehicles." Against the order dismissing the petition this appeal is
preferred with special leave.
In our judgment the High Court was in error
in proceeding to decide the petition on a ground which was not set up in the
affidavit of the Sales Tax Officer. The Company claimed relief on the 492
assumption that motor spirits and lubricants used by it for its own vehicles
were of its ownership, and appropriation by a retail dealer of the stock
in-trade owned by him for his own use does not constitute sale within the
meaning of the Act. The Sales Tax Officer submitted that the consumption of
motor spirits and lubricants by the Company amounted to sale, because there was
transfer of property "from one establishment of the retail dealer to
another." On the pleadings two questions arose for determination :(a)
whether the appropriation of goods amounted to transfer of property by the
retail dealer to another person; and (b) whether such transfer amounted in law
The Legislature has set up an elaborate and self-contained
machinery for investigating whether a transaction is liable to be taxed because
it is of the nature of a retail sale within the meaning of the Act. The taxing
Officer is invested with authority to determine the nature of the transaction
and its liability to tax, and against his decision there is an appeal to the
appellate authority and a further right of revision to the Commissioner. It is
true that the jurisdiction of the High Court under Art. 226 is extensive, but
normally the High Court does not exercise that jurisdiction by entertaining
petitions against the orders of taxing authorities, when the statute under
which tax is sought to be levied provides a remedy by way of an appeal or other
proceeding to a party aggrieved and thereby by-pass the statutory machinery.
That is not to say that the High Court will never entertain a petition against
the order of the taxing Officer. The High Court has undoubtedly jurisdiction to
decide whether a statute under which a tax is sought to be levied is within the
legislative 493 competence of the Legislature enacting it or whether the
statute defies constitutional restrictions or infringes any fundamental rights,
or whether the taxing authority has arrogated to himself power which he does
not possess, or has committed a serious error of procedure which has affected
the validity of his conclusion or even where the taxing authority threatens to
recover tax on an interpretation of the statute which is erroneous. The High
Court may also in appropriate cases determine the eligibility to tax of transactions
the nature of which is admitted, but the High Court normally does not proceed
to ascertain the nature of a transaction which is alleged to be taxable. The
High Court leaves it to the tax payer to obtain an adjudication from the taxing
authorities in the first instance.
In the present case the Company invoked the
jurisdiction of the High Court on question of fact as well as on the
constitutionality of the taxing statute and breach of fundamental rights. The
High Court instead of determining the Constitutional questions, on which alone
the petition could normally be entertained, proceeded to investigate the
correctness of an assumption made by the Company, and thereby decided the case
which was not expressly raised by the other party. In doing so the High Court
fell into an error : it assumed jurisdiction to decide the dispute which had to
be decided by resort to the machinery provided under the Act after
ascertainment of the true nature of the transaction in the light of the
agreement and surrounding circumstances. The order passed by the High Court
cannot therefore be upheld.
The next question is about the order to be
passed in this appeal. For that purpose we must consider the two grounds set up
in the petition by the Company. The challenge to the action of the Sales Tax
Officer on the plea of infringement of fundamental 494 rights must fail. It is
common ground that the State of Madhya Pradesh had power to levy tax on sale or
purchase of motor spirits and such power could be exercised only in respect of
sales traditionally so understood. The State of Madras v. Gannon Dunkarley
& Co. (Madras) Ltd. (1). Section 2 (k) of the Act defines a 'retail sale'
as meaning "a sale of motor spirit by a retail dealer for the purpose of
consumption by the person by whom or on whose behalf it is or may be purchased,
and the expression 'sell in retail' shall be construed accordingly. But there
is nothing in the definition of s. 2 (k) 'retail sale' nor in the charging
section (s. 3) which indicates that the Legislature had enacted legislation
beyond its competence. If the taxing authority had sought to bring to tax a
transaction which is made taxable by a competent enactment it would not be open
to the High Court exercising power under Art. 226 of the Constitution to
consider whether the taxing authority was justified in taxing the transaction.
Levy of a tax lawfully imposed under a statute within the competence of the
Legislature cannot be deemed to infringe the fundamental rights guaranteed by
Art. 19 (1) (f) and (g), and whether the tax is properly levied in respect of a
transaction is for the taxing authority to determine and not for the High
The levy and collection of sales tax on motor
spirits and lubricants consumed by the Company cannot therefore be regarded as
illegal unless it is found. that the goods were of the ownership of the
Company; and for reasons already set out the question whether the goods
consumed belonged to the Company must be left to be determined under the Act.
The first question raised in the petition cannot therefore be determined by
this Court as it could not be determined by the High Court.
On the view taken by us this appeal must fail
and is dismissed. It will of course be open to the (1)  S. C, R. 379.
495 Company in an appeal properly filed
before the taxing authorities to contend that under the terms of the agreement
with Caltex (India) Ltd., the Company is the owner of the goods received by it
and that on that account consumption of those goods by it for its own vehicles
did not amount to sale and the Sales Tax Officer will be entitled to consider
that question on its merits and will not be bound by any expression of opinion
by the High Court as to the interpretation of the agreement produced before it.
Having regard to the circumstance, there will be no order as to costs.