Bhopal Sugar Industries Ltd., Madhya
Pradesh & ANR Vs. D.B. Dube, Sales Tax Officer, Bhopal Region  INSC
380 (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-Consumption by seller-Tax on sale
of goodsLegisLative competence--Government of India Act, 1935 (25 and 26 Geo.
5, Ch. 42), Sch. 7, Entry 54, List II-Madhya Pradesh Sales of Motor Spirit and
Lubricants Taxation Act, 1957 (M. P. 4 of 1958), ss. 2 (1), 3.
The first petitioner, a company,
manufacturer. sugar and also sells motor spirit, high speed diesel oil and
lubricants and maintains a petroleum pump in the State of Madhya Pradesh. In
the assessment proceedings in respect of sales of motor spirit and diesel oil,
the petitioner was sought to be assessed in respect of petroleum and oil
consumed by the petitioner for its own motor vehicles out of the stock held by
it. The petitioner challenged that part of the assessment on the grounds that
the definition of "retail sale" by s. 2 (1) of the Act which seeks to
render consumption by the owner of motor spirit liable to be taxed by virtue of
S. 3 of the Act is beyond the legislative competence of the State and that the
unconstitutional levy infringes the fundamental rights of the petitioner under
Art. 19(1)(f) and (g) of the Constitution of India.
Held, that a sale for the purpose of entry
"Tax on the sale of goods" requires the concurrence of four elements
(1) parties competent to contract; (2) mutual assent; (3) a thing, the absolute
or general property in which is transferred from the seller to the buyer; and
(4) a price in money paid or promised; and that the transaction which does not
conform to the traditional concept of sale cannot be regarded as one within the
competence of the State Legislature to tax.
The State of Madras v. Gannon Dunkerley &
Co. (Madras) Ltd.,  S, C. R. 379; referred to.
482 Held, further, that by s. 2(1) the normal
concept of sale is sought to be erlarged by bringing in the consumption by the
owner of the goods in which lie deals which was not a "sales within the
meaning of Entry 54, List 11, Sch. 7 of the Government of India Act, 1935, and
therefore, the order of the Sales Tax officer which was founded on an ultra
vires provision was itself unconstitutional and could not be sustained.
ORIGINAL JURISDICTION : Petition No. 85 of
Petition under Art. 32 of the Constitution of
India for the enforcement of Fundamental Rights.
S.T. Desai, J. B. Dadachanji, O. C. Mathur
and Ravinder Narain, for the petitioners.
B.Sen, K. L. Hathi and I. N. Shroff, for the
1962. December 21. The Judgment of the Court
has delivered by SHAH, J.-Bhopal Sugar Industries Ltd. (the first petitioner)
is a public limited Company incorporated under the Indian Companies Act, 1913,
and the second petitioner is a shareholder and a Director of the Company. The
Company is a manufacturer of sugar and owns a fleet of motor trucks and other
motor vehicles.The Company also carries on the business of selling motor
spirit, high speed diesel oil, and lubricants and maintains a petroleum pump at
Shores in the State of Madhya Pradesh. Between April 1, 1959, and March 31,
1960, the Company used, for its motor vehicles 8908 gallons of petroleum, 40719
gallons, of high speed diesel oil and lubricants of the value of Rs. 2,453-47
nP. The first respondent who is the assessing authority under the Madhya
Pradesh Sales of Motor Spirit and Lubricants Taxation Act. 4 of 1958. assessed
the Company to pay sales tax in respect of motor-spirit and lubricants 483 used
by the Company out of the stock held by it for its own vehicles, because in his
view such consumption amounted to sales within the meaning of the Act.
By this petition under Art. 32 of the
Constitution it is claimed that the definition of 'retail sale' in s. 2 (1) of
the Act which seeks to render consumption by the owner of motor-spirit liable
to tax under the Act by virtue of s. 3 is beyond the competence of the State
Legislature and hence void and the order of the first respondent seeking to
impose liability upon the Company for payment of tax infringes the fundamental
rights of the Company under Art. 19 (1) (f) and (g) of the Constitution.
Section 2 (k) of the Madhya Pradesh Sales of
Motor Spirit and Lubricants Taxation Act defines a 'retail dealer' as meaning
"any person who, on commission or otherwise, sells or keeps for sale motor
spirit or lubricant for the purpose of consumption by the person by whom or on
whose behalf it is or may be purchased". Section 2 (1) defines
"retail sale' as meaning "'a sale by a retail dealer of motor spirit
or lubricant to a per-son for the' purpose of consumption by the person by whom
or on whose behalf it is or may be purchased and includes the consumption by a
retail dealer himself or on his behalf of motor spirit or lubricants sold to
him for retail sale;" (The definition is followed by an explanation which
is not material for the purpose of this appeal.) Section 3 is the charging
section. It provides that subject to the provisions of the Act, there shall be
levied on all retail sales of motor spirit and lubricants effected after the
commencement of the Act, tax at the rates specified in the table set out
The Company is registered under s. 4 of the
Act as a retail dealer. By s. 2 (1) consumption by a retail dealer himself or
on his own behalf of motor spirit or lubricants sold to him for retail sale is
included in the defition of "retail sale. Thereby the 484 Legislature has
attempted to enlarge the normal concept of sale, and has included therein
consumption for his own purposes by the retail dealer of motor spirit and
lubricants sold to him for retail sale, and by s. 3 such consumption is made
taxable as sale. But this Court held in The State of Vadras v. Gannon Dunkerley
& Co. (Madras) Ltd. (1), that the expression 'sale of goods' in Entry 48,
List II, in Sch.
VII of the Government of India Act, 1935, has
the same meaning as in the Indian Sale of Goods Act, 1930, and therefore in a
transaction of sale of goods which is liable to tax there must be concurrence
of the following four elements. viz :
(1) Parties competent to contract;
(2) mutual assent;
(3) a thing, the absolute or general property
in which is transferred from the seller to the buyer; and (4) a price in money
paid or promised.
A transaction which doe; not conform to this
traditional concept of sale cannot be regarded as one in respect of which the
State Legislature is competent to enact an Act imposing liability for payment
of tax. It was observed at p. 407 "A power to enact a law with respect to
tax on sale of goods under Entry 48 must, to be intra vires, be one relating in
fact to sale of goods, and accordingly, the Provincial Legislature cannot, in
the purported exercise of its power to tax sales, tax transactions which are
not sales by merely enacting that they shall be deemed to be sales." In
Gannon Dunkerley & Company's case this Court was called upon to consider
whether in a (1)  1 S.C.R. 379.
485 building contract which is one, entire
and indivisible, there is sale of goods. It was held by the Court that the
Provincial Legislature was not competent under Entry 48, List II, Sch. VII of
the Government of India Act, 1935, to impose tax on the supply of materials
used in such a contract treating it as a sale. The decision of the Court did
not rest upon any peculiar character of a building contract. It was held on the
larger ground canvassed in that case, that the expression 'sale of goods'
within the meaning of relevant legislative entry had the same connotation as
'sale of goods' in the Indian Sale of Goods Act, 1930, and therefore the State
Legislature had no power to enact legislation to levy tax under Entry 48 of
List II in respect of transactions which were not of the nature of sales of
goods strictly so called; and a building contract not being a transaction in
which there was a sale of materials by the contractor who constructed the
building, the State was not competent to enact legislation to impose tax on the
supply of materials used in a building contract treating it as a sale. It was
therefore, held that the definition of sale in the Madras General Sales Tax Act
IX of 1939 was to the extent of the extension invalid.
In Gannon Dunkerley & Company's case the
validity of s. 2 (b) (ii) of the Madras General Sales Tax Act, 1939, as amended
by Act XXV of 1947, in so far as it included goods included in a works contract
fell to be determined, in the light of the competence of the Provincial
Legislature under Entry 48, List II, in Seventh Schedule of the Government of
India Act, 1935. Under the Constitution the relevant entry conferring
legislative power upon States to tax sale of goods in Entry 54, List 11. As the
scheme of division of legislative power under the Constitution has remained
unaltered, the principle of Gannon Dunkerley's case applies (1)  S. C. R.
379. 486 in adjudging the validity of the provisions of the Madhya Pradesh Act
4 of 1958.
Consumption by an owner of goods in which he
deals is therefore not a sale within the meaning of the Sale of Goods Act and
therefore it is not 'sale of goods' within the meaning of Entry 54, List 11,
Sch. VII of the Constitution.
The legislative power for levying tax on sale
of goods being restricted to enacting legislation for levying tax on
transactions which conform to the definition of sale of goods within the
meaning of the Indian Sale of Goods Act, 1930, the extended definition which
includes consumption by a retail dealer himself of motor spirit or lubricants
sold to him for retail sale is beyond the competence of the State Legislature.
But the clause in the definition in s. 2 (1) "and includes the consumption
by a retail dealer himself or on his. behalf of motor spirit or lubricant sold
to him for retail sale" which is ultra vires the State Legislature because
of lack of competence under Entry 54 in List II, Sch. VII of the Constitution
is severable, from the rest of the definition, and that clause alone must be
The Sales Tax Officer has sought to impose
liability for payment of tax in respect of motor spirit and lubricants consumed
by the company for its own vehicles relying solely upon the definition in s. 2
(1) of the Act. He has observed :
"The definition under the said section
clarifies the retail sale and consumption by a retail dealer. Since the retail
sale has been clearly defined and consumption by self has been included in the
retail sale; I do not agree with the contention of dealer's counsel (that the
goods consumed for the vehicles of the dealer are not liable to tax under s. 3)
and taxed on 487 the goods consumed by the dealer, as above." The order of
the Sales Tax Officer founded upon a part of the statute which is ultra cannot
Counsel for the State of Madhya Pradesh
contends in this petition that the Company is not the owner of the motor spirit
and lubricants in which it deals it is merely a commission agent for sale in
respect of the goods supplied to it by the Caltex (India) Ltd., and on that
account consumption for his own purpose of goods belonging to his principal
amounts to sale within the meaning of the first part of the definition of s. 2
(1) of the Act. But the Sales Tax Officer has not decided the case under the
first part of the definition of 'retail sale' : lie has expressly founded his
decision on the second part of the definition.
In the circumstances we do not feel called
upon to express any opinion on the question whether the Company is liable to
pay sales tax in respect of goods consumed for its motor vehicles during the
period in question. If it is competent to the Sales Tax Officer to adopt a
proceeding, to bring to tax consumption of goods by the Company for its ,own
vehicles, relying upon the first part of the definition of "retail sale'
in s. 2) (1), because of the terms of the agreement and other relevant
surrounding circumstances, it will be open to him to do so.
The petition will therefore be allowed and a
writ will issue declaring that the order of assessment made by the first
respondent dated December 26, 1960, in so far as it relates to levy of tax on
motor spirit and lubricants consumed during the period of assessment for the
vehicles of the Company is invalid. The respondents will pay the costs of this
petition to the Company.