State of Madhya Pradesh & Ors Vs.
Orient Paper Mills Ltd.  INSC 298 (23 November 1976)
KHANNA, HANS RAJ
CITATION: 1977 AIR 687 1977 SCR (2) 149 1977
SCC (2) 77
CITATOR INFO :
RF 1985 SC1293 (108,116,117,118,119,120,122,1
Madhya Pradesh General Sales Tax Act,
1958--Lease of forest area-Timber extracted from leased area--If liable to
Under s. 2(g) of the Madhya Pradesh General
Sales Tax Act the term 'goods' means all kinds of movable property and includes
all growing crops, trees, plants and things attached to. or forming part of the
land which are agreed to be severed before sale or under the contract of sale.
Under el. (n) 'Sale' means any transfer of property in goods for cash or
deferred payment. Clause (0) defines 'sale price' as the amount payable by a
dealer as valuable consideration for the sale of goods and under cl. (t)
'turnover' means the aggregate of the amount of sale price received and receivable
by a dealer.
The respondent Mills entered into a lease
with the Forest Department of the State for the cutting of bamboo and salai
wood from the leased forest area in the State. The lease deed provided that the
lessee shall pay a minimum royalty every year whether there was cutting of
timber or not, the lessee could construct roads, railways etc. for the purposes
of business; should pay the price fixed for the wood removed from the leased
area; should keep an account of all wood cut and removed and that the rights
and privileges of the lessees shall extend only to bamboos and salai wood
within the leased area.
The appellant (Forest Department) which was a
registered dealer under Sates Tax Act demanded front the respondent, (also a
registered dealer) sales tax in respect Of timber extracted from the leased
area. When the respondent repudiated the Department's claim it paid the tax and
proceeded to recover the tax under the revenue recovery proceedings under s. 82
of the Indian Forests Act.
Allowing the respondent's writ petition under
Art. 226 of the Constitution the High Court held that the State Government and
its Forest Departments were not a 'dealer' within the meaning of the sales tax
law and as such were not entitled to recover the amount from the respondent.
Thereupon the definition of the dealer under the Act was altered to undo the
effect of the High Court's decision.
In appeal to this Court the appellant
contended that though apparently the transaction was a lease, in reality the
lease was no more than a simple sale of standing timber, coupled with a licence
to enter and do certain things on another's land and the transaction in essence
was a sale of goods within the meaning of the Act.
Allowing the appeal to this Court.
HELD: Going by the definition of 'sale of
goods' under s.2(7) of the Sale of Goods Act and s. 2(g) of the Sales Tax Act
standing timber is 'movable property' if under the contract it is to be
severed. But the severence must take place when the timber still vests in the
[158D] In the instant case there was sale of
bamboo and salai wood under the contract and, in the contemplation of the
parties they were to be cut and severed pursuant to the contract itself.
Raja Bahadur Kamakshya Narain Singh (1943) 11
513; Badri Prasad  2 S-C-R. 380 held
1. (a) Despite its description, the deed
conferred in truth and substance a right to cut and carry timber of specified
species. Till the tress were cut, they remained the property of the appellant.
Once the trees were severed, the property passed. Royalty is a euphemism for
the price of the timber. [157D] (b) From the terms of the lease it was clear
that for a price fixed, bamboo and salai wood were permitted to be removed by
the respondent from the forest of the appellant.
Possession of the land qua land was not given
and there was a provision that the rights of the lessess shall extend only to
bamboos and wood within the leased area and nothing therein shall in any way be
deemed to authorise the lessees to interfere with the working of the forest
area of other contractors of the forest lands. [157A-B] (2) The amending bill,
whereby the liability was being de novo fastened, was enacted into law' after
the judgment of the High Court. Read with s. 82 of the Indian Forests Act, the
amount was being recovered as if it were land revenue.
This process deprived the respondent of his
right to challenge the qualification of the tax. The respondent should be
enabled to prove his case that the sum claimed was much higher than could be
[159B] [The case was remanded for
consideration of the quantum of tax that the Forest Department was legally
liable to pay as a dealer, to the Sales Tax Department. Once the tax is settled
the payment by the respondent will follow.]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 49 of 1972.
Appeal from the Judgment and Order dated 24th
December, 1970 of the Madhya Pradesh High Court in Mic. Petition No. 474/68.
Ram. Panjwani, H.S. Parihar and 1. N. Shroff
for the Appellants.
B. Sen, (Mrs.) Leila Seth, T.M. Sen, Praveen
Kumar and O.P Khanan for Respondent.
The Judgment of the Court was delivered by-KRISHNA
IYER, J. The State of Madhya Pradesh, blessed with abundant forest wealth,
whose exploitation, for reasons best known to that government, was left in part
to the private sector, viz., the respondent, Orient Paper Mills, which is the
appellant in this appeal by certificate. The subject matter of this litigation,
however, is the competency to collect sales tax from the respondent for the
bamboo and salai wood extracted by it, under a transaction relating to some
government forests in Vindhya Pradesh which, on 'states reorganisation' in
1956, became part of Madhya Pradesh. The transaction itself was dressed up as a
leasedeed executed by the then State of Vindhya Pradesh on August 4, 1956 in
favour of Orient Paper Mills, the respondent herein. At that time no sales tax
could be levied under the law from the forest department of the appellant State
or the respondent mills. However, on April 1, 1959 the M.P. General Sales Tax
Act, 1958, (hereinafter referred to acronymically as M.P.G.S.T. Act) came into
force. On the footing that the Forest Department was a dealer it got itself
registered as such, under the sales tax law, on November 3, 1962.
The respondent, of course, is a registered
dealer under the same law. Subsequently, the Chief Conservator of Forests,
representing the appellant, demanded of the respondent that it pay sales-tax on
the timber extracted under the 'lease deed', whereupon the claim was repudiated
by the respondent. In consequence, 151 the appellant proceeded to. levy the sum
representing the sales-tax on the value of the timber cut and removed as per
the terms of the contract, resorting to revenue recovery proceedings authorised
by Sec. 82 of the Indian Forest Act.
Thereupon the respondent moved the High Court
for the issuance of a writ under Art. 226 of the Constitution of India against
the State. to forbear from collecting sales tax illegally. Holding that the
State Government and its Forest Department were not dealers w;thin the sense of
the sales tax law, the writ petition was allowed, notwithstanding the adverse
findings against the petition-respondent on some other vital points.
The State has challenged this finding in the
appeal before us. The validity of the attempted exaction is the gut issue in
these proceedings, although the centre of gravity on this forensic stage has
shifted from the question of the forest department being a dealer to whether
the transaction styled 'lease' does at all involve sale of goods. From 'no
dealer, no sales tax' to 'no sale no sales tax' is the shift in the epicentre
of the argument caused by an amendment to the sales tax statute legislated after
and on account of the very judgment under appeal. Suffice it to say for the
present, no sale, no sales tax is a legal truism.
It may be mentioned right here that the
respondent before us is not directly liable to pay sales tax, even assuming
that the 'lease deed' involves sale of goods. The forest department of
government is admittedly a registered dealer for the relevant period, and it is
claimed by the appellant State that it was liable qua dealer to pay tax on
sales of timber, and by virtue of s. 64-A of the Sale of Goods Act such sums,
which became leviable only after the agreement was entered into in 1956, could
be recovered from the purchaser-respondent. It is virtually admitted in this
appeal, as stated earlier, that both parties are registered dealers under the
relevant sales tax Act. Nor is it in dispute that if the appellant forest
department were liable to pay sales tax for the sales of timber which were
alleged to have taken place, the respondent, in turn, would be liable to make
good that sum in view of the plain provision in s. 64A of the Sale of Goods
Act. But to attract that provision there has to be sale of goods. Was there any
sale of wood under the lease deed ? That is the core of the legal quarrel
agitated before us.
We may straight proceed to consider the
questions canvassed before the High Court since both sides have had to
challenge one or other of the findings. We may borrow the formulation of the
four points set out in the judgment of the High Court.
"(i) The transaction is not a sale of
goods and no sales tax is payable in respect of bamboos and salai wood
extracted there under by the petitioner.
(ii) No sales tax is payable under the terms
of the lease deed dated August 4, 1956 and, therefore, such tax cannot be
(iii) Neither the State Government nor the
Forest Department of that Government is or could be a dealer and for this
reason also no sales tax is payable or recoverable.
152 (iv) The sales tax, even if payable, is
not recoverable as arrears of land revenue, particularly when the revenue
recovery certificate was issued by the Divisional Forest Officer." The
time is set true for stating the decisive statutory changes which occurred
after the High Court ruled against the State, calculated to undo the disability
discovered by that pronouncement. This development deserves attention as the
sole point on which the State lost in the High Court, viz. that the Forest
Department is not doing business, ceases to have relevance today on account of
the amendment to the Madhya Pradesh. General Sales Tax Act by the MPGST
(Amendment and Validation) Act 13 of 1971. The definition of 'dealer' and other
related provisions were touched up and redefined in such manner that the
finding on point No. 3 formulated by the High Court was effectively nullified.
Indeed, the legislation is a sequel to the
decision and has squarely undone the impediment in the way of the State
collecting sales tax from the respondent. So long as that law holds good the
State's claim cannot be bowled out. Of course, Sri B. Sen, for the respondent,
desired to challenge the vires of the Amending Act but the Presidential
Proclamation during the Emergency, suspending the operation of Art. 14,
handcuffs the respondent from seeking to strike down this legislation. When the
Presidential Proclamation, sterilising Art. 14, lapses then it may be time
enough to assail' this law. So far as this appeal is concerned, Art.
14 is under eclipse and the ground of
The amendatory provisions must therefore be
held impregnable, on this score, and we proceed on that footing. Its
post-Emergency validity will be decided, if attacked, at that time, since we
leave that aspect untouched. To abbreviate the discussion, thanks to Act 13 of
1971, the Forest Department of the State shall be deemed to be dealer. If it is
a dealer, the levy of sales-tax from it is legal and the controversy on this
score is silenced.
The meat of the matter is the judicial
determination of the true character of the transaction of 'lease' from the
angle of the MPGST Act and the Sale of Goods Act whose combined operation is
pressed into service for making the tax exigible from the Forest Department
and, in turn, from the respondent mills. It is the part of judicial prudence to
decide an issue arising under a specific statute by confining the focus to
that' statutory compass as far as possible. Diffusion into wider
jurisprudential areas isfraught with unwitting conflict or confusion. We, therefore,
warn ourselves against venturing into the general law of real property except
for minimal illumination thrown by rulings cited. In a large sense, there are
no absolutes in legal propositions and human problems and so, in the jural
cosmos of relativity, our observations here may not be good currency beyond the
factual-legal boundaries of sales-tax situations under a specific statute.
The major plea to bomb the tax demand having
been shot down by retroactive legislative missiles, the respondent has sought a
manouvre to victory by reliance on the contention covered by formulation no. 1
set out at the beginning.
Point 2 hinges on the result of point no. 1
and deserves no separate discussion.
153 The High Court's holding on these twin
points is in favour of the respondent on the basic submission of nonexigibility
of tax on the score that the transactions in question are not sales at all and
the payments not price of goods at all but mere royalty under a lease.
A short legal survey will take us to an easy
solution of this issue. Section 64A of the Sale of Goods Act enables the
seller, under certain circumstances, to recover, as sale price, any sales tax
which the vendor has had to pay. So, if in the present case, the Forest
Department of the State is liable to pay sales tax on the bamboo. and salai
wood cut and removed by the respondent, the claim to recover it from the buyer
is good under the said s.64A. The next logical series of questions are whether
the Forest Department is liable to sales tax on the timber covered by demise ?
Can the timber s0 extracted and the royalty paid at the rates stipulated be
called goods and sale price respectively under Sec. 2(0) of the MPGST Act ? Can
the levies made by the Forest Department become its turnover of sales under
Sec. 2(t) ? Does removal of timber by the lessee constitute sale of goods under
s. 2(n) of the MPGST Act or s. 64A of the Sale of Goods Act ? The ignition
point which sets in motion the chain reaction is the character of the
transaction whereby bamboo etc. are cut and removed and money paid, measured by
the weight of the timber extracted. If it is a sale the tax is leviable from
the Forest Department and the amount, in turn, recoverable from the lessee--and
We must set out parts of the 'lease deed' so
that its basic structure and essential nature may be decoded. Is it really a
lease of forest or is it a sale of certain timber with ancilliary licences ?
No. doubt, the deed styles itself a lease. But it is argued that a soi disant
lease may well be a mere contract of sale of goods. Theoretically, this is
perfectly possible in law, as in literature:
'What's in a name ? that which we call a
rose/By any other name would smell as sweet'! But what is there in the document
to detract from the prima facie validity of the label ? Here the clarity of the
reasoning lies in the correct approach t0 the question--which is not so much
whether the contract is one of lease but whether it works out a sale of goods
under the two concerned statutes.
Sales tax is payable by a dealer. The Forest
Department, by force of the statutory amendment, is admittedly a dealer.
Such tax is computed on the turnover as
defined in s. 2(t) of the MPGST Act, which reads:
"2. In this Act, unless there is
anything repugnant in the subject or context,-X X X X (t) 'turnover' used in
relation to any period means the aggregate of the amount of sale prices
received and receivable by a dealer in respect of any sale or supply or
distribution of goods made during that period, whether or not the whole or any
portion of such turnover is liable to tax but after deducting the amount, if
any refunded by the dealer to a purchaser, in respect of any goods purchased
and returned by the purchaser within the prescribed period." The essential
ingredients of turnover are thus 'sale of goods' and 'sale prices'. The latter
concept has received definitional expression in s.2(0) and the former in
They may be read here:
"(o) 'sale price' means the amount
payable to a dealer as valuable consideration for the sale of any goods, less
any sum allowed as cash discount according to' ordinary trade practice but
including any sum charged for anything done by the dealer in respect of the
goods at the time or before delivery thereof other than the cost of freight or
delivery or the cost of installation when such cost is Separately charged and
the expression 'purchase price' shall be construed accordingly.
(n) 'Sale' with all its grammatical
variations and cognate expressions means any transfer of property in goods for
cash or deferred payment or for other valuable consideration and includes a
transfer of property in goods involved in the supply or distribution of goods
by a society or club or any association to its members, but does not include a
mortgage, hypothecation charge or pledge, and the word 'purchase' shall be
construed accordingly;" For all these words to apply, the pivotal factor
is 'goods' which is defined in substantially similar manner in both the Sale of
Goods Act and in s. 2(g) of the MPGST Act which latter reads:
"2 (g) "goods" means all kinds
of movable property other than actionable claims, newspapers, stocks, shares,
securities or Government stamps and includes all materials, articles and
commodities whether or not to be used in the construction, fitting out, improvement
or repair of movable or immovable property; and also includes all growing
crops, grass, trees, plants and things attached to, or forming part of the land
which are agreed to be severed before sale or under the' contract or
sale;" The key expressions which unlock the mystique of turnover-cure sale
of goods are the last inclusive limb of the clause 'also includes .... trees
which are agreed to be severed under the contract of sale'. The crunch issue
thus is whether the self-styled lease deed is in substance a contract of sale
The true import of the document may be
gathered from its terms, not from rulings on other documents. There is a
serious limitation on the service of case law in this area.
It depends firstly on the actual issue in
each case and the angle of vision adopted and secondly on the clauses, purposes
and surrounding circumstances of each tran155 saction. While, therefore, we may
cite some rulings later we bear in mind the limits of their use.
Shri Sen rightly stressed the importance of
the deliberate description of the deed as a lease. He drew our attention, with
emphasis, to annual payments of royalty, not price. Royalty has a slight fedual
flavour with a telltale demise relish, if we may say so, while price is a
mercantile concept smacking of commercial relations.
By the deed, the forest lands of the lessor
are 'hereby demised'. There are frequent references to the 'leased area'. The
period of the lease is stated to be a long 20 years, later substituted by 30
years. There is also reference to discharge of lease, royalties, compensation
and other monies, suggestive of a demise rather than of a sale.
The provision for payment of a minimum
royalty runs in these terms:
lm15 "Provided that the minimum royalty
payable by the lessees to the State Government during the first year of this
lease shall not be less than 1.5 lakhs of rupees and for the next and
subsequent years, shall, during the term of this demise, be not less than two
lakhs of rupees per annum." Whether there is cutting of timber or not,
Shri Sen argues, the minimum royalty has to be paid, thus showing that the
provision for payment is sometimes de-linked from the exploitation of the
forest or the value of the timber cut.
Considerable reliance was placed for taking
the document out of the category of mere sale of goods, on clause 5 of the
Deed, which reads:
"The lessees shall with the previous
permission in writing of the State Government be at liberty to make dams, cross
streams, cut canals, make water-course irrigation works, construct roads,
railways and tramways and do any other works useful or necessary for the
purposes of the business connected with these presents in or upon the leased
area provided that they are in accordance with the plan approved by the State
Government and also with the like approval to widen or deepen any existing
creeks or channels of waterways for the purposes of the said business and all
timbers required for the above purposes shall be allowed half royalty rates in
the case of timbers of reserved species and free in case of timbers of
unreserved species by the State Government." There is also provision for
renewal of the lease deed which savours, again, of a transaction of real
property since renewals cannot obtain for sales.
The face value of these features tends to fix
the transaction as a lease but, lift the veil and feel the reality behind, Shri
Shroff urged us, only to discover that the lease is no more than a simple sale
of goods, viz., of bamboo and salai wood. He dismissed tags and labels as of
the least consequence when the heart of the matter turned on the crucial terms
of the document which were, in his submission, loudly 156 obtrusive of the
'sale-of-goods' character of the transaction. Of course, if in essence there is
a sale of goods covered by the deed, we have to locate the taxing event which
occurs when the title to the goods is transferred.
The description of the document as a lease
'deed', the reference to royalty, the right to construction of buildings etc.,
cannot hamper a contrary conclusion if there are luminous characterstics of a
'sale of goods', in what is but a lease deed in name. From this angle Shri
Shroff has highlighted certain principal provisions in the deed. There is no
doubt, he says, that if one scans the document closely, one finds that
possession of the land is not given; which means that parties have slurred over
the demise part of it notwithstanding the dubious expressions used. What is
authorised under the deed is the 'exclusive liberty' to enter upon the leased
area to fell, cut or extract bamboos and salai wood and to remove, store and
utilise the same for meeting the full requirements of the Paper Mill. This
reads more like a sale of standing timber coupled with a licence to enter and do
certain things on another's land.
Counsel also emphasised that an insightful
understanding of cl. 2(g) of the deed would bring out the price fixed for the
goods sold viz., 'a fiat rate of Rs. 6/per ton on air dry bamboo and Rs. 2/per
ton on air dry salai-wood ....
actually extracted and removed from the
leased area on the weighment at the weighbridge of the said Paper Mill and in
case of export at the weighbridge or weighbridges to be installed at suitable
places by the lessees, in which case the royalty shall be Rs. 7/8/0 (rupees
seven and eight annas) and Rs. 2/8/0 (rupees two and annas eight) per ton of
air dry bamboo and salai wood respectively. In this context supportive strength
was sought to be drawn from cl. 2(h) which reads:
"(h) The lessees shall keep an account
of all bamboos and salai wood cut and removed in the manner as may mutually be
settled and such account shah be open to inspection by the Forest Officer
authorised in this behalf by the Divisional Officer concerned." Shri Shroff
went to the extent of saying that the real nature of the transaction was
disclosed in the deed itself in clause 2(k):
"(k) The lessees in conducting their
operation on the leased area shall not in any way interfere with the surface of
land save and in so far as may be necessary in connection with and for the
purposes of this licence." Clause 4 bears on its bosom, in his submission,
the imprint of a contract for sale of goods and it may be read:
"4. "Without prejudice to the
provisions of this lease, the rights, liberties and privileges of the lessees
hereinbefore mentioned shall extend only to bamboos and salai wood within the
leased area and nothing herein shall in any way be deemed to authorise the
lessees to interfere with the working of the forest areas within the leased
area or the rights, liberties, privileges of other contractors of the said
forest lands." 157 We are considerably impressed with this analysis. The
upshot of the whole transaction is that, for a price fixed, bamboos and salai
wood are permitted to be removed from the forest of the appellant by the
respondent. For the exercise of the right under this contract, certain
necessary licences are conceded. It is made perfectly plain that the possession
of the land qua land is not given, and there is a fool-proof provision that the
rights of the 'lessees' shall extend only to bamboos and salai woods within the
leased area and nothing herein shall in any way be deemed to authorise the
lessees to interfere with the working of the forest area .... of other
contractors of the said forest lands.
Can there be a lease without exclusive,
possession of the lands? Can there be a lease to A of lands when the only right
is to cut certain species of timber above a certain height and according to.
stipulated conditions ? Can there be a lease of lands where similar right to
cut timber from the same land co-exist in other contractors? There are mere
circumstances than these, but we need not be exhaustive, especially when we
agree with the conclusion reached by the High Court.
We are satisfied that despite its
description, the deed confers in truth and substance a right to cut and carry
timber of specified species. Till the trees are cut, they remain the property
of the owner, namely the appellant.
Once the trees are severed, the property
passes. The 'Royalty' is a feudalistic euphemism for the 'price' of the timber.
We may also observe that the question before us is not so much as to what
nomenclature would aptly describe the deed but as to whether the deed results
in sale of trees after they are cut. The answer to that question, as would
.appear from the above, has to be in the affirmative.
Now to a brief reference to two out of
several cases cited at the Bar.
Sri Sen relied heavily upon Raja Bahadur
Kamakshya Narain Singh(1). That was a case under the Income-Tax law.
The assessee there received large payments by
way of royalty under various mining leases. The leases purported to be for 999
years and related to the coal-mining rights set Out in the Schedule to the
lease. The lessees were to pay a sum by way of salami or premium and an annual
sum as royalty computed at a certain rate per ton on the amount of coal raised
and coke manufactured. It was contended on behalf of the assessee that the sums
received as salami and royalty did not constitute 'income' but were capital
receipts, representing the price of the minerals removed. There was also a
provision for minimum royalty which was pressed into service by the party. The
Judicial Committee held that the royalty payable under the lease was not the
price of the actual coal extracted but represented compensation which the
lessees paid to the lessor for that species of occupation which the contract
allowed and it was therefore 'income' from other sources' within the meaning of
the relevant Income-tax Act. We must point that the legal setting in which a
question is considered colours the ratio of the case. The Judicial Committee
was considering an issue arising under the Income Tax Act and, interpreting the
clauses of a deed with particular terms, to ascertain whether the payments made
thereunder fell within the meaning of 'income' understood in its broadest
connotation  11 .T.R. 513.
158 in England and in India. Construing, as
we do, a special statute and a differently worded deed and the signification of
the words used therein we are unable to draw any legitimate instructional
inferences from a decision contextually different, concerned with a different
branch of law; and dealing with different issues although with seeming resemblances
in superficial respects.
Another decision which, perhaps, has some
helpful reasoning, is by this Court in Badri Prasad(1). We need not discuss the
details of that case except to point out that it has been recognised, in that
ruling, that trees which are to be severed before sale or under the contract of
sale are 'goods' for the purposes of the Sales of Goods Act. On the facts of
that case, property in the cut timber could pass to the plaintiff under the
contract at the earliest when the trees were felled but before that happened
the trees had vested in the state under an agrarian reform measure. The
crutches of case law are not always necessary in Court.
While direct light on the legal situation
present before us is not available from Badri Prasad, or 'Kamakshya Narain
Singh, (supra) there is not the slightest doubt that going by the definition of
'sale of goods' under 8. 2(7) of the Sale of Goods Act and of s.2(g) of the
MPGST Act, standing timber is 'movable property' if under the contract of sale
they are to be severed. But the severance must take place when the timber still
vests in the contracting party.
Ultimately, the case before us has to. be
decided on the facts and the law which form the backdrop to the decision. We
have already held that the crucial fact to be found before we can designate the
transaction as 'sale of goods' is to scan and see whether the 'lease deed'
really deals with sale of timber. We are clear that there is sale of bamboo and
salai wood under the contract and, in the contemplation of the parties they are
to be cut and severed, pursuant to the contract itself. It follows that the
finding of the High Court on this point is correct.
The appeal deserves to be allowed on account
of the statutory amendment. The Madhya Pradesh Legislature had taken great care
and responded with prompt attention to deal with a situation where considerable
revenue would be lost to it on account of inadequate expression of its
intendment in the MPGST Act. A diligent and considered amendment has fulfilled
the legislative purpose. Had the State lost the appeal before Us on another
point, that is as to whether royalty was 'price for sale of goods',--the whole
amendatory effort would have been an exercise in futility or a legislative
brutum fulmen. In view of our finding that there is a 'sale of goods' under the
contract, the State is entitled to succeed.
Counsel for the respondent, when we briefly
indicated our mind, and even otherwise by way of abundant caution,.
rightly urged that his client had a good case
for reduction of the quantum of tax even if sales tax was payable by the Forest
Department which could be shift(1)  2 S.C.R. 380.
159 ed to the respondent by virtue of s.64A
of the Sale of Goods Act. He prayed for an opportunity to establish that he was
being called upon to foot a larger bill than was legally tenable. We regard
this a reasonable request and, indeed, Shri Shroff, for the State, has very
rightly agreed with this prayer of the respondent. For one thing, the amending
Bill whereby the liability was being de novo fastened was enacted into law
after the judgment of the High Court. Read with s.82 of the Indian Forests Act,
the amount was being recovered as if it were land revenue. This process
deprived the respondent of his right to challenge the quantification of the
tax. It is fair--and the State agrees to be fair--that the respondent should be
enabled to prove his case that the sum claimed was much higher than could be
legitimately recovered. Shri B. Sen brought to our notice that the rate of tax
on sales to a registered dealer, if the commodity was to be consumed within the
State, in view of Section 8 of Madhya Pradesh General Sales Tax Act for manufacturing
purposes was less than the general rates. The appellant, on the other hand was
seeking to recover at the higher rate. Moreover, even the lesser rate varied
over the years from 1% to 2% and on to 3 %. Thus the arithmeticís of the case
had also to be gone into before the actual sum due from the Forest Department
to the Sales Tax Department was fixed. More could not be exacted from the
These reasons persuade us to allow the appeal
and remand the case for consideration of the quantum of tax that the State, in
the Forest Department, was legally liable to pay as a dealer, to the Sales Tax
Shri Shroff took up a point that when the
Forest Department made a demand on the respondent and required him to furnish a
declaration necessary to reduce the rate of tax, the latter ignored the
request. This, according to him, had an impact on the eventual liability. We do
not propose to investigate this aspect at the present stage but leave it to be
raised by the State before the High Court.
In this view, we allow the appeal and remand
the case for disposal after recording a finding on the limited issue/issues
above indicated. We may mention that although the High Court has not properly
adjudicated upon the recoverability of the Sales Tax as and by way of arrears
of land revenue, it is not necessary to go into the matter afresh especially
because once the tax amount is settled, the payment by the respondent will
follow. However, we are not upsetting the finding of the High Court in this
behalf in the present case.
The appeal is allowed and remanded, to be
disposed of in the light of the directions given above. Parties will bear their
P.B.R. Appeal allowed.