State of Orissa & Other Vs. The
Tltaghur Paper Mills Company Ltd. & ANR [1985] INSC 43 (1 March 1985)
MADON, D.P. MADON, D.P.
TULZAPURKAR, V.D.
SEN, AMARENDRA NATH (J)
CITATION: 1985 AIR 1293 1985 SCR (3) 26 1985
SCC Supl. 280 1985 SCALE (2)410
CITATOR INFO:
RF 1986 SC1085 (12) RF 1988 SC1164 (4) R 1988
SC1531 (46) RF 1991 SC 672 (2,3,10)
ACT:
Orissa Sales Tax Act 1947-Sections 3B and 5
(1)-Scope of-Notifications levying purchase tax on bamboos agreed to be served
and standing trees agreed to be severed-Whether Ultra vires the Act-Whether
create new class of goods not known to law-Whether amount to tax on immovable
property - and not on goods-notifications issued in supersession of all
previous notifications on the subject-Whether wipe out all tax liability
accruing under previous notifications.
"Timber" and
"logs"-Whether mean the same thing.
Bamboo contract-Nature of-Whether an
easement.
Interpretation-Nature and meaning of a
document-Whether can be determined by the end-result-Court-if could go into
policy matters.
Constitution of India-Article 141-Conflicting
views of the Supreme Court on same point-View of larger Bench to be followed in
preference to view of smaller Bench.
HEADNOTE:
Section 3B of the Orissa Sales Tax Act 1917
empowers the State Government to declare from time to time any goods or class
of goods to be liable to tax on turnover of purchases. The proviso provides
that no tax shall be payable on the sales of such goods or class of goods
declared under this section. Section 5(1) prior to its amendment by the Orissa
Sales Tax (Amendment) Ordinance, 1977 provides that the tax payable by a dealer
under the Orissa Act should be levied on his taxable turnover at such rate not
exceeding thirteen percent and subject to such conditions as the State
Government might from time to time by notification specify.
On May 23, 1977 the State Government issued
two notifications. Notification No. SRO 372/77 was made under section 3B
amending the earlier notification dated April 23, 1976. This notification made
standing trees and bamboos agreed to be severed liable to tax on the turnover
of purchase with effect from 27 June 1, 1977. Notification SRO No. 373177
issued under the first proviso to section 5(1) of the Orissa Act amended with
effect from June 1, 1977 the second of the two notifications of April 23, 1976
and directed that the tax payable by a dealer under the Orissa Act on account
of purchase of bamboos agreed to be severed and standing trees agreed to be
severed would be at the rate of 10%.
On December 29, 1977 the Orissa Sales Tax
(Amendment) Ordinance, 1977 was promulgated amending the Orissa Act with effect
from January, 1978. With effect from the same date two notifications SRO No
900177 and SRO No. 901177 were issued; the first notification which was issued
under the provisions of section 3B and in supersession of all previous
notifications on the subject, declared that the goods mentioned in Column (2)
of the schedule to the notification were liable to be taxed on the turnover of
purchase with effect from January 1, 1978. Entries 2 and 17 in the schedule of
this notification specified "bamboos agreed to be severed" and
"standing trees agreed to be severed" respectively. Notification No.
901/77 issued under section 5 (1) was in supersession of all previous
notifications in that regard. The State Government, by this notification,
directed that with effect from January l 1978 the tax payable by a dealer under
the Orissa Act on account of purchase of goods specified in column (2) of the
schedule to the notification would be at the rate specified against it in
column (3) thereof. The rate of purchase tax for bamboos agreed to be severed
and standing trees agreed to be severed was prescribed at 10%. The Ordinance
was repealed and replaced by Orissa Sales Tax (Amendment) Act of 1978.
A large number of writ petitions were filed
before the High Court impugning the notifications dated May 23, 1977 and
December 29, 1977. One group of petitioners consisted of those who had entered
into agreements with the State for the felling, cutting, obtaining and removing
bamboos from forest areas for the manufacture of paper (bamboo contracts), and
the other group consisted of those who had entered into agreements for the
purchase of standing trees (Timber Contracts).
The bamboo contracts were a grant of
exclusive right and license to fell, i cut and remove bamboos from the forest.
Under the terms of auction the respondent was bound to pay a minimum royalty
irrespective of the quantity of bamboos cut and removed. The Governor of the
State was called the "grantor" of the licence. The bamboo contracts
were in respect of different areas for periods ranging from 11 to 14 years with
an option to renew the agreements for further periods.
The respondent in CA No. 219182 contended
before the High Court that the subject matter of the Bamboo contract was not a
sale or purchase of goods but was a lease of immovable property or in any went
was a creation of an interest in immovable property by way of grant profit a
prendre which amounted to an easement under the Indian Easements Act 1882 and
that for that reason the royalty payable under the bamboo contracts could not
be made exigible to either sales tax or purchase tax and that the impugned
provisions of the notifications were ultra vires the Act. It was also contended
that the bamboo contract was 28 a works contract and for this reason also the
transaction was not exigible to sales tax or purchase tax, and since the two
notifications of December 29, 1977 were expressed to be made in supersession of
all earlier notifications on the subject, the liability to sales tax under the
said notifications of May 23, 1977 was wiped out.
In Civil Appeal No. 220/82 the bids of the
respondent firm at auctions held by the Government in respect of trees standing
in forest areas were accepted and on confirmation of the bids by the competent
authority it entered into agreements with the Government for felling and
removing such trees. The respondent, in turn, sold the trees felled by it in
the form of logs to others- At the relevant time the respondent was successful
at five auction sales and on ratification of the bids entered into five
separate agreements (timber contracts) for felling and removing the trees
standing in the forest areas.
After the issue of the notifications of May
23. 1977 the respondent filed a writ petition in the High Court against the
State and the Sales Tax and Forest Authorities contending (I) that the levy of
purchase tax on standing timber agreed to be severed was beyond the legislative
competence of the State Legislature and (2) the notifications imposed a tax
both at the point of sale and at the point of purchase and for this reason were
invalid and ultra vires the Act. It was also contended that timber contracts
were works contracts and the amounts payable under them were not exigible
either to purchase tax or sales tax.
The High Court allowed all the writ petitions
and quashed the impugned notifications.
In appeal to the Supreme Court the State
contended that the subject matter of the impugned provisions is
"goods" within the meaning of the term in the Sales of Goods Act and
the Orissa Act, and that what was made exigible to tax under the impugned
provisions notifications, was a completed purchase of goods.
^
HELD: (I) Notification SRO Nos. 372/77 and
373/77 dated May 23, 1977, (2) entries Nos. 2 and 17 in the schedule to
notification No. 900177 and (3) entries Nos. 2 and 17 in the schedule to
notification No. 901177 dated December 29, 1977 levying purchase tax at the rate
of ten per cent on the purchase of bamboos agreed to be severed and standing
trees agreed to be severed, are not ultra vires either Entry 54 List II of the
Seventh Schedule to the Constitution of India or the Orissa Sales Tax Act 1947
but are constitutional and valid [145D-F] (a) The Legislative competence to
enact the Orissa Act, which was a pre-constitution enactment, was derived from
section 100 (3) of the Government of India Act, 1935 read with Entry 48 in List
II in the Seventh Schedule to that Act. While Entry 48 spoke of "taxes on
the sale of goods" Entry 54 of List II of the Seventh Schedule of the
Constitution speaks of "taxes on the sale or 29 purchase of goods."
The addition of the word "purchase" in Entry 54 permits the State
Legislature to levy a purchase tax and does not confine its taxing power merely
to levying sales-tax. [62F; H] (b) A cantena of decisions of this Court had
held that the expression "sale of goods" had been used in the
Government of India Act, 1935 in the same sense in which it is used in the Sale
of Goods Act, 1930 and that it authorised the imposition of a tax only when
there was a completed sale involving transfer of title to the goods.
While construing Entry 54 in List II of the
Seventh Schedule to the constitution interpretation was adopted and any attempt
by the State Legislature to give that expression an artificial meaning or an
enlarged meaning or to bring within its scope what would not be comprehended
within that expression would be unconstitutional and ultra vires. [63F;
64G-H; 63G] State of Madras v. Cannon
Dunkerley & Co. (Madras) Ltd. [1959] SCR 379; The Sales Tax Officer
Pilibhit v.
Messrs. Budh Prakash Jai Prakash [955] 1 SCR
243, 247.
Bhopal Sugar Industries Ltd. M.P. & Anr.
v. P. Dube Sales Tax Officer Bhopal Region Bhopal & Anr. AIR 1964 SC 1037;
K.L. Johar & Co v. Deputy Commercial Tax Officer [1965] 2 SCR 112; Joint
Commercial Tax Officer Harbour Div. II Madras v. Young Men's India Association
(Reg.) Madras & Anr. [1970] 3 SCR 680; State of Maharashtra & Anr. v.
Champalal Kishanlal Mohta [1971] 1 SCR 46, followed.
(c) Although a State is free to impose a tax
at one or more points in a series of sales or purchases in respect of the same
goods, the Orissa Act has adopted a single point levy by enacting the proviso
to section 3 under which no tax is payable on the sale of goods or class of
goods declared under that section to be liable to tax on the turnover of
purchases. The proviso to section 8 states that "the same goods shall not
be taxed at more than one point in the same series of sales or purchases by
successive dealers." Therefore, where in a series of sales or purchases
tax is levied at a particular point neither sales tax nor purchase tax can be
levied at another point in the same series. [65C- E] (d) Since any attempt on
the part of the State to impose by-legislation tax on sales or purchases in
respect of what would not be "sale" or a "sale of goods"
under The Sale of Goods Act, 1930 is unconstitutional, any attempt by it to do
so in the exercise of its power of making subordinate legislation, would be
equally unconstitutional.
Similarly. where any rule or notification
travels beyond the ambit of the parent Act, it would be ultra vires the Act.
Equally, sales tax authorities purporting to
act under the Act or under any rule made or notification issued thereunder
cannot travel beyond the scope of such Act, rule or notification. Thus, the
sales tax authorities under the Orissa Act cannot assess to sales tax or
purchase tax, a transaction which is not a sale or purchase of 30 goods or
assess to sales tax any goods or class of goods which are liable to purchase
tax or assess to tax, whether sales tax or purchase tax, goods at another point
in the same series of sales or purchases of those goods by successive dealers
who are liable to be taxed at a different point in that series.
[65G-H: 56A-C] (2) There is no substance in
the argument of the respondent that by the impugned provisions a new class of
goods. not known to law, had been created. The definition of the expression
"goods ' in both the Sale of Goods Act and the Orissa Act which is almost
in identical terms, includes "things attached to or forming part of The
land which are agreed to be severed before sale or under the contract of sale."
[66E; G-H] (a) An examination of the definitions of movable property and
immovable property given in the General Clauses Act, Registration Act and
Transfer of Property Act, show that things attached to the earth are
"immovable property." The term "attachment" means
"rooted in the earth as in the case of trees and shrubs." Thus, while
trees rooted in the earth are immovable property as being things attached to
the earth by reason of the definition of the term "immovable
property" in various statutes namely the General Clauses Act and the
Orissa General Clauses Act and the Registration Act read with the definition of
the expression "attached to the earth" given in the Transfer of
Property Act, standing timber is "movable property" by reason of its
exclusion from the definition of "immovable property" in the Transfer
of Property Act and the Registration Act and by being expressly included within
the meaning of the term "movable property" given in the Registration
Act. [67E; 68F; 68G-H; 69A] (b) The term "standing timber" has been
judicially recognised as "a tree which ii in a state fit for the purposes
of being used as wood for buildings, houses, bridges, windows, whether on the
tree or cut and seasoned", that is, a tree meant to be converted into timber
so shortly that it could already be looked upon as timber for all practical
purposes even though it is still standing. Thus, trees which are ready-to be
felled would be standing timber and therefore "movable property."
While trees (including bamboos) rooted in the earth being things attached to
the earth are immovable property and if they are "standing timber",
are movable property, trees (including bamboos) rooted in the earth which are
agreed to be severed before sale or under the contract of sale are not only
movable property but also goods. [o9D-E; 70B-C] Smt. Shantabai v. State of
Bombay & Ors. [1959] SCR, 265, 275-6, followed.
(c) The distinction which existed in English
law between fructus naturales (natural growth of soil regarded as part of the
soil until severance) and fructus industriales (which are chattels considered
as representing the labour and expense of the occupier and thing independent of
the land) does not exist in Indian law. In a case of this nature the only
question that falls for consideration in Indian law is whether a transaction
relates to "goods" or "movable 31 property". If it is sale
of immovable property, a document of the kind specified in section 17 of the
Registration Act is required to be compulsorily registered but a document
relating to sale of goods or of movable property is not required to be
registered. Secondly under Entry 54 of List 11 of the Seventh Schedule the
State cannot levy a tax on the sale or purchase of any property other than
goods. [71C- D]
3. The respondent's contention that the
impugned provisions levied a purchase tax on immovable property and not on
goods and that the State Government has travelled beyond its taxing power has
no merit. [71F] (a) The High Court erred in holding that the impugned
provisions amounted to levying a tax on an agreement to sell and not on actual
sale or purchase, that standing trees being unascertained goods continued to be
the property of the State Government until felled and therefore the title to
such trees or bamboos is transferred in favour of the Forest Contractor only
when the trees or bamboos were felled and severed in accordance with the terms
of the contract. There is a fallacy in the reasoning of the High Court in that
the High Court read merely the description of the goods given in the impugned
provisions by itself and not in conjunction with their governing words.
[71G-H; 72A-B] (b) Tax levied under section
3B is not on goods declared under that section but on the turnover of purchases
of such goods. A reading of the notification, issued under sections 3B and 5(1)
as a whole makes it clear that the taxable event is not an agreement to sever
standing trees or bamboos but the purchase of bamboos or standing trees agreed
to be severed. [72C-D] (c) The use of the terms "agreed" in the
description of goods showed that there must be an agreement between the buyer
and the seller and under this agreement standing trees as also bamboos must be
agreed to be severed. According to the definition of "goods" such
severance may be either before sale or under the contract of sale, The Sale of
Goods Act makes a distinction between sale and agreement to sell and provides
that where there is a transfer from the buyer to the seller of property in the
goods which are the subject matter of the agreement to sell, the contract of
sale is a sale but when the transfer of property in the goods is to take place
at a future time or subject to some condition thereafter to be fulfilled it is
an agreement to sell which becomes a sale when the time elapses or such
conditions are fulfilled. In the first case the contract is "executed
contract" while in the second it is "executory." [72E; 73C-D]
(d) A conspectus of the relevant sections o, the Sale of Goods Act shows that a
purchase would be complete when the goods (in the case standing trees or
bamboos) are specific goods. If these factors exist, then unless a different
intention appears either from the terms of the contract or can be inferred from
the conduct of the parties and other circumstances of the case, the property in
such goods would pass from the seller to the buyer when the contract is made
and it is immaterial whether the time of payment of the price or the time of 32
taking their delivery (of standing trees agreed to be severed or bamboos agreed
to be severed or both) is postponed. If, however, there is an unconditional
contract for the sale of unascertained goods then unless a different intention
appear-, the property in them would be transferred to the buyer when the goods
are ascertained and it would be immaterial whether the time of payment of the
price or the time of taking delivery of standing trees agreed to be severed or
bamboos agreed to be severed or both is postponed. In either event, the sale
and purchase would be completed before severance. Therefore for the impugned
provisions to apply the severance of the standing trees or bamboos must not be
before sale but under the contract of sale, that is, after the sale thereof is
completed. The absence in the impugned provisions of the words "before sale
or under the contract of sale" thus made no difference. The subject matter
of the impugned provisions was goods and the tax levied thereunder was on the
completed purchase of goods. [76F-H; 77A-C]
4. The High Court has confused the question
of interpretation of the impugned provisions with the interpretation of Timber
Contracts and Bamboo Contracts. The question of the validity of the impugned
provisions had nothing to do with the legality of any action taken thereunder
to make exigible to tax a particular transaction.
If a notification is invalid, all action
taken under it would be invalid also. Where on the other hand, a Notification
is valid, an action purported to be taken thereunder contrary to the terms of
that notification would be bad in law without affecting in any manner the
validity of the notification. Were the interpretation placed by the High Court
on the Bamboo contracts and the Timber Contracts correct, the transactions
covered by them would not be liable to be taxed under the impugned provisions
and any attempt or action by the State to do so would be illegal but the
validity of the impugned provisions would not be affected thereby. There is no
merit in the challenge to the validity of the impugned provisions on the ground
of their unconstitutionality. [77D; F-H; 78A]
5. (a) The High Court also erred in its view
that bamboos and trees agreed to be severed were the same as bamboos and timber
after they were felled and that since bamboos and trees were liable to tax at
the sale point, taxation of the same goods at the purchase point amounted to
double taxation and that this was contrary to the provisions of the Orissa Act.
[78C] (b) Not only does the Orissa Act expressly forbids double taxation but it
also forbids the levying of tax at more than one point in the same series of
sales or purchases by successive dealers This is evident from the provisos to
sections 3B and 8. Under the proviso to section 3B no tax is payable sales of
goods or class of goods declared under that section to be liable to tax on the
turnover of purchases.
Under the proviso to section 8 the same goods
are not to be taxed at more than one point in the same series of sales or
purchases by successive dealers. [78E-F] (c) The two notifications of December
29, 1977 were issued as a result the Orissa Sales Tax (Amendment) ordinance
1977 which later became the 33 Orissa Sales Tax (Amendment) Act, 1978, while
the two notifications of May 23, 1977 were issued prior to the amendment. [79A]
(d) Prior to January 1, 1978 under section 5(1) tax was payable by a dealer on
his taxable turnover of sales as also purchases at n certain fixed percentage.
This rate applied both to sales tax and purchase tax. But the purchase tax was
payable only on the turnover of purchases of goods declared B under section 3B.
In respect of goods not so declared a dealer was liable to pay only sales tax.
Under the proviso to this section, if goods were declared to be liable to
purchase tax, no tax was payable on sales of such goods. Under section 5(1) the
State Government was required to issue t notification only when it wanted to
fix a rate of tax higher or lower than that specified in this section. If no
such notification was issued then the tax payable, be it sales tax or purchase
tax, was to be at the rate mentioned in section 5(l). Where, however, any goods
were declared under section 3B to be liable to tax on the turnover of
purchases, the notification prescribing a higher or lower rate of sales tax
issued under the first proviso to section 5(1) would thereupon ceases to be
observative by reason of the operation of the proviso to section 3B and it was
not necessary to repeal expressly that notification. It was also not necessary
for the State Government to issue a notification fixing the rate of purchase tax
unless it wanted to fix a rate higher or lower than that specified in section
5(1). Where no such notification was issued, the rate of purchase tax would be
the one which was mentioned in section 5(1). [79C-H] (e) After January 1, 1978
no rate of tax was specified in the Orissa Act. Under section 5(1) the State
Government is given power to notify from time to time the rate of tax- sales
tax or purchase tax by issuing notifications. The notification dated December
29, 1977 issued under section 5(1) does not contain any entry in respect of
bamboos, or timber or in respect of bamboos agreed to be severed or standing
trees agreed to be severed. If they were liable to sales tax, they would fall
under the residuary entry No. 101 and be liable to sales tax at the rate of
seven percent. If any goods feeling under the residuary entry or any other
entry in that notification are declared under section 3B to be liable to tax on
the turnover of purchases, the residuary entry or that particular entry would
automatically cease to operate in respect of those goods by reason of the
proviso to section 3B without there being any necessity to delete that
particular entry or to amend the residuary entry by excluding those goods
therefrom. It would be necessary for the State Government to issue a
notification specifying the rate of purchase tax on those goods because unlike
what the position was prior to January 1, 1978, on and after that date the new
sub-section 5(1) does not specify any rate of tax but leaves it to the State Government
to notify it from time to time. The High Court was in error in holding that the
impugned provisions were ultra vires the Orissa Act as they amounted to
"double taxation." [80A-E]
6. (a) There was no substance in the
contention that the two notifications of December 29, 1977 having been made in
supersession of all previous notifications issued on the subject their effect
was to wipe out all tax liability which accrued under the earlier notifications
of May 23, 1977.
[80G-H] 34 (b) The word "supersession"
in the notifications of December 29, 1977 was used in the same sense as the
words "repeal and replacement" and, there fore, does not have the
effect of wiping out the tax liability under the previous notifications. All
that was done by using the words "in supersession of all previous
notification" in the Notifications of December 29, 1977, was to repeal and
replace the previous notifications and not to wipe out any liability incurred
under the previous notifications. [146C- D] (c) Both sections 3B and 5(1) in
express terms conferred power upon the State Government to issue notification
from time to time. Under these provisions the State Government can issue a
notification and repeal and replace it by another notification. [81C] (d) The
issuance of the notifications became necessary by reason of the change brought
about in the scheme of taxation in 1977. With effect from January 1, 1978
unless a notification was issued specifying the rate of tax, no dealer would be
liable to pay any tax under the Orissa Act.
Under the amended section if the State
Government wanted to tax any goods or class of goods at a higher or lower rate
it issued notifications specifications specifying such rate.
Since no rate of lax was specified in the new
section but was left to the State Government to fix it, it was necessary to
issue a notification consolidating all previous notifications on the subject in
respect of goods liable to purchase tax which the State Government did. [82E;
83A; C; D]
7. (a) Timber contracts were not works
contracts but were agreements to sell standing timber. [146D] (b) Timber
contracts were not transactions of sale or purchase of standing trees agreed to
be severed- They were merely agreements to sell such trees. The property in the
trees passed to the respondent firm only in the trees which were felled, that
is, in timber, after all the conditions of the contract had been complied with
and after such timber was examined and checked and removed from the contract
area.
The impugned provisions, therefore, did not
apply to the transactions covered by the Timber Contracts [98 A-B] (c) A
conspectus of the terms of the Sale Notice, the Special Conditions of Contract,
the General Conditions of Contract and the various statutory provisions shows
that the heading "sale notice of timber`' as also the use of the words '
timber and other forest products will be sold by public auction" are not
determinative of the matter. The other terms and conditions of the contract
make it clear that the Timber Contracts were not unconditional contracts for
the sale of goods in a deliverable state and the property in the trees
specified in Schedule I of the Contract did not pass to the respondent firm
when each of the contracts was made. The signing of the Timber Contracts did not
result in a concluded contract because each contract was conditional upon the y
State Government ratifying the acceptance of the bid, the ratification order
did not become an unconditional contract for the sale of specific goods in a
deliver able state for the respondent firm had no right to sever the trees and
take them away before complying with the other conditions of the contract,
namely, furni 35 shing a Coupe Declaration Certificate within the prescribed
time, registering the property mark or trade mark, making the security deposit
and so on. This apart, the respondent firm was not at liberty to fell trees of
his choice nor was he entitled to remove the felled trees by any route which it
liked but only by specified routes. [95F-H; 96B-C; 97A-B] (d) Although under
rule 40 of the Orissa Forest Contract Rules 1966, Rules stipulates that the
respondent, firm was not entitled to any compensation for loss sustained by
reason of fire, tempest, disease, natural calamity or any wrongful act of a
third party this only showed that after a Timber Contract was concluded the
risk passed to the respondent firm. Under section 26 of the Sale of Goods Act
when the property is transferred to the buyer, the goods are at the buyer's
risk whether delivery had been made or not;
but this section is qualified by the phrase
"unless otherwise agreed." The Timber Contracts in this case were
subject to contract to the contrary. This is made clear by rule 44 which states
that "all forest produce removed from a contract area in accordance with
these rules shall be at the absolute disposal of the forest contractor."
[97E-H]
8. (a) On the question whether the words
"timber" and "logs" mean the same thing in commercial
parlance the no material had been produced by the parties. Where a term has not
been statutorily defined or judicially interpreted and there is insufficient
material on record as to the meaning of the words, the Court must seek to
ascertain its meaning in common parlance with such aid as is available to it.
The court may take the aid of dictionaries in such cases to ascertain its
meaning in common parlance. In doing so, the Court must bear in mind that a
word is used in different senses according to its context and a dictionary
gives all the meanings of a word and the Court would have to select the
particular meaning which would be relevant to the context in which it has to
interpret that word. [104E; 105B- C; 146G-H] (b) The Orissa Act does not define
the term "timber" or "logs." The statutory definition of
"timber" given in the Orissa Forest Act, 1972 is that timber includes
"trees fallen or felled and all wood cut up or sawn." The Madras
Forest Act, 1882 and the Indian Forest Act 1927, the two Acts in force in the
State of Orissa prior to the enactment of the Orissa Forest Act, 1972 too have
not given any exhaustive definition of the term "timber." But what is
apparent from these definitions is that the word "timber" is not
confined merely to felled trees in the forests- In subsequent Act like the Orissa
Forest Produce (Control of Trade) Act, 1981 the concept that timber is not
merely felled trees has been emphasised. Therefore. a conspectus of the
meanings given to the term "timber" in statutes, different
dictionaries and as judicially interpreted by this Court as well as by some
High Courts shows that it means "building material, generally wood, used
for building of houses, ships etc.- and the word is applied to wood of growing
trees capable of being used for structural purposes.
Hence, collectively to the trees themselves."
A log according to the dictionaries means a bulky mass of wood now usually an
unhewn portion of a felled tree or a length cut off for firewood. These logs
will be nothing more than wood cut up or 36 sawn and would be timber.
Similarly, a beam is timber sawn in a particular way. So too ratters would be
timber logs put to a particular use. In ordinary parlance a plank would be
flattened and smoothed timber.
[105C; F; 106C; 107A-D; F] Mohanlal Vishram
v. Commissioner of Sales Tax, Madhya Pradesh, Indore [1969] 24 STC 101; G.
Ramaswamy and others v. The State of Andhra Pradesh and others [1973] 32 STC
309, approved and Krupasindhu Sahu & Sons v. State of Orissa [1975] 35 STC
270. overruled.
9. (a) Sales of dressed or sized logs having
been assessed to sales tax, sales to the respondent Firm of timber by the State
Government from which logs were made by the respondent firm cannot be made
liable to sales tax as it would amount to levying tax at two points in the same
series of sales by successive dealers, assuming that the retrospectively
substituted definition of "dealer" in clause (c) of section 2 of the
Orissa Sales Tax Act, 1947 is valid.
[147B-C] (b) Sales of logs by the respondent
firm during the period June 1, 1977 and December 31, 1977 would be liable to
tax at the rate of ten percent. Assuming that the sales had been assessed to
tax at the rate of six percent as contended by reason of the period of
limitation prescribed by section 12(8) of the Orissa Act, the respondent-firms
assessment for the relevant period cannot be re-opened to reassess such sales
at ten per cent. [147D-E]
10. (a) The Bamboo Contract is not a lease of
the contract area to the respondent company in CA 219182. Nor is it a grant of
an easement to the respondent company, as it was not a grant of any right for
the beneficial equipment of any of the respondent company. In addition to the
right of entry there are other important rights flowing from the contract. It
is a grant of a profit a prendre which in Indian law is a benefit to arise out
of land and thus creates an interest is immovable property. A profit a prendre
is a benefit arising out of land and in view of section 3(26) of the General
Clauses Act, it is "immovable property" within the meaning of the
Transfer of Property Act. [147F-H] (b) There are countervailing factors which
80 to show that a Bamboo contract is not a contract of sale of goods.
It is a grant of exclusive right and licence
to fell, cut, obtain and remove bamboos. The person giving the grant the
Governor of the State, is referred to as "grantor"; the consideration
payable is "royalty" which is not a term used in legal parlance for
the price of goods sold. It is not an agreement to sell bamboos standing in the
contract area with the accessory licence to enter upon such area for the
purpose of felling and removing bamboos nor is it for a particular felling
season only. It is an agreement for a period ranging from fourteen, thirteen
and eleven years with the option to renew the contract for further terms of
twelves years. The payment of royalty has no relation to the actual quantity of
bamboos cut and removed. The respondent company was bound to pay a minimum
royalty and the royalty paid was always in excess of the royalty due on the
bamboos cut in the contract areas. The Bamboo contract conferred upon the
respondent-company a 37 benefit to arise out of land, namely, the right to cut
and remove bamboos which would grow from the soil coupled with several
ancillary rights and was thus a grant of a profit a prendre. Being a profit a
prendre or a benefit to arise out of land any attempt on the part of the State
Government to tax the amounts payable under the Bamboo Contract would not only
be ultra vires the Orissa Act but also unconstitutional as being beyond the
State's taxing power under Entry 54 in List II in the Seventh Schedule to the
Constitution of India.
[119C; E; 120B-D; 121G-H]
11. The decision of Firm Chhotabhai Jethabhai
Patel & Co. v. The State of Madhya Pradesh [1963] SCR 476 on which the
appellant relied is not good law and has been overruled by decisions of larger
Benches of this Court. (State of Madhya Pradesh v. Yakinuddin [1963] 3 SCR 13)
[148A] M/s Mohanlal Hargovind of Jubbulpore v. Commissioner of Income Tax C.P.
& Berar Nagpur L.R. [1949] 76 I A. 235;
ILR 1949 Nagpur 892; AIR 1449 PC 311; Ananda
Behra and another v. The State of Orissa and another [1955] 2 SCR 919 and Smt.
Shantabai v. State of Bombay & Orissa [1959] SCR 265 275-6 referred to; and
Board of Revenue Etc. v. A.M. Ansari Etc.[1976] 3 SCR 661 held 1 inapplicable.
12. (a) The case of State of M.P. v. Orient
Paper Mills Ltd. [1977] 2 SCR 1219 on which the appellant relied is not good
law as that decision was given per incurium and had laid down principles of
interpretation which are wrong in law. The basic and salient features of the
agreement before the Court in Orient Paper Mills' Case were the same as in the
case of Mahadeo v. State of Bombay and the Court was not justified in not
adverting to that case and the other cases referred to on the ground that these
cases dealt with the general law of real property. [142 H; 143A].
(b) The enunciation of law made by the Court
in the Orient Paper Milts case that a document should be so construed as t o
bring it within the ambit of a particular statute relevant for the purpose of
the dispute before the court and that in order to do so, the Court could look
at only such of the clauses of the document as also to just one or more, of the
consequences flowing from he document which would fit in with the
interpretation which the court wanted to put on the document to make that
statute applicable, is fraught with considerable danger and mischief as it may
expose documents to the personal predilictions and philosophies of individual
judges depending upon whether according to them it would be desirable that
documents of the type they have to construe should be made subject to a
particular statute or not. [139E-G] (c) Secondly, in observing that the State
Government, for reasons best known to it had "left the exploitation of the
forest resources in part to the private sector" the court had overlooked
that it was a matter of policy for the State to decide whether such
transactions should be entered into or not, whether the transactions entered
into by the State was for the industrial development of 38 the State and
whether the transaction ensured employment for the people of the area and so
on.
(d) Thirdly, the nature and meaning of a
document cannot be deter mined by its end-result or one of the consequences which
flow from it. In look in merely at the end-result of the agreement the court
overlooked a firmly established principle that both the agreement and the sale
must relate to the same subject matter and therefore, there cannot be an
agreement relating to one kind of property and a sale as regards another.
[141C-D] (e) In coming to the conclusion that the term "royalty" used
in the document before it was merely a 'euphimism" for the "price of
timber". the court overlooked the fact that the amount of royalty payable
by the respondent was consideration for all the rights conferred upon it under
the contract though it was to be calculated according to the quantity of
bamboos felled.[141H; 142A]
13. Where there are two or more conflicting
views of this court on the same point the proper course for the High Court or
even for smaller Benches of this court is to find out and follow the views
expressed by larger Benches of this court in preference to those expressed by
smaller benches- This practice has crystallised into a rule of law declared by
this Court. [142E-F] U.O.I. v. K.S. Subramanian [1977]1 SCR 87, 92, followed.
14. A works contract is a compendious term to
describe conveniently a contract for the performance of work or services in
which the supply of materials or some other goods is incidental. In the instant
case, the timber Contracts being agreements relating to movable property and
the Bamboos Contracts being a grant of an interest in immovable property,
cannot be works contracts. The payee of the price, namely, the Government has
not undertaken to do any work or labour. It was the contractor who had to enter
upon the land to fell the trees and remove them. So is the case of Bamboo
Contracts.
[144H; 145A] Commissioner of Sales tax, M.P.
v- Purshottam Premji [1970] 26 STC 38, 41 S.C., referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 219 220 of 1982.
From the Judgment and Order dated 19.9.1979
of the High Court of Orissa in D.J C. Nos. 811 & 1048/77.
Anil B. Divan and R. K. Mehta for the Appellants.
S.,T. Desai, S.R. Banerjee and Vinoo Bhagat,
B.R.
Aggarwal, Miss Vijaylakshmi Menon Vinod Bobde
for the Respondents.
39 The Judgment of the Court was delivered by
MADON J. These two Appeals by Special Leave granted by this Court are against
the judgment and order of the Orissa High Court allowing 209 writ petitions
under Article 226 of the Constitution of India filed before it.
Genesis of the Appeals On May 23, 1977, the
Government of Orissa in the Finance Department issued two Notifications under
the Orissa Sales Tax Act 1947 (Orissa Act XIV of 1947). We will hereinafter for
the sake of brevity refer to this Act as "the Orissa Act". These
Notifications were Notification S.R.O. 372/77 and Notification S.R.O No. 373/
77.
Notification S.R.O. No. 372/77 was made in
exercise of the powers conferred by section 3-B of the Orissa Act and
Notification S.R.O. No. 373/77 was made in exercise of the powers conferred by
the first proviso to sub-section (1) of section 5 of the Orissa Act. We will
refer to these Notifications in detail in the course of this judgment but for
the present suffice it to say that notification S.R.O.No. 372/77 amended
notification no. 20209-CTA-14/76-F dated April 23, 1976, and made bamboos
agreed to be severed and standing trees agreed to be severed liable to tax on
the turnover of purchase with effect from June 1, 1977, while notification
S.R.O. No 373/77 amended with effect from June 1, 1977, Notification No.
20212-CTA -14/76-F dated April 23, 1979, and directed that the tax payable by a
dealer under the Orissa Act on account of the purchase of bamboos agreed to be
severed and standing trees agreed to be severed would be at the rate of ten per
cent. After the promulgation on December 29, 1977, of the Orissa Sales Tax
(Amendment) Ordinance 1977 (Orissa Ordinance No, 10 of 1977 ), which amended
the Orissa Act, two other notifications were issued on December 29, 1977, by
the Government of Orissa in the- Finance Department, namely Notification No.
67178- C.T.A.135/77(Pt.) F(S.R.O. No900/77) and Notification No.
67181-C.T.A. 135/77-F (S.R.O. No. 901/77).
The first Notification was expressed to be made in exercise of the powers
conferred by section 3-B of the Orissa Act and in supersession of all previous
notifications issued on that subject. By the said notification the State
Government declared that the goods set out in the Schedule to the said
Notification were liable to be taxed on the turnover of purchase with effect
from January 1. 1978. Entries Nos. 2 40 and 17 in the Schedule to the said
Notification specified bamboos agreed to be severed and standing trees agreed
to be severed respectively. The second Notification was expressed to be made in
exercise of the powers conferred by sub- section (1) of section 5 of the Orissa
Act and in supersession of all previous notifications in that regard.
By the said notification the State Government
directed that with effect from January 1, 1978, the tax payable by a dealer
under the Orissa Act on account of the purchase of goods specified in column
(3) of the Schedule to the said Notification would be at the rate specified
against it in column (3) thereof. In the said Schedule the rate of purchase tax
for bamboos agreed to be severed and standing trees agreed to be severed was
prescribed as ten per cent.
The relevant entries in the Schedule in that
behalf are Entries Nos. 2 and 17. The Orissa Tax (Amendment) Ordinance, 1977,
was repealed and placed by the Orissa Sales Tax (Amendment) Act, 1978 (Orissa
Act No. 4 of 1978).
As many as 209 writ petitions under Article
226 of the Constitution of India were filed in the High Court of Orissa
challenging the validity of the aforesaid two Notifications dated May 23, 1977,
and the said Entries Nos. 9 and 17 in each of the said two notifications dated
December 29, 1977 (hereinafter collectively referred to as "the impugned
provisions"). The petitioners before the High Court fell into two
categories. The first category consisted of those who has entered into
agreements with the State of Orissa for the purpose of felling, cutting
obtaining and removing bamboos from forest areas "for the purpose of
converting the bamboo into paper pulp or for purposes connected with the
manufacture of paper or in any connection incidental therewith". This
agreement will be hereinafter referred to as "the Bamboo Contract".
The other group consisted of those who had entered into agreements for the
purchase of standing trees. We will hereinafter refer to this agreement as
"The Timber Contract". All the Bamboo Contracts before the High Court
were in the same terms except with respect to the contract area, the period of
the agreement and the amount of royalty payable; and the same was the case with
the Timber contracts. By a common judgment delivered on September 19, 1979,
reported as The Titaghur Paper Mills Company Ltd. and another v. State of
Orissa and other (and other cases)1, the High Court allowed all the (1) (1980)
45 S.T.C. 170.
41 said writ petitions and qauashed the
impugned provisions.
The High Court made no order as to the costs
of these petitions.
Each of the present two Appeals has been
filed by the State of Orissa, the Commissioner of Sales Tax Orissa, and the
Sales Tax Officer concerned ill the matter, challenging the correctness of the
said judgment of the High Court. The Respondents in Civil Appeal No. 219 of
1982 are the Titaghur Paper Mills Company Limited (hereinafter referred to as
'the Respondent Company") and one Kanak Ghose, a shareholder and director
of the Respondent Company. The Respondents in Civil Appeal No. 220 of 1982 are
Mangalji Mulji Khara, a partner of the firm of Messrs. M.M. Khara, and the said
firm. The Chief Conservator of Forests, Orissa, the Divisional Forest Officer,
Rairkhol Division. and the Divisional Forest Officer, Deogarh Division have also
been joined as proforma Respondents to the said Appeal.
Facts of C. A. No. 219 of 1985 D The
Respondent Company is a public limited company. Its registered office is
situated at Calcutta in the state of West Bengal. The Respondent Company
carries on inter alia the business of manufacturing paper. For this purpose it
owned at the relevant time three paper mills-one at Titaghur in the State of
West Bengal, the second at Kankinara also in the State of west Bengal and the
third at P. O. Choudwar, Cuttack District, in the State of Orissa. For the
purpose of obtaining raw materials for its business of manufacturing paper, the
Respondent Company entered into a Bamboo Contract dated January 20, 1974, with
the State of Orissa. This agreement was effective for a period of fourteen
years from October 1, 1966, in respect of Bonai Main Areas of Bonai Division,
for a period of thirteen years of with effect from October 1, 1967, in respect
of Kusumdih P. S. Of Bonai Division; and for a period of eleven years with effect
from October 1, 1969, in respect of Gurundia Rusinath P. S. Of Bonai Division,
with an option to the Respondent Company to renew the agreement for a further
period of twelve years from October 1, 1980. For the present it is not
necessary to refer to the other terms and conditions of this Bamboo Contract.
After the said two Notification dated May 23,
1977, were issued, the Sales Tax Officer, Dhenkanal Circle, Angul, Ward (the
Third Appellant in Civil Appeal No. 219 of 1982) issused to 42 the manager of
the Respondent Company's mill at P. O. Choudwar a notice dated August 18, 1977,
under Rules 22 and 28(2) of the Orissa Sales Tax Rules, 1947, stating that
though the Respondent Company's gross turnover during the year immediately
preceding June 1, 1977, had exceeded Rs. 25,000; it had without sufficient
cause failed to apply for registration as a dealer under section 9 of the
Orissa Act and calling upon him to submit within one month a return in Form IV
of the forms appended to the said Rules, showing the particulars of
"turnover for the quarter ending 76-77 & 6/77". By the said
notice the said manager was required to attend in person or by agent at the
Sales Tax Office at Angul on October 30, 1977, and to produce or cause to be
produced the accounts and documents specified in the said notice and to show
cause why in addition to the amount of tax that might be assessed a penalty not
exceeding one and half times that amount should not be imposed under section
12(5) of the Orissa Act that is, for carrying on business without being
registered as a dealer. By its letter dated August 25, 1977 the Respondent
Company asked for time to seek legal advice. Thereafter by its letter dated
September 27, 1977 addressed to the said Sales Tax Officer, the Respondent
Company contended that the said notice was invalid and called upon him to
cancel the said notice. A copy of the said letter was also sent to the
Commissioner of Sales Tax, Orissa, who is Second Appellant in Civil Appeal No.
219 of 1982 as also to the Chief Secretary to the Government of the State of
Orissa. As no reply was received to the said letter, the Respondent company and
the said Kanak Ghosh filed writ petition in the High Court of Orissa, being
O.J.C No. 811 of 1977, challenging the validity of the said two Notifications
dated May 23, 1977, and the said notice. While the said writ petition was
part-heard, the said two Notifications were replaced by the said two
Notifications dated December 29, 1977. Accordingly, the Respondent Company
applied for amendment of the said writ petition. It also filed along with Kanak
Ghosh another writ petition, being O.J.C. No. 740 of 1978, challenging the
validity not only of the said two Notifications dated May 23, 1977, but also of
Entries Nos. 2 and 17 of the said two Notifications dated December 29, 1977,
and the said notice dated August 18 1977, on the same grounds as those in the
earlier writ petition.
The principal contentions raised in the said
writ petitions were that the subject-matter of the Bamboo Contract was not a
sale or 43 purchase of goods but was lease of immovable property or in any
event was the creation of an interest in immovable property by way of grant of
profit a prendre which according to the Respondent Company amounted in Indian
law to an easement under the Indian Easements Act, 1882 (Act V of 1882), and
that for the said reason the amounts of royalty payable under the Bamboo
Contract could not be made exigible to either sales tax or purchase tax in the
exercise of the legislative competence of the State, and, therefore, the
impugned provisions were unconstitutional and ultra vires the Orissa Act. It
was further contended that the Bamboo Contract was a works contract and for the
said reason also the transaction covered by it was not exigible to sales tax or
purchase tax. It was also contended that as the said Notifications dated
December 29, 1977, were expressed to be made in supersession of all earlier
notifications on the subject, the liability, if any, under the said
Notifications dated May 23, 1977, was wiped out. The said writ petitions prayed
for quashing the impugned provisions and for writ of mandamus against the
respondents to the said petitions, namely, the State of Orissa, the
Commissioner of Sales Tax, Orissa, and the said Sales Tax Officer, restraining
them from giving any effect or taking any further steps or proceedings against
the Respondent Company on the asis Or the impugned provisions or the said
notice.
In addition to the said two writ petitions
filed by the Respondent Company and the said Kanak Ghosh, three other writ
Petitions were also filed by other parties Who had entered into Bamboo
Contracts with the State of Orissa in which similar contention were raised and
reliefs claimed.
The record is not clear whether any
assessment order was made against the Respondent Company in pursuance of the
said notice or whether further proceedings in pursuance of the said notice were
stayed by the High Court by an interim order. As mentioned earlier, by the said
common judgment delivered by the High Court, the said writ petitions were
allowed. As a natural corollary of the High Court, quashing the impugned
provisions it ought to have also quashed, the said notice dated August 18,
1977, and the assessment order, if any, made in pursuance thereof. The High
Court, however, did not do so, perhaps because as it heard and decided all the
said 209 writ petitions together it did not ascertain the facts of each
individual petition or the exact consequential reliefs to be given to the
petitioner therein.
44 Facts of C. A. No. 220 of 1982 Messrs.
M.M. Khara, Second Respondent to Civil Appeal No. 220 of 1982 (hereinafter
referred to as "the Respondent Firm"), is a-partnership firm of which
the first Respondent to the said Appeal, Mangalgi Mulji Khara, is a partner. The
Respondent Firm carried on business at P. O. Sambalpur in the District of
Sambalpur in the State of Orissa and was registered as a dealer both under the
Orissa Act and the Central Sales Tax Act, 1956 (Act LXXIV of 1956), with the
Sales Tax Officer, Sambalpur I Circle. The business of the Respondent Firm so
far as concerns this Appeal consisted of bidding at auction held by the
Government of Orissa in respect of trees standing in forest areas and if it was
the highest bidder, entering into an agreement with the Government for felling
and removing such trees and in its turn selling the trees felled by it in the
shape of logs to other. The procedure followed by the State of Orissa in giving
forest areas was to publish notices of proposed auction sales of timber and
other forest products in particular forest areas. After the auctions were held,
ratification orders would be issued by the State Government to the forest
contractors who were the highest bidders as also an agreement would be entered
into between the State of Orissa through its Governor and the forest contractor
in respect of the forest produce governed by the agreement.
During the relevant period, the Respondent
Firm was successful at five auction sales held by the State of Orissa. Its bids
were ratified by the State Government. The Respondent Firm also entered into
five separate agreements (hereinafter referred to as "Timber
Contractors") for felling and removing trees standing in such forest
areas.
Three of the said five Timber Contracts were
for the period October 31, 1977, to January 31, 1979, the fourth was for the
period October 1, 1977 to December 31, 1978, and the fifth was for the period
October 28, 1977 to July 31, 1979.
After the said Notifications dated May 23,
1977 were issued, the Respondent Firm along with its said partner Mangalji
Mulji Khara filed a writ petition in the Orissa High Court, being O.J.C. No.
1048 of 1977, against the State of Orissa, Commissioner of Commercial Taxes,
Orissa, Sales Tax Officer, Sambalpur Circle, Divisional Forest Officer,
Roirkhol Division, and Divisional Forest Officer, Deogarth Division. Two main
grounds were taken in the 45 said writ petition, namely, (l) the levy of a
purchase tax on standing timber agreed to be severed was beyond the legislative
competence of the State Legislature and (2) the said Notifications imposed a
tax both at the point of sale and point of purchase and were, therefore,
invalid and ultra vires the Orissa Act. It was also contended that the power
conferred upon the State Government under section 3-B of the Orissa Act to
declare any goods or class of goods to be liable to tax on the turnover of
purchase as also the power conferred upon the State Government to specify the
rate of tax subject to the conditions that it should not exceed thirteen per
cent amounted to excessive delegation of legislative power to the State
Government and that too without prescribing any guidelines in respect thereof.
It was further contended that the Timber Contracts were works contracts and the
amounts payable under them were, therefore, not exigible either to purchase tax
or sales tax.
The reliefs sought in the said writ petition
were for quashing the said two Notifications dated May 23, 1977- D While the
said writ petition was pending, the Sales Tax Officer, Sambalpur I Circle, by
his assessment order dated November 28, 1978, assessed the Respondent Firm to
tax under the Orissa Act for the period April 1, 1977, to March 31, 1978. He
held that the Respondent Firm had paid royalty to the Forest Department in the
aggregate sum of Rs. 11,52,175 on which purchase tax at the rate of ten per
cent was payable by it. It was further stated in the said assessment order that
the Respondent Firm had not shown this amount in its gross turnover.
Accordingly, the Sales Tax Officer enhanced the gross turnover to include this
amount. The amount of purchase tax assessed on the Respondent Firm amounted to
Rs. 1,16,217.50p. Thereupon, the Respondent Firm and its partner amended the
said writ petition No. O.J.C.
1048 of 1977 and challenged the validity of
the said assessment order and prayed for quashing the same. On an application
made by the Respondent Firm and its said partner, by an interim order the High
Court stayed the recovery of the amount of purchase tax pending the hearing and
final disposal of the said writ .
Apart from the Respondent Firm, 203 other
forest contractors who had entered into similar agreements with the State
Government also filed writ petitions in the High Court challenging the validity
of the impugned provisions. By its judgment under appeal, 46 the High Court
allowed the said petition filed by the Respondent Firm. As in the case of the
writ petition filed by the Respondent Company and very probably for the same
reason, the High Court did not pass any order quashing the said assessment
order consequent upon it holding that the impugned provisions were ultra vires
the Act.
Judgment of the High Court All the said 209
writ petitions were heard by a Division Bench of the Orissa High Court
consisting of S.K.Ray, C.J., and N.K. Das, J. The main judgment was delivered
by Das. J., while Ray, C.J., delivered a short, concurring judgment. Das, J.
rejected the contention that the effect of the word 'supersession' used in the
Notifications dated December 29, 1977, was to wipe out the liability under the
earlier Notifications dated May 23, 1977. He held that the Notifications dated
May 23,1977, remained in force until the Notifications dated December 29, 1977,
came into operation. So far as the other points raised before the High Court
were concerned, Das, J., summarized the conclusions reached by the court in
paragraphs 19 and 2() of his judgment as follows:
"19. For the reasons stated above, we
hold as follows:
(1) That the bamboos all i trees agreed to be
severed are nothing but bamboos and timber after those are felled. When
admittedly timber and bamboos are liable for taxation at the sale point,
taxation of those goods at the purchase point amounts to double taxation and,
as such, the notifications arc ultra vires the provisions of the the Act.
(2) The impugned notifications amount to
taxation on agreements of sale, but not on sale and purchase of goods; and (3)
In the case of bamboo exploitation contracts, the impugned notifications amount
also to impost of tax on profit-a-prendre and, as such, arc against the
provisions of the Orissa Sales Tax Act.
"20. In view of the aforesaid findings,
we do not consider it necessary to go into the other questions raised 47 by the
petitioners, namely, whether it is a works contract and whether the
notifications amount to excessive delegation or whether there has been business
of purchase by the petitioners or whether there has been restriction on trade
and business" In his concurring judgment Ray, C. J., agreed with Das, J.
and further held that in the series of sales
in question the first sale, that is the taxable event, started from the
Divisional Forest Officer and that the Divisional Forest Officer was the
taxable person who had sold taxable goods, namely, timber, and that as what was
sold by the Divisional Forest Officer was purchased by the petitioners before
the High Court the identity of goods sold and purchased was the same, and that
where such a sale was taxed, the purchase thereof was excluded from the levy of
tax by virtue of sections 3-B and 8 of the Orissa Act and consequently the levy
of purchase tax by the impugned provisions was bad in law.
In view of its above findings, the High Court
allowed all the writ petitions and quashed the impugned provisions.
The High Court made no order as to the costs
of the writ petitions.
We will set out the submissions advanced at
the Bar at the hearing of these Appeals when we deal with the various points
which fall to be decided by us. In order, however, to test the correctness of
the judgment of the High Court as also of the rival contentions of the parties,
it is necessary to see first the relevant provisions of the constitution of
India as also of the Orissa Act and of the various notifications issued
thereunder.
Constitutional provisions The Orissa Act
received the assent of the Governor- General of India on April 26, 1947, and
was published in the Orissa Gazette on May 14, 1947. Under section 1(13) of the
Orissa Act, section 1 was to come into force at once and the rest of the Orissa
Act on such date as the Provincial Government may by notification in the Orissa
Gazette appoint. The rest of the Orissa Act was brought into force on August l,
1947. The Orissa Act is thus a pre-constitution Act. At the date when it was enacted
as also when it came into force? the constitutional law of India was the
Government of 48 India Act, 1935, prior to its amendment by the Indian
Independence Act, 1947. Under section 100(3) of the Government of India Act
1935, the Legislature of a Province alone had the power to make laws for a
province or any part thereof in respect any of the matters enumerated in List
11 in the Seventh Schedule to that Act, namely the Provincial Legislative List.
Entry 48 in the provincial Legislative List provided for "Taxes on the
sale of goods and on advertisements". Thus, under the Government of India
Act, 1935, Sales tax was an exclusively provincial subject and the legislative
competence of the Orissa Provincial Legislature to enact the Orissa Act was
derived from section 100(3) of the Government of India Act, 1935, read with
Entry 48 in the Provincial Legislative List. Under the Constitution of India as
originally enacted, the legislative topic "Taxes on the sale or purchase
of newspapers and on advertisements published therein" was exclusively a
Union subject in respect of which under Article 245(1) read with Article 246(1)
parliament alone could make laws for the whole or any part of the territory of
[India, this topic being the subject-matter of Entry 92 in List I in the
Seventh Schedule to the Constitution (namely, the Union List), while
"Taxes on the sale or purchase of goods other than news papers" and
"Taxes on advertisements other than advertisements published in
newspapers" were exclusively State subjects in respect of which under
Article 245(1) read with Article 246(3) of the Constitution of India, the
Legislature of a State alone could make laws' for such State or any part
thereof, these topics being the subject-matter of Entries 54 and 55 in , List
ll in the Seventh schedule to the Constitution, namely, the State List' By the
constitution (Sixth Amendment ) Act, 1956, a new Entry, namely Entry 92A, was
inserted in the Union List and Entry 54 in the State List was substituted by a
new Entry. Entry 92A in the Union List reads as follows:
"92A. Taxes on the sale or purchase of
goods other than newspapers, where such sale or purchase takes place in the
course of inter-State trade or commerce." The amended Entry 54 in List ll
reads as follows:
"54. Taxes on the sale or purchase of
goods other than newspapers, subject to the provisions of Entry 92A of List
I." 49 We are not concerned in these Appeals with the amendment made in
Entry 55 in the State List by the Constitution (Forty second Amendment ) Act,
1976. We are not concerned with Entry 92-B inserted in the Union List or with
the extended meaning given to the expression "tax on the sale or purchase
of goods" by the new clause (29A) inserted in Article 366 of the
Constitution whereby that expression inter alia includes a tax on the transfer
of property in goods (whether as goods or in some other form) involved in the
execution of a works contract, by the Constitution (Forty-sixth Amendment) Act,
1982. We are equally not concerned in these Appeals with the restrictions
imposed by Article 286 of the Constitution on a State's power to levy a tax on
certain classes of sales and purchases of goods.
The Orissa Act In keeping with the
legislative history of fiscal measures in general, the Orissa Act has been
amended several times. Thus, by the middle of July 1981 it had been amended
twenty-eight times. It is needless to refer to all the provisions of the Orissa
Act or of the various amendments made therein except such of them as are
relevant for the purpose of these Appeals.
The Orissa Act when enacted levied a tax only
on the sales of goods taking place in the province of Orissa. By the Orissa
Sales tax (Amendment) Act, 1958 (Orissa Act No.28 of 1958), a purchase tax was
for the, first time introduced in the State of Orissa with effect from December
1, 1958.
The tax under the Orissa Act is levied not on
goods but on sales and purchases of goods or rather on the turnover of sales
and turnover of purchases of goods of a dealer. Under section 4(2) of the
Orissa Act, a dealer becomes liable to pay tax on sales and purchases with
effect from the month immediately following a period not exceeding twelve
months during which his gross turnover exceed the limit specified in that
sub-section which during the relevant period was Rs.
25,000. Under section 4(3) a dealer who has
become liable to pay tax under the Orissa Act continues to be so liable until
the expiry of three consecutive years during each of which his gross turnover
has failed to exceed the prescribed limit and such further period after the
date of The said expiry as may be 50 prescribed by the Orissa Sales Tax Rules
and his liability to pay tax ceases only on the expiry of the further period so
prescribed. A special liability is created by section 4-A on a casual dealer as
defined in clause (bb) of section 2.
We are not concerned in these Appeals with
any question relating to a casual dealer.
Section 2 is the definition section. Clause
(c) of that section defines the term "dealer". The definition as it
stood during the relevant period and at the date when the judgment of the High
Court was delivered (omitting what is not relevant) read as follows:
"(c) 'Dealer' means any person who
carries on the business of purchasing or selling or supplying goods, directly
or otherwise, whether for commission, remuneration or other valuable
consideration and includes- (i) ...a company, ... firm or association which
carries on such business;
Explanation-The manager or agent of a dealer
who resides outside Orissa and who carries on the business of purchasing or
selling or supplying goods in Orissa shall, in respect of such business, be
deemed(l to l c a dealer for the purposes of this Act".
It was on the basis of the above Explanation
to section 2(c) that the notice impugned in Civil Appeal No. 219 of 1982 was
issued to the manager of the Respondent Company and he was sought to be made
liable to purchase tax under the said Notifications dated May 23, 1977.
Under the aforesaid definition of the term
"dealer" before a person can be a dealer, he must be carrying on the
business of purchasing or selling or supplying goods. There was no definition
of the word "business" in the Orissa Act and the orissa High Court
had interpreted it as connoting an activity carried on with the object of making
profit. By the Orissa Sales Tax (Amendment) Act 1974 (Orissa Act No. 18 of
1974), a definition of "business" was for he first time inserted as
clause (b) in section 2, the original clause (b) which defined the term
contract" having been omitted by the Orissa Sales Tax (Amendment) Act,
1959. after the decision of this Court in The State of Madras v. Gannon
Dunkerley & Co. (Madras) 51 Ltd1. The effect of this definition of the term
"business" was to do away with the requirement of profit motive. As a
consequence of the decision of the Orissa High Court in Straw Products Limited
v. State of Orissa and others2, the above definition of the term
"dealer" in clause (c) was substituted with retrospective effect by
the Orissa Sales Tax (Amendment) Ordinance, 1979 (Orissa Ordinance No. 11 of
1979), which was replaced by the Orissa Sales Tax (Amendment) Act, 1979 (Orissa
Act No. 24 of 1979). In the Straw Product's Case the petitioner company had
entered into two agreements with the State of Orissa. From the facts set out in
the judgment of the High Court in that case it would appear that these two
agreements were similar to the Bamboo Agreement before us. The Divisional
Forest Officer, Balliguda Division, called upon the petitioner company to
reimburse to him the amount of sales tax to which he had been assessed, stating
that he was a registered dealer and had been assessed to tax on the sale of all
standing trees including bamboos. The petitioner company thereupon filed two
writ petitions in the Orissa High Court challenging this demand. The contention
that the transactions covered by the said two agreements were not sales of
goods and, therefore, not exigible to sales tax does not appear to have been
raised in those writ petitions. The High Court held that the State of Orissa
and not the Divisional Forest Officer could be the dealer qua the transactions
covered by the said agreements in case they were exigible to sales tax and that
the liability under the Orissa Act being a statutory one, it was not open to
the State in the discharge of its administrative, business or at its volition
to name an employee under it as the person to pay sales tax under the Orissa
Act, and. therefore, the Divisional Forest Officer could not have been assessed
to sales tax on the transactions in question. The High Court further held that
though the requirement of profit motive did not exist any more as an ingredient
of the term "business" as defined by the said clause (b) of section
2, whether a person carried on business in a particular commodity depended upon
the volume, frequency, continuity and regularity of transactions of purchase
and sales in a class of goods, and as these ingredients were not satisfied in
the cases before it, the transactions were not exigible to sales tax. The judgment
in that case was delivered on May 3, 1977. The State as also the Commissioner
of Sales Tax, (1) [1949] S.C.R. 379.
(2) (1978) 42 S.T.C. 302-(1977)1 C.W.R. 455.
52 Orissa, have come in appeal by Special
Leave in this Court against the said judgment and these appeals are still
pending, being Civil Appeals Nos. 1237-1238 of 1979 State of Orissa and others
v. Straw Products Limited and others and Civil Appeals Nos. 1420-1421 of 979
Commissioner of Sales Tax, Orissa and another v. Straw Product Limited and
others.
However, to get over the judgment of the High
Court, the State Government issued the two impugned Notifications dated May 23,
1977, which were replaced along with others by the said two Notifications dated
December 29, 1977. Further, the Governor of Orissa promulgated the Orissa Sales
Tax (Amendment and Validation) Ordinance, 1979 (Orissa Ordinance No. I l of
1979), substituting with retrospective effect from the date of the Orissa Act
the definition of "dealer" given in clause (c) of section 2. The said
Ordinance was repealed and replaced by the Orissa Sales Tax (Amendment and
Validation) Act, 1979 (Orissa Act No. 24 of 1979). This amending and validating
Act came into force with effect from July 19, 1979, being the date of the
promulgation of the said Ordinance. Section 3 of the said amending Act
validated assessments or re-assessments, levy or collection of any tax or
imposition of any penalty made or purporting to have been made under the Orissa
Act before July 19, 1979, as if all such acts had been done under the Orissa
Act as so amended, notwithstanding anything contained in any judgment, decree
or order of any court or other authority to the contrary.
The substituted definition of
"dealer", omitting the portion thereof not relevant for our purpose,
reads as follows:
"(c) 'Dealer' means any person who
carries on the business of purchasing, selling, supplying or distributing
goods, directly or otherwise, whether for cash or for deferred payment or for
commission, remuneration or other valuable consideration and includes- (i) ...
a company, ... firm or association which carries on such business;
X X X X Explanation I-y- and every local
branch of a firm registered outside the State or of a company the principal
office or headquarters whereof is outside the State, shall be . deemed to be a
dealer for the purposes of this Act.
53 Explanation II-The Central Government or a
State Government or any of their employees acting in official capacity on
behalf of such Government, who, whether or not in the course of business,
purchases, sells, supplies or distributes goods, directly or otherwise for cash
or for deferred payment or for commission, remuneration or for other valuable
consideration, shall, except in relation to any sale, supply or distribution of
surplus, unserviceable or old stores or materials or waste products, or
obsolete or discarded machinery or parts or accessories thereof, be deemed to
be a dealer for the purposes of this Act.
What is pertinent to note about the new
definition of "dealer" is that in the case, of the Central
Government, a State Government or any of their employees acting in official
capacity on behalf of such Government, it is not necessary that the purchase,
sale, supply or distribution of goods should be in the course of business,
while in all other cases for a person to be a dealer he must be carrying on the
business of purchasing, selling, supplying or distributing goods. Writ
petitions challenging the validity of this amending and validating Ordinance
and Act have been filed in this Court under Article 32 of the Constitution of
India and are still pending. These writ petitions are Writ Petition Nos. 958 of
1979 Orient Paper Mills and another v.
State of Orissa and others and Writ Petition
No. 966 of 1979 Straw Products Limited and another v. State of Orissa and
others.
We are concerned in these Appeals only with
purchases and sales of goods and not with their supply or distribution. The
terms "sale" and "purchase" are defined in clause (g) of
section 2. Clause (g), omitting the Explanation which is not relevant for our
purpose, reads as follows:
"(g) 'Sale' means, with all its
grammatical variations and cognate expressions, any transfer of property in
goods for cash or deferred payment or other valuable consideration, but does
not include a mortgage, hypothecation, charge or pledge and the words
"buy" and "purchase" shall be construed accordingly;
X X X X X 54 The expressions
"goods". "purchase price" and "sale price" are
defined in clause (d), (ee) and (h) of section 2 as follows:
" (d) 'Goods' means all kinds of movable
property other than actionable claims, stocks, shares or securities and
includes all growing crops, grass and things attached to or forming part of the
land which are agreed before sale or under the contract of sale to be severed,
" (ee) 'Purchase Price' means the amount payable by a person as valuable
consideration for the purchase or supply of any goods less any sum allowed by
the seller as cash discount according to ordinary trade practice, but it shall
include any sum charged towards anything done by the seller in respect of the
goods at the time of or before deli very of such goods other than the cost of
freight or delivery or the cost of installation when such cost is separately
charged;
"(h) 'Sale Price' means the amount
payable to a dealer as consideration for the sale or supply 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 of, or before delivery thereof".
As the liability of a dealer to pay tax under
the Orissa Act depends upon his gross turnover exceeding the limit prescribed
by ` section 4(2), it is necessary to see the definition of the expression
"gross turnover". "Gross turnover" is defined by clause
(dd) of section 2 as follows - "(dd) 'Gross Turnover' means the total of
'turnover of sales' and 'turnover of purchases". G The expression
'turnover of sales" and "turnover of purchases" are defined in clauses
(i) and (j) of section 2 as follows:
"(i) 'Turnover of sales' means the
aggregate of the amounts of sale prices and tax, if any, received and
receivable by a dealer in respect of sale or supply of goods other 55 than
those declared under section 3-B effected or made during a given period;
X X X X "(j) 'Turnover of purchases'
means the aggregate of the amounts of purchase prices paid and payable by a
dealer in respect of the purchase or supply of goods or classes of goods
declared under section 3-B;
So far as is material for our purpose,
section 5(1) provides for the rates at which the tax under the Orissa Act is
payable. Sub-section (I) of section 5 and the first proviso thereto as they
stood prior to the Orissa Sales Tax (Amendment) Ordinance, 1977, read as
follows:
"5. Rate of Tax:- (1) The tax payable by
a dealer under this Act shall be levied at the rate of six per cent on his
taxable turnover;
Provided that the State Government may, from
time to time, by notification and subject to such conditions as they may
impose, fix a higher rate of tax not exceeding thirteen per cent or any lower
tax payable under this Act on account of the sale or purchase of any goods or
class of goods specified in such notification;
The words "at the rate of six per cent"
in the main subsection (I) were substituted for the words "at the rate of
five per cent" and the words "not exceeding thirteen per cent"
were substituted for the words "not exceeding ten per cent" in the
first proviso thereto by the Orissa Sales Tax (Amendment) Act, 1967 (Orissa Act
No. 7 of 1976), with effect from May 1, 1976.
Amongst the amendments made by the Orissa
Sales Tax (Amendment) Ordinance, 1977, which were re-enacted by the Orissa
Sales Tax (Amendment) Act, 1978, was the substitution of sub-section (I) of
section 5 and the first proviso thereto by a new sub-section (1). Thus, with
effect from January 1, 1978 sub-section (1) reads as follows:
56
5. Rate of Tax (1) The tax payable by a
dealer under this Act shall be levied on his taxable turnover at such rate, not
exceeding thirteen percent, and subject to such conditions as the State
Government may, from time to time, by notification, specify;
X X X X The other proviso to the said
sub-section (1) are not relevant for our purpose. Sub-section (2) (A) of
section S defines the expression "taxable turnover" as meaning that
part of a dealer's gross turnover during any period which remains after
deducting therefrom the turnover of sales and purchases specified in that
subsection.
Section 3-B confers upon the State Government
the power to declare what goods or classes of goods would be liable to tax on
the turnover of purchases. Section 3-B reads as follow.
"3-B. Goods liable to purchase tax The
State Government may, from time to time, by notification, declare any goods or
class of goods to be liable to tax on turnover of purchases:
Provided that no tax shall be payable on the
sales of such goods or class of goods declared under this section " This
section was inserted in the Orissa Act with effect from December 1, 1958, by
the Orissa Sales Tax (Amendment) Act, 1958.
As the tax under the Orissa Act is intended
to be a single point levy, section 8 confers upon the State Government the
power to prescribe points at which goods may be taxed or exempted, Section 8
provides as follows:
"8. Power of the State Government to
prescribe points at which goods may be taxed or exempted Notwithstanding
anything to the contrary, in this Act, the State Government may prescribe the
points in the series 57 of sales or purchases by successive dealers at which
any goods or classes or descriptions of goods may be taxed or exempted from
taxation and in doing so may direct that sales to or purchases by a person
other than a registered dealer shall be exempted from taxation:
Provided that the same goods shall not be
taxed at more than one point in the same series of sales or purchases by
successive dealers.
Explanation-Where in a series of sales, tax
is prescribed to be levied at the first point, such point, in respect of goods
despatched from outside the State of Orissa shall mean and shall always be
deemed to have meant the first of such sales effected by a dealer liable under
the Act after the goods are actually taken delivery of by him inside the State
of Orissa." Rules 93-A to 93-G of the Orissa Sales Tax Rules, 1947,
prescribe the goods on which tax is payable at the first point in a series of
sales. The goods so prescribed have no relevance to these Appeals.
Notifications under the Act In exercise of
the powers conferred by section 3-B of the Orissa Act the State Government from
time to time issued notifications declaring what goods or classes of goods were
liable to tax on the turnover of purchases. As a result of the amendments made
in the rates specified in sub-section (1) of section 5 and the first proviso to
that sub-section by the Orissa Sales Tax, (Amendment) Act 1976, with effect
from May 1,1976, all these notification were superseded and a fresh list of
goods declared under section 3-B by Notification No. 20209C.T.A.L.-14/76-F,
dated April 23,1916.
All the notifications issued from time to
time under the first proviso to sub-section (1) of section 5 specifying the
rates of purchase tax on goods declared under section 3-B were also superseded
and new rates of purchase tax in respect of the goods declared in the said new
list were specified with effect from May 1.1976, by Notification No.
20212-C.T.A.-14/76-F, dated April 23,1976.
But is these two Notifications which were amended by the impugned Notifica- 58 tions
dated May 23, 1977. The said two impugned Notifications are as follows:
"Notification S.R..O.No. 372/77 dated
the 23rd May 1977 In exercise of the powers conferred by section 3-B Of the
Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), the State Government do
hereby declare that standing trees and bamboos agreed to be severed shall be
liable to tax on turnover of purchase with effect from the first day of June,
1977 and direct that the following amendment shall be made in the notification
of Government of Orissa, Finance Department No. 20209- CTA-14/76-F., dated 23rd
April 1976.
AMENDMENT In the schedule to the said
notification after serial numbers 2 and 16, the following new serial and entry
shall be inserted under appropriate heading, namely:- Serial No. Description of
goods ----------------------------------------------------------- (1) (2)
----------------------------------------------------------- 2-A Bamboos agreed
to be severed.
16-A Standing trees agreed to be Severed.
"Notification S.R.O. No; 373/77 dated
the 23rd May 1977- In exercise of the powers conferred by the first proviso to
sub-section (1) of section 5 of the Orissa Sales Tax Act, 1947 (Orissa Act 14
of 1947), the State Government do hereby direct that the following amendment shall
be made in the notification of the Government of Orissa, Finance Department No.
20212-CTA- 14/76-F., dated the 23rd April 1976 and that the said amendment
shall take effect from the first day of June, 1977.
AMENDMENT In the schedule to the said notification
after serial 59 numbers 2 and 16, the following new serial and entry shall be
inserted under appropriate heading, namely:
Serial No. Description of goods Rate of Tax
------------------------------------------------------------ (1) (2) (3)
------------------------------------------------------------ 16-A Bamboos
agreed to Ten per cent served to be 2-A Standing trees agreed Ten per
cent." to be severed The above two Notifications were struck down by the
High Court by its judgment under appeal.
The State Government had also issued from
time to time Notifications in exercise of the powers conferred by the first
proviso to sub-section (1) of section 5 prescribing a rate of tax different
from the rate specified in section 5(1) so far as sales of certain goods were
concerned. As a result of the amendments made by the Orissa Sales Tax
(Amendment) Act, 1916, all these notifications were superseded and new rates
specified with effect from May 1, 1976, by Notification No. 20215-C-T.A.-14/76
F. dated April 23, 1976. By Notification No. S.R.A. 374/77 dated May 23, 1977,
made in exercise of the powers conferred by the first proviso to sub-section
(1) of section 5, the State Government directed that with effect from June 1,
1977, the said Notification No. 20215-C.T.A. -14/76-F. dated April 23, 1976,
should inter alia be amended by inserting a new entry therein as Entry No.
86-A, By this entry the rate of sales tax on timber was enhanced to ten per
cent, Tn view of the amendment made in sub-section (1) of section 5 by the
Orissa Sales Tax (Amendment) Ordinances 1977 (replaced by the Orissa Sales Tax
(Amendment) Act, 1978), the State Government issued three Notifications, (1)
declaring the goods liable to purchase tax, (2) specifying the rates of
purchase tax on such goods. and (3) specifying the rates of sales tax. The
relevant portions of the notification declaring the goods liable to purchase
tax read as follows:
"Notification No. 67178-C.T.A. 135/77
(Pt. )- Fdated the 29th December 1977.
60 S.R.O.No.900/77-In exercise of powers
conferred by section 3-B of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of
1947), and in supersession of all previous notifications issued on the subject,
the State Government do hereby declare that the goods mentioned in column (2)
of the schedule given below shall be liable to tax on turnover of purchase,
with effect from the first day of January, 1978.
SCHEDULE Serial No. Description of goods
------------------------------------------------------------ (1) (2)
------------------------------------------------------------ X X X X
2. Bamboos agreed to be severed X X X X
17. Standing trees agreed to be severed X X X
X . " The relevant portions of the Notification specifying the rates of
purchase tax read as follows:
Notification No.67181-C.T.A. 135/77-F. dated
the 29th December 1977 S.R.O. NO. 901/77- In exercise of the powers conferred
by sub-section (1) of section 5 of the Orissa Sales Tax Act, 1947(Orissa Act 14
of 1947), as amended by the Orissa Sales Tax (Amendment) Ordinance, 1977 (Orissa
Ordinance No. 10 of 1971) and in supersession of all previous notifications in
this regard, State Government do hereby direct that with effect from the first
day of January, 1978 the tax payable by a dealer under the said Act on account
of the purchase of the goods specified in column (2) of the schedule given
below, shall be at the rate specified against each in column (3) thereof;
61 SCHEDULE Serial No. Description of goods1
Rate of Tax ------------------------------------------------------------ (1)
(2) (3) ------------------------------------------------------------ X X X X
2. Bamboos agreed to be Ten per cent severed
X X X X
17. Standing trees agreed to Ten per cent be
served X X X X The relevant portions of the Notification specifying the rates of
sales tax read as follows:
"Notification No.
67184-C.T.A.-135/77-F., dated the 29th December 1977.
S.R.O. No. 902/77 - In exercise of the powers
conferred by sub-section (I) of section 5 of the Orissa Sales Tax Act, 1947
(Orissa Act 14 of 1947), as amended by the Orissa Sales 'Tax (Amendment)
Ordinance, 1977 (Orissa Ordinance, No. 10 of 1977) and in supersession or all
previous Notifications on the subject, the State Government do hereby direct
that with effect from the first day of January, 1978, the rate of tax payable
by a dealer under the said Act on account of the sale of goods specified in
column (2) of the Schedule given below shall be at the rate specified against
each in column (3) thereof.
SCHEDULE Sl.No. Description of goods Rate of
Tax ------------------------------------------------------------ (1) (2) (3)
------------------------------------------------------------ X X X X 101 All
other articles Seven percent".
Entries Nos. 2 and 17 in the schedule to each
of the said 62 Notifications Nos.- 67178-C.T.A.-135/17 (Pt.)-F and 67181-
C.T.A135/77-F were also struck down by the High Court by its judgment under
appeal.
The ambit of the Orissa State's taxing power-
The validity of the impugned provisions is challenged on two grounds: (1) they
levy a tax on what is not a sale or purchase of goods and are, therefore,
unconstitutional, and (2) assuming the subject-matter of the impugned
provisions is a sale or purchase of goods, they levy a tax on the same goods
both at the sale point and purchase-point and are therefore, ultra vires the
Orissa Act. In order to test the correctness of these challenges, it is
necessary to bear in mind the ambit of the Orissa State' s power to levy a tax
on the sale or purchase of goods This power is subject to a two fold
restriction-one Constitutional; and the other, statutory. The Constitutional
restriction on the legislative competence of the Orissa State in this behalf is
shared by it in common with all other States, while the statutory restriction
is self-imposed and flows from the provisions of the Orissa Act.
We have already set out earlier the relevant
provisions of the Government of India Act., 1935, the Constitution of India and
the Orissa Act. To recapitulate, the Orissa Act is a pre-Constitution - Act and
the legislative competence of the Orissa Provincial Legislature to enact the
Orissa Act was derived from section 100(3) of the Government of India act 1935,
read with Entry 48 in List II in the Seventh Schedule to that Act. After the
coming into force of the Constitution of India the power of the Orissa State
Legislature to enact law imposing a tax on the sale or purchase of goods (other
than newspapers) is to be found in Articles 245(1) and 246(3) of the
Constitution of India read with Entry 54 of the Constitution of India. Thus,
Entry 54 in the State List in the Constitution of India is, with certain
modifications, the successor entry to Entry 48 in the Provincial Legislative
List in the Government of India Act, 1935.
While Entry 48 spoke of "taxes on the
sale of goods", Entry 54 speaks of "taxes on the sale or purchase of
goods".
The addition of the word "purchase"
permits the State Legislature to levy a II purchase tax and does not confine
its taxing power merely to levying 63 a sales tax. Sale and purchase are merely
two ways of looking at the same transaction. Looked at from the point of view
of the seller a transaction is a sale, while looked at from the point of view
of the buyer the same transaction is a purchase.
Entry 48 in List II of the Seventh Schedule
of the Government of India Act, 1935, came up for interpretation by this Court
in The Sales Tax officer, Pilibhit v. Messrs.
Budh Prakash Jai Prakash. This Court held in
that case that there having existed at that 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 authorized the
imposition of a tax only when there was a completed sale involving transfer of
title. In that case the Uttar Pradesh Sales Tax Act, 1948, had been amended so
as to include forward contracts in the definition of 'sale' and to provide that
forward contracts should be deemed to have been completed on the date
originally agreed upon for delivery.
These amendments were held by this Court to
be ultra vires.
In State of Madras v. Gannon Dunkerly &
Co., (Madras) Ltd., another Constitution Bench of this Court held that at the
time when the Government Or India Act, 1935, was enacted the expression
"sale of goods" was a term of well-recognized import in the general
law relating to sale of goods and the legislative practice relating to that
topic and, therefore, that expression must be interpreted when used in the said
Entry 48 as having the same meaning as in the sale of goods Act, 1930. The
Court further held that any attempt, therefore, to give to the expressions
"sale", ' goods" or "sale of goods" an artificial
meaning or an enlarged meaning or to bring within their scope what would not be
comprehended within it would be ultra vires and unconstitutional. The court
further observed (at page 413- 4):
" ... both under the common law and the
statute law relating to sale of goods in England and in India, to constitute a
transaction of sale there should be an agreement, express or implied, relating
to goods to be complete (1) [1955] I S.C.R. 243, 246- 64 by passing of title in
those goods. It is of the essence of this concept that both the agreement and
the sale should relate to the same subject-matter. Where the goods delivered
under the contract are not the goods contracted for, the purchaser has got a
right to reject them, or to accept them and claim damages for breach of
warranty. Under the law, therefore, there cannot be an agreement relating to
one kind of property and a sale as regards another. We are accordingly of
opinion that on the true interpretation of the expression 'sale of goods' there
must be an agreement between the parties for the sale of the very goods in
which eventually property passes-" In that case the definition of term
"sale" in the Madras General Sales Tax Act, 1939, was enlarged by an
amendment so as to include "a transfer of property in goods involved in
the execution of a works contract" and the definition of
"turnover" was expanded to include within it the amount payable for
carrying out a works contract less such portion as may be prescribed. A new definition
of "works contract" inserted in the said amendments included within
its meaning inter alia the construction, fitting but, improvement or repair of
any building, road, bridge or other immovable property. The Court held these
amendments to be void and beyond the legislative competence of the Madras
Provincial Legislature on the ground that in the case of a building contract,
which was one and indivisible, the agreement between the parties was that the
contractor should construct the building according to the specification
contained in the agreement and in consideration therefore receive payment as
provided therein, and that in such an agreement there was neither a contract to
sell the materials used in the construction nor any property passed in such materials
as movables.
The same interpretation as was placed on
Entry 48 in the Provincial Legislative List in State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd. was adopted by this Court while construing
Entry 54 in the State List and attempts by the State Legislatures to enlarge
the meaning of the expressions sale', 'sale of goods' or 'goods' have been held
to be beyond their legislative competence: sec, for instance, Bhopal Sugar
Industries Ltd. M.P. and another .v.
D.P. Dube, Sales Tax Officer, Bhopal Region,
Bhopal and another (1) A.I.R. 1964 SC 1037.
65 K.L. Johar and Company v. Deputy
Commercial Tax Officer Joint Commercial Tax Officer. Harbour Div II. Madras v.
Young, Men's Indian Association (Reg.) Madras
and others ;
and State of Maharashtra and another v.
Champalal Kishanlal Mohta2.
In Addition to the above Constitutional
limitations on the Orissa State's power to tax sales or purchases of goods,
there are other restrictions imposed by sections 3-B and 8 of the Orissa Act. A
State is free when there is a series of sales in respect of the same goods to
tax each one of such sales or purchases in that series or to levy the tax at
one or more points in such series of sales or purchases.
Legislation of all States in this respect is
not uniform.
Some States have adopted a single-point levy,
others, a two- point levy; and yet others, a multi-point levy. The State of
Orissa has adopted a single point levy. It has done this by enacting the
provision to section 3-B and the proviso to section 8. Under the proviso to
section 3-B no tax is payable on the sales of goods or class of goods declared
under that section to be liable to taxes on the turnover of purchase-. The
proviso to section 8 states that "the same goods shall not be taxed at
more than one point in the same series of sales or purchases by successive
dealers". Where, therefore, In a series of sales by successive dealers
sales tax or purchase tax is levied at a particular point, neither sales tax
nor purchase tax can be levied at another point in the same series ; and
similarly can be levied in respect of the same transaction or any other
transaction of sale of the same goods.
As any attempt on the part of the State to
impose by legislation sales tax or purchase tax in respect of what would not be
a sale or a sale of goods or goods under the Sale of Goods Act, 1930, is
unconstitutional, any attempt by it to do so in the exercise of its power of
making subordinate legislation, either by way of a rule or notification would
be equally unconstitutional; and so would such an act on the part of the
authorities under a Sales Tax Act purporting to be done in the exercise of
powers conferred (1) [1965] 2 S.C.R. 112.
(2) [1970] 3 S.C.R. 680.
(3) [1971] 1 S.C.R. 46.
66 by that Act or any rule made or notification
issued thereunder. Similarly where any rule or notification travels beyond the
ambit of the parent Act, it would be ultra vires the Act. Equally, sales tax
authorities purporting to act under an act or under any rule made or
notification issued thereunder cannot travel beyond the scope of such Act, rule
or notification. Thus, the sales tax authorities under the Orissa Act cannot
assess to sales tax or purchase tax a transaction which is not a sale or
purchase of goods or assess to sales tax any goods or class of goods which are
liable to purchase tax or assess to tax, whether sales tax or purchase tax,
goods at another point in the same series of sales or purchase of those goods
by successive dealers when those goods are liable to be taxed at a different
point in that series.
Subject-matter of the impugned provisions
What now falls to be determined is the subject-matter of the impugned
provisions. Relying upon the definition of the term "goods" in the
Sale of Goods Act, 1930, and in the Orissa Act, it was submitted on behalf of
the Appellant State that the subject-matter of the impugned provisions is goods
and that what is made exigible to tax under the impugned provisions is a
completed purchase of goods. On behalf of the contesting Respondents it was
submitted that by impugned provisions a new class of goods not known to law
sought to be created and made exigible to purchase tax and that this attempt on
the part of the State Government was unconstitutional as being beyond its
legislative competence.
The High Court held that the impugned
provisions amounted to a tax on an agreement of sale and not on a sale or
purchase of goods. It further held that in the case of Bamboo Contracts, the
impugned provisions also amounted to levying a tax on a profit a prendre.
The term "goods" is defined in
clause (7) of section 2 of the Sale of Goods Act as follows (7) 'goods' mean
every kind of movable property other than actionable claims and money; and
includes stock and shares, growing crops, grass and things attached to or
forming part of the land which are agreed to be served before sale or under the
contract of sale ;" 67 We have already reproduced earlier the definition
of "goods" given in clause (d) of section 2 of the, Orissa Act.
However for the purposes of ready reference
and comparison, we are reproducing the same here again. That definition is as
'follows:
"(d) 'Goods' means all kinds of movable
property other than actionable claims, stocks, shares or securities and
includes all growing crops, grass and things attached to or forming part of the
land which are agreed before sale or under the contract of sale to be severed
" What is pertinent to note, however, is that under both the definitions
the term 'goods" mean all kinds of movable property (except the classes of
movable property specifically excluded) and includes growing crops, grass and
things attached to or forming part of the land which are agreed to be severed
before sale or under the contract of sale. The Transfer of Property Act, 1882
(Act IV of 1882), does not give any definition of the term "movable
property", but clauses (36) of section 3 of the General Clauses Act, 1897
(Act X of 1897), clause (27) of the Orissa General Clauses Act, 1937 (Orissa
Act I of 1937), and clause (9) of section 2 of the Registration Act, 1908 (Act
XVI) of (1908) do. Clause (36) of section 3 of the General Clauses Act provides
as follows:
"(36) 'movable property, shall mean
property of every description, except immovable property." The definition
in the Orissa General Clauses Act is in identical terms. The definition in the
Registration Act is as follows:
"(9) 'moveable property' includes
standing timber, growing crops and grass, fruit upon and juice in trees, and
property of every other description, except immovable property." The
Transfer of Property Act does not give any exhaustive definition of
"immovable property." The only definition given therein is in section
3 which states:
'immovable property' does not include
standing timber, growing crops, or grass." This is strictly speaking not a
definition of the term "immovable property" for it does not tell us
what immovable property is but merely tells us what it does not include. We
must, therefore, 68 turn to other Acts where that term is defined. Clause (26)
of section 3 of the General Clauses Act defines "immovable property"
as follows:
"(26) 'immovable property' shall include
land, benefit to arise out of land, and things attached to the earth, or
permanently fastened to any thing attached to the earth." The definition
of "immovable property" in clause (21) of section 2 of the Orissa
General Clauses Act is in the same terms. A more elaborate definition is given
in clause (6) of section 2 of the Registration Act which states:
"(6) 'immovable property' includes land,
buildings, hereditary allowances, rights to ways, lights, ferries, fisheries or
any other benefit to arise out of land, and things attached to the earth or
permanently fastened to anything I) which is attached to the earth, but not
standing timber, growing crops nor grass." What is pertinent to note about
these definitions is that things attached to the earth are immovable property.
The expression "attached to the
earth" is defined in section 3 of the Transfer of Property Act as follows:
" 'attached to the earth, means- (a)
rooted in the earth, as in the case of trees and shrubs;
(b) imbedded in the earth, as in the case of
walls or buildings; or (c) attached to what is so imbedded for the permanent
beneficial enjoyment of that to which it is attached." Thus, while trees
rooted in the earth are immovable property as being things attached to the
earth by reason of the definition of the term "immovable property"
given in the General Clauses Act, the Orissa General Clauses Act and the Registration
Act, read with the definition of the expression "attached to the
earth" given in the Transfer of Property Act, standing timber is movable
property by reason of its being excluded from the definition of 69
"immovable property" in the Transfer of Property Act and the
Registration Act and by being expressly included within the meaning of the term
"movable property" given in the Registration Act. The distinction
between a tree and standing timber has been pointed out by Vivian Bose, J., in
his separate but concurring judgment in the case of Shrimati Shantabai v. State
of Bombay and others 1 as follows:
"Now, what is the difference between
standing timber and a tree? It is clear that there must be a distinction
because the Transfer of Property Act draws one in the definitions of 'immovable
property and 'attached to the earth'; and it seems to me that the distinction
must lie in the difference between a tree and timber. It is to be noted that
the exclusion is only of 'standing timber' and not of 'timber trees ' "Timber
is well enough known to be-wood suitable for building houses, bridges, ships,
etc., whether on the tree or cut and seasoned.' (Webster's Collegiate
Dictionary). Therefore, 'standing timber' must be a tree that is in a state fit
for these purposes and, further, a tree that is meant to be converted into
timber so shortly that it can already be looked upon as timber for all
practical purposes even though it is still standing. If not, it is still a tree
because, unlike timber, it will continue to draw sustenance from the soil.
"Now, of course, a tree will continue to
draw sustenance from the soil so long as it continues to stand and live, and
that physical fact of life cannot be altered by giving it another name and
calling it 'standing timber' But the amount of nourishment it takes, if it is
felled at a reasonably early date, is so negligible that it can be ignored for
all practical purposes and though, theoretically, there is no distinction
between one class of tree and another, if the drawing of nourishment from the
soil is the basis of the rule, as I hold it to be, the law is grounded, not so
much on logical abstractions as on sound and practical commonsense. It grew
empirically from instance to instance and decision to decision until a
recognisable (1) [1959] S.C.R. 265, 275 6.
70 and workable pattern emerged; and here,
this is the shape it has taken." Thus, trees which are ready to be felled
would be standing timber and, therefore, movable property. What is, however,
material for our purpose is that while trees (including bamboos) rooted in the
earth being things attached to the earth are immovable property and if they are
standing timber are movable property trees (including bamboos) rooted in the
earth which are agreed to be severed before sale or under the contract of sale
are not only a movable property but also goods.
In this connection it may be mentioned that
in English law there exists (or rather existed) a difference between fructus
natwriles and fructus industriales. Fructus naturales are natural growth of the
soil, such as, grass.
timber and fruit on trees, which were
regarded at common law as part of the soil. Fructus industriales are- fruits or
crops produced "in the year, by the labour of the year" in sowing and
reaping, planting, and gathering e.g. corn and potatoes. Fractus industriales
are traditionally chattels being considered the "representative" of
the labour and expense of the occupier and thing independent of the land in
which they are growing and were not treated as an interest in land. Fructus
naturales are regarded until severance as part of the soil and an agreement
conferring any right or interest in them upon a buyer before severance was a
contract or sale of an interest in land and were, therefore, governed by
section 4 of the Statute of Frauds of 1677 (29 Car. II c. 3). If they were
severed before sale, section 17 of that Statute applied P (see Benjamin's Sale
of Goods, Second Edition, para 90, p. 62) This distinction was, therefore,
important in England for the purposes of the formalities required under the
Statute of Frauds. Under the definition of goods' given in section 62 (1) of
the old English Sale
of Goods Act of 1893, "goods" included inter alia all industrial
growing crops and things attached to or forming part of the land which were
agreed to be severed before sale or under the contract of sale. The formalities
required for a contract for the sale of goods of the value of L10 and upwards
by section 17 of the Statute of Frauds were re-enacted in section 4 of the Sale
of Goods Act, 1893.
This section was repealed by the Law Reform
(Enforcement of Contracts) Act, 1954. The definition of 'goods' in section 61
(1) of the new Sale of Goods Act, 1979, is the same as in 71 the earlier Sale
of Goods Act. Thus, the position now in English law is that crops and other
produce whether fructus naturales or fructus industriales (except in the case
of a sale without severance on a landlord, incoming tenant or purchaser of the
land) will always be "goods" for the purposes of a contract of sale
since the agreement between the parties must be that they shall be severed
either "before sale" or "under the contract of sale" (see
Benjamin's Sale of Goods, Second Edition, para 91, p.63).
As pointed out in Mahadeo v. The State of
Bombay the distinction which prevailed in English law between fructus naturales
and fructus industriales does not exist in Indian law, and the only question
which would fall to be considered in India is whether a transaction concerns
"goods" or "movable property" or "immovable
property"' The importance of this question is twofold: (I) in the case of
immovable property, a document of the kind specified in section 17 of the
Registration Act requires to be compulsorily registered and if it is not so
registered, the consequences mentioned in sections in sections 49 and 50 of
that Act follow, while a document relating to goods or movable property is not
required to be registered; and 2) by reason of the interpretation placed on
Entry 54 in List II in the Seventh Schedule to the Constitution of India by
this Court a State cannot levy a tax on the sale or purchase of any property
other than "goods" .
The submission of the Respondent that the
impugned provisions levied a purchase tax on immovable property and not on
goods and hence travelled beyond the taxing power of the State Government under
the said Entry 54 was based upon the omission in the impugned provisions of the
words "before sale or under the contract of sale." It was urged that
unless these words qualified the phrase "agreed to be severed",
standing trees and bamboos would not be "goods" within the meaning of
the definition of that term in the Sale of goods Act and the Orissa Act. The
High Court held that the impugned provisions amounted to levying a tax on an
agreement of sale and not on actual sale or purchase.
According to the High Court, on tax can be
imposed unless the taxable event (namely, the transfer of property in the goods
from the seller to the buyer) takes place; and standing trees including
bamboos) being (1) [1959] Supp. 2 S.C.R. 339. 349- 72 unascertained goods,
under the forest contracts entered into by the State Government, they continue
to be the property of the State Government until felled and, therefore, the
title to such trees or bamboos is transferred in favour of the forest
contractor only when the trees or bamboos are felled and severed after
complying with the conditions of the forest contract. We find that there is a
fallacy under lying the above submissions of the Respondents and in the
reasoning of the High Court, the fallacy being to read merely the description
of the goods given in the impugned provisions by itself and not in conjunctions
with the governing words of the said provision. These impugned provisions
declare that standing trees agreed to be severed and bamboos agreed to be
severed shall be liable to tax on the turnover of purchases. The tax that is
levied under section 3-B is not on goods declared under that section but on the
turnover of purchases of such goods. It one reads the Notifications issued
under section 3-B and 5 (1) as a whole.
it is clear that the taxable event is not an
agreement to sever standing trees or bamboos but the purchase of bamboos or
standing trees agreed to be severed.
Does the absence of the words "before
sale or under the con tract of sale" make any difference to this position
? The answer in our opinion must be in the negative. The very use of the word
"agreed" in the description of goods shows that there is to be an
agreement between the buyer and the seller and under this agreement standing
trees must be agreed to be severed and so also bamboos. According to the
definition of "goods" such severance may be either before sale or
under the contract of sale. At the first blush, therefore, it would appear that
the goods which form the subject matter of the impugned provisions are either
bamboos and standing P trees agreed to be severed before sale or bamboos and
standing trees agreed to be severed under the contract of sale. The question is
"Which one is it ?". The answer to this question depends upon the
distinction in law between an agreement to sell and sale. Section 4 of the Sale of Goods Act,
1930, deals with a sale and an agreement to sell and it provides as
follows:
"4. Sale and agreement to sell.
(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.
73 (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." Thus, where there is a transfer from
the buyer to the seller of property in the goods which are the subject-matter
of the agreement to sell, the contract of sale, is a sale but when the transfer
of property in the goods is to take place at a future time or subject to some
condition thereafter to be fulfilled, it is an agreement to sell which become a
tale when the time elapses or such conditions are fulfilled In the first case
the contract is executed, while in the second case it is executory The
distinction between an agreement to sell and sale and the legal consequences
flowing from each have been succinctly stated in Benjamin's Sale of Goods,
paras 25-26 at page 23, as follows:
"Agreement to sell . .An Agreement to
sell is simply a contract, and as such cannot give rise to any rights in the
buyer which are based on ownership or possession, but only to claims for breach
of contract.
In the normal case at least, so long as the
property in the goods remains in the seller, they are his to deal with as he
chooses (except that he may be in breach of his contract with the buyer); they
are liable to seizure in distress or execution as his property; and they pass
to the trustee in the event of his bankruptcy.
Sale. The Sale of Goods Act 1979 defines a
sale in the following passages: first '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'; and secondly, 'an agreement to sell becomes a sale when the
time elapses or 74 the conditions are fulfilled subject to which the property
in the goods is to be transferred. It is therefore possible for a sale within
the statutory meaning to come about ill one of two ways: either by a contract
which itself operates to transfer the goods from the ownership of the seller to
that of the buyer, the property passing when the contract is made; or by a
contract which is initially only an agreement to sell, but is later performed
or executed by the transfer of the property. In either case it is clear that
the sale involves not only a contract, but also a conveyance of the property in
the goods, and so it may confer on the buyer the right to bring a claim in tort
for wrongful interference with the goods as well as rights in contract."
The test, therefore, is the transfer of the property in the goods from the
seller to the buyer. In order to determine whether for the impugned provisions
to apply standing trees or bamboos are to be severed before sale or under the
contract of sale, what is required to be ascertained, therefore, is the point
of time when the property in the goods is transferred from the seller to the
buyer Under section 18 of the Sale of Goods Act, where there is a contract for
the sale of unascertained goods, no property in the goods transferred to the
buyer unless and until the goods are ascertained. Under section 19, where there
is a contract for the sale of specific or ascertained goods the property in
them is transferred to the buyer at such time as the parties to the contract
intend it to be transferred and for the purpose of ascertaining the intention
of the parties regard is to be had to the terms of the contract, the conduct of
the parties and circumstances of the case. Further, unless a different
intention appears, the rules contained in sections 20 to 24 are rules for
ascertaining the intention of the parties as to the time at which the property
in the goods is to pass to the buyer.
Sections 20 to 23 provide as follows:
"20. Specific goods in a deliverable
state.
Where there is an unconditional contract for
the sale of specific goods in a deliverable state, the property in the goods
passes to the buyer when the contract is made, and it is immaterial whether the
time of payment of the price or the time of delivery of the goods, or both, is
postponed." 75 "21. Specific goods to be put into a deliverable
state.
Where there is a contract for the sale of
specific goods and the seller is bound to do something to the goods for the
purpose of putting them into a deliverable state, the property goes not pass
until such thing is done and the buyer has notice thereof." "22.
Specific goods m a deliverable state, when the seller has to do anything
thereto in order to ascertain price. Where there is a contract for the sale of
specific goods in a deliverable state, but the seller is bound to weigh,
measure, test or do some other act or thing with reference to the goods for the
purpose of ascertaining the price, the property does not pass until such act or
thing is done and the buyer has notice thereof." "23. Sale of
unascertained goods and appropriation.
(1) Where there is a contract for the sale of
unascertained or future goods by description and goods of that description and
in a deliverable state are unconditionally appropriated to the contract, either
by the seller with the assent of the buyer or by the buyer with the assent of
the seller, the property in the goods thereupon passes to the buyer. Such
assent may be expressed or imp- lied, and may be given either before or after
the appropriation is made.
(2) Delivery to the Carrier.
Where in pursuance of the contract, the
seller deli- vers the goods to the buyer or to a carrier or other bailee
(whether named by the buyer or not) for the purpose of transmission to the
buyer, and does not reserve the right of disposal, he is deemed to have
unconditionally appropriated the goods to the contract." We are not
concerned with section 24 which provides when property in the goods passes to
the buyer where goods are delivered 76 to the buyer on approval or "on
sale or return" or other similar terms. The terms "deliverable
state" and "specific goods" are defined in clauses (3) and (14)
of section 2 of the Sale of Goods Act as follows:
"(3) goods are said to be in a
'deliverable state' when they are in such state that the buyer would under the
con tract be bound to take delivery of them;" "(14) 'specific goods'
means goods identified and agreed upon at the time a contract of sale is
made." Under the Orissa Act also "sale" is defined as meaning
"transfer of property in goods" and the word "purchase" is
to be construed accordingly. The language of the impugned provisions,
especially the governing words thereof, makes it clear that what is made
eligible to tax is not an executory contract of sale but an executed contract
of sale or in other words, not an executory con tract of purchase but a
completed contract of purchase. Bearing in mind the statutory provisions
referred to above, it is further clear that such purchase would be complete
when the standing trees or bamboos are specific goods, that is, when they arc
identified and agreed upon at the time the contract of sale is made, and the
con tract is unconditional and further such standing trees or bamboos arc in a
deliverable state, that is, nothing remains to be done except for the buyer to
enter upon the land of the seller and to fell and remove the trees Of bamboos,
as the case may be, without any let or hindrance. If these factors exist, then
unless a different intention appears either from the terms of the contract or
can be infer red from the conduct of the parties and other circumstances of the
case, the property in such standing trees and bamboos would pass from seller to
the buyer when the contract is made and it is immaterial whether the time of
payment of the price or the time of taking delivery of standing trees agreed to
be severed or bamboos agreed to be severed or both is postponed. If, however,
there is an unconditional contract for the sale of standing trees or bamboos
which are unascertained, then unless a different intention appears, the
property in them would be transferred to the buyer when the standing trees and
bamboos are ascertained and it would be equally immaterial whether the time of
payment of the price or the time of taking delivery of standing trees agreed to
be severed or bamboos agreed to be severed or both is postponed. In either
event, the sale and purchase would be completed before severance as under 77
the impugned provisions there has to be a completed purchase of standing trees
or bamboos agreed to be severed for the impugned provisions to apply. The
severance obviously cannot be before sale because in that case the property
would only pass and the sale completed after severance and the impugned
provisions would have no application. Therefore, for the impugned provisions to
apply the severance of the standing trees or bamboos must not be before sale
but under the contract of sale, that is, after the sale thereof is completed.
The absence in the impugned provisions of the words "before sale or under
the contract of sale" thus makes 'no difference. The subject-matter of the
impugned provisions is goods and the tax that is levied thereunder is on the
completed purchase of goods.
The fallacy underlying the reasoning of the
High Court is that it has confused the question of the interpretation of the
impugned provisions with the interpretation of Timber Contracts and the Bamboo
Contract. On the interpretation it placed upon the Timber Contracts it came to
the conclusion that the property in the standing trees passed only after
severance and after complying with the conditions of that contract ar d,
therefore, the impugned provisions purported to levy a purchase tax on an
agreement to sell. In the case of bamboos agreed to be severed, the High Court
on an interpretation of the Bamboo Contract held that it was a grant of a
profit a prendre and from that it further held that the impugned provisions
were bad in law because they amounted to a levy of purchase tax on a profit a
prendre.
This approach adopted by the High Court was
erroneous in law. The question of the validity of the impugned provisions had
nothing to do with the legality of any action taken thereunder to make exigible
to tax a particular transaction.
If a notification is invalid, all actions
taken under it would be invalid also. The converse, however, is not true.
Where a notification is valid, an action
purported to be taken thereunder contrary to the terms of that notification or
going beyond the scope of that notification would be bad in law without
affecting in any manner the validity of the notification. Were the
interpretation placed by the High Court on the Bamboo Contract and the Timber
Contracts correct, the transactions covered by them would not be liable to be
taxed under the impugned provisions and any attempt or action by the State to
do so would be illegal but the validity of the impugned provisions would not be
78 affected thereby. The challenge to the validity of the impugned provisions
on the ground of their unconstitutionality must, therefore, fail.
Double taxation Another ground on which the
High Court invalidated the impugned provisions was that bamboos agreed to be
severed and trees agreed to be severed were the same as bamboos and timber
after they are felled and as bamboos and timber were liable to tax at the
sale-point, the taxation of the same goods at the purchase point amounted to
double taxation and was contrary to the provisions of the Orissa Act. The
general rule of construction is that a taxing statute will not be so construed
as to result in taxing the same person twice in respect of the same income or
transaction. There is, however, nothing to prohibit the legislature from so
enacting it. If what the High Court held were correct, it would not be double
taxation in the strict sense of the term because the same person is not being
taxed twice in respect of the same transaction but the same transaction is
being taxed twice though in different hands, that is, the seller in a
transaction Or sale is being subjected to sales tax and the purchaser in the
same transaction is being subjected to purchase tax. Not only does the Orissa
Act expressly forbid this but it also forbids the levying of tax at more than
one point in the same series of sales or purchases by successive dealers. The
provisions in this behalf are to be found in the proviso to section 3-B and the
proviso to section 8.
Under the proviso to section 3-B, no tax is
to be payable on the sales of goods or class of goods declared under that
section to be liable to tax on the turn over of purchases.
Under the proviso to section 8, the same
goods are not to be taxed at more than one point in the same series of sales or
purchases by successive dealers. According to the High Court, under the Orissa
Act all goods are liable to sales tax unless exempted from tax by the State
Government under section 6, and, therefore, if particular goods are liable to
sales tax, no purchase tax is leviable in respect of the same goods unless the
State Government issues three notifications, namely, (I) a notification under
section 3-B declaring the goods to be taxable at the purchase point, (2) a
notification under section 5 prescribing the rate of purchase tax, and (3) a
notification deleting the goods from the list of goods taxable at the sale
point. The High Court has illustrated this by setting out what was done when
fish was made liable to purchase tax instead of sales tax 79 We find that the
High Court has misunderstood the scheme of taxation under the Orissa Act. As
the Notifications dated December 29, 1917, were issued as a result of the
amendments made by the Orissa Sales Tax (Amendment) Ordinance, 1977, replaced
by the Orissa Sales Tax (Amendment) Act, 1978, while the Notifications dated
May 23, 1977, were issued prior to these amendments, it is necessary to
consider the scheme of taxation under the Orissa Act both prior to and after
January 1, 1978, being the date on which the relevant provisions of the said
Ordinance came into force.
Prior to January 1, 1978, under section 5 (1)
the tax payable by a dealer under the Orissa Act on his taxable turnover was at
the rate specified in that sub-section. At the relevant time the rate was six
per cent. The rate specified in section 5 (1) was for both sales tax and
purchase tax. As under the Orissa Act a dealer is liable to pay tax on his
turnover of sales as also on his turnover of purchases and as purchase tax is
payable only on the turnover of purchases of those declared under section 3-B,
in respect of the goods not so declared a dealer would be liable to pay sales
tax. Under the proviso to section 3-B, when any goods are declared to be liable
to tax on the turnover of purchases, no tax is payable on the sales Or such
goods. Prior to January 1, 1978, a notification was to be issued by the Slate
Government under the first proviso to section 5 (1) only when it wanted to fix
a rate of tax higher or lower than that specified in section 5(1). If no such
notification was issued, then the tax which was payable, whether it was sales
tax or purchase tax, was to be at the rate mentioned in section 5 (1). The
illustration given by the High Court was in respect of goods for which under
the first proviso to section 5(1) the State Government had notified a rate of
tax different from that mentioned in section 5(1). Where, however, any goods
were declared under section 3-B to be liable to tax on the turnover of
purchases, the notification prescribing a higher or lower rate of sales tax
issued under the first proviso to section 5(1) would there upon cease to be
operative by reason of the operation of the proviso to section 3-B and it was
not necessary to repeal expressly that notification. It was also not necessary
for the State Government to issue a notification fixing the rate of purchase
tax unless it wanted to fix a rate higher or lower than that specified in
section 5 (1). Where no such notification was issued, the rate of purchase tax
would be the one which was mentioned in section 5(1), 80 After January 1, 1978,
the scheme of taxation is that no rate of tax is specified in the Orissa Act
but under section 5(1) the State Government is given the power to notify from
time to time the rate of tax, whether sales tax or purchase tax, by issuing
notifications. The notifications issued under section 5 (1) fixing the rate of
sales tax, namely, Notification No. 67184-C.T.A.-135/77-F dated December 29,
1977, does not contain any entry in respect of bamboos or timber or in respect
of bamboos agreed to be severed or standing trees agreed to be severed. If they
were liable to sales tax, they would fall under the residuary entry No. 101 and
be liable to sales tax at the rate of seven per cent. If, however, any goods
falling under the residuary entry or any other entry in that notification arc
declared under section 3-B to be liable to tax on the turnover of purchases, the
residuary entry or that particular entry would automatically cease to operate
in respect of those goods by reason of the proviso to section3- B without there
being any necessity to delete that particular entry or to amend the residuary
entry by excluding those goods therefrom. It would, however, be necessary for
the State Government to issue a notification specifying the rate of purchase
tax on those goods because unlike what the position was prior to January 1,
1978, on and after that date the new sub section 5(1) does not specify any rate
of tax but leaves it to the State Government to notify it from time to time.
The High Court was, therefore, in error in
holding that the impugned provisions were invalid and ultra vires the Orissa
Act as they amounted to "double taxation".
Effect of "Supersession" Yet
another contention raised by the contesting Respondents with respect to the
impugned provisions was that the two Notifications dated December 29, 1977,
having been made in "supersession" of all previous Notifications
issued on the subject, the effect was to wipe out all tax liability which had
accrued under the Notifications dated May 23, 1977. The High Court held that to
hold that the liability was so wiped out would amount to giving a retrospective
effect to the Notifications dated December 29, 1977, and as the Legislature had
not conferred upon the State Government the power to issue notifications having
retrospective effect, to so hold would be to render the said Notification void.
The High Court referred to a number of decisions on the question of the power
to make subordinate legislation having retrospective effect.
81 We find it unnecessary for the purpose of
deciding this point to refer to any of the authorities cited by the High Court.
Both the Notifications dated December 29, 1977, are in express terms made with
effect from January 1, 1918. They do not at all purport to have any
retrospective effect and, therefore, they could not affect the operation of the
earlier Notifications dated May 23, 1977, until they came into force on January
1, 1978. Further, both section 3-B and section 5(1) in express terms confer
power upon the State Government to issue notifications "from time to
time".
Section 3-B provides that "the State
may, from time to time by notifications, declare... "goods liable to
purchase tax.
Prior to January 1, 1978, the proviso to
sub-section (l) of section 5 provided that "The State Government may, from
time to time by notification...fix a higher rate not exceeding thirteen per
cent or any lower rate of tax.. " Section S (I) as amended with effect
from January, 1978, provides that "The tax shall be levied...at such rate,
not exceeding thirteen per cent...as the State Government may, from time to
time by notification, specify." Thus, the Power of the State Government to
issue notification under these two sections is to be exercised by it "from
time to time" and, therefore, the State Government can under section 5(1)
issue a notification and repeal and replace it by another notification enhancing
or lowering the rate of tax and similarly it can issue a notification under
section 3-B declaring particular goods or class of goods to be liable to tax on
the turnover of purchases and subsequently by another notification repeal that
notification with the result that the particular goods or class of goods will
from the date of such repeal be again liable to pay tax on the turnover of
sales. In the Notifications dated December 29, 1977, the word
"supersession" is used in the same sense as the word
"repeal" or rather the words "repeal and replacement". The
Shorter Oxford English Dictionary, Third Edition, at page 2084, defines the
word 'supersession' as meaning "The action of superseding or condition of
being superseded." Some of the meanings given to the word 'supersede' on
the same page in that Dictionary which are relevant for our purpose are
"to put a stop to; to render superfluous or unnecessary; to make of no
effect; to annul; to take the place of (something set aside or abandoned); to succeed
to the place occupied by; to supply the place of a thing". Webster's Third
New International Dictionary at page 2296 defines the word
"supersession" as "the state of being superseded; removal and
replacement". Thus, by using in the Notifications dated December 29, 1977,
82 the expression 'in suerssion of all previous notification' that was done was
to repeal and replace the previous notifications by new notifications. By
repealing and replacing the previous notifications by other notifications, the
result was not to wipe out any liability accrued under the previous
notifications. If this contention of the Respondents were to be accepted, the
result would be startling. It would mean, for example, that when a notification
has been issued under section 5 (13 prescribing a rate of tax, and that
notification is later superseded by another notification further enhancing the
rate of tax, all tax liability under the earlier notification is wiped out and
no tax can be collected by the State Government in respect of any transactions
effected during the period when the earlier notification was in force.
The two Notifications dated December 29,
1977, impugned by the Respondents were not the only notifications which were
issued on that date. There was another notification issued on that date,
namely, Notification No. 67184-C.T.A.- 135/77-F, directing that with effect
from January l, 1978, the rate of tax payable by a dealer under the Orissa Act
on account of the sale of goods specified in column (2) of the Schedule to the said
Notifications would be at the rate specified against each in column (3)
thereof. The issuance of these three Notifications became necessary by reason
of the change brought about in the scheme of taxation by the Orissa Sales Tax
(Amendment) Ordinance, 1977. Prior to that Ordinance, the rate of tax was as
specified in sub-section (l) of section 5 with power conferred upon the State
Government by the first proviso to that sub-section to fix by notification
issued from time to time a higher rate of tax not exceeding the limit mentioned
in the said proviso or to fix from time to time a lower rate of tax on account
of the sale or purchase of any goods or class of goods specified in such
notification. Thus, if no notification was issued by the State Government
enhancing or lowering the rate of tax, the tax, whether sales tax or purchase
tax, payable by a dealer would be at the rate specified in sub- section (1) of
section 5 which at the relevant time was six percent. In pursuance of the power
conferred by the said proviso, the State Government had from time to time
issued notifications enhancing and in some cases lowering the rate of tax
payable on account of either sale or purchase of goods. The new section 5(1)
did not specify any rate of tax but what was done was to confer upon the State
Government the power by notification to specify 83 from time to time the rate
of tax subject to a maximum of thirteen per cent. Therefore, With effect from
January 1, 1978, unless a notification was issued specifying the rate of tax,
no dealer would be liable to pay any tax under the Orissa Act. It was for this
reason that the Notification No.
67184-C.T.A-135/17-F dated December 29, 1977,
was issued specifying the rates of sales tax with effect from January 1, 1978.
As under section 3-B the State Government had to declare the goods or class of
goods which were liable to tax on the turnover of purchases, the State
Government had issued from time to time notifications declaring such goods or
class of goods. The purchase of such goods or class of goods were liable to
purchase tax at the rate specified in the old section 5(1). Where, however, the
State Government wanted that the turnover of purchase of particular goods or
class of goods should be taxed at a higher or lower rate, it issued
notifications specifying such rate. As no rate of tax was specified in the new
section 5(1) but it was left to the Government to specify the rate of tax by
notification both in respect of sales tax and purchase tax, from the date the
amending Ordinance of 1977 came into force, namely from January 1, 1978, it was
necessary to issue a notification consolidating all previous notifications on
the subject in respect of goods liable to purchase tax which the State
Government did by the impugned Notification No. 67178- C.T.A.-135/77-(Pt)-F.
dated December 29, 1977, declaring what goods would be liable to tax on the
turnover of purchases with effect from January 1, 1978. Unless, however, the
rate of purchase tax in respect of these goods was specified under the new
section 5(1) the goods though declared to be liable to tax on the turnover of
purchase would not be exigible to any tax at all, it, therefore, became
necessary for the State Government to issue Notification No.
67181-C.T.A.-135/77-F. dated December 29, 1977, specifying the rates of
purchase tax with effect from January 1, 1978.
Exigibility to tax-Preliminary Contention-
The question which now remains to be considered is as regards the exigibility
to purchase tax of the amounts payable under the Bamboo Contract and the Timber
Contracts.
Before we address ourselves to this question,
it is necessary to dispose of a preliminary contention raised by the Appellant
with respect to this part of the case. It was submitted that the question
whether a particular contract is a sale or purchase of goods is a question of
fact or a question of interpretation of documents and one to be decided by 84
the assessing authorities and, therefore, if this Court holds that the impugned
provisions are valid (as we have now done), it should not go into the question
of the exigibility to purchase tax of the transactions in question. This plea
was not raised at any stage before the High Court but has been raised for the
first time in the Petitions for Special Leave to Appeal, and that too only with
respect to the Bamboo Contract though during the course of hearing before us,
it was raised with respect to the Timber Contracts also.
Before the High Court the matter proceeded on
the basis that the question of validity of the impugned provisions and of the
exigibility to purchase tax of the transactions covered by the Bamboo Contract
and the Timber Contracts were inextricably linked together as if the impugned
provisions were issued only in order to levy a purchase tax on the transactions
covered by these Contracts. The Appellant can, therefore, hardly raise such a
plea for the first time before this Court. It is true that normally it is for
assessing authorities to ascertain .
the facts and to interpret the documents in
question, if there be any, and to decide whether a particular transaction is
exigible to tax. Here, however, the facts are not in dispute and the
determinations of this question involves only an interpretation of the
documents. The major part of the hearing before the High Court was taken up
with the nature of the transactions covered by these Contracts. We have also
heard the parties at length on the merits of this question. Even though the
judgment of the High Court with respect to the validity of the impugned provisions
has been held by us to be erroneous in law, it may well be said that the High
Court's finding on the true nature of the Bamboo Contract and the Timber
Contracts remains unaffected. If we refuse to decide this question and leave it
to the assessing authorities to do so, they may well feel themselves bound by
the High Court's findings on this point or on the other hand, they may consider
that the whole judgment of the High Court has been reversed, particularly in
view of the fact that in their writ petitions the Respondent company had
challenged the notice issued to it to file a return and the Respondent Firm had
challenged the assessment order made against it and, therefore, feel free to
determine the question afresh. In either event the matter would ultimately come
back for decision to this Court and that too after the lapse of several years-a
consequence not to be contemplated with equanimity by this Court. We,
therefore, reject this preliminary contention raised by the Appellant.
85 Timber Contracts We will first take up the
Timber Contracts. The High Court held that standing trees were unascertained
goods and continued to be the property of the State Government until felled
and, therefore, the title to them was transferred to the forest contractor only
when the trees were felled or severed by him after complying with all the
conditions of the forest contract and as the impugned provisions applied only
to standing trees, that is, to trees before their severance, purchase tax was
not attracted and any attempt to levy purchase tax on the amounts payable under
the Timber Contracts would amount to taxing an agreement of sale of goods and
not a completed sale or purchase of goods. The High Court further held that the
trees so severed in which the property passed to the forest contractor were
liable to sales tax by reason of the retrospectively amended definition of the
term "dealer" in clause (c) of section 2 of the Orissa Act and they
could not, therefore, be again made liable to purchase tax. The High Court also
rejected the contention of the Appellant State that timber and dressed or sized
logs were different commercial commodities and that sales tax could, therefore,
be levied on both.
According to the High Court they were the
same commodity and, therefore, they could not be made liable to sales tax at
two points in the same series of sales. The High Court did not decide the
question whether the Timber Contracts were works contracts. This point was,
however, urged before us "on behalf of the Respondent firm. We will deal
with this point separately but for the present suffice it to say that according
to us none of the Timber Contracts is a works contract.
On behalf of the Appellant State it was
submitted that the Timber Contracts read with the sale notice advertising the
auction in respect of the standing trees showed that the standing trees which
were the subject matter of the Timber Contracts were goods identified and
agreed upon at the time when the contract of sale was made and were thus
specific goods and that, therefore, there was an unconditional contract for the
sale of specific goods in a deliverable state and the property in the said
trees passed to the forest contractor, namely, the Respondent Firm, when the
contract was made, and the fact that the time of delivery as also payment of
price was postponed was irrelevant. It was the Appellant's 86 submission that
for the reason set out above the amounts payable under the Timber Contract were
exigible to purchase tax. It was further submitted that in any event the
property in the standing trees passed when the forest contractor was permitted
to get into the area as delineated under Rule 12 of the Orissa Forest Contract
Rule, 1966 (hereinafter referred to as "The Forest Contract Rules"),
to enable the contractor to fell the trees. The same submissions as found
favour with the High Court were advanced before us on behalf of the Respondent
Firm.
While setting out the facts of Civil Appeal
No. 220 of 1982, we have outlined the procedure followed by the State of Orissa
in entering into forest contracts. The notice of public auction with which we
are concerned was published in the Orissa Gazette and was headed "Sale
Notice of Timber and Other Forest Products...." This Sale Notice related
to different forest produce and was in three parts. Part I gave "the list
of timber and other forest products" for the session 1977-78 which would
be "sold by public auction" and the places and dates where such
auction sales were to be held. Clause 2 of Part I of the Sale Notice stated
that the sale lots were subject to the Special Conditions of Sale as published
in Part II of the Sale Notice, the General Conditions of Sale as published in
Part III of the Sale Notice so far as they may be applicable and the Conditions
mentioned in the sanctioned form of agreement. Clause 3 stated that the
successful bidders shall be bound by the Orissa Forest Act. 1972, the Forest
Contract Rules, the Orissa Timber and other Forest Produce Transit Rules, and
all other relevant rules in force or which might hereinafter come into force
and promulgated under the Orissa Forest Act, 1972.
Under condition 1 of the Special Conditions
of Sale set out in Part II of the Sale Notice, the contract period of timber
coupes was to commence from the date of the ratification of sale by the
competent authority and was to include the number of working months mentioned
in the sale notice against each lot. Condition 2 stated the time and manner of
"payment of purchase price" in full or by instalments. Under condition,
the intending bidders were asked to inspect the coupes and lots before bidding
in the auction and their act of bidding was to be deemed as sufficient proof of
their having inspected the coupes the coupes and satisfied themselves about the
correctness of the quality and quantity of the 87 produce and the area of the
contract. Condition 9 provided that no extension of time for working any coupe
beyond the contract period as published in the Sale Notice and declared in the
auction hall would be allowed except under very exceptional circumstances.
Under condition 14, the prescriptions contained in the working plan, working
schedule and their amendments or the executive instructions of the higher
authority and local rules were to be binding on the contractors as regards
felling of trees in coupes.
Under condition 21, the purchaser was to pay
the sales tax as per the Orissa Act over and above the bid amount. In the event
of his delay in payment of sales tax, the same was to be adjusted from the
earnest money deposit or the security deposit, as the case may be, and the
purchaser was bound to replenish the same forthwith. Condition 22 provided that
the contractor was to pay sales tax on the amount of each instalment as per the
Sales Tax Rules along with the instalment of consideration money and
non-payment of sales tax or non submission of appropriate declaration under the
Sales Tax Rules was to amount to incomplete payment of instalment and thereupon
Rule 9-A of the Forest Contract Rules was to be applicable. a Under condition 1
of the General Conditions of Sale Published in Part III of the Sale Notice, the
bid was to be accepted by the Divisional Forest Officer subject to the approval
of the competent authority and the right to take contract for exploiting forest
produce in the lots advertised in Part I of the Sale Notice was to be granted
when the competent authority approved the bid. Under condition 4, intending
bidders were to deposit as earnest money a sum of Rs. 200 . In the case of
unsuccessful bidders this amount was to be refunded immediately after the
auction was held and in the case of successful bidders the amount was to be
adjusted towards the security deposit. Under condition 10, a bidder whose bid
was conditionally of finally accepted by the Divisional Forest Officer was to
make the security deposit in cash. On payment of the security deposit, the
bidder was to sign the necessary agreement but the signing of such agreement
was not to confer any right on the bidder unless the sale was ratified by the
competent authority and the ratification order was communicated to him. No sale
of any lot was to be considered valid or complete unless these conditions had
been complied with and in the event of failure to do so, the Divisional Forest
Officer was to be at liberty to quash the sale and forfeit the 88 earnest money
or the security deposit, as the case may be, and resell the lot and recover
from the successful bidder who had failed to comply with the conditions the
shortfall on such resale. Condition 12 provided for the payment of purchase
price in full or by instalments. Under condition 15 orders of ratification of
sale by the competent authority were to be communicated to the successful
bidder by the Divisional Forest Officer specifying there in the dates of the payment
of instalments in accordance with condition 12 and the period of the contract.
Under condition 16, the contractor was not to commence the work in the contract
area before the payment of the first instalment or the full consideration money
if it was payable in one instalment and before furnishing the coupe declaration
certificate or intimation about starting work, as the case may be, as required
by Rule 12 of the Forest Contract Rules. Under condition 18, an agreement was
to be executed by the competent authority on behalf of the Government and a
copy thereof was to be delivered to the contractor as soon as may be.
On its bids being accepted the Respondent
Firm entered into five Timber Contracts in the forms prescribed in the Schedule
to the Forest Contract Rules. The main heading of each of these Timber
Contracts is 'Forest Contract-Agreement Form' and the long heading states that
it is "An agreement for the sale and purchase of forest produce".
Under clause 1, the forest produce "sold and purchased under" the
Timber Contract was to be as specified in Schedule I thereof and the forest
area in which it was situated was indicated in Schedule V thereof and was to be
referred to as the contract area. Schedule I in each of the Timber Contracts
mentioned that the forest produce "sold and purchased under" the
Timber Contract consisted of a certain number of sound and unsound trees marked
and numbered serially on the blazes, one at the base of the trees and the other
about 4-1/2' from the ground level, with the hammer mark of facsimile shown in
the Sale Notice. Clause 2 stated that the quantity of the forest produce
"sold and purchased under" the Timber Contract was all the said
forest produce which then existed or might come into existence in the contract
area which the forest contractor might remove from the said area during the
period of the contract and it was further provided that the said U forest
produce was to be extracted by the forest contractor only 89 during the
aforesaid period. That part of clause 2 which spoke of forest produce which
might come into existence in the contract area was obviously inapplicable to
the Respondent Firms's case inasmuch as the Timber Contracts were in respect of
a certain number of existing trees. This provision was there because the Timber
Contract was in the form which is the prescribed form of contract in respect of
all forest produce and under Rule 33 of the 1 Forest Contract Rules all forest
contracts are required to be made in this form. Clause 4 started that the routes
by which the said forest produce was to be removed from the contract area and
the depots at which it was to be presented for examination were to be those
specified in Schedule 111.
Under clause 5, it was agreed that the Timber
Contract was to be subject to the Forest Contract Rules and conditions laid
down in the Sale Notice except to the extent that the said Rules and conditions
were deemed to be modified to the extent prescribed in Schedule IV. Under
Schedule 4 to the contract, the Forest Contract Rules were deemed to be
modified by the Special Conditions in the Sale Notice. By clause 6 the forest
contractor bound himself to perform all acts and duties required and to abstain
from performing any act forbidden by or under the Orissa Forest Act, 1972, and the
Forest Contract Rules and by the Timber Contract.
Schedule II set out the number and amounts of
instalments and the dates of payment of the instalments.
The bids given by the Respondent Firm were
ratified in due course by the Government of Orissa and the fact of such
ratification was communicated to the Respondent Firm by the Divisional Forest
Officer. Each of these notification letters specified the number and amounts of
the instalments payable by the Respondent Firm and the dates when each instalment
was payable. Each of these ratification letters required the Respondent Firm to
take delivery of the particular coupe within one and half months from the date
of issue of the ratification order and to get the Respondent Firm' s property
hammer mark registered in the office of the Divisional Fores' Officer on
payment of the appropriate registration fee. Each of these letters required the
Respondent Firm not to commence work in the contract area before the payment of
the first instalment and before furnishing the Coupe Declaration Certificate or
intimating in writing that it intended to commence work from a particular date,
as the case may be, as required under Rule 12 Of 90 the Forest Contract Rules.
By the said letters the Respondent Firm was also required to submit monthly
returns of removal of forest produce from the contract area to the concerned
Range Officer. A copy of each of these letters was forwarded to the concerned
Range Officer with a direction that he should give delivery of the coupe to the
Respondent Firm within one and a half months from the date of the ratification
order and allow the Respondent firm to commence work in the contract area after
it had furnished the Coupe Declaration Certificate and made payment of the
first instalment.
As the Orissa Forest Contract Act, 1972
(Orissa Act 14 of 1972), and the Forest Contract Rules formed part of the
agreement between the State of Orissa and the Respondent Firm, it may be
convenient at the stage to look at the relevant provisions thereof. Clause (g)
of section 2 of the Orissa Forest Contract Act defines "forest
produce"' as including inter alia timber, whether found in or brought from
a forest or not, and trees when found in or brought from a forest. Clause (n)
defines "timber" as including "trees fallen or felled and all
wood cut-up or sawn". Clause (o) of section 2 of the Act defines
"trees" as including bamboos. Section 36 of the Orissa Forest Act
confers powers upon the State Government to make rules inter alia for the
cutting, sawing, conversion and removal of trees and timber, and the
collection, manufacture and removal of forest produce, from protected forests
Under section 37, any infringement of a rule made under section 36 is an
offence punishable with imprisonment for a term which may extend to one year or
with fine which may extend to Rs. 2000 or both.
Under section 45(1) the control of all rivers
and their banks as regards the floating of timber as well as the control of all
timber and other forest produce in transit by land or water is vested in the
State Government and the State Government is conferred the power to make rules
to regulate the transit and possession of all timber and other forest produce,
including rules prescribing the routes by which alone timber or other forest
produce may be imported, exported or moved into, from or within the State, and
to provide for punishment of imprisonment which may extend to one year or fine
which may extend to Rs. 1,000 or both for any breach of such rules.
Under rule 2 of the Forest Contract Rules,
all contracts whereby 91 the Government sells forest produce to a purchaser
are, subject to the Forest Contract Rules in so far as they are applicable, and
the Forest Contract Rules are deemed to be binding on every forest contractor.
The Forest Officer executing a forest intricate is, however, given the power to
vary the rules by express provision in such intricate. A "forest contract'
is defined in clause (1) of Rule 3 as meaning ' a contract whereby Government
agrees to sell and purchaser agrees to buy forest produce" and a 'forest
contractor' is defined in clause (2) of Rule 3 as meaning "the person who
purchases produce under a forest contract".
Under Rule 6, a forest contract is to carry
with it an accessory licence entitling the forest contractor and his servants
and agents to go Upon the land specified in the contract and to do all acts
necessary for the proper extraction of the forest produce purchases under the
contract. Under Rule 6 where a period is specified in the forest contract for the
extraction of the forest produce purchased under the contract, time is deemed
to be of the essence of such contract and upon the completion of the specified
period the contractor's right under the contract is to cease and any forest
produce not removed across the boundaries of the contract area is to become the
absolute property of the Government. The Conservator of Forests or the
Divisional Forest Officer, as the case may be, is, however, given the right,
for special reasons, to grant an extension of time on such terms as may be
decided for a total period (inclusive of the original contract period) not
exceeding the period for which he is empowered to sanction contracts on payment
of a monthly extension fee Of one per cent of the amount of the contract. Under
Rule 9, the Divisional Forest Officer or the Range Officer, as the case may be,
is given the power to stop extraction of the forest produce where the
consideration payable to the Government under a forest contract is payable by
instalments and, at any time before the last instalment is paid, he considers
that the value of the forest produce removed by the contractor exceeds the
amount of instalments already paid. Further removal is to be permitted only
after the contractor has paid such further sum as in the opinion of the
Divisional Forest Officer or the Range Officer is sufficient to cover such
excess. Under Rule 9-A, it is open to the Divisional Forest Officer or the
Range Officer of the concerned range to stop extraction if the contractor fail
s to pay any instalment due from him within the grace period of ten days beyond
the date fixed for payments of the instalment. It is equally open to these
officers 92 to stop work in the contract area if the contractor fails to pay
two instalments due from him. Under Rule 12, before commencing any work in the
contract area the forest contractor is to sign and submit to the Divisional
Forest Officer or the-e concerned Range Officer a written declaration to the
effect that he or his authorized agent or both have been shown the boundaries
and limits of the lot covered by the contract by the Range Officer or by a
subordinate deputed by him for the purpose and that the area shown on the
ground agrees with the area delineated on the map annexed to the forest contract
and until such a declaration has been given, the Divisional Forest Officer or
the Range Officer may refuse to allow any work to commence and the contractor
is not to be entitled to any compensation for any loss that might be sustained
by him by reason of any delay in commencing the work owing to such refusal.
Rule 12 further provides that if such declaration is not furnished within one
and a half months from the date of issue of the ratification order, the
Divisional Forest Officer is to cancel the contract, forfeit the security
deposit, resell the contract at the risk of the contractor and recover the
shortfall from him. Condonation of delay in furnishing such intimation or
declaration is expressly prohibited. Under Rule 13, a forest contractor is not
to remove any forest produce from the contract area unless it is accompanied by
a permit signed by the contractor or his authorized agent.
Such permits are to be obtained on payment
from the Range Officer. Further, the divisional Forest Officer or the Range Officer,
as the case may be, has the power to withdraw a permit book, if in his opinion,
such permit book has been misused for unlawful gain. In the event of such
withdrawal the forest contractor is not entitled to any compensation for any
loss that might be sustained by him for any stoppage of his work in or
extraction from the contract area. Under Rule 14, the method employed by the
forest contractor for extraction of forest produce along forest roads is to be
subject to the approval of the Divisional Forest Officer and the forest
contractor is not to cart any produce over forest roads between such periods as
the Divisional Forest Officer might appoint without the previous permission in
writing of the Divisional Forest Officer Further, the Divisional Forest Officer
is given the discretion to close forest roads for extraction of forest produce
on any rainy days and for three days thereafter during the rest of the year. He
may also close roads temporarily for urgent or special repairs should this in
his opinion become 93 necessary. Further, the forest contractor is prohibited
from extracting forest produce by dragging along forest roads.
Under Rule 15, except with the special
permission of the Divisional Forest Officer, a forest contractor is not to
remove any forest produce from the contract area after sunset or before
sunrise. Under Rule 16, a forest contractor is not to remove any forest produce
except by routes specified by rules made under the Orissa Forest Act or by the
forest contract and is to take all forest produce removed by him to such depots
or places as may be similarly prescribed for check and examination. Under Rule
19, the forest contractor is to keep and submit accounts of the amount of the
various kinds of forest produce removed by him from the contract area in such
form as the Divisional Forest Officer may prescribe or approve, and such
accounts are to be open to inspection at any time by the Divisional Forest
Officer or by any subordinate duly authorized by him. Rule 20 prescribes the
mode of felling standing trees. The Divisional Forest Officer has the power to
stop further felling until these provisions are complied with. Under Rule 21,
the Divisional Forest Officer is to divide the contract area into such number
of sections as he may think fit and has the power to regulate and confine the
operations of the forest contractor within these sections in accordance with
the provisions set out in the said Rule. Under the said Rule, the work is to be
allowed progressively from section to section. When the forest contractor
begins his operations under the contract, he is to be allowed to carry out
cutting operations in sections Nos. I and 2 E only. As soon as he begins
cutting operation in section No. 3 he is deemed to have surrendered all his
rights to standing trees in section No. 1. When he begins cutting operations in
section No. 4 he is deemed to have surrendered all his rights to the standing
trees in section No. 2 and so on, throughout the contract area. Under Rule 22,
the forest contractor unless otherwise directed to do so in writing by the
Divisional Forest Officer, is to register his property mark or trade mark in
the Office of Divisional Forest Officer and get it registered by paying the
registration fee in respect thereof. No timber is to be conveyed from the
contract area without the impress of the forest contractor's registered
property or trade mark, and the Divisional Forest Officer and his subordinates
have the right to mark any piece of timber with the Government hammer mark
before it is removed from the stump-side beyond the limits of such 94 checking
station as the Divisional Forest Officer may appoint in writing. Under Rule 34,
if the forest contractor makes default in the payment of the consideration for
his contract or any instalment thereof or does not pay the compensation
assessed under any of the Forest Contract Rules, the contract is liable to be
terminated by the authority competent to do so. The termination is to be
notified to the forest contractor and the contract is deemed to have been
terminated unless the contractor pays within one month from the date of receipt
of the notice of termination all arrears due to the Government together with
interest assessable under Rule 42 and renewal fee not exceeding one per cent of
the arrears due and if he fails to do so, all his rights under the contract
including all necessary licences are to cease and all the forest produce
remaining within the contract area or at the depots and bearing the
contractor's registered property or trade mark and the Government hammer mark
are to become the absolute property of she Government, Further, the Government
becomes entitled to keep all sums already paid by the contractor and to recover
as arrears of land revenue any compensation which may be assessed and to resell
the contract together with produce at the depots and other produce which has
become the property of the Government and to recover the shortfall as arrears
of land revenue and to forfeit the security deposit of the contractor. Under
Rule 35, if the forest contractor commits any breach of condition of the
contract other than those mentioned in Rule 34(1), the contract is liable to be
terminated and thereupon all the contractor's rights under the contract
including all accessory licences are to cease and all the forest produce
remaining within the contract area or at the depots is to become the absolute
property of the Government. Under Rule 36, 'if in the opinion of the State
Government it is considered necessary to supply any kind of forest produce from
any contract area to the people in case of flood, famine, cyclone and other
calamities and if the contractor does not supply the materials at the rate
fixed by the Government, such contract can be terminated by the Government in
writing by a written notice to the contractor and from the date of such
termination, the contractor is to forfeit all his rights in the coupes. Under
Rule 40, a forest contractor is not to be entitled to any compensation for any
loss that may be sustained by reason of fire, tempest, disease, pest, flood,
drought or other natural calamity or by reason of any wrongful act committed by
any third party or 95 by reason of the unsoundness or breakage of any forest
produce purchased by him or for any loss sustained by him through any operation
undertaken in the interest of fire conservancy. He is equally not entitled to
claim any reduction or refund of the sums payable or paid by him under his
contract on the ground that the roads provided by the e Forest Department or
any other department are insufficient or in bad order or remain closed under
any special order or that the quantity of produce falls short of any quantity
specified in the schedule annexed to the contract or in the sale notice or that
the area of the contract area differs in any way from that indicated in the
schedule attached to the- e contract. Under Rule 44, all forest produce removed
from a contract area in accordance with the forest Contract Rules is to be at
the absolute disposal of the forest contractor.
Bearing in mind the terms and conditions of
the Timber Contracts-not only those expressly set out therein but also those
incorporated therein by reference, namely, the terms of the Sale Notice, the
Special Conditions of Contract, the General Conditions of Contract and the
various statutory provisions-we have now to determine whether the property in
the trees which were the subject matter of the Timber Contracts passed to the
Respondent Firm while the trees were still standing or after they were severed.
In the first case the impugned provisions would apply and the amounts payable
under the Timber Contracts would become exigible to purchase tax, while in the
second, case the impugned provisions would not apply and no purchase tax would
be payable. The above conspectus of these terms and conditions shows that the
heading of the Sale Notice, namely, "Sale Notice of Timber" as also
the use of the words "timber and other forest products...will be sold by
public auction" are not determinative of the matter. Though clause 1 of
the Timber Contracts speaks of "the forest produce sold and
purchased", the other terms and conditions of the contract make it clear
that the Timber Contracts were not unconditional contracts for the sale of
goods in a deliverable state and the property in the trees specified in
Schedule I of the Contract, therefore, did not pass to the Respondent Firm when
each of the Contracts was made. As mentioned earlier the Timber Contracts are
in the prescribed form for all forest produce annexed to the Forest Contract
Rules and the provisions of the Orissa Forest Act and the Forest Contract Rules
are expressly made applicable thereto. Clause (1) of Rule 3 of the 96 Forest
Contract Rules defines a "forest contract" as meaning "a
contract whereby Government agrees to sell and purchaser agrees to buy forest
produce." That this is also such an agreement is borne out by the long
heading of the Timber Contracts which describes these contracts as "an
agreement for the sale and purchase of forest produce." In fact, the signing
of the Timber Contracts did not result in a concluded contract because each
contract was conditional upon the State Government ratifying the acceptance of
the bid given by the Respondent Firm. Even after the ratification order was
issued by the Government, it did not become an unconditional contract for the
sale of specific goods in a deliverable state for the Respondent Firm had no
right to severe the trees and take them away before it had complied with the
other conditions of the contract set out above. To recapitulate the most
important amongst them, under Rule 12 of the Forest Contract Rules the
respondent Firm had to furnish a Coupe Declaration Certificate within one and
half months of the issue of the ratification order.
If it did not do so, the contract would stand
cancelled. It had also under Rule 22 of the Forest Contract Rules to register
within the same period its property mark or trade mark with the Divisional
Forest Officer. Further, the Respondent Firm could not commence any work unless
it had given the required security deposit and before paying the first
instalment as under the Timber Contracts in the present Appeals the amounts
were payable by instalments.
That the property in the trees did not pass
to the respondent Firm while the trees were standing is also shown by the fact
that the Divisional Forest Officer or the concerned Range Officer had the power
to stop further removal of the felled trees until the Respondent Firm had paid
the amount required to make up the excess of the value Of the felled trees
removed over the amount of the installments already paid by it and under Rule
9-A it was further open to the Divisional Forest Officer or the concerned Range
Officer to stop further work if there was a default in payment of any instalment
or in payment of any two instalments and the contract could also be terminated
under Rule 33 for such default. Further work or removal could not be stopped or
the contract terminated if the property in the trees had passed to the
Respondent Firm because in such event the only remedy open to the seller would
be to sue for the balance of the price. It is also pertinent that under Rule 33
the contract could Also be terminated and the Respondent Firm would forfeit its
right to all further trees to he severed by it if it 97 committed a breach of
any of the other conditions of the contract. The mode of felling the trees was
also not of the choice of the Respondent Firm but was one prescribed by Rule
20. Even after felling the trees the
Respondent Firm was not entitled to remove the felled trees by any route which
it liked but only by routes which were prescribed and that too only if covered
by a permit signed by the Respondent Firm or its duly authorized agent from a
permit book obtained from the Range Officer. Further, under Rule 16, after
felling the trees the Respondent Firm had to remove them to the prescribed
depots or places for check and examination and it was only after the trees
felled by it were checked and examined to ascertain that they were felled in
the manner prescribed in Rule 20 and were the trees which were the subject
matter of the contract that it could take them out of the contract area. Unless
the Respondent Firm felled and removed all the trees which were the
subject-matter of the contract within the period of the contract, on the expiry
of such period it would lose all rights to the trees not so removed.
It is true that under Rule 40 if the trees
were destroyed by reason of fire, tempest, disease, pest, flood, drought or
other natural calamity or by reason of any wrongful act committed by any third
party or by reason of the unsoundness or breakage of any trees which were the
subject-matter of the contract, the Respondent Firm was not entitled to any
compensation for any loss sustained by it.
This would show that after a Timber Contract
was concluded, the risk passed to the Respondent Firm. Under section 26 of the
Sale of Goods Act, the goods remain at the seller's risk until the property in
the goods is transferred to the buyer and when the property is transferred to
the buyer, the goods are at the buyer's risk whether delivery has been made or
not. Section 26 is, however, qualified by the phrase "Unless otherwise
agreed." Thus, this section is subject to a contract to the contrary and
what we have stated above is sufficient to show that the Timber Contracts were
subject to a contract to the contrary and under them the risk passed to the
Respondent Firm before the property passed to it. This is made abundantly clear
by Rule 44 which states that "All forest produce removed from a contract
area in accordance with these rules shall be at the absolute disposal of the
forest contractor." It is, therefore, clear that the Timber Contracts were
not 98 transactions of sale or purchase of standing trees agreed to be severed.
They were merely agreements to sell such trees.
As pointed out above, each stage of the
felling and removal operations was governed by the Forest Contract Rules and
was under the control and supervision of the Forest Officers.
The property passed to the Respondent Firm
only in the trees which were felled, that is, in timber, after all the
conditions Of contract had been complied with and after such timber was
examined and checked and removed from the contract area; The impugned provisions
therefore, did not apply to the transactions covered by the Timber Contracts.
It will be useful in the context of the
conclusions which we have reached to refer to the decision of this Court in
Badri Prasad v. State of Madhya Pradesh & Anr. the question in that case
was whether there was a contract of sale of standing timber and whether under
the contract the property had passed to the appellant or whether the property
had passed after the trees had been felled and hence the right of the appellant's
transferor had vested in the State Government before the trees were felled by
reason of the provisions of the Madhya Pradesh Abolition of Proprietary Rights
(Estates, Mahals, Alienated Lands) Act, 1950 (M.P.
Act No. I of 1951). The Court held that under
the terms of the contract the trees had to be felled before they become the
property of the appellant. The Court observed (at pages 390-1) "It will be
noticed that under cl. 1 of the contract the plaintiff was entitled to cut teak
trees of more than 12 inches girth. It had to be ascertained which trees fell
within that description. Till this was ascertained, they were not 'ascertained
goods' within s. 19 of the Sale of Goods Act. Clause 5 of the contract
contemplated that stumps of trees, after cutting, had to be 3 inches high. In
other words, the contract was not to sell tile whole of the trees. In these
circumstances property in the cut timber would only pass to the plaintiff under
the contract at the earliest when the trees are felled. But before that happened
the trees had vested in the state." It is pertinent to note that
conditions 16 to 18 of the special Conditions of Sale which form part of the
Timber Contracts also (1) [1969] 2 S.C.R. 380.
99 prescribe the girth of the trees which are
to be felled and the height above the ground level at which they are to be
felled. Timber and Logs.
On our above finding that the transactions
under the Timber Contracts are sales of Timber and not sales of standing trees
agreed to be severed the tax which would be attracted would be sales tax and
not purchase tax under the impugned provisions. This would, however, be so if
the Divisional Forest Officer were a dealer. Under the terms of the Timber
Contracts the Respondent Firm is liable to reimburse the Divisional Forest
Officer the amount of sales tax he would which be liable to pay. T he question
whether the Divisional Forest Officer is a dealer within the meaning of that
term as defined in clause (c) of section 2 prior to its being substituted with
retrospective effect by the Orissa Sales tax (Amendment and Validation) Act,
1979, which repealed and replaced the Ordinance with the same title, is pending
before the Court in Civil Appeals Nos. 1237-1238 of 1979 and 1420-1421 of 1979
Whatever be the position under the old definition, after the substitution of
that definition with retrospective effect by the said Amendment and Validation
Act, the Divisional Forest Officer ought be a dealer. The validity of this
amendment is, however, also under challenge in this Court in Writ Petitions
Nos. 958 of 1979 and 966 of 1979. We therefore, express no opinion on either OF
these questions. It was, however, submitted on behalf of the Respondent Firm
that assuming these challenges fail, it would be called upon to reimburse the
Divisional Forest Officer According to the Respondent Firm, the Divisional
Forest Officer. would not be entitled to do so because it had made sized and
dressed logs from the timbers which it had purchased under the Timber Contracts
and had sold such logs and paid sales tax on these sales and, therefore, to tax
the sales of timber to them would be to levy the tax at an earlier point in the
same series of sales which is not permissible by reason of the prohibition
contained in the proviso to section 8. According to them, timber and sized or
dressed logs are one and the same commercial commodity. This contention was
upheld by the High Court. Though the High Court had so decided in order to
consider whether the same transaction could be taxed both at the sale-point as
also at the purchase-point, it none the less becomes necessary for us to
determine this question in or to prevent needless litigation in the future.
Though under section 8 the State Government
has the power to 100 prescribe the points in the series of sales or purchases
by successive dealers at which any goods or class or description of goods may
be taxed, it has not done so either in the case of timber or logs, though in
the case of some of other goods, as pointed out earlier, the State Government
has made rules prescribing that the tax would be levied at the first point of
sale. Thus, if the contention of the the Respondent Firm were correct, as tax
has already been levied at one point in the same series of sales, it would not
be now open to the State Government to say that by reason of the substituted
definition of the term "dealer", sales tax could also be levied at
another point.
We will first see how different High Courts
have dealt with this question. In Saw Bros. and Co. v. The State of West Bengal1
all learned Single Judge of the Calcutta High Court held that planks sawed out
of logs are different things from logs and timber in its nascent state. No
reasons are given in that Judgment for reaching this conclusion, In Bachha
Tewari and another v. Divisional Forest Officer, West Midnapore Division, and
others2 the same learned Judge held that the the chopping of timber into
firewood was a manufacturing process. and, therefore, the imposition of a tax
on timber and on firewood manufactured from that timber did not amount to
double taxation The question in both those cases was whether sawing of planks
and chopping of timber into firewood amounted to manufacture so as to make the
assessee liable to pay sales tax on the manufactured goods. This is a different
question from that to which we have to address ourselves. We may, however,
point out that even where the question is whether a certain process has
resulted in a manufacture, the resultant product must be a different commercial
commodity and merely because certain articles are known by different names it
does not mean that they are different commercial commodities if in fact they
are merely different forms of the same commodity.
Thus, in Tungabhadra Industries Ltd. Kurnool
v. Commercial Tax Officer, Kurnool3, hydrogenated groundnut oil, commonly
called 'Vanaspati' was held by this Court to be groundnut oil within the
meaning of Rules S (I) (k) and 18 (2) of the Madras General Sales Tax (Turn-
(1) [1963] 14 S.T.C. 878.
(2) [1963] 14 S.T.C. 1067.
(3) [1960] 11 S.T.C. 827; (1961) 2 S.C R 14
101 Over and Assessment) Rules, 1939. The Court further held that the
processing of groundnut oil to render it more acceptable to the customer by
improving its quality would not render the oil a commodity other than groundnut
oil.
Similarly, in the State of Gujarat v.
Sakarwala Bros.(l) this Court held that 'pates', `harda' and `alchidana' were
sugar in different forms and fell within the definition of sugar in Entry 47 of
Schedule to the Bombay Sales Tax Act, 1959.
A decision more relevant to our purpose than
the two Calcutta decisions is a decision of a Division Bench of the Madhya
Pradesh High Court in Mohanlal Vishram v.
Commissioner of` Sales Tax Madhya Pradesh,
Indore(2). In that case the Madhya Pradesh High Court held that by felling
standing timber trees, cutting them and converting some of them into` ballis',
a dealer did not alter their character as timber or used them for manufacture
of other goods within the meaning of section 8(1) of the Madhya Pradesh Sales
Tax Act, 1958. Another decision equally relevant for our purpose is that of a
Division Bench of the Andhra Pradesh High Court in G. Ramaswamy and others v.
The State of Andhra Pradesh and others(3) in which the question was very much
the same as the one which we have to decide. The assessees in that case
purchased nascent timber, that is, logs of wood, and had swan or cut them into
planks, rafters, cut sizes, etc., and sold them for the purpose of construction
of buildings and the like. Under section 5(2)(a) of the Andhra Pradesh General
Sales Tax Act, 1957, read with Item 63 in the First Schedule to that Act, a
dealer in timber was liable to pay sales tax at the rate of three pies in a
rupee at the point of first sale. The assessees were, however, sought to be
taxed under section 5(1) of that Act on their sales of, planks, rafters, out
sizes, etc. treating them as general goods. The contention of assessees was
that these goods were timber which was taxable at the first point of sale and
the first point of sale was when the Forest Department sold the standing timber
trees to them and, therefore, the planks, rafters, cut sizes, etc., sold by
them could not again be made liable to sales tax (1) [1967] 19 S. T.C.24 (S.C.)
( (2) [1969] 24 S.T.C. 101.
(3) [1973] 32 S.T.C. 309.
102 treating those goods as different
commercial commodities.
The Division Bench held that in dealing with
matters relating to the general public, statutes are presumed to use words in
their popular rather than their narrowly legal or technical sense, and that as
the provision levying a tax on timber was directed to deal with a matter
affecting people generally, as timber is in common use the word
"timber" would have the same meaning attached to it as in the common
and ordinary use of language. The Division Bench further held that although
dictionaries are not to be taken as authoritative exponents of the meanings of
words used in a statute, it was a well-known rule of courts of law that words
should be taken to be used in the ordinary sense and courts are, there fore,
sent for instruction to the dictionaries in the absence of any legislative or
judicial guidance. The Division Bench then referred to the meaning given to the
word "timber" in different dictionaries. The Division Bench also considered
the meaning in commercial parlance of the term "timber". In that case
the assessees in their affidavits had asserted that timber in the commercial
field also meant planks, cut sizes, etc. There was no convincing denial by the
Government of that assertion. The Division Bench then turned to the "Rules
for gradation of cut sizes of timber" prepared and issued in October,
1960, by the Indian Standards Institution which showed the word
"timber" was freely used for kinds of standard cut sizes for building
purposes. The Division Bench also looked at Indian Airlines Quotation No. 406
of April 26, 1972, in which the words used were "timber teak-wood"
setting out the particular sizes thereafter. The Division Bench also referred
to the other documentary evidence produced in that case and held that the
documents and affidavits before it clearly made out that even the cut sizes of
timber were commonly known as timber in commercial field and that, therefore,
both in the popular sense and in the commercial sense, the word
"timber" had the same meaning. The Division Bench also laid emphasis
on the interpretation given to the term "timber" by the sales tax
Administration. For all these reasons the Division Bench held that merely
because planks, rafters, cut sizes, etc., were sawn or cut from logs of woo(3,
they did not alter their character and still continued to be raw materials
which by themselves and in the same form could not be directly put to use for
construction purposes and the logs of wood purchased by the assessees were
merely cut or sawn to sizes 103 for the sake of convenience and to make them
acceptable to the customers and that by reason of this process they did not
lose their character as timber.
We will now turn to the decisions of the
Orissa High Court on this point. In State of Orissa v. Rajani Timber traders(l)
a Division Bench of that High Court held that timber logs and sized timber U
were different commodities in the commercial sense though sized timbers were
brought out only from timber logs by a particular process. The Division Bench
further observed that the person who had a need of timber logs would not be
satisfied had sized timber been offered to him and similarly a person requiring
sized timber would not be satisfied if timber logs were supplied. In
Kripasindhu Sahu & Sons v. State of Orissa(2) another Division Bench of the
same High Court held that the dictum in the Rajani Timber Traders' case was too
widely stated and it did not indicate the meaning of the word
"timber" as used in common parlance in commercial circles and it also
did not purport to specify the meaning of the expression "sized
timber" as used in that judgment. The Division Bench further held that
timber in common parlance in Orissa took within its ambit only long and big
sized logs of wood ordinarily used in house construction as beams and pillars
and that when timber was converted into planks, rafters and other wood products
like tables and chairs or cut into various small sizes so as to be unfit for
use as beams and pillars and similar such uses they could not be termed as
timber in common parlance though they may retain their essential character as
wood because the essential characteristic of timber as a commercial commodity
was lost after such conversion. The judgment in that case does not indicate any
basis for holding that the word "timber" had in common parlance in
Orissa the meaning which according to the Division Bench it bore. It is also
curious to note that one learned Judge was common to both the Division Benches
though in each case the judgment was delivered by the other learned judge-
Having seen how the different High Courts have dealt with this question, we
will now ascertain the true position for our- (1) [1974] 34 S.T.C. 374.
(2) [1975] 35 S.T.C. 270.
104 selves. In Ganesh Trading Co., Karnal v.
State of Haryana and another(l) Hedge, J., speaking for this Count, said: '
This Court has firmly ruled that in finding out the true meaning of the entries
in a Sales Tax Act, what is relevant is not the dictionary meaning, but how
those entries are understood in common parlance, specially in commercial
circles". Applying this principle, the Court held that although rice was
produced out of paddy, paddy did not continue to be paddy after dehusking and
that when paddy was dehusked and rice produced, there was a change in the
identity of the goods and, therefore, rice and paddy were two different things
in ordinary parlance.A careful reading - of the judgment in that case shows
that there was no evidence before the court to show how "paddy" and
"rice" were understood in commercial circles or what these words
meant in commercial or trade parlance and that what the Court did was to refer
to various authorities dealing not with rice or paddy but with other goods and
the meaning in ordinary parlance of the words "paddy" and '
rice" in order to ascertain the meaning of these words in the sense stated
by it above.
So far as the case before us is concerned,
there is material on the record to show what the word "timber" and
"logs" mean in commercial or trade parlance nor do the pleadings of
the parties filed in the Orissa High Court throw any light on the matter. The
averment of the Respondent Firm in this behalf is to be found in paragraph 13
of its writ petition in the High Court and all that is stated therein is that
under the impugned provisions it would be required to pay purchase tax on
"timber agreed to be severed" and after savering the timber while
effecting sales of timber would be liable to pay sales tax on such sales. In
the counter affidavit of the Law Officer in the office of the Commissioner of
Commercial Taxes, Orissa, filed on behalf of the Commissioner of Commercial
Taxes and the Sales Tax Officer, Sambalpur Circle, while replying to the said
paragraph 13 all that is stated is that timber commercially does not remain the
same after being cut, sized and shaped, and, therefore, there was no legal
obstruction to tax an altogether different commercial commodity at sale- point.
(1) [1973] 32 S.T.C. 623, 625 (S.C.) 105 In
view of this state of the record we must seek to ascertain the meaning of these
two terms in common parlance with such aid as is available to the Court. It is
now well settled that the dictionary meaning of a word cannot be looked at
where that word has been statutorily defined or judicially interpreted but
where there is no such definition or interpretation, the court may take the aid
of dictionaries to ascertain the meaning of a word in common 1 parlance. In
doing so the court must bear in mind that a word is used in different senses
according to its context and a dictionary gives all the meanings of a word and
the court, therefore have to select the particular meaning which would be
relevant to the context in which it has to interpret that word. The Orissa Act
does not define the term ''timber" or "logs". Orissa is,
however, a State which is rich in natural wealth and mostly all, if not all,
forests in the State of Orissa are protected or reserved forests and come
within the purview of the Orissa Forest Act, 1972, which was an Act passed to
consolidate and amend the laws relating to the protection and management of
forests in the State of Orissa. The real object behind the issue of impugned
provisions was to levy purchase tax on standing trees agreed to be severed and
bamboos agreed to be servered in view of the judgment of the Orissa High Court
in Straw Products Ltd, v. State of Orissa in which it was held that a
Divisional Forest Officer was not a dealer and, therefore, not liable to pay
sales tax and hence could not call upon forest contractors to reimburse him in
respect thereof. In view of this background, it would be relevant for our
purpose to look at the statutory definition of the term "timber".
given in the Orissa Forest' Act, 1972. That term is defined in clause (n) of
section 2 of that Act, which reads as follows.
"(n) 'timber' includes trees fallen or
felled and all wood cut-up or sawn." Prior to the enactment of the Orissa
Forest Act, 1972, there were two Forest Acts in force in the State of Orissa,
namely, the Madras Forest Act, 1882 (Madras Act V of 1882), and the Indian
Forest Act, 1927 (Act XVI of 1927). The Madras Forest Act applied to the
districts of Koraput and Ganjam and part of Phulbani District, namely, Baliguda
and G. Udaygiri Taluks. The Indian Forest Act
applied to the rest of the State. Both these Acts were repealed in their
application to the State Of H 106 Orissa by the Orissa Forest Act but as prior
to the enactment of the Orissa Forest Act, these were the two Acts which
provided for the protection and management of forests in the State of Orissa,
we may also refer to the definition of the word "timber" given in
those Acts. Section 2 of the Madras Forest Act defines "timber" as
including trees when they have fallen or have been fallen, and all wood,
whether cut up or fashioned or hollowed out for any purpose or not".
Clause (6) of section 2 of the Indian Forest Act
defines "timber" in identical terms. Though none of these definitions
is an exhaustive one since each of them uses the word "includes'` and not
"means", there is a large and substantial measure of identity in
these definitions and it will be apparent from these definitions that the word
"timber" is not confined merely to felled trees in forestry in the
State of Orissa. In this connection, it would not be out of place to see how
this word has been defined in subsequent legislation In August 1981 trade in
certain forest produce in Orissa was made a State monopoly and the Orissa
Forest Produce (Control of Trade) Act, 1981 (Orissa Act No. 22 of 1981), was
passed to achieve that purpose. The list of forest produce set out in the
definition of that term given in clause (c) of section 2 of that Act includes
timber of any species specified in clause (j) of that section. Clause (j) of
section 2 defines "timber " as meaning "marketable wood, round,
sawn or fashioned, straight piece of and above two metres in length, standing
or felled (excluding fuel) of the following categories, namely:-". The
portion of the definition omitted above lists the different species of timber.
The definition of "timber given in the Orissa Forest Produce (Control of
Trade) Act is an exhaustive definition inasmuch as the object of that Act was
to create a State monopoly of trade in specified forest produce and therefore
such forest produce had to be particularized. What is, however, pertinent is
that even in subsequent legislation the cardinal concept that timber is not
merely felled trees has been underlined and emphasized.
On turning to various dictionaries, we find
that the dictionary meaning largely coincides with the statutory meaning of the
word "timber". While discussing the question of the subject-matter of
the impugned provisions we have set out the definition of the word
"timber" contained in the Webster Collegiate Dictionary occurring
ring in the passage from the judgment of Vivian Bose, J, in 107 Shrimati
Shantabai v State of Bombay The relevant meanings of the term
"timber" given in the Shorter Oxford Dictionary, Third Edition, are
"building material generally; wood used for the building of houses, ships,
etc., or for the use of the carpenter, joiner, or other artisan". This
definition also states that the word is "applied to the wood of growing
trees capable of being used for structural purposes; hence collectively to the
trees themselves". Amongst the meanings given in the Concise Oxford
Dictionary, Sixth Edition, are "wood prepared for building, carpentry,
etc;. trees suitable for this; woods, forests, piece of wood, beam". One
of the meanings of the word "timber" given in Webester's Third New
International Dictionary, is "wood used for or suitable for building (as a
house or boat) for carpentry or joinery".A "log" according to
the Shorter Oxford English Dictionary means "a bulky mass of wood; now
usually an unhewn portion of a felled tree, or a length cut off for
firewood" and according to the Concise Oxford Dictionary it means
"unhewn piece of felled tree, or similar rough mass of wood especially cut
for firewood". Thus, logs will be nothing more than wood cut up or sawn
and would be timber.
A question which remains is whether beams,
rafters and planks would also be logs or timber. The Shorters Oxford English
Dictionary defines "beam" inter alia as a large piece of squared
timber, long in proportional to its breadth and thickness and the Concise
Oxford Dictionary defines it as a ' long piece of squared timber supported at
both ends, used in houses, ships, etc." and according to Webester's Third
New International Dictionary, it means "a long piece of heavy often
squared timber suitable for use in house construction." A beam is thus
timber sawn in a particular way. "Rafter" as shown by the Shorter
Oxford English Dictionary is nothing but "one of the beams which give
shape and form to a roof, and bear the outer covering of slates, tiles, thatch,
etc." The Concise Oxford Dictionary and Webster's New International Dictionary
define "rafter" in very much the same way; the first defines it as
"one of the sloping beams forming framework of a roof" and the
seconds as "one of the often sloping beams that sup- port a roof."
Rafter would also, therefore, be timber or log put to a particular use.A
"plank" is defined in Shorter Oxford English Dictionary as "a
long flat piece of smoothed timber, thicker than a board, specially a length of
timber sawn to a thickness of from two to six inches, a width of nine inches or
more, and eight feet or H 108 upwards in length." According to the Concise
Oxford Dictionary it is a "long wide piece of timber, a few inches
thick" and according to Webster's Third New International Dictionary, it
is "a heavy thick board that in technical specifications usually has a
thickness of 2 to 4 inches and a width of at least 8 inches." The exact
thickness and width of a plank may be of importance in technical specifications
but in ordinary parlance planks would be flattened and smoothed timber. Such
flatness and smoothness can only be achieved by using a saw and other
implements required for that purpose. The same would be the case when timber is
rounded or shaped. The statutory definitions of timber extracted above read
along with the meaning of the word "timber" given in different
dictionaries would show that the conclusion reached by the Madhya Pradesh High
Court in Mohanlal Vishram v. Commissioner of Sales Tax, Madhya Pradesh, Indore,
and by the Andhra Pradesh High Court in G.
Ramaswamy and others v. The State of Andhra
Pradesh and others is more germane to our purpose than the two Orissa cases
neither of which has referred to the statutory definition of the word
"timber" in the relevant statutes.
The observations of the Orissa High Court in
the case of Krupasindhu Sahu & Sons v. State of Orissa that timber in
common parlance in Orissa takes within its ambit only long and big sized logs
of wood ordinarily used in house construction as beams and pillars but not when
timber is converted into planks, rafters and other wood products like tables
and chairs cannot, therefore, be said to be correct so far as planks and
rafters are concerned. In our opinion, planks and rafters would also be timber.
The result is that sales of dressed or sized
logs by the Respondent Firm having already been assessed to sales tax, the
sales to the First Respondent Firm of timber by the State Government from which
logs were made by the Respondent Firm cannot be made liable to sales tax as it
would amount to levying tax at two points in the same series of sales by
successive dealers assuming without deciding that the retrospectively
substituted definition of "dealer" in clause (c) of section 2 of
Orissa Sales Tax Act, 1947, is valid.
Yet another aspect of this question now
arises for our consideration. During the period from June 1, 1977, to December
31, 3 1977, by reason of Notification No. S.R.O.
374/77 dated May 23, 109 1977, the rate of
sales tax on timber was fixed at ten per cent by the State Government. Since it
was the contention of the State Government that logs are commercially a
different commodity, the tax could not have been assessed on the sales of logs
by the Respondent Firm during this period at the rate of ten per cent but would
have been assessed at the general rate of six per cent specified in section
5(1) of the Orissa Act. If such was the case, on the findings given by us
above, the Respondent Firm would be liable to pay sales tax not at the rate of
six per cent but at the rate of ten per cent and it might be argued that the
Respondent Firm has been under-assessed or part of its turnover of sales of
logs has escaped assessment. The assessment order made on the Respondent Firm
referred to earlier includes both the amount of purchase tax and sales tax but
this is not a composite assessment order but a severable one because the turn
over of sales as also the turnover of purchases have been shown separately and
the amount of sales tax and purchase tax have equally been shown separately.
Thus, though as a result of our holding that the amounts paid by the Respondent
Firm under the Timber Contracts are not eligible to purchase tax, the
assessment order would require to be modified and corrected, such modification
and correction would not affect the rest of the assessment order. The question
then is "Whether the sales tax authorities can reopen the assessment of
the Respondent Firm so far as the turnover of sales of logs is concerned?"
Under sub-section (8) of section 12 of the Orissa Act, the Commissioner of
Sales Tax or those sales tax authorities to whom such power is delegated have
the power to reopen an assessment but under section 12(8) the exercise of this
power is subject to a period of limitation, namely, thirty six months from the
expiry of the year to which that period for which the assessment is to be
reopened relates. Since three years have long since expired from the year to
which the period in question relates, it would not now be open to the sales tax
authorities assuming it was a case for re- opening the assessment, to reopen
the Respondent Firm's assessment and tax the turnover of sales of dressed or
sized logs at the rate of ten per cent instead of six per cent.
This question, of course, would not arise for
any period on or after January 1, 1978, on which date the substituted sub-
section (1) of section 5 came into force, as under the notification issued
under the substituted sub-section (1), no separate rate of tax is specified
either for timber or logs or any of the other goods which we have been
considering above and all of them would fall for the purpose of payment of
sales tax under the residuary 110 Entry No. 101 of the Notification No.
67184-C.T.A. 135/77/1- ; dated December 29, 1977, and would be liable to sales
tax at the rate of seven percent and there would thus be no under-assessment or
escapement of assessment.
Bamboo Contract We will now ascertain the
nature of the Bamboo Contract. Unlike the Timber Contracts, the Bamboo Contract
is not in a prescribed statutory form but it appears from the judgment of the
High Court that all the Bamboo Contracts before it contained identical terms
and conditions except with respect to the contract area, the period of the
contract and the amount of royalty. The parties to the Bamboo Contract were the
Governor Or the State of Orissa referred to in the said Contract as "the
Grantor" and the Respondent Company. The Bamboo Contract is headed
"Agreement of Bamboo Areas in Bonai Forest Division to the Titaghur Paper
Mills Company Limited." The second and the third recitals of the Bamboo
Contract are as follows:
"AND WHERAER the Company is desirous of
obtaining grant from the Grantor of exclusive right and licence to fell, cut,
obtain and remove bamboos from all felling series of Bamboos Working Circle in
the Bonai Forest Division in the State of Orissa for the purpose of converting
the bamboos into paper pulp or for purposes connected with the manufacture of
paper or in any connection incidental therewith.
AND WHEREAS the Grantor has agreed to grant
the said licence to the Company subject to the restrictions, terms and
conditions hereinafter appearing." Clause T of the Bamboo Contract is
headed "Arc a over which the grant operates". Sub-clause (a) of
clause I sets out the dates of commencement of the Bamboo Contract in respect of
different contract areas. Under Sub-clause (b) of clause l, the forest produce
"sold and purchased" is stated to be as specified in Schedule I and
to be situated in the areas indicated in Schedule V. Under the said subclause,
the grantor understood to render at all times to the Respondent Company all
possible facilities to enable it to extract II and obtain its requirements of
bamboos upto the limit imposed by 111 the Bamboo Contract. Under clause II, the
quantity of forest A produce "sold and purchased" is stated to be
"all the said forest produce which now exist or may come into existence in
the contract area which the Company may fell, cut, obtain and remove from the
said area in accordance with the time- table given in Schedule V during the
period... " and then the periods in respect of different areas, already
mentioned while reciting the facts of Civil Appeal No. 219 of 1982, have been
set out. Clause III provides that the Bamboo Contract can be terminated in
accordance with the provisions in that behalf contained in the Forest Contract
Rules subject to the right of the Respondent Company to appeal to the State
Government in which case the Respondent Company could with the previous
permission of the State Government, on such conditions as the Government might
think fit to impose, be entitled "to carry on its business in terms of the
agreement" until the final decision by the Government.
Under clause IV, the Respondent Company is
given an option to renew the Bamboo Contract for a further term of twelve years.
Under clause V, the Respondent Company was to perform all acts and duties and
to refrain from doing any act forbidden by the Orissa Forest Act, 1972, and to
give a sum of Rs. 58,190 as security for the due performance and observance by
it of the terms of the Bamboo Contract, which sum was to be returned to it on
the expiry of six months after the termination or expiry of the Bamboo
Contract. The Grantor was to be entitled to forfeit the said deposit and to
appropriate the whole or part thereof in the event of the Respondent Company
committing a breach of the terms of the Bamboo Contract such as would entitle
the Grantor to terminate the Bamboo Contract. Clause VI provided that
"this licence shall be subject to the Orissa Forest Contract Rules as
modified from time to time" subject to the amendments thereto set out in
the said clause which are not material for our purpose. Clause VIII stated that
"the forest produce sold and purchased under this Agreement consists of
all Salia and Daba bamboos subject to the cutting rules in the annual coupe of
the felling series" Clauses IX to XIII deal with the payment of royalty.
What is pertinent to note about these clauses is that under clause XIII, the
Respondent Company was to pay an annual minimum royalty in the sums mentioned
therein and was not to be entitled to the refund of the whole or any part of
such minimum royalty should it fail to cut the minimum quantity of bamboos in
any year except on the ground that the yield of the area fell below the
quantity required to 112 make up the minimum royalty payable for the year owing
to gregarious or sporadic flowering of bamboos in the contract areas or from
any cause whatsoever not being due to the negligence on the part of the
Respondent Company or failure on its part to extract the minimum number of
bamboos. The amount of royalty was to be calculated on all bamboos which the
Respondent Company would cut from the contract area, whether such bamboos were
removed or not, to be ascertained as provided in clauses XI and XII. Under
clause XI, for ascertaining the quantity of the bamboos so cut, the Respondent
Company was to remove the bamboos through such river ghats, railway, motor and
other transport depots as may be agreed upon between the parties from time to
time and under clause XII, the royalty was to be paid in advance in such manner
that it would always be in excess of the royalty actually due. Under clause
XIV, for the purpose of checking the felling and keeping an account of all
bamboos to be cut by the Respondent Company, the Forest Department had the
right to employ such staff as it might deem necessary and was to have free
access to the contract area and to the books and other records of the
Respondent Company. Further, the Respondent Company was to submit to the
Divisional Forest Officer a yearly account of bamboos cut and removed from the
contract area and under clause XV the company was to issue to the carter of
each cart or the driver of each truck on its leaving the forest a machine
numbered pass of a pattern to be approved by the Chief Conservator of Forests,
Orissa. Such pass was to state the number of bamboos which each cart or truck
would carry. Clause XVI prescribed the routes by which the bamboos were to be
removed as also the depots at which they were to be presented for examination,
Under clause XVII, at every naka the checking staff was to check each cart or
truck with the pass referred to in clause XV before such cart or truck left the
depot. Clause XVIII gave to the Respondent Company, subject to such
restrictions as might be imposed from time to time by the Divisional Forest
Officer, Bonai Division, the right during the continuance of the Bamboo
Contract to use any lands, roads or streams outside the licensed areas which
belonged to or were under the control of the Grantor for the purposes of having
free ingrees to or egrees from the contract areas and also to such lands, roads
or streams within the contract areas. Under clause X[X, the Respondent Company
was bound to meet the local demands of bamboos in which event the royalty on
such bamboos was not to be paid by the Respondent 113 Company but was to be
paid by the local people. Under clause XX, subject to obtaining prior written
consent of the Grantor, the Respondent Company was to be at liberty to make
dams across streams, cut canals, make water courses, irrigation works, roads,
bridges, buildings, tramways and any other work useful or necessary "for
the purpose of the said business" in or upon the licensed areas and also
with the like consent to widen or deepen existing streams, channels or
waterways "for the purpose of the said business" and all timber and
other forest produce required for this purpose was to be paid for by the
Respondent Company at current schedule of rates. All such dams, canals,
irrigation works, roads, bridges, building and other works which were not
removed by the Respondent Company within six months from the expiry of or
earlier termination of a the contract were to become the property of the
Grantor. Clause XXI prohibited the Respondent Company from interfering with the
surface of the land except in so far as it might be necessary for immediate
purpose of "carrying on the necessary operations in connection with the
said business". Clause XXII expressly reserved and excepted to the Grantor
in regard to the contract area granted to the Respondent Company (l ) the
possession and beneficial ownership in the soil and all mines and minerals
upon, in or under the contract area and the right to make such use of the soil,
to erect such buildings or structures and install such plant upon it and
subject it to such operations for the purpose of extraction of minerals or
otherwise as the Grantor might deem proper, (2) the surface of the licensed
areas and all. grazing, cultivating and other surface E rights other than those
expressly granted to the Respondent Company by the Bamboo Contract, (3) the
right to all trees other than trees made over to the Respondent Company and the
natural products of the soil other than bamboos, (4) the right of the Grantor
to destroy bamboos in any portion of the contract areas for silvicultural
purposes Including the raising of plantations subject in each case to the
minimum area limit of 500 acres per annum and further subject to giving in
place of such area equal facilities for bamboos extraction in other convenient
areas, and (5) the right to extract bamboos from any portion in the contract
areas for departmental works in Bonai Forest Division subject to a limit of
5,000 bamboos yearly. Clause XXIII prescribed cutting rules for bamboos.
Clause XXIV conferred upon the Respondent
Company the right to extract fuel from areas allotted for that purpose in order
to meet the fuel requirements of domestic consumption in the houses and offices
of H 114 the persons employed by it in "connection with its business in
the contract areas" subject to the payment of a fixed royalty per tonne.
Under that clause, the Respondent Company had the right to cut and collect such
poles of unreserved species and creepers as might be necessary for construction
of rafts on obtaining a permit in that behalf and on payment of royalty
according to the schedule of rates. Under clause XXV, the Grantor, if so
required by the Respondent Company, was to lease to it a suitable site or sites
to be selected by it out of such sites as were at the disposal of the Grantor
within the licensed areas for the erection of store houses, sheds, depots,
bungalows, staff offices, agencies and other buildings of a like nature
bonafide required by it "for the purposes of the business connected
with" the Bamboo Contract rent free for the term of such contract. Under
clause XVI, in the event of the Grantor setting fire to the forest for
silvicultural purposes, it was to give to the Respondent Company as long a notice
as possible of the commencement of such operations and it was the Respondent
Company which was to be responsible for safeguarding the forest produce which
was the subject matter of the Bamboo Contract. Under clause XXIX, the contract
areas were to be worked on four years cutting cycle for Salia and twelve years
cutting cycle for Daba and were to comprise the areas stated in the said
clause.
It was submitted on behalf of the Appellant
that the Bamboo Contract was a composite contract of sale, in that it was an
agreement to sell existing goods" namely, bamboos standing in the contract
areas at the date of the Bamboo Contract, coupled with an agreement to sell
future goods, namely, bamboos to come into existence in the future.
According to the Appellant the property in
the existing bamboos would pass after they were ripe for cutting and under Rule
12 of the Forest Contract Rules the Divisional Forest Officer had delineated
the boundaries and limits of the annual coupe from which bamboos were to be cut
for the Respondent Company to take delivery of them in as much as the bamboos
then became ascertained goods. In the alternative it was submitted that the
property passed when the Respondent Company started the work of cutting
bamboos.
According to the Appellant, in either event
property passed before the bamboos were severed. So far as the bamboos which
were not in existence at the date of the Bamboo Contract but were to come into
existence thereafter were concerned, it was submitted that as they were future
goods once they came 115 into existence and became ripe for cutting, the
property in them passed to the Respondent Company in the same way as in the
case of bamboos in existence at the date of the Bamboo Contract.
While discussing the subject-matter of the
impugned provisions we have already held that they apply where there is a
completed con- tract of purchase and the property in the goods which are the
subject-matter of the contract passes from the seller to the buyer when the
contract is made. In other words, the purchase would be complete when the
standing trees or bamboos are specific goods, that is, when v' they are
identified agreed upon at the time the contract of sale is made, and the
contract is unconditional and further such standing trees or bamboos are in a
deliverable state that is, nothing remains to be done except for buyer to enter
upon the land of the seller and to fell and remove the trees or bamboos, as the
case may be, without any let or hindrance. The very submission of the Appellant
with respect to when the property passes to the Respondent Company in the case
of the Bamboo Contract are sufficient to show that the impugned provisions
cannot have any application to the case. The Bamboo Contract like the Timber
Contract is also made subject to the Forest Contract Rules and while with
Timber Contract we have pointed out that by reason of the operation of those
Rules property in the trees passed to the forest contractor after the trees
were felled and taken to the inspection points and there checked and examined
and thereafter removed from the contract area. The same position would apply to
the case of the Bamboo Contract assuming for the sake of argument that it is a
contract of sale of goods.
In this view of the matter, the impugned
provisions would have no application and the amounts payable under the Bamboo
Contract would not be exigible to purchase tax. By reason, however, of the
substitution of the definition of the term "dealer" in clause (c of
section 2 of the Orissa Act with retrospective effect, it may be argued that if
the Bamboo Contract was a contract of sale of goods, then on the sale taking
place to the Respondent Company, sales tax would become payable and the
Respondent Company would be bound to reimburse to the Forest Department the
amount payable by it as sales tax. In order to avoid future legal controversy
and particularly in view of the fact that the High Court has held the Bamboo
Contract to be a grant of a profit a prendre it becomes 116 necessary to
determine whether the Bamboo Contract is at all a contract of sale of goods.
According to the Respondent Company the High Court was right in holding that
Bamboo Contract was not a contract of sale of goods but was a grant of a profit
a prendre.
The meaning and nature of a profit a prendre
have been thus described in Halsbury's Laws of England, Fourth Edition, Volume
14, paragraphs 240 to 242 at pages 115 to 117:
"240. Meaning of 'profit a prendre' A
profit a prendre is a right to take something off another person's land. It may
be more fully defined as a right to enter another's land to take some profit of
the soil, or a portion of the soil itself, for the use of the owner of the
right The term 'profit a prendre' is used in contradistinction to the term
'profit a prendre', which signified a benefit which had' to be rendered by the
possessor of land after it had come into his possession.A profit a prendre is a
servitude.
"241. Profit a prendre as an interest in
land.
A profit a prendre is an interest in land and
for this reason any disposition of it must be in writing.A profit a prendre
which gives a right to participate in a portion only of some specified produce
of the land is just as much an interest in the land as a right to take the
whole of that produce. . .
"242. What may be taken as a profit a
prendre.
The subject matter of a profit a prendre,
namely the substance which the owner of the right is by virtue of the right
entitled to take, may consist of animals, including fish and fowl, which are on
the land, or of vegetable matter growing or deposited on the land by some
agency other than that of man, or of any part of the soil itself, including
mineral accretions to the soil by natural forces. The right may extend to the
taking of the whole of such animal or vegetable matters or merely a part of
them. Rights have been established as profits a prendre to take acorns and
beech mast, brakes, fern, heather and litter, thorns, turf and peat, boughs and
branches of growing trees, rushes, 117 freshwater fish, stone, sand and shingle
from the seashore A and ice from a canal; also the right of pasture and of
shooting pheasants. There is, however, no right to take seacoal from the
foreshore. The right to take animals ferae naturae while they are upon the soil
belongs to the owner of the soil, who may grant to others as a profit a prendre
a right to come and take them by a grant of hunting, shooting, fowling and so
forth." A profit a prendre is a servitude for it burdens the land or
rather a person's ownership of land by separating from the rest certain
portions or fragments of the right of ownership to be enjoyed by persons other
than the owner of the thing itself (see Jowitt's Dictionary of English Law,
Second Edition, Volume 2, page 1640. under the heading "Servitude"). "Servitude"
is a wider term and includes both easements and profits a prendre (see
Halsbury's Laws of England, Fourth Edition, Volume 14, paragraph 3, page 4).
The distinction between a profit a prendre
and an easement has been thus stated in Halsbury's Laws of England, Fourth
Edition, paragraph 43 at pages 21 to 22:
"The chief distinction between an
easement and a profit a prendre is that whereas an easement only confers a
right to utilise the servient tenement in a particular manner or prevent the
commission of some act on that tenement, a profit a prendre confers a right to
take from the servient tenement some part of the soil of that tenement or
minerals under it or some part of its natural produce or the animals ferae
naturae existing upon it. What is taken must be capable of ownership, for
otherwise the right amounts to a mere easement".
In Indian law an easement is defined by
section 4 of the Indian Easement Act, 1882 (Act No. V of 1882) as being ' a
right which the owner or occupier of certain land possesses, as such, for the
beneficial enjoyment of that land, to do and continue to do something, or to
prevent and continue to prevent something being done, in or upon, or in respect
of, certain other land not his own".A profit a prendre when granted in
favour of the owner of a dominant heritage for the beneficial enjoyment of such
heritage would, therefore, be an easement but it would not be so if the grant
was not for the beneficial enjoyment of the grantee's heritage.
118 Clause (26) of section 3 of the General
Clauses Act, 1897, defines "immovable property" as including inter
alia "benefit to arise out of land". The definition of
"immovable property" in clause (f) of section 2 of the Registration
Act 1908, illustrates a benefit to arise out of land by stating that immovable
property "includes...rights to ways, lights ferries, fisheries or any
other benefit lo arise out of land". As we have seen earlier, the Transfer
of Property Act, 1882, does not give any definition of "immovable
property" except negatively by stating that immovable property does not
include standing timber, growing crops, or grass. The Transfer of Property Act
was enacted about fifteen years prior to the General Clauses Act, However, by
section 4 of the General Clauses Act, the definitions of certain words and
expressions, including "immovable property" and "movable
property", given in section 3 of that Act are directed to apply also,
unless there is anything repugnant in the subject or context, to all Central
Acts made after January 3 1968, and the definitions of these two terms,
therefore, apply when they occur in the Transfer of Property Act. In Ananda
Behra and another v. The State of Orissa and another (1) this Court has held
that a profit a prendre is a benefit arising out land and that in view of
clause (26) of section 3 of the General Clauses Act, it is immovable property
within the meaning of the Transfer of Property Act.
The earlier decisions showing what
constitutes benefits arising out of land have been summarized in Mulla on The
Transfer of Property Act, 1882", and it would be pertinent to reproduce
the whole of that passage. That passage (at pages 16-17 of the Fifth Edition)
is as follows:
"A 'benefit to arise out of land' is an
interest in land and therefore immovable property. The first Indian Law
Commissioners in their report of 1879 said that they had 'abstained from the
almost impracticable task of defining the various kinds of interests in
immovable things which are considered immovable property. The Registration Act,
however, expressly includes as immovable property benefits to arise out of
land, here diary allowances, rights of way lights, ferries and fisheries'. The
definition of immovable property in the General Clauses Act applies to this
Act. The following have been held to be immovable (1) 11955] 2 S. C. R. 919 119
property:-varashasan or annual allowance charged on land; a right to collect
dues at a fair held on a plot of land; a hat or market; a right to possession
and management of a saranjam; a malikana; a right to collect rent or jana: a
life interest in the income of immovable property; a right of way; a ferry; and
a fishery; a lease of land". B Having seen what the distinctive features
of a profit a prendre are, we will now turn to the Bamboo Contract to ascertain
whether it can be described as a grant of a profit a prendre and thereafter to
examine the authorities cited at the Bar in this connection. Though both the
Bamboo Contract in some of its clauses and the Timber Contracts speak of
"the forest produce sold and purchased under this Agreement", there
are strong countervailing factors which go to show that the Bamboo Contract is
not a contract of sale of goods. While each of the Timber Contracts is
described in its body as "an agreement for the sale and purchase of forest
produce", the Bamboo Contract is in express terms described as "a
grant of exclusive right and licence to fell, cut, obtain and remove
bamboos...for the purpose of converting the bamboos into paper pulp or for
purposes connected with the manufacture of paper...." Further, throughout
the Bamboo Contract, the person who is giving the grant, namely, the Governor
of the State of Orissa, is referred to as the "Grantor." While the
Timber Contracts speak of the consideration payable by the forest contractor,
the Bamboo Contract provides for payment of royalty.
"Royalty" is not a term used in
legal parlance for the price of goods sold. "Royalty" is defined in
Jowitt's Dictionary of English Law, Fifth Edition, Volume 2, page 1595, as
follows.
"Royalty, a payment reserved by the
grantor of a patent, lease of a mine or similar right, and payable
proportionately to the use made of right by the grantee. It is usually a
payment of money, but may be a payment in kind, that is, of part of the produce
of the exercise of the right.
Royalty also means a payment which is made to
an author or composer by a publisher in respect of each copy of his work which
is sold, or to an inventor in respect of each article sold under the
patent." We are not concerned with the second meaning of the word H 120
"royalty" given in Jowitt. Unlike the Timber Contracts, the Bamboo
Contract is not an agreement to sell bamboos standing in the contract areas
with an accessory licence to enter upon such areas / for the purpose of felling
and removing the bamboos nor is it, unlike the Timber Contracts, in respect of
a particular felling season only. It is an agreement for a long period
extending to fourteen years, thirteen years and eleven years with respect to
different con tract areas with an option to the Respondent Company to renew the
contract for a further term of twelve years and it embraces not only bamboos
which are in existence at the date of the contract but also bamboos which are
to grow and come into existence thereafter. The payment of royalty under the
Bamboo Contract has no relation to the actual quantity of bamboos cut and
removed. Further, the Respondent Company is bound to pay a minimum royalty and
the amount of royalty to be paid by it is always to be in excess of the royalty
due on the bamboos cut in the contract areas.
We may pause here to note what the Judicial
Committee of the Privy Council had to say in the case of Raja Bahadur Kamkashya
Narain Singh of Ramgarh v. Commissioner of Income- tax, Bihar and Orissa about
the payment of minimum royalty under a coal mining lease. The question in that
case was whether the annual amounts payable by way of minimum royalty to the
lessor were in his hands capital receipt cr revenue receipt. The Judicial
Committee held that it was an income flowing from the covenant in the lease.
While discussing this question, the Judicial Committee said (at pages 522-3):
"These are periodical payments, to be
made by the lessee under his covenants in consideration of the benefits which
he is granted by the lessor. What these benefits may be is shown by the extract
from the lease quoted above, which illustrates how inadequate and fallacious it
is to envisage the royalties as merely the price of the actual tons of coal.
The tonnage royalty is indeed only payable when the coal or coke is gotton and
despatched: but that is merely the last stage. As preliminary and ancillary to
that culminating act, liberties are granted to enter on the land and search, to
dig and sink pits, to erect engines an (1) (1943)11 I.T.R. 513 P.C. 121
machinery, coke ovens, furnaces and form railways and , roads. All these and
the like liberties show how fallacious it is to treat the lease as merely one
for the acquisition of a certain number of tons of coal, or the agreed item of
royalty as merely the price of each ton of coal." Though the case before
the Judicial Committee was of a lease of a coal mine and we have before us the
case a grant for the purpose of felling, cutting and removing bamboos with
various other rights and licences ancillary thereto, the above observations of
the Judicial Committee are very pertinent and apposite to what we have to
decide.
Under the Bamboo Contract, the Respondent
Company has the right to use all lands, roads and streams within as also
outside the contract areas for the purpose of free ingress to and egress from
the contract areas. It is also given the right to make dams across streams, cut
canals, make water courses, irrigation works, roads, bridges, buildings,
tramways and other work useful or necessary for the purpose of its business of
felling, cutting, and removing bamboos for the purpose of converting the same
into paper pulp or for purposes connected with the manufacture of paper. For
this purpose it has also the right to use timber and other forest produce to be
paid for at the current schedule of rates. The Respondent Company has the right
to attract fuel from areas allotted for that purpose in order to meet the fuel
requirements of the domestic consumption in the houses and offices of the
persons employed by it and to pay a fixed royalty for this purpose. Further,
the Government was bound, if required by the Respondent Company, to lease to it
a suitable site or sites selected by it for the erection of store houses,
sheds, depots, bungalows, staff offices, agencies and other buildings of a like
nature.
We have highlighted above only the important
terms and conditions which go to show that the bamboo Contract is not and
cannot be a contract of sale of goods. It confers upon the Respondent Company a
benefit to arise out of land, namely, the right to cut and remove bamboos which
would grow from the soil couple with several ancillary rights and is thus a
grant of a profit a prendre. It is equally not possible to view it as a
composite contract one, an agreement relating to standing bamboos agreed to be
severed H 122 and the other, an agreement relating to bamboos to come into
existence in the future. The terms of the Bamboo Contract make it clear that it
is one, integral and indivisible contract which is not capable of being severed
in the manner canvassed on behalf of the Appellant. It is not a lease of the
contract areas to the Respondent Company for its terms clearly show that there
is no demise by the State Government of any area to the Respondent Company. The
Respondent dent Company has also no right to the exclusive possession of the
contract areas but has only a right to enter upon the land to take a part of
the produce thereof for its own benefit.
Further, it is also pertinent that while this
right to enter upon the contract areas is described as a "licence",
under clause XXV of the Bamboo Contract the Respondent (company has the right
to take on lease a suitable site or sites of its choice within the contract
areas for the erection of store houses, sheds, depots, bungalows, staff
offices, agencies and other buildings of alike nature required fourth purpose
of its business. The terms and conditions of the Bamboo Contract leave no doubt
that it confers upon the Respondent Company a benefit to arise out of land and
it would thus be an interest in immovable property. As the grant is of the
value exceeding Rs. 100, the Bamboo Contract is compulsorily registrable. It
is, in fact, not registered.
This is, however, immaterial because it is a
grant b the Government of an interest in land and under section Registration
Act it is exempt from registration. The High Court was, therefore, right in
holding that the Bamboo Contract was a grant of a profit prendre, though the
grant of such right not being for the beneficial enjoyment of any land of the
Respondent Company it would not be an easement.
Being a profit a prendre or a benefit to
arise out of land any attempt on the part of the State Government to tax the
amounts payable under the Bamboo Contract would not only be ultra vires the
Orissa Act but also unconstitutional as being beyond the State's taxing power
under Entry 54 in List II in the Seventh Schedule to the Constitution of India.
We will now turn to the authorities cited at
the Bar.
The cases which have come before the courts
on this point have mainly involved the question whether the document before the
court required registration. After the coming into force of the Constitution of
India and the introduction of land reforms with consequent abolition of
'Zamindari' and other proprietary into rests in land, the question whether a
particular document was a 123 grant of a proprietary interest in land has also
fallen for determination by various courts. It is unnecessary to refer to all
the decisions which were cited before us and we propose to confine ourselves to
considering only such of them as are directly relevant to the question which we
have to decide. Of the High Court decisions the one most in point is that of a
Full Bench OF the Madras High Court in Seeni Chettiar v. Santhanathan Chettiar
and others.(l) The question in that case was whether a document which granted
to the defendant a right to enjoy the produce of all the trees on the bank and
bed of a tank as also the grass and the reeds and further to cut and remove the
trees for a period exceeding four years required registration. The court held
that the document was not a lease because it did not transfer to the defendant
exclusive possession of the tank but conferred upon him merely a right of access
to the place for the reasonable enjoyment of what he was entitled to under the
contract The court, however, came to the conclusion that the document required
registration as it transferred an interest in immovable property, and that it
was not a sale of mere standing timber but it was contemplated by the document,
as shown by the fact that a comparatively long period of a little more than
four years was granted to the defendant for cutting and removing the trees,
that "the purchaser should derive a benefit from the further growth of the
thing sold, from further vegetation and from the nutriment to be afforded by
the land". The above words quoted in the judgment in that case were those
of Sir Edward Vaughan Williams in the following passage cited with approval by
Lord Coleridge, C.J., in Marshall v.
Green 2):- "The principle of these
decisions appears to be this, that wherever at the time of the contract it is
contemplated that the purchaser should derive a benefit from the further growth
of the thing sold, from further vegetation and from the nutriment to be
afforded by the land, the contract is to be considered as for an interest in
land; but where the process of vegetation is over, or the par ties agree that
the thing sold shall be immediately with drawn from the land, the land is to be
considered as a (1) I.L.R. (18971 20 Mad. 58 F.B.
(2) [1875] 1 C.P.D. 35, 39. H 124 mere
warehouse of the thing sold, and the contract is for goods." So far as the
decisions of this Court are concerned, the one which requires consideration
first is Firm Chhotabhai Jethabai Patel & Co. (and other cases) v. The
State of Madhya Pradesh. This was one of the two cases strongly relied upon by
the Appellant, the other being State of Madhya Pradesh & Ors. v, Orient Paper
Mills Ltd2. The facts in Chhotabhai's Case were that the petitioners had
entered into contracts with the proprietors of certain estates and mahals in
the State of Madhya Pradesh under which they acquired the right to pluck,
collect and carry away tendu leaves; to cultivate, culture and acquire lac;
and to cut and carry away teak and timber and
miscellaneous species of trees called hardwood and bamboos. On January 26,
1951, the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals,
Alienated Lands) Act, 1950 (Madhya Pradesh Act I of 1951), came into force and
on the very next day a notification was issued under the said Act putting an
end to all proprietary rights in estates, mahals and alienated villages and
vesting the same in the State for the purposes of the State free of all
encumbrances with effect from March 31, 1952. The petitioners therupon
approached this Court under Article 32 of the Constitution of India praying for
a writ prohibiting the State of Madhya Pradesh from interfering with the rights
which they had acquired under the contracts with the former proprietors. It was
averred in the petitions that not only had the petitioners paid the
consideration under the said contracts but had also spent large sums of money
in the exercise of their rights under the said contracts. This Court held that
the contracts appeared to be in essence and effect licenses granted to the
petitioners to cut, gather and carry away the produce in the shape tendu
leaves, lac, timber or wood and did not create any interest either in the land
or in the trees or plants.
In arriving at this conclusion the Court
relied upon a decision of the Judicial Committee of the Privy Council in Messrs
Mohanlal Hargovind of Jubbulpore v. Commissioner of income-tax, C.P. &
Berar, Nagpur3. In that case the assesses carried on (1) [19531 S.C.R. 476.
(2) [1977] 2 S.C.R. 149. ( 3) L.R. [1949] 76
I.A. 235; ILR 1949 Nag. 892; A.l.R. 1949 P.C. 311.
125 business as manufacturers and vendors of
bidis composed of tobacco contained or rolled in tendu leaves. The contracts
entered into by the assesees were short term contracts under which in
consideration of a sum payable by instalments the assessees' were granted the
exclusive right to collect and remove tendu leaves from specified areas. Some
of the contracts also granted to the assessees a small ancillary right of
cultivation. The Judicial Committee held that the amounts paid by the assessees
under the said contracts constituted expenditure in order to secure raw
materials for their business and, therefore, such expenditure was allowable as
being on revenue account. In Chhotabhai's Case this Court took the view that
the contracts before it were similar to the contracts before the Judicial
committee and quoted with approval the following passage from the judgment in
Messrs Mohanlal Hargovind's Case (at page 241):
"The contracts grant no interest in land
and no interest in the trees or plants themselves. They are simply and solely
contracts giving to the grantees the right to pick and carry away leaves,
which, of course, implies the right to appropriate them as their own property.
The small right of cultivation given in the first of the two contracts is me
rely ancillary and is of no more significance than would be, e.g., a right to
spray a fruit tree given to the person who has bought the crop of apples. The
contracts are short term contracts. The, picking of the leaves under them has
to start at once or practically at once and to proceed continuously."
According to this Court, the contracts entered into by the petitioners before
it related to goods which had a potential existence and there was sale of a
right to such goods as soon as they came into existence, the question whether
the title passed on the date of the contract itself or later depending upon the
intention of the parties. This Court, therefore, came to the conclusion that
the State had no right to interfere with the petitioners' rights under the said
contracts.
As we will later point out, the authority of
the decision in Chhotabhai's Case has been considerably shaken, if not wholly
eroded, by subsequent pronouncements of this Court. For the 126 present it will
be sufficient for us to point out that the reliance placed in Chhotabhai's Case
on the decision of the Judicial Committee in Messrs Mohanlal Hargovind's Case
does not appear to be justified for the contracts before the Judicial Committee
and before this Court were different in their contents and this Court appears
to have fallen into an error in assuming that they were similar. For instance,
the contracts before the Privy Council were short term contracts while those
before the Court in Chhotabhai's Case were for different periods including
terms of five to even fifteen years. Apart from this, we have pointed out above
the features which go to make the Bamboo Contract a benefit to arise out of
land. These features were conspicuously absent in the contracts before the
court in Caotabhai's Case.
The decision next in point of time on this
aspect of the case is Ananda Behare and another v. The State of Orissa and
another. The petitioners in that case had obtained oral licenses for catching
and appropriating fish from specified sections of the Chilka Lake from its
proprietor, the Raja of Parikud, on payment of large sums of money prior to the
enactment of the Orissa Estates Abolition Act, 1951 (Orissa Act I of 1952).
Under the said Act, the estates of the Raja of Parikud vested in the State of
Orissa and the State refused to recognize the rights of the petitioners and was
seeking to re-auction the rights of fishery in the said lake. The petitioners,
contending that the State had infringed or was about to infringe their
fundamental rights under Articles 19 (1) (f) and 3 (1) of the Constitution of
India, filed petitions in this Court under Article 32 of the Constitiution. In
their petition, the petitioners claimed that the ; transactions entered into by
the were sales of future goods, namely, fish in the sections of the lake
covered by the licences and that a s fish was movable property, the sai Act was
not attracted because it was confined to immovable property. The Court observed
that if this contention of the petitioners was correct, then their petition
under Article 32 was misconceived because until any fish was actually caught,
the petitioners would not acquire any property in it. The Court held that what
was sold to the petitioners was the right to catch and carry away fish in
specific sections of the lake for a specified future period and that this
amounted to a licence to enter on the land coupled with a grant to catch and
carry away the fish which right was a profit and in England it would be
regarded as an interest in land because it was a right to take some profit of
the soil 127 for the use of the owner of the right in and India it would be
regarded as a benefit arising out of the land and as such would be immovable
property. The Court then pointed out that fish did not come under the category
of property excluded from the definition of "immovable property". The
Court further held that if a profit a prendre is regarded as tangible immovable
property, then the 'property' being over Rs. 100 in value, the document
creating such right would repuire to be registered, and if it was intangible
immovable property, then a registered instrument would be necessary whatever
the value; but as in the case before the Court the sales were all oral and
therefore, there being neither writing nor registration, the transactions
passed no title or interest and accordingly the petitioners had no fundamental
rights which they could enforce, Ananda Behera's Case was the first decision in
which Chhotabhai's Case was distinguished. The relevant passage in the judgment
(at pages 9234) is as follows:
"It is necessary to advert to Firm
Chhotabhai Jethabai Patel & Co. v. The State of Madhya Pradesh and explain
it because it was held there that a right to pluck, collect and carry away'
tendu leaves does not give the owner of the right any proprietary interest in
the land and so that sort of right was not an 'encumbrance' within the meaning
of the Madhya Pradesh Abolition of Proprietary Rights Act. But the contract
there was to 'pluck, collect and carry away, the leaves. The only kind of
leaves that can be 'plucked' are those that are growing on trees and it is
evident that there must be a fresh drop of leaves at periodic intervals. That
would make it a growing crop and a growing crop is expressly exempted from the
definition of 'immovable property' in the Transfer of Property Act. That case
is distinguishable and does not apply here".
The next decision which was cited and on
which a considerable debate took place at the Bar was Shrimati Shantabhai v.
State of Bombay & Others. The faces in that case were that by an
unregistered document the petitioner's husband had granted to her in
consideration of a sum of Rs. 20,000 the right to take and appropriate all
kinds of wood from certain forests in his Zamindari. On the coming into force
of the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals,
Alienated Lands) Act, 1950, all proprietary rights in land vested in the State
of Madhya Pradesh and the petitioner 128 could no longer cut any wood. She
thereupon applied to the Deputy Commissioner and obtained from him an order
permitting her to work the forest and started cutting the trees. The Divisional
Forest Officer took action against her and passed an order directing that the
cut materials be forfeited. She made representations to the Government and they
proving fruitless, she filed in this Court a petition under Article 32 of the
Constitution of India alleging breach of her fundamental rights under Article
19 (1) (f) and (g) of the Constitution. Four of the five learned Judges who
heard the case pointed out that the foundation of the petitioner's claim was an
unregistered document and that it was not necessary to determine the true
meaning and effect thereof for whatever construction be put on it, the
petitioner could not complain of breach of any of her fundamental rights. The
majority of the learned Judges held that if the document were considered as
conveying to the petitioner any part or share in her husband's proprietary
right, no such part or share was conveyed to her as the document was not
registered and assuming that any such part or share was conveyed, it had become
vested in the State under section 3 of the said Act; if the document were
considered as a licence coupled with a grant, then the right acquired by the
petitioner would be either in the nature of a profit a prendre which being an
interest in land was immovable property and would require registration and as
the document was not registered, it did not operate to transmit to her any such
profit a prendre as held in Ananda Behera's Case; and if the document were
construed as conferring a purely personal right under a contract, assuming
without deciding that a contract was property" within the meaning of
Article 19(1)(f) and 31(1) of the Constitution, she could not complain as the
State had not acquired or taken possession of the contract which remained her
property and as the State was not a party to the contract and claimed no
benefit under it, the petitioner was free to sue the grantor upon that contract
and recover damages by way of compensation; and assuming the State was also
bound by the contract, she could only seek to enforce the contract in the
ordinary way and sue the State if so advised and claim whatever damages or
compensation she might be entitled to for the alleged breach of it. After so
holding the majority of the learned Judges observed (at page 269):
"This aspect of the matter does not
appear to have been brought to the notice of this when it decided the case 129
of Chhotobhai Jethabai Patel and Co. v. The State of Madhya Pradesh and had it
been so done, we have, no doubt that case would not have been decided in the
way it was done." Unlike the majority of the Judges, Vivian Bose, J,. in
his separate judgment considered in detail the nature of the document in that
case. Vivian Bose, J,. pointed out the distinction between standing timber and
a tree. We have earlier extracted those passages from the learned Judge's
judgment. The learned Judge then pointed out that the duration of the grant was
for a period of twelve years and that it was evident that trees which would be
fit for cutting twelve years later would not be fit for felling immediately
and; therefore, the document was not a mere sale of trees as wood. Vivian Bose,
J,. held that the transaction was not just a right to cut a tree but also to
derive a profit from the soil itself; in the shape of the nourishment in the
soil that went into the tree and made it to grow till it was of a size and age
fit for felling as timber and if already of that size, in order to enable it to
continue to live till the petitioner chose to fell it The learned judge,
therefore, held that though such trees as can be regarded as standing timber at
the date of the document, both because of their size and girth and also because
of the intention to fall at an early date would be movable property for the
purposes of the Transfer of Property Act and the Registration Act, the
remaining trees that were covered by the grant would be immovable property, and
as the total value was Rs. 26,000, the deed required registration and being
unregistered, it did not pass any title or interest and, therefore, as in
Ananda Behera's Case the petitioner had no fundamental right which she could
enforce.
According to learned Counsel for the
Appellant, the judgment of Vivian Bose, J,. in that case was not the judgment
of the Court since the other learned Judges expressly refrained from expressing
any opinion as to the actual nature of the transaction under the document in
question. Learned Counsel submitted that what the Court really held in that
case was that there was no breach of any fundamental right of the petitioner
which would entitle her to approach this Court under Article 32 of the
Constitution, and this decision was, therefore, not an authority for the
proposition that a document of the type before the Court was a grant of a
profit a prendre as held by Vivian Bose. J It is true as contended by learned
Counsel 130 that the majority expressly refrained from deciding the nature of
the document because, as it pointed out, in any view of the matter, the
petition would fail and it would, therefore, be difficult to say that what
Vivian Bose, J,.
held was that the decision of the Court as
such. However, the judgment of Vivian Base, J., is a closely reasoned one which
carries instant conviction and cannot, therefore, be lightly brushed aside as
learned Counsel has attempted to do. It is also pertinent to note that the
majority in that case pointed out the principal errors into which the Court had
fallen in Chhotabhai's Case and disapproved of what was decided in that case.
The decision to which we must now advert is
Mahadeo v. The State of Bombay (and connected petitions). The facts in that
case were that some proprietors of Zamindaris situate in territories, then
belonging to the State of Madhya Pradesh and on the reorganization of States
transferred to the erstwhile State of Bombay, granted to the petitioners right
to take forest produce, mainly tendu leaves, from forests included in their
Zamindaris. The agreements conveyed to the petitioners in addition to the tendu
leaves other forest produce like timber, bamboos, etc., the soil for making
bricks, and the right to build on and occupy land for the purpose of their
business. In a number of cases, these rights were spread over many years. Some
of the agreements were registered and the others unregistered.
After the coming into force of the Madhya
Pradesh Abolition of Proprietary Right's (Estates, Mahals, Alienated Lands)
Act, 1950, the Government disclaimed the agreements and auctioned the rights
afresh, acting under section 3 of the said Act. The petitioners thereupon filed
petitions under Article 32 of the Constitution of India challenging the
legality of the action taken by the Government on the ground that it was an
invasion of their fundamental rights. The main contention of the petitioners was
that the agreements were in essence and effect licenses granted to them to cut,
gather and carry away the produce in the shape of tendu leaves, or lac, or
timber or wood, and did not grant to them any "interest in land" or
'benefit to arise out of land' and the object of the agreements could,
therefore, only be described as sale of goods as defined in the Indian Sale of
Goods Act. In support of that contention, the petitioners relied upon the
decision in Chhotabhai's case. The Court examined the terms of the agreements
in question and concluded that under none of them was there a naked right to
take leaves of tendu trees together with a right of ingress and of regress 131
from the land but there were further benefits including the right to accupy the
land, to erect buildings and to take other forest produce not necessarily
standing timber, growing crop or grass. The Court further held that whether the
right to the leaves could be regarded as a right to a growing crop had to be
examined with reference to all the terms of the documents and all the rights
conveyed thereunder and that if the right conveyed comprised more than the
leaves of the trees, it would not be correct to refer to it as being in respect
of growing crops simpliciter. On an examination of the terms of the documents
and the rights conveyed thereunder the Court came to the conclusion that what
was granted to the petitioners was an interest in immovable property which was
a proprietary right within the meaning of the said act and, therefore, it
vested in the State. With reference to Chhotabhai Case relied upon by the
petitioners. Hidayatullah, J., as he then was , speaking for the court, said
(at page 346):
" It is clear from the foregoing
analysis of the decision in Chhotabhai's Case that on a construction of the
documents there under consideration an adopting a principle enunciated by the
privy Council in Mohanlal Hargovind of Jubbalpure v. Commissioner of Income tax
Central Provinces and Berar and relying upon a passage each in Benjamin on Sale
and the well-known treatise of Baden-Powell, the Bench came to the conclusion
that the documents there under consideration did not create any interest in
land and did not constitute any grant of any proprietary interest in the estate
but were merely contracts or licenses given to the petitioners to cut, gather
and carry away the produce in the shape of tendu leaves, or lac, or timber or
wood'. But then, it necessarily followed that the Act did not purport to affect
the petitioners' rights under the contracts or licences. But what was the
nature of those rights of the petitioners? It is plain, that if they were
merely contracual rights, then as pointed out in the two later decisions, in
Ananda Behera v. The State of Orissa, Shantabai's case, the State has not
acquired or taken possession of those rights but has only declined to be bound
by the agreements to which they were not a party.
If, on the other hand, the petitioners were
mere licensees, then also, as pointed out in the second of the two cases cited,
the licences came to T-l 132 an end on the extinction of the title of the
licensors.
In either case there was no question of the
breach or any fundamental right of the petitioners which could support the
petitions which were presented under Art.
32 of the Constituion. It is this aspect of
the matter which was not brought to the notice of the Court, and the resulting
omission to advert to it has seriously impaired, if not completely nullified,
the effect and weight of the decision in Chhotabhai's case as a
precedent." We may also usefully reproduce the following passages (at page
354) from the concluded portion of the judgment:
"From this, it is quite clear that
forests and trees be longed to the proprietors, and they were items of
proprietary rights. .. " "If then the forest and the trees belonged
to the proprietors as items in their 'proprietary rights', it is quite clear
that these items of proprietary rights have been transferred to the
petitioners...Being a 'proprietary right', it vests in the State under ss. 3
and 4 of the Act. The decision in Chhotabhai's case treated these rights as
bare licences, and it was apparently given perincuriam and cannot; therefore;
be followed." (Emphasis supplied) Faced with this decision, learned
Counsel for the Appellant sought to distinguish it on the ground that the terms
of the agreements in that case were different from the terms of the Bamboo
Contract. We are unable to accept this submission. It is unnecessary to set out
in detail the terms of the agreements in Mahadeo's Case. The differences sought
to be pointed out by learned Counsel for the Appellant are unsubstantial and
make no difference. The essential and basic features are the same and the same
interpretation as was placed upon the agreements in Mahadeo's Case must, there
fore, apply to the Bamboo Contract.
In State of Madhya Pradesh v. Yakinuddin(1)
the respondents had entered into agreements with the former proprietors of
certain estates in the State of Madhya Pradesh acquiring the right to pro
pagate lac, collect tendu leaves and gather fruits and flowers of Mahua leaves.
Some of these documents were registered and others (1) [1963] 3 S.C.R. 13.
133 unregistered. On the coming into force of
the Madhya Pradesh Abolition of Proprietary Rights (Estates, Mahals, Alienated
Lands) Act, 1950, the State of Madhya Pradesh took possession of all the
villages comprised in the respective estates of the proprietors who had granted
the aforesaid rights to the respondents and refused to recognize the
respondents' rights. The respondents thereupon filed petitions under Article
226 of the Constitution in the High Court of Madhya Pradesh and the High Court
relying upon the decision in Chhotabhai's Case, granted to the respondents the
reliefs claimed by them.A Bench of five Judges of this Court allowed the
appeals filed by the State of Madhya Pradesh. In its judgment, this Court
considered its earlier decisions in Shantabai v. State of Bombay and others and
Mahadeo v. the State of Bombay and observed as follows (at page 21):
"In view of these considerations, it
must be held that these cases are equally governed by the decisions aforesaid
of this Court, which have overruled the earliest decision in the case of
Chhotabhai Jethabai Patel and Co. v. The State of Madhya Pradesh.
In Board of Revenue Etc. v. A.M. Ansari
Etc.(1) the respondents were the highest bidders at an auction of forest
produce, namely, timber, fuel, bamboos, minor forest produce, bidi leaves,
tanning barks, parks, mohwa, etc., held by the Forest Department of the
Government of Andhra Pradesh. They were called upon to pay in terms of the
conditions of sale stamp duty on the agreements to be executed by then as if
these documents were leases of immovable property. The respondents there upon
filed petitions under Article 226 of the Constitution in the High Court of
Andhra Pradesh. In the said petitions, the State contended that under the
agreements, the respondents had acquired an interest in immovable property. The
High Court held in favour of the respondents. The State went in appeal to this
court. On consideration of the terms of the agreements, this Court held that
the agreements were licences and not leases. The Court laid emphasis upon three
salient features of those agreements for reaching its conclusion, namely, (l)
that these were agreements of short duration of nine lo ten months, (2) that
they did not create any estate or interest in the (1) (1976] 3 S.C.R 661. H 134
land, and (3) that they did not grant exclusive possession and control of the
land to the respondents but merely granted to them the right to pluck, cut,
carry away and appropriate the forest produce that might have been existing at
the date of the agreement or which might have come into existence during the
short period of the currency of the agreements, and that the right of the
respondents to go on the land was only ancillary to the real purpose of the
contract. The Court observed as follows (at page 667):
"...Thus the acquisition by the
respondents not being an interest in the soil but merely a right to cut the
fructus naturales, we are clearly of the view that the agreements in question
possessed the characteristics of licences and did not amount to leases so as to
attract the applicability of Article 31(c) of the Stamp Act".
"The conclusion arrived at by us gains
strength from the judgment of this Court in Firm Chhotabhai jethabai Patel and
Co. & Ors. V. The State of Madhya Pradesh where contracts and agreements
entered into by person with the previous proprietors of certain estates and mahals
in the State under which they acquired the rights to pluck, collect and carry
away tendu leaves, to cultivate, culture, and acquire lac, and to cut and carry
away teak and timber and miscellaneous species of trees called hardwood and
bamboos were held in essence and effect to be licences." "There is,
of course, a Judgment of this Court in Mahadeo v. State of Bombay where
seemingly a somewhat different view was expressed but the facts of that course
were quite distinguishable. In that case apart from the bare right to take the
leaves of tendu trees, there were further benefits including the right to
occupy the land to erect buildings and to take away other forest produce not
necessarily standing timber, growing crop or grass and the rights were spread over
many years." We fail to see how this authority in any way supports the
case of the Appellant before us or resuscitates the authority of Chhotabhai's
Case. In Ansari's Case the Court seems to have assumed that Chhotabhai's Case
dealt with short term contracts while, as we have seen above, most of the
contracts in Chhotabhai's 135 Case were of far greater duration extending even
to fifteen years, nor was the Court's attention drawn to the case of State Or
Madhya Pradesh v. Yakinuddin. While the agreement in Ansari's Case was a mere
right to enter upon the land and take away tendu leaves, etc., the right under
the Bamboo Contract is of a wholly different nature. Further, the question
whether the agreements were a grant of a profit a prendre or a benefit to arise
out of land was not raised and, therefore, not considered in Ansari's Case and
the only point which fell for decision by the Court was whether the agreements
were licences or leases. In fact, another question which arose in that case was
whether the respondents were liable to pay the amounts demanded from them as
reimbursement of sales tax. Affirming the decision of the High Court on this
point, the Court held that the Forest Department did not carry on any business
s by holding auctions of forest produce and was, therefore, not a dealer within
the meaning of that term as defined in the Andhra Pradesh General Sales Tax
Act, 1957. The question whether the agreements were contracts of sale of goods
was, however, not considered in that case- We now come to the case of State of
Madhya Pradesh and others v. Orient Paper Mills Ltd., the second of the two
cases on which learned Counsel for the Appellant relied so strongly in support
of his submission that the Bamboo Contract was a contract of sale of goods. The
facts in that case as appearing from the judgment of the High Court reported as
Orient Paper Mills Ltd. v. State of Madhya Pradesh and Others(l) were that the
President of Indicating on behalf of the former Part State of Vindhya Pradesh
had entered into an agreement with the respondent. The said agreement was a
registered instrument and was styled as a lease and under it the respondent
acpuired the right for a period of twenty years with an option of renewal for a
further period of twenty years to enter upon "the leased area" to
fell, cut or extract bamboos and salai wood and to remove, store and utilize
the same for meeting the fuel requirement of its paper mill.A copy of the said
agreement has been produced before us. Some of the terms of the said agreement
were the same as those contained in the Bamboo Contracts as also in the case of
Mahadeo v. The State of Bombay. The said agreement provided for payment of
royalty including a minimum royalty. It also conferred upon the respondent the
right to take on lease such (1) [1972] 28 S.T.C. 532.
136 suitable site or sites as were at the
disposal of the State Government within "the leased area" for the
erection of store houses, sheds, depots, bungalows, staff offices, agencies and
other buildings of a like nature bonafide required for the purposes of its
business connected with the said agreement as also a right to make dams across
reams, cut canals, make water-course, irrigation works, construct roads,
railways and tramways and do any other work useful or necessary for the
purposes of its business connected with the said agreement in or upon "the
leased area" in terms very similar to those in the Bamboo Contract. After
the States Reorganization Act, 1956, came into force, the territories comprised
in the State of Vindhya Pradesh became part of the new State of Madhya Pradesh.
At the date when the said agreement was entered into the . P. and Berar Sales
Tax Act, 1947, was in force in the State of Vindhya Pradesh and the definition
of "goods" contained in clause (g) of section 2 of that Act as
modified and in force in that State excluded from the purview of the said Act
foresr contracts that gave a right to collect timber or wood to forest produce.
The C. P. and Berar Sales Tax Act was repealed by the Madhya Pradesh General
Sales Tax Act, 1958, with effect from April 1, 1959, and the new Act did not
contain any exclusion of forest contracts from the definitions of '
goods". Further, the term "dealer" as defined in the 1958 Act
included the Central Government and the State Government or any of its
departments. The Forest Department of the State Government was, however,
exempted from the payment of sales tax for the period April 1, 1959, to
November 2, 1962.
After the period of the said exemption
expired, the Forest Department got itself registered as a dealer and the
Divisional Forest Officer called upon the respondent to reimburse to him the
amount which, according to him, he was liable to pay as sales tax in respect of
the transaction covered by the said agreement. Challenging his right to do so,
the respondent filed in the High Court of Madhya Pradesh a writ petition under
Article 226 of the Constitution. In the said writ petition the respondent
contended that the transaction covered by the said agreement was not a sale of
goods and accordingly, no sales tax was payable in respect of bamboos and salai
wood extracted by the respondent thereunder, that the said agreement did not
provide for the recovery of the amount of sales tax from the respondent, and
that neither the State Government nor the Forest Department of that Government
was a "dealer" and that even if the sales tax was payable, it was not
recoverable as arrears of land 137 revenue. The High Court held that the
transaction was one of sale of goods and that if sales tax was payable it would
be recoverable under section 64A of the Sale of Goods Act, 1939, but the State
Government or the Forest Department could not merely by selling the forest
produce grown on its own land be regarded as carrying on any business of buying,
selling, supplying or distributing goods and, therefore, in respect of mere
sales of forest produce neither the State Government nor the Forest Department
was a "dealer" within the meaning of that term as defined in the 1958
Act. In coming to the conclusion that the said agreement was a contract of sale
of goods, the High Court proceeded upon the basis that what it had to consider
was "the stage when bamboo and salai wood have already been felled and
appropriated''. By reason of the judgment of the High Court, the definition of
the term "dealer" was amended with retrospective effect by the Madhya
Pradesh General Sales Tax (Amendment and Validation) Act, 1971, so as to
nullify the finding of the High Court that neither the State Government nor its
Forest department was a "dealer". The State of Madhya Pradesh as also
the respondent came in appeal to the Supreme Court. The appeals were heard in
the Court by a Division Bench of two learned Judges. At the hearing of the
appeals, the respondent desired to challenge the vires of the amending Act, but
in view of the Presidential Proclamation suspending the operation of Article
14, it could not do so and the court held that after the proclamation lapsed,
it was open to the respondent to take up the point but so far E the appeals
were concerned that challenge was not available and the appeals must be decided
on the basis that the amendment was valid and constitutional. The main point
before this Court, therefore, was whether the said agreement was a lease as it
was styled or a simple sale of standing timber coupled with a licence to enter
and do certain things on another's land. The Court held that the label given to
a document was not conclusive of its real nature and that under the said
agreement, possession of the land was not given to the respondent as it would
have been had the said agreement been a lease and that as the terms of the said
agreement showed, it conferred in substance a right to cut and carry away
timber of specified species G and till the trees were cut, they remained the
property of the owner, namely, the State, and that once the trees were severed,
the property in them passed to the respondent. The Court further observed that
the term used in the said agreement, namely, "royalty", was "a
feudalistic euphemism for the 'price' of the timber".
138 We are unable to agree with the
interpretation placed by the Court on the document in the Orient Paper Mill*'
Case. We find that in that case this Court as also the High Court adopted a
wrong approach in construing the said document. It is a well-settled rule of
interpretation that a document must be construed as a whole. This rule is
stated in Halsbury's Laws of England, Fourth Edition, Volume 12, paragraph 1469
at page 602, as follows:
"Instrument construed as whole.
It is a rule of construction applicable to
all written instruments that the instrument must be construed as a whole in
order to ascertain the true meaning of its several clauses, and the words of
each clause must be so interpreted as to bring them into harmony with the other
provisions of the instrument, if that interpretation does no violence to the
cleaning of which they are naturally susceptible. The best construction of
deeds is to make one part of the deed expound the other, and so to make all the
parts agree.
Effect must as far as possible, be given to
every word and every clause".
In Mahadeo v. State of Bombay a five-Judge
Bench of this Court categorically held (at page 349) that "Whether the
right to the leaves can be regarded as a right to a growing crop has, however,
to be examined with reference to all the terms of the documents and all the
right. conveyed thereunder". In spite of this clear and unequivocal
pronouncement by a five-Judge Bench of this Court, the learned Judges of the
High Court who decided the Orient Paper Mills' Case held (at page 538) that
"we have to consider the stage when bamboos and salai wood have already
been felled and appropriated", while a two-Judge Bench of this Court
evolved for itself in the appeal from that judgment a rule of interpretation
which was thus stated (at page 152) by Krishna Iyer, J., who spoke for the
Court:
"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
139 decide an issue arising under the specific statute by confining the focus
to that statuary compass as far as possible. Diffusion into wider
jurisprudential areas is fraught 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." A little later the learned Judge stated (at page 157) as
follows: - "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".
The above rule enunciated by this Court in
that case falls into two parts, namely, (I) a document should be so interpreted
as to bring it within the ambit of a particular statute relevant for the
purpose of the dispute before the Court, and (2) in order to do so, the court
can look at only such of the clauses of the document as also to just one or more
of the consequences flowing from the document which would fit in with the
interpretation which the court wants to put on the document to make that
statute applicable. The above principle of interpretation cannot be accepted as
correct in law. It is fraught with considerable danger and mischief as it may
expose documents to the personal predilections and philosophies of individual
judges depending upon whether according to them it would be desirable that
documents of the type they have to construe should be made subject to a
particular statute or not. The result would be that a document can be construed
as amounting to a grant of a benefit to arise out of land when the question
before the Court is whether proprietary rights and interests in estates have been
abolished and the same document or a document having the same tenor could be
construed as a contract of sale of goods when the question Is whether the
amounts payable thereunder are exigible to sales tax or purchase tax, making
the interpretation of the document dependent upon the personal views of the
judges with respect to the 140 legislation in question. In the very case which
we are considering, namely, the Orient Paper Mill's Case as shown by the very
first sentence in the judgment, this Court obliquely expressed its disapproval
of the transactions of the type represent by the document before it. That
sentence is as follows (at page 150) .
"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-" We may point out here that in making this observation
the Court overlooked three important aspects of the matter, namely, (I) it was
a matter of policy for the State to decide whether such transactions should be
entered into or not, (2) the transaction was entered into by the State so that
a paper mill could be started in the State as shown by the various terms of the
said agreement and thus was an encouragement to setting up of industries in the
State, and (3) the transaction ensured employment for the people of the area
because the said agreement expressly provided that the respondent was to engage
minim m 50 per cent of the labour for the working of the contract area from the
local source if available.
Just as a document cannot be interpreted by
picking out only a few clauses ignoring the other relevant ones, in the same
way the nature and meaning of a document cannot be determined by its end result
or one of the results or consequences which flow from it. If the second part of
the above rule were correct, the result would be startling.
There would be almost no agreement relating
to immovable property which cannot be construed as a contract of sale of goods.
Two instances would suffice to show this. If a man were to sell his building to
another and the deed of sale were to provide that the building should be
demolished and reconstructed and the price should be paid to the vendor partly
in money and partly by giving him accommodation in the new building, according
to this rule of interpretation adopted by the Court in the Orient Paper Mills
Case it would for the purpose of sales tax be a sale of goods because the old
building when demolished would result in movable property, namely, debris,
doors, windows, water pipes:
drainage pipes, water tanks, etc., which
would be sold by the purchaser as movables. Similarly, if a man were to give a
lease of his orchard or field, the lessee would be entitled to the fruits
already in existence as also to 141 the fruits which would come into existence
in the future and equally in the case of a field the same would be the case
wlth respect to the crop growing in the field as also the crops to grow
thereafter. The fruits and crop, whether existing or future, when plucked or
harvested, would be movable property and would be sold as such by the lessee;
but on the second part of the rule of
interpretation laid down the Orient Paper Mills' Case, the document,
indisputably a lease of immovable property, would for the purposes of sales tax
law be a sale of goods. In looking merely at the end-result of the agreement
before it, namely, that the bamboos would be cut and then would be goods in the
hands of the respondent and holding therefrom that the transaction was exigible
to sales tax, the Court overlooked what had been firmly established by the
decision of the five-Judge Bench of this Court in State of Madras v. Gannon
Dunkerly Co. (Madras) Ltd. that both the agreement and the sale must relate to
the same subject-matter and, therefore, there cannot be an agreement relating
to one kind of property and a sale as regards another. This principle has been
consistently followed and applied by this Court (see, for instance.
Commissioner of Sales Tax. M. P. v. Purshottam Premji).(1) Incidentally, we may
also point out that in the Orient Paper Mills Case this Court itself had
reservations as regards what it was deciding as is shown 'by its statement that
"in the journal cosmos of relativity, our observations here may not be
good currency beyond the factual legal boundaries of sales-tax situations under
a specific statute." We are constrained to observe that they are not
"good currency" so far as even those situations are concerned.
It is true that the nomenclature and
description given to a contract is not determinative of the real nature of the
document or of the transaction thereunder. These, however, have to be
determined from all the terms and clauses of the document and all the rights and
results flowing therefrom and not by picking and choosing certain clauses and
the ultimate effect or result as the Court did in the Orient Paper Mills' Case.
Thus, in coming to the conclusion that the
term "royalty" used in the document before it was merely "a
feudalistic euphemism for the 'price' of the timber", the Court overlooked
the fact that the amount of royalty payable by the respondent was consideration
for all the rights conferred upon the respondent under the contract though it
was to be calculated according to the quantity (1) [1970] 26 S.T.C. 38, 41 S.C.
142 of the bamboos felled, and the Court also
overlooked the fact that this was made further clear by the provision for
payment of a minimum royalty.
It is also true that an interpretation placed
by the court on a document is not binding upon it when another document comes
to be interpreted by it but that is so where the two documents are of different
tenors and not where they have the same tenor. On the ground that they dealt
with the general law of real property, the Court in Orient Paper Mils' case did
not advert to the earlier decisions of this Court relating to documents with
similar tenor even though those cases referred to in the judgment of the Madhya
Pradesh High Court under appeal before it. In view of this, the Orissa High
Court in the judgment under appeal before us held that the Orient Paper Mill 's
Case was decided by this Court per in curium because it did not take into
consideration decisions of larger Benches of this Court. In Union of India and
another v. K. S.) Subramanian(1) this Court held as follows:
"But, we do not think that the High
Court acted correctly in skirting the views expressed by larger benches of this
Court in the manner in which it had done this. The proper course for a High
Court, in such a case, is to try to find out and follow the opinions expressed
by larger benches of this Court in preference to those expressed by smaller
benches of the Court.
That is the practice followed by this Court
itself. The practice has now crystallized in to rule of law declared by this
Court." Had the Court looked at these decisions of larger Benches, it
would have appreciated that the only question before it could not be whether
the document was a lease or a contract of sale of goods and that even though
the document was not a lease it could be a grant of a profit a prendre and that
where there is a grant of a profit a prendre that is, a benefit to arise out of
land, it is immaterial whether the possession of the land is given to the
grantee or whether the grantee is given only a licence to enter upon the land
to receive the benefit. The bacic and salient features of the agreement before
the Court in the Orient Paper Mills.' Case were the same as in the case of
Mahadeo state of Bombay and this Court was not (1) (1977) I S.C.R. 87, 92, 143
justified in not adverting to that case and the other cases referred to by us
earlier on the ground that these cases dealt with the general law of real
property.
A chameleon may change its surroundings but
document is not a chameleon to change its meaning according to the purpose of
the statute with reference to which it falls to be interpreted and if documents
having the same tenor are not to be construed by courts in the same way, it
would make for great uncertainty and would introduce confusion, leaving people
bewildered as to how they should manage their affairs so as to make their
transactions valid and legal in eye of the law.
The authorities discussed above show that the
case of Firm Chhotabhai Jethabai Patel & Co. v. The State of Madhya Pradesh
is not good law and has been overruled by decisions of larger Benches of this
Court. They equally show that the case of State of Madhya Pradesh v. Orient
Paper Mills Ltd., is also not good law and that this decision was given per
incurium and laid down principles of interpretation which are wrong in law and
cannot be assented to. The discussion of the above authorities also confirm us
in our opinion that the Bamboo Contract is not a contract of sale of goods but
is a grant of a Profit a prendre, that is, of a benefit to arise out of land
and that it is not possible to bifurcate the Bamboo Contract into two: one for
the sale of bamboos existing at the date of the contract and the other for the
sale of future goods, that is, of bamboos to come into existence in the future.
In order to ascertain the true nature and meaning of the Bamboo Contract, we
have to examine the said contract as a whole with reference to all its terms
and all the rights conferred by it and not with reference to only a few terms
or with just one of the rights flowing therefrom. On a proper interpretation,
the Bamboo Contract dose not confer upon the Respondent Company merely a right
to enter upon the land and cut bamboos and take them away. In addition to the
right to enter upon the land for the above purpose, there are other important
rights flowing from the Bamboo Contract it which we have already summarized
earlier and which make in clear that what the Bamboo Contract granted was a benefit
to arise out of land which is an interest in immovable property. The attemp on
the part of the State Government and the officer of its Sales Tax Department to
bring to tax the amounts payable under the Bmboo 144 Contract was, therefore,
not only unconstitutional but ultra vires the Orissa Act.
Works Contract The only point which now
remains to be considered is the one canvassed by the contesting Respondents
namely, that the Bamboo Contract as also the Timber Contracts arc works
contracts and the amounts payable thereunder cannot, therefore, be made
exigible to any tax under the Orissa Act.A works contract is a compendious term
to describe conveniently a contract for the performance of work or services in
which the supply of materials or some other goods is incidental. The simplest
example of this type of contract would be where an order is given to a tailor
to make a suit from suiting supplied by the customer. This would be a contract
of work or servies in which the suyply of materials, namely, thread, lining,
and buttons used in making the suit, would be mrely incidental. Similarly, if
an artist is commissioned to paint a portrait, it would be a contract of work
and services in which the canvass on which the portrait is painted and the
paint used in painting the portrait would be merely incidental. In Commissioner
of Sale Tax, M.P. v. Pershottam Premji, this Court pointed out the distinction
between a works contract and a contract for the sale of goods as follows (at
page 41):
"The primary difference between a
contract for work or service and a contract for sale of goods is that in the
former there is in the person performing work or rendering service no property
in the thing produced as a whole notwithstanding that a part or even the whole
of the materials used by him may have been his property. In the case of a
contract for sale, the thing produced as a whole has individual existence as
the sole property of the party who produced it, at some time before delivery,
and the property therein passes only under the contract relating thereto to the
other party for price " As pointed out above the Timber Contracts are
agreements relating to movables while the Bamboo Contract is a grant of an
interest in immovable property. The question, therefore, whether there is a
works contract or a contract of sale of goods can arise only with respect to
the Timber Contracts. but the very meaning 145 of a works contract would show
that the Timber Contracts cannot be works contracts. The payee of the price,
namely, the Government has not undertaken to do any work or labour.
The work or labour under the Timber Contracts
is to be done by the payer of the price, namely, the forest contractor, that
is, the Respondent Firm. It is the Respondent Firm which has to enter upon the
land and to fell the standing trees and to remove them. Assuming for the sake
of argument that the Bamboo Contract were a contract relating to movables, the
same position would apply to it. This contention of the Respondents is,
therefore, without any substance.
Conclusions To summarize our conclusions -
(1) The impugned provisions, namely, (1) Notification S.R.O. No. 372177 dated
May 23, 1977, (2) Notification S.R.O. No. 373177_ dated May 23, 1977, (3)
Entries Nos. 2 and 17 in the Schedule to Notification No. 67178 - C.T.A. 135177
(Pt.) - F (S.R.O. No.900/77) dated December 29, 1977, and (4) Entries Nos. 2
and 17 in the Schedule to Notification No. 67181 - C.T.A. 135/77-F (S.R.O.
No.901/77) dated December 29, 1977, levying purchase tax at the rate of ten per
cent on the purchase of , bamboos agreed to be severed and standing trees
agreed to ` be severed, are not ultra vires either Entry 54 in List II in the
Seventh Schedule to the Constitution of India or the 'Orissa Sales Tax Act,
1947, but are constitutional and valid.
(2) Under the impugned provisions the taxable
event is not an agreement to sever standing trees or bamboos but the purchase
of standing trees or bamboos agreed to be severed.
(3) The absence in the impugned provisions of
the words "before sale or under the contract of sale" is immaterial
for the impugned provisions read as a whole clearly show that the severance of
standing trees or bamboos has to be under the contract of sale and before the
purchase thereof has been completed and not before sale of such trees or
bamboos.
146 (4) The subject-matter of the impugned
provisions is goods and the tax that is levied thereunder is on a completed
purchase of goods.
(5) When under section 3-B of the Orissa
Sales Tax Act, 1947, any goods are declared to be liable to tax on the turnover
of purchases, such goods automatically cease to be liable to sales tax by
reason of the proviso to that section.
(6) The word "supersession" in the
Notifications dated December 29, 1977, is used in the same sense as the words
"repeal and replacement" and, therefore, does not have the effect of
wiping out the tax liability under the previous notifications. All that was
done by using the words "in supersession of all previous
notifications" in the Notifications dated December 29, 1977, was to repeal
and replace previous notifications and not to wipe out any I) liability
incurred under the previous notifications.
The Timber Contracts are not works contracts
but are agreements to sell standing timber.
Under the Timber Contracts the property in
the trees which were the subject-matter of the contracts passed to the
Respondent Firm, Messrs M.M. Khara, only in the trees which were felled, that
is, in timber, after all the Conditions of the contract had been complied with
and after such timber was examined and checked and removed from the contract
area. The impugned provisions, therefore, did not apply to the transactions
covered by the Timber Contracts.
(9) The dictionary meaning of a word cannot
be looked at where that word has been statutorily defined or judicially
interpreted but where there is no such definition or interpretation, the court
may take the aid of dictionaries to ascertain the meaning of a word in common
parlance, bearing in mind that a word is used in different senses according to
its context and a dictionary gives all the meanings of a word, and the court
has, therefore, to select particular meaning which is relevant to the content
in which it has to interpret that word 147 (10) Timber and sized or dressed logs
are one and the same commercial commodity. Beams, rafters and planks would also
be timber.
(11) As the sales of dressed or sized logs by
the Respondent Firm have already been assessed to sales tax, the sales to the
First Respondent Firm of timber by the State Government from which logs were
made by the Respondent Firm cannot be made liable to sales tax as it would
amount to levying tax at two points in the same series of sales by successive
dealers, assuming without deciding that the retrospectively substituted
definition of "dealer" in clause (c) of section 2 of the Orissa Sales
Tax Act, 1947, is valid.
(12) During the period June 1, 1977, to
December 31, 1977, the sales of logs by the Respondent Firm would be liable to
tax at the rate of ten per cent.
Assuming that these sale s have been assessed
to tax at the rate of ten per cent, by reason of the period of limitation
prescribed by section 12(8) of the Orissa Sales Tax Act, 1947, the Respondent
Firm's assessment for the relevant period cannot now be reopened to reassess
such sales at ten Per cent.
(13) The Bamboo Contract is not a lease of
the contract ' areas to the Respondent Company, The Titaghur Paper Mills
(Company Limited.
(14) The Bamboo Contract is also not a grant
of an easement to the Respondent Company.
(15) The Bamboo contract is a grant of a
profit a prendre which in Indian law is a benefit to arise out of land and thus
creates an interest in immovable property.
(16) Being a benefit to arise out of land,
any attempt on the Part of the State Government to tax the amounts payable
under the Bamboo Contract would be not only ultra vires the Orissa Act but also
unconstitutional as being beyond the State's taxing power under Entry 54 in
List II in the seventh Schedule to the Constitution of India.
148 (17) The case of Firm Chhotabhai Jethabai
Patel & Co. v. The State of Madhya Pradesh is not good law and has been
overruled by decisions of larger Benches of this Court as pointed out by this
Court in State of Madhya Pradesh v. Yakinuddin.
(18) The case of State of Madhya Pradesh
& Ors v. Orient Paper Mills Ltd. is also not good law as that decision was
given per incurium and laid down principles of interpretation which are wrong
in law.
(19) The real nature of a document and the
transaction thereunder have to be determined with reference to all the terms
and clauses of that document and all the rights and results flowing therefrom.
On the above conclusions reached by us the
judgment of the High Court in so far as it hold the impugned provisions to be
unconstitutional and ultra vires the Orissa Sales Tax Act 1947, requires to be
reversed. This, however, does not mean that the writ petitions filed by the
Respondent Company and the Respondent Firm in the High Court should be
dismissed because in its writ petitions the Respondent Company had played for
quashing the notice dated August 18, 1977, issued against it under Rules 22 and
28(2) of the Orissa Sales Tax Rules, 1947, and the Respondent Firm in its writ
petition had prayed for setting aside the assessment order dated November 28,
1978, for the priod April 1, 1977, to March 31, 1978. On the findings given by
us the said notice must be quashed. So far the said assessment order is
concerned, as we have pointed out earlier, it is severable and does not require
to be set aside in toto but only so far as it imposed purchase tax on the
amounts paid by the Respondent Firm under the Timber Contract. Though the High
Court did not give these consequential reliefs in view of its findings that the
impugned provisions were invalid, it becomes necessary for us to do so in order
to do complete justice between the parties as we are entitled to do under
Article 142 of the Constitution of India.
In the result, we reverse the judgment of the
High Court in so for as it holds (1) Notification S.R.O. No. 372/77 dated May
23. 1977, issued under section 3-B of the Orissa Sales Tax Act, 1947, 149 (2)
Notification S.R.O. No. 373/77 dated May 23, 1977, issued under the first
proviso to sub-section (1) of section 5 of the said Act prior to the amendment
of the said sub-section by the Orissa Sale Tax (Amendment) Act, 1978, which
repealed and replaced the Orissa Sales Tax (Amendment) Ordinance, 1977, (3)
Entries 2 and 17 in the Schedule to Notification No. 67178 - C.T.A 135/77 (Pt.)
- F (S.R.O). No. 900/77) dated December 29, 1977, issued under the said section
3-B and (4) Enteries No. 2 and 17 in the Schedule to Notification No. 67181 -
C.T.A. 135/77-F (S.R.O. No. 901/77) dated December 29, 1977, issued under
sub-section (1) of the said section S after its amendment by the Orissa Sales
Tax (Amendment) Act, 1978, to be unconstitutional as being ultra vires Entry 54
in List II in the Seventh Schedule to the Constitution of India and as being
ultra vires the Orissa Sales Tax Act, 1947, and we declare these provisions to
be constitutional and valid. In Civil Appeal No. 219 of 1982, we further quash
and set aside the notice dated August 18, 1977, under Rules 22 and 28(2) of the
Orissa Sales Tax Rules 1947, issued against the Respondent Company, The
Titaghur Paper Mills Company Limited, and the assessment order, if any, made in
pursuance thereof. In Civil Appeal No. 220 of 1982, we further modify the
assessment order dated November 28, 1978, for the period April 1, 1977, to
March 31, 1978, made against Respondent Firm; Messrs M.M. Khara, by deleting
therefrom the item of purchase tax on the amounts paid by the Respondent Firm
under the Timber Contracts entered into by it with the State of Orissa and
direct consequential modifications to be made therein.
As the real object of the State Government in
making the mpugned provisions was to make exigible to purchase tax the amounts
payable under the Bamboo Contracts and the Timber Contracts in which object it
has failed, in our opinion, a fair order for costs would be that the parties
should bear and pay their own costs of these Appeals and we direct accordingly.
P.B.R.
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