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PETITIONER: BHOPAL SUGAR INDUSTRIES LTD.MADHYA PRADESH, AND ANOTHER

       Vs.

RESPONDENT: D.B.  DUBE,  SALES TAX OFFICER, BHOPAL  REGION,  BHOPAL  AND

DATE OF JUDGMENT: 21/12/1962

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS

CITATION:  1964 AIR 1037  CITATOR INFO :  R          1968 SC 838  (4)  F          1985 SC1293  (45)

ACT: Sales  Tax-Consumption  by  seller-Tax  on  sale  of  goods- LegisLative  competence--Government of India Act,  1935  (25 and  26  Geo. 5, Ch. 42), Sch. 7, Entry 54,  List  II-Madhya Pradesh  Sales of Motor Spirit and Lubricants Taxation  Act, 1957 (M.  P. 4 of 1958), ss. 2 (1), 3.

HEADNOTE: The  first  petitioner, a company, manufacturer.  sugar  and also   sells  motor  spirit,  high  speed  diesel  oil   and lubricants  and maintains a petroleum pump in the  State  of Madhya Pradesh.  In the assessment proceedings in respect of sales  of  motor spirit and diesel oil, the  petitioner  was sought  to  be  assessed in respect  of  petroleum  and  oil consumed by the petitioner for its own motor vehicles out of the  stock held by it.  The petitioner challenged that  part of  the  assessment on the grounds that  the  definition  of "retail  sale" by s. 2 (1) of the Act which seeks to  render consumption by the owner of motor spirit liable to be  taxed by  virtue  of  S. 3 of the Act is  beyond  the  legislative competence  of the State and that the unconstitutional  levy infringes  the  fundamental rights of the  petitioner  under Art. 19(1)(f) and (g) of the Constitution of India. Held, that a sale for the purpose of entry "Tax on the  sale of  goods"  requires the concurrence of  four  elements  (1) parties  competent  to contract; (2) mutual  assent;  (3)  a thing,  the  absolute  or  general  property  in  which   is transferred from the seller to the buyer; and (4) a price in money paid or promised; and that the transaction which  does not  conform  to the traditional concept of sale  cannot  be regarded   as  one  within  the  competence  of  the   State Legislature to tax. The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [1959] S, C. R. 379; referred to. 482 Held, further, that by s. 2(1) the normal concept of sale is

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sought to be erlarged by bringing in the consumption by  the owner of the goods in which lie deals which was not a "sales within  the  meaning  of Entry 54, List 11, Sch.  7  of  the Government  of India Act, 1935, and therefore, the order  of the  Sales Tax officer which was founded on an  ultra  vires provision  was  itself  unconstitutional and  could  not  be sustained.

JUDGMENT: ORIGINAL JURISDICTION : Petition No. 85 of 1961. Petition under Art. 32 of the Constitution of India for  the enforcement of Fundamental Rights. S.T.  Desai, J. B. Dadachanji, O. C. Mathur and  Ravinder Narain, for the petitioners. B.Sen, K. L. Hathi and I. N. Shroff, for the respondents. 1962.  December 21.  The Judgment of the Court has delivered by SHAH, J.-Bhopal Sugar Industries Ltd. (the first petitioner) is  a public limited Company incorporated under  the  Indian Companies  Act,  1913,  and  the  second  petitioner  is   a shareholder and a Director of the Company.  The Company is a manufacturer  of sugar and owns a fleet of motor trucks  and other  motor  vehicles.The  Company  also  carries  on   the business of selling motor spirit, high speed diesel oil, and lubricants  and maintains a petroleum pump at Shores in  the State  of Madhya Pradesh.  Between April 1, 1959, and  March 31,  1960,  the Company used, for its  motor  vehicles  8908 gallons  of petroleum, 40719 gallons, of high  speed  diesel oil  and  lubricants of the value of Rs. 2,453-47  nP.   The first  respondent who is the assessing authority  under  the Madhya Pradesh Sales of Motor Spirit and Lubricants Taxation Act.  4  of 1958. assessed the Company to pay sales  tax  in respect of motor-spirit and lubricants  483 used by the Company out of the stock held by it for its  own vehicles,  because in his view such consumption amounted  to sales within the meaning of the Act. By  this  petition under Art. 32 of the Constitution  it  is claimed that the definition of ’retail sale’ in s. 2 (1)  of the  Act which seeks to render consumption by the  owner  of motor-spirit  liable to tax under the Act by virtue of s.  3 is beyond the competence of the State Legislature and  hence void and the order of the first respondent seeking to impose liability upon the Company for payment of tax infringes  the fundamental rights of the Company under Art. 19 (1) (f) and (g)  of the Constitution. Section  2 (k) of the Madhya Pradesh Sales of  Motor  Spirit and  Lubricants  Taxation Act defines a ’retail  dealer’  as meaning  "any person who, on commission or otherwise,  sells or keeps for sale motor spirit or lubricant for the  purpose of  consumption by the person by whom or on whose behalf  it is  or  may be purchased".  Section 2  (1)  defines  "retail sale’ as meaning "’a sale by a retail dealer of motor spirit or lubricant to a per-son for the’ purpose of consumption by the  person  by  whom or on whose behalf it  is  or  may  be purchased  and includes the consumption by a  retail  dealer himself or on his behalf of motor spirit or lubricants  sold to  him for retail sale;" (The definition is followed by  an explanation  which is not material for the purpose  of  this appeal.)  Section  3 is the charging section.   It  provides that  subject to the provisions of the Act, there  shall  be levied  on all retail sales of motor spirit  and  lubricants effected after the commencement of the Act, tax at the rates

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specified in the table set out therein. The Company is registered under s. 4 of the Act as a  retail dealer.  By s. 2 (1) consumption by a retail dealer  himself or  on his own behalf of motor spirit or lubricants sold  to him  for retail sale is included in the defition of  "retail sale.  Thereby the 484 Legislature  has attempted to enlarge the normal concept  of sale,  and  has  included therein consumption  for  his  own purposes by the retail dealer of motor spirit and lubricants sold to him for retail sale, and by s. 3 such consumption is made  taxable as sale.  But this Court held in The State  of Vadras v. Gannon Dunkerley & Co. (Madras) Ltd. (1), that the expression  ’sale  of goods’ in Entry 48, List II,  in  Sch. VII  of  the  Government of India Act, 1935,  has  the  same meaning  as  in  the Indian Sale of  Goods  Act,  1930,  and therefore in a transaction of sale of goods which is  liable to  tax  there  must be concurrence of  the  following  four elements. viz :               (1)   Parties competent to contract;               (2)   mutual assent;               (3)   a   thing,  the  absolute   or   general               property  in  which is  transferred  from  the               seller to the buyer; and               (4)   a price in money paid or promised. A  transaction  which doe; not conform to  this  traditional concept  of  sale cannot be regarded as one  in  respect  of which  the  State Legislature is competent to enact  an  Act imposing liability for payment of tax. It was observed at p. 407               "A power to enact a law with respect to tax on               sale of goods under Entry 48 must, to be intra               vires,  be  one relating in fact  to  sale  of               goods,   and   accordingly,   the   Provincial               Legislature cannot, in the purported  exercise               of  its power to tax sales,  tax  transactions               which  are not sales by merely  enacting  that               they shall be deemed to be sales."               In Gannon Dunkerley & Company’s case this Court was called upon to consider whether in a (1)  [1959] 1 S.C.R. 379.  485 building  contract  which is one,  entire  and  indivisible, there  is sale of goods.  It was held by the Court that  the Provincial  Legislature  was not competent under  Entry  48, List II, Sch.  VII of the Government of India Act, 1935,  to impose  tax  on  the  supply of materials  used  in  such  a contract  treating it as a sale.  The decision of the  Court did  not  rest  upon any peculiar character  of  a  building contract.   It  was held on the larger ground  canvassed  in that  case, that the expression ’sale of goods’  within  the meaning  of relevant legislative entry had the same  connot- ation  as ’sale of goods’ in the Indian Sale of  Goods  Act, 1930,  and therefore the State Legislature had no  power  to enact  legislation to levy tax under Entry 48 of List II  in respect  of  transactions which were not of  the  nature  of sales  of goods strictly so called; and a building  contract not  being  a  transaction  in which there  was  a  sale  of materials  by the contractor who constructed  the  building, the  State was not competent to enact legislation to  impose tax on the supply of materials  used in a building  contract treating  it  as a sale.  It was therefore,  held  that  the definition of sale in the Madras General Sales Tax Act IX of 1939 was to the extent of the extension invalid. In  Gannon Dunkerley & Company’s case the validity of  s.  2

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(b)  (ii)  of  the Madras General Sales Tax  Act,  1939,  as amended  by Act XXV of 1947, in so far as it included  goods included  in a works contract fell to be determined, in  the light of the competence of the Provincial Legislature  under Entry 48, List II, in Seventh Schedule of the Governmentof India Act, 1935.  Under the Constitution therelevant  entry conferring legislative power uponStates  to  tax  sale  of goods  in Entry 54, List 11.  As the scheme of  division  of legislative  power  under  the  Constitution  has   remained unaltered, the principle of Gannon Dunkerley’s case applies (1) [1999] S. C. R. 379. 486 in  adjudging the validity of the provisions of  the  Madhya Pradesh Act 4 of 1958. Consumption  by  an  owner of goods in  which  he  deals  is therefore not a sale within the meaning of the Sale of Goods Act  and  therefore  it is not ’sale of  goods’  within  the meaning of Entry 54, List 11, Sch.  VII of the Constitution. The legislative power for levying tax on sale of goods being restricted  to  enacting  legislation  for  levying  tax  on transactions  which  conform to the definition  of  sale  of goods  within the meaning of the Indian Sale of  Goods  Act, 1930, the extended definition which includes consumption  by a  retail dealer himself of motor spirit or lubricants  sold to him for retail sale is beyond the competence of the State Legislature.   But the clause in the definition in s. 2  (1) "and includes the consumption by a retail dealer himself  or on his. behalf of motor spirit or lubricant sold to him  for retail  sale"  which is ultra vires  the  State  Legislature because  of  lack of competence under Entry 54 in  List  II, Sch.  VII of the Constitution is severable, from the rest of the  definition,  and  that clause alone  must  be  declared invalid. The  Sales  Tax Officer has sought to impose  liability  for payment  of  tax in respect of motor spirit  and  lubricants consumed by the company for its own vehicles relying  solely upon the definition in s.     2  (1)  of the  Act.   He  has observed :               "The   definition  under  the   said   section               clarifies the retail sale and consumption by a               retail dealer.  Since the retail sale has been               clearly  defined and consumption by  self  has               been  included  in the retail sale; I  do  not               agree with the contention of dealer’s  counsel               (that  the goods consumed for the vehicles  of               the  dealer are not liable to tax under s.  3)               and taxed on                487               the goods consumed by the dealer, as above." The  order of the Sales Tax Officer founded upon a  part  of the statute which is ultra cannot be sustained. Counsel  for  the State of Madhya Pradesh contends  in  this petition  that  the Company is not the owner  of  the  motor spirit  and  lubricants  in which it deals it  is  merely  a commission  agent for sale in respect of the goods  supplied to  it  by  the Caltex (India) Ltd.,  and  on  that  account consumption  for his own purpose of goods belonging  to  his principal  amounts to sale within the meaning of  the  first part  of  the definition of s. 2 (1) of the  Act.   But  the Sales  Tax Officer has not decided the case under the  first part of the definition of ’retail sale’ : lie has  expressly founded  his decision on the second part of the  definition. In  the circumstances we do not feel called upon to  express any opinion on the question whether the Company is liable to pay  sales tax in respect of goods consumed for  its  motor-

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vehicles during the period in question.  If it is  competent to the Sales Tax Officer to adopt a proceeding, to bring  to tax  consumption  of  goods  by the  Company  for  its  ,own vehicles,  relying upon the first part of the definition  of "retail  sale’  in s. 2) (1), because of the  terms  of  the agreement  and other relevant surrounding circumstances,  it will be open to him to do so. The petition will therefore be allowed and a writ will issue declaring  that  the order of assessment made by  the  first respondent dated December 26, 1960, in so far as it  relates to  levy  of  tax on motor spirit  and  lubricants  consumed during  the  period of assessment for the  vehicles  of  the Company  is invalid.  The respondents will pay the costs  of this petition to the Company.                       Petition allowed, 488