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PETITIONER: BHOPAL SUGAR INDUSTRIES LTD.,MADHYA PRADESH

       Vs.

RESPONDENT: D.   P. DUBE, SALES TAX OFFICER, BHOPAL REGION, BHOPAL

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-Nature of transaction-High Court’s Jurisdiction to go into-Constitution of India, Art. 226.

HEADNOTE: The  appellant,  a  manufacturer of sugar and  a  dealer  in petroleum products, was assessed to sales tax in respect  of the  consumption  by it for its own motor  vehicles  of  the petroleum  products  in  which  it  dealt.   The   appellant challenged  the assessment in respect of the consumption  by it  by way of a petition under Art. 226 of the  Constitution before the High Court of Madhya Pradesh on the grounds  that its  own  consumption  did not amount to a  sale  under  the relevant  provisions  of the Madhya Bharat  Sales  of  Motor Spirit  Taxation Act, 1953, and that if such  a  transaction was  held to be taxable under the provisions of the Act  the provisions were unconstitutional and beyond the  legislative competence  of the State and therefore the assessment  would be  an  infringement of the rights of the  petitioner  under Art. 19 (1) (f) and (g) of the Constitution.  The High Court called  for the agreement between the appellant company  and Caltex (India) Limited and by construing the agreement  came to  the conclusion that the appellant was not the  owner  of the  petrol  and rejected the petition though no  point  was taken by the Sales Tax Officer before it that tile appellant was not the owner. Held,  that  the investigation of the nature of  the  trans- action  was  not  a matter for the High Court  but  one  for determination  by the taxing authorities and that  the  High Court was in error in having itself determined the nature of the transaction.  The order passed by the High Court  cannot therefore, be upheld.

JUDGMENT:

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CIVIL  APPELLATE  JURISDICTION    Civil Appeal  No.  578  of 1962.  489 Appeal  by special leave from the judgment and  order  dated January 25, 1961, of the Madhya Pradesh High Court in  Misc. Petition No. 223 of 1960. S.T. Desai, J. B. Dadadhanjli, O. C. Mathur and  Ravinder Narain, for the appellant. B.Sen, K. L. Hathi and I. N. Shroff, for the respondent. 1962.  December 21.  The judgment of the Court was delivered by SHAH,  J.-This  is  an appeal against the  judgment  of  the Madhya Pradesh High Court dismissing a petition filed by the Bhopal   Sugar  Industries  Ltd.  hereinafter  called   ’the Company’-for  a  writ  under Art. 226  of  the  Constitution quashing  the  order of the Sales Tax Officer dated  May  1, 1960,  which imposed liability upon the Company for  payment of  sales-tax under the Madhya Bharat Sales of Motor  Spirit Taxation  Act,  20 of 1953 in respect of  motor  spirit  and lubricants used for its own vehicles. The Company carries on the business of manufacturing  sugar, and  maintains for the purpose of that business a  fleet  of motor  trucks and other motorvehicles.  The Company is  also registered under the Act as a retail dealer of motor  spirit and lubricants.  During the period April 1, 1957, and  March 31,  1958, the Company consumed a part of its  stock-intrade of  motor spirits and lubricants for its own vehicles.   The Sales  Tax  Officer, Bhopal Region, by order  dated  May  1, 1960,  assessed the Company to pay tax in respect  of  motor spirits  and  lubricants  consumed for  its  vehicles.   The Company  then filed a petition in the High Court  of  Madhya Pradesh at Jabalpur under Art.  ’226 of the Constitution for a 490 writ  in the, nature of certiorari quashing the order  dated May 1, 1960, passed by the Sales Tax Officer and the ’notice of  demand  issued in pursuance thereof, and for a  writ  of prohibition  or mandamus restraining the Sales  Tax  Officer from recovering.. any tax in pursuance of the order. The Company set up two grounds in support of its petition :               (1)   That the Sales Tax Officer had power  to               levy  tax on "sale’ only i. c. on transfer  of               property for a price, and as there was no sale               of  motor oil and lubricants consumed  by  the               Company  for its own vehicles there  being  no               transfer of property to any one, and no  price               being  paid  or promised, consumption  of  the               articles   was  not  taxable.   That  it   was               submitted   is  manifest  from  the   charging               section  3 read with the definition  under  s.               2(k)  of the Act of ‘retail sale’  which  does               not include consumption by a retail dealer  of               his own goods.               (2)   That  power of the State to levy tax  on               the  sale  or purchase of  goods  (other  than               news-papers  could  be  exercised  only  under               Entry 54 of List II of the 7th Schedule to the               Constitution.  Therefore the attempted levy of               tax was illegal and without authority of  law,               and infringed the Company’s fundamental  right               to  carry on business and to hold and  acquire               property  as guaranteed by Art. 19(1) (f)  and               (g) of the Constitution. At  he  hearing  of  the petition the  High  Court  did  not consider the grounds set up in support of the petition,  but

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called upon the Company to produce ’a  491 copy of its agreement with Caltex (India) Ltd., under  which the  supply of motor-spirits and lubricants was obtained  by the  Company,  and  proceeded to adjudicate  the  claim  for relief in the light of the covenants of the agreement.  The. High   Court  dismissed  the  petition  holding   that   the assumption  made  in the petition that the Company  was  the owner  of  the motor spirits and  lubricants  obtained  from Caltex (India) Ltd., was not warranted.  It was observed "These   clauses   and  other  clauses   relating   to   the responsibility for loss, safeguard against contamination  of petrol, sale by the dealer of the products of Caltex (India) Limited only, settlement of accounts--all point to the  fact that the petitioner (the Company) was not constituted a full and absolute owner of the petrol supplied by Caltex  (India) Limited  at the petrol pump maintained by the petitioner  at Sehore.  The petrol remained the property of Caltex  (India) Limited,  and  the  petitioner sold it as an  agent  of  the supplying _Company.  When, therefore, the petitioner obtain- ed  petrol  for itself at the pump and used it  in  its  own vehicles,  there was a sale of the petrol by the  petitioner as  an agent of Caltex (India’) Limited to  the  petitioner- company as a consumer.  It was nothing but a purchase by the agent  of property belonging to the principal.   That  being so,  there  was retail sale by the petitioner  as  agent  of Caltex  (India)  Limited  of  the  petrol  consumed  in  its vehicles." Against  the  order dismissing the petition this  appeal  is preferred with special leave. In our judgment the High Court was in error in proceeding to decide the petition on a ground which was not set up in  the affidavit  of  the Sales Tax Officer.  The  Company  claimed relief on the 492 assumption that motor spirits and lubricants used by it  for its own vehicles were of its ownership, and appropriation by a  retail dealer of the stock in-trade owned by him for  his own  use does not constitute sale within the meaning of  the Act.   The Sales Tax Officer submitted that the  consumption of  motor spirits and lubricants by the Company amounted  to sale,  because  there  was transfer of  property  "from  one establishment  of  the  retail dealer to  another."  On  the pleadings two questions arose for determination :-               (a)   whether   the  appropriation  of   goods               amounted to transfer of property by the retail               dealer to another peison; and               (b)   whether such transfer amounted in law to               sale. The  Legislature has set up an elaborate  and  selfcontained machinery for investigating whether a transaction is  liable to  be  taxed because it is of the nature of a  retail  sale within  the  meaning  of the Act.   The  taxing  Officer  is invested  with  authority  to determine the  nature  of  the transaction  and  its  liability to  tax,  and  against  his decision there is an appeal to the appellate authority and a further  right of revision to the Commissioner.  It is  true that  the jurisdiction of the High Court under Art.  226  is extensive,  but  normally the High Court does  not  exercise that jurisdiction by entertaining petitions against the  or- ders of taxing authorities, when the statute under which tax is sought to be levied provides a remedy by way of an appeal or other proceeding to a party aggrieved and thereby by-pass the  statutory machinery.  That is not to say that the  High Court  will never entertain a petition against the order  of

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the   taxing  Officer.   The  High  Court  has   undoubtedly jurisdiction  to decide whether a statute under which a  tax is sought to be levied is within the legislative  493 competence  of  the Legislature enacting it or  whether  the statute defies constitutional restrictions or infringes  any fundamental  rights,  or whether the  taxing  authority  has arrogated to himself power which he does not possess, or has committed  a serious error of procedure which  has  affected the  validity  of his conclusion or even  where  the  taxing authority  threatens to recover tax on an interpretation  of the statute which is erroneous.  The High Court may also  in appropriate cases determine the eligibility to tax of trans- actions the nature of which is admitted, but the High  Court normally  does  not  proceed to ascertain the  nature  of  a transaction which is alleged to be taxable.  The High  Court leaves  it to the tax payer to obtain an  adjudication  from the taxing authorities in the first instance. In the present case the Company invoked the jurisdiction  of the  High  Court  on  question of fact as  well  as  on  the constitutionality  of  the  taxing  statute  and  breach  of fundamental  rights.  The High Court instead of  determining the  Constitutional questions, on which alone  the  petition could normally be entertained, proceeded to investigate  the correctness  of  an  assumption made  by  the  Company,  and thereby  decided the case which was not expressly raised  by the  other party.  In doing so the High Court fell  into  an error : it assumed jurisdiction to decide the dispute  which had to be decided by resort to the machinery provided  under the  Act  after  ascertainment of the  true  nature  of  the transaction  in the light of the agreement  and  surrounding circumstances.   The order passed by the High  Court  cannot therefore be upheld. The  next question is about the order to be passed  in  this appeal.   For that purpose we must consider the two  grounds set up in the petition by the Company.  The challenge to the action of the Sales Tax Officer on the plea of  infringement of fundamental 494 rights  must  fail.  It is common ground that the  State  of Madhya Pradesh had power to levy tax on sale or purchase  of motor  spirits  and such power could be  exercised  only  in respect of sales traditionally so understood.  The State  of Madras v. Gannon Dunkarley & Co. (Madras) Ltd. (1).  Section 2 (k) of the Act defines a ’retail sale’ as meaning "a  sale of  motor  spirit  by a retail dealer  for  the  purpose  of consumption  by the person by whom or on whose behalf it  is or  may  be purchased, and the expression ’sell  in  retail’ shall be construed accordingly.  But there is nothing in the definition  of  s. 2 (k) ’retail sale’ nor in  the  charging section  (s.  3) which indicates that  the  Legislature  had enacted  legislation beyond its competence.  If  the  taxing authority had sought to bring to tax a transaction which  is made  taxable by a competent enactment it would not be  open to  the  High Court exercising power under Art. 226  of  the Constitution  to consider whether the taxing  authority  was justified in taxing the transaction.  Levy of a tax lawfully imposed  under  a  statute  within  the  competence  of  the Legislature  cannot  be deemed to infringe  the  fundamental rights  guaranteed by Art. 19 (1) (f) and (g),  and  whether the  tax is properly levied in respect of a  transaction  is for  the taxing authority to determine and not for the  High Court. The  levy and collection of sales tax on motor  spirits  and lubricants  consumed  by  the Company  cannot  therefore  be

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regarded as illegal unless it is found. that the goods  were of the ownership of the Company; and for reasons already set out the question whether the goods consumed belonged to  the Company  must be left to be determined under the  Act.   The first  question raised in the petition cannot  therefore  be determined  by this Court as it could not be  determined  by the High Court. On  the  view  taken  by us this appeal  must  fail  and  is dismissed.  It will of course be open to the (1)  [1959] S. C, R. 379.  495 Company  in  an  appeal properly  filed  before  the  taxing authorities to contend that under the terms of the agreement with  Caltex (India) Ltd., the Company is the owner  of  the goods received by it and that on that account consumption of those  goods  by it for its own vehicles did not  amount  to sale and the Sales Tax Officer will be entitled to  consider that  question  on its merits and will not be bound  by  any expression   of  opinion  by  the  High  Court  as  to   the interpretation of the agreement produced before it.   Having regard  to  the circumstance, there will be no order  as  to costs. Appeals dismissed. 495