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PETITIONER: COMMISSIONER OF SALES TAX, MADHYA PRADESH,INDORE

       Vs.

RESPONDENT: MADHYA PRADESH ELECTRICITY BOARD, JABALPUR

DATE OF JUDGMENT: 26/11/1968

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1970 AIR  732            1969 SCR  (2) 939  1969 SCC  (1) 200

ACT: Electricity  Supply Act, 1948, s. 18-Supply of   Electricity under-Supplier  whether a ’dealer’ within the meaning of  s. 2(d)  of C.P. & Bearar Sales Tax Act 21 of 1947 and s.  2(d) of  Madhya  Pradesh  General  Sales  Tax  Act  2  of   1959- Electricity  whether ’goods’-Supply of steam by  Electricity Board-Nature of transaction-Whether works contract.

HEADNOTE: The   assessee-Electricity  Board  constituted   under   the Electricity  Supply  Act,  1948,  supplied  and  distributed electric energy within the State of Madhya Pradesh.  In  the assessment  years  in question the Electricity  Board  sold, supplied   and  distributed  electric  energy   to   various consumers,  It also supplied steam to Nepa Mills.  The  mill was  supplying  water  free and the  Electricity  Board  was making a pro-rata charge of conversion of water into  steam. The mill had also  agreed to  re-imburse the  Board-for  the loss sustained on account  of  the  mills  not  taking   the full  demand  of  steam.  In proceedings under  the  C.P.  & Bearar  Sales Tax Act, 1947 ’and the Madhya Pradesh  General Sales  Tax Act, 1959 the question for  consideration,  inter alia,   were (i) whether electricity was ’goodS’ within  the meaning of the two Acts and whether the Board was a ’dealer’ within  the, meaning of s. 2(c) of the 1947 Act and s.  2(d) of  the  1959  Act; and (ii) whether  the  supply  of  steam amounted  to  ’sale’ ’and was therefore taxable.   The  High Court, in reference, held that electricity was not  ’goods’, that the Board was not a ’dealer"in electricity and that the supply of steam was not taxable as it was not supplied  With ’a profit motive.  In appeal by special leave to this  Court by the Commissioner of Sales Tax,   HELD: (i) The Electricity Board carried on the business of selling,  supplying and distributing electricity which  fell within the meaning of the expression ’goods’ in the two Acts and was therefore a ’dealer’. [945 H]   The  definition of "goods" is very wide and  includes  all kinds  of movable property.   The term ’movable property’ when considered with reference to ’goods’   as defined for the purposes of sales tax cannot

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be  taken  in a narrow   sense and merely  because  electric energy  is  not tangible or cannot  be   moved  or  touched, like,  for instance, a piece of wood or a book, it    cannot cease to be movable property when it has all the  attributes of   such    property.   It  is  capable   of   abstraction, consumption  and  use which, if    done  dishonestly,  would attract  punishment Under s. 39 of the Indian    ElectricitY Act,   1910.    It   can  be    transmitted,    transferred, delivered,    stored, possessed etc. in the same way as  any other   movable   property.    If  there  can  be  sale  and purchase  of electric energy like any other movable  object, it    st  be held that electric energy was  intended  to  be covered  by the definition of ’goods’ in the two  Acts.   If that  had  not  been the   case there was  no  necessity  of specifically  exempting sale of  electric   energy from  the payment  of  sales tax by making a provision for it  in  the Schedule to the two Acts. [945.E-H] 940     Kumbakonam  Electric  Supply Corporation Ltd.  v.  Joint Commercial  Tax  Officer, Esplanade  Division,  Madras,   14 S.T.C. 600,  Malerkotla Power Supply Company v. The Excise & Taxation  Officer, Sangrur & Ors. 22 S.T.C. 325,  Naini  Tal Hotel.  Municipal Board,  A.I.R. 1946 All. 502, Erie  County Natural  Gas & Fuel Co. Ltd. v.  Carroll,  [1911] A.C.  105, County of Durham Electrical  etc.  Co.  v.  Inland  Revenue [1909] 2 K.B. 604, referred to. Rash Behari v. Emperor, A.I.R. 1936 Cal. 753 distinguished.     (ii)  On the facts of the present case  the  arrangement relating  to supply of steam in return of water supplied  by the mills on payment of actual cost was not one of sale  but was more in the nature of a workS ,contract  Where the  main object   of work  undertaken by  the  payee of the price  is not the transfer of a chattel qua chattel,  the contract  is one for work and labour. [946 G--H]     The  Government  of Andhra Pradesh  v.  Guntur  Tobaccos Ltd.,  16  S.T.C. 240, and HaLsbury’s  Laws of  England,  HI Edn. Vol. 34 page 6, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.  1153  -to 1160 and 1161 to 1168 of 1968. Appeals by special leave from the judgment and order, dated November 16, 1967 of the Madhya Pradesh High Court in Misc. Civil Cases Nos. 96 to 103 of 1967.   I.  N. Shroff, for the appellant (in C.As. Nos. 115  3  to 1160  of 1968) and the respondent (in C.As.  Nos.   1161  to 1168  of 1968).         S.T.  Desai,  B.L. Neema and Anjali Varma,  for  the appellant  (in  C.As. Nos. 1161 to 1168 of  1968):  and  the respondent   C.As. Nos. 1153 to 1160 of 1958).  N.D.  Karkhanis and 11. G. Ratnaparkhi, for the  intervener (in C..Pa, Nos. 1153 to 1160 of 1968).   The judgment of the Court was delivered by   Grover,  J.   This judgment will dispose of two  ’sets  of cross appeals Nos. 1153-1160 & 1161-1168/68 which are from a common  judgment of the Madhya Pradesh High Court  and  have been entertained by special leave. The  relevant  assessment years for the purpose of  levy  of sales  tax  are from April 1, 1957 to March  31,  1958.  and April 1, 1964 to March 31, 1965..  For the assessment  years prior  to April 1, 1959 the enactment in force was the  C.P. and Berar Sales Tax Act, 1947 (No; XXI of 1947) and for  the subsequent two years it is the Madhya Pradesh General  Sales

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Tax  Act  (Act No. 2 of 1959), which  would  be  applicable. The. material facts may be shortly  stated,  The   assessee- Madhya   Pradesh  Electricity  Board-hereinafter called  the "Electricity Board?’ is a body constituted under s. 5 of the Electricity Supply Act, 1948. Under s. 944 18  of that Act it was the general duty of  the  Electricity Board to promote coordinated development of the  generation, supply and distribution of electric energy within the  State of  Madhya  Pradesh  in the most  efficient  and  economical manner.  In the assessment years in question the Electricity Board  sold,  supplied and distributed  electric  energy  to various  consumers.  It also sold coal-ash a  waste  product and  Supplied steam to Nepa Mills of Burhanpur.  It  further supplied  specification  and  tender  forms  on  payment  to persons  desirous  of  submitting  tenders  for  the   works undertaken  by the Electricity Board. It purchased  articles like Gitti, Murram, sand etc. from unregistered dealers.  It is  common  ground that under the provisions of Act  XXI  of 1947 and H of 1959 read with the’ Schedule contained therein sale  of  electricity  is exempt from sales  tax.   For  the purpose of determining the gross turnover, however, the sale of electric energy  is to be taken into account.     The  Assistant  Commissioner of Sales tax  assessed  the Electricity Board to tax on its turnover of sale of coal-ash and  specification and tender forms and the supply of  steam to  Nepa Mills. The Board was further assessed  to  purchase tax  on  Gitti,  Murram  etc.  purchased  from  unregistered dealers.   In  appeal the Deputy  Commissioner,  Sales  Tax, upheld   the assessment orders.  On second appeal the  Sales Tax Tribunal which was the Board of Revenue, Madhya Pradesh, held  that the Electricity Board was not a  "dealer"  within the meaning of that term as defined in the two Acts and that the  coal-ash was not produced for the purpose of sale  with the result that sales of coal-ash could not be subjected  to tax.   As  regards  the supply of steam to  Nepa  Mills  the tribunal,  on  examining the terms of  the  agreement  under which the Electricity Board supplied the steam, came to  the conclusion that such supply was an isolated transaction  and that such activity which had been undertaken on no profit no loss  basis  could  not  be  assessed  to  sales  tax.   The specification   and  tender  forms  were  held  not  to   be marketable  goods involving any profit element and for  that reason  could not be taxed. As regards the purchase tax  the tribunal held that as the Electricity Board was not a dealer in  respect  of the sale and supply of  electric  energy  no purchase  tax could be imposed on goods purchased by it  and consumed  "in  furtherance  of and in aid  of  the  business activity   of   generating,   supplying   and   distributing electricity."     Both the Electricity Board and the Commissioner of Sales Tax.  Madhya  Pradesh,  filed  applications  requiring   the Tribunal  to refer to the High. Court certain  questions  of law arising out of its common order. The tribunal drew up  a common statement of case and referred five questions of law. On  the  first  question  the  High  Court  ’held  that  the Electricity  Board  could  not be held  to  be  "dealer"  as defined in s. 2(c) of Act XXI of 19.47 or s. 2(d) 942 of  Act H of 1959 in respect of its activity of  generation, distribution,  sale and supply of electric energy.   On  the second  question it was held that as the  Electricity  Board regularly and continuously produced coal-ash as a subsidiary product and sold it regularly it was a "dealer" in regard to the sale of coal-ash and the sale, transactions relating  to

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this  product were liable to be assessed to sales tax.   The third  question  was answered in favour of  the  Electricity Board.  It was found that stem was not being supplied to the Nepa  mills with profit motive although it fell  within  the definition of "goods" given in the two Acts.  As regards the specification  and  tender forms the High Court was  of  the view  that  the Electricity Board was not  carrying  on  any business  of selling such forms and therefore no  sales  tax could be levied in respect of them.  The fifth question  was answered by holding that as the Electricity Board was not  a "dealer" in respect of sale and supply of electric energy it was   not  entitled  to  purchase  any  taxable  goods   for consumption or use for producing such energy without  paying sales tax to the selling dealer under s. 4(6) of Act XXI  of 1947  and s. 7 of Act II of  1959  and therefore there.  was no liability to pay purchase tax.     Mr.   Shroff,  who  has  argued  the  appeals   of   the Commissioner  of  Sales  Tax, has  not  quite  properly  and rightly  pressed the matter relating to imposition of  sales tax  on supply of specification and tender forms.  Mr.  S.T. Desai, who has. appeared for the Electricity Board, after  a certain  amount  of  argument, has  submitted  that  he  had nothing  much  to say on the question  relating  to  coalash except  that it should be held to be exempt from payment  of sales tax because electric energy is exempt from such tax as stated before. As regards the fifth question relating to the imposition of purchase tax Mr. Desai has not pressed for any decision  being  given  by us.  Arguments  which  have  been addressed by both sides have therefore centered on  question nos. 1 and 3 which are as follows :-                      "(1) On the facts and circumstances  of               the  case  whether or not the  Madhya  Pradesh               Electricity  Board  is  a  dealer  within  the               meaning  of section 2(c) of the C.P.  &  Berar               Sales Tax Act, and section 2(d) of the  Madhya               Pradesh  General  Sales  Tax  Act,   1958,  in               respect   of  its  activity   of   generation,               distribution,  sale and supply  of  electrical                             energy ?               (2)                      (3) On the facts and circumstances   of               the  case,  whether or not steam  is  saleable               goods  and if they are saleable goods  is  the               turnover   representing  the  supply   thereof               liable to be assessed to sales tax m the hands               of the assessee ?" 943 it  is  somewhat curious that both sides are  almost  agreed that  the decision of the. High Court on the first  question is  not correct. Since enunciation of the true  position  is involved we proceed to give our opinion in the matter.   The definition   of  a  "dealer"  as  given  in  the  two   Acts substantially is that any person who carries on the business of buying, selling, supplying or distributing the goods as a "dealer" and "goods" are defined by s.2(d) of Act of 1947 as meaning all kinds’ of movable property other than actionable claims   ......   and include all  materials   articles  and commodities whether or not to be used in the   construction, fitting  out, improvement or repair of  immovable  property. The definition contained in s. ˜2(g) of               Act II of   1959   is  almost in similar terms  except  that  there are    certain    additions   with  which   we    are    not concerned.     Reference  may  be  made, at this  stage,  to the  definition  of "movable property" which  has  not  been defined  in  the two Acts given in s. 2(24)  of  the  Madhya

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Pradesh  General Clauses Act.  It has been defined  to  mean "property of every description, except immovable  property". Section  2(18)  of that Act says that  "immovable  property" includes  land,.  benefits to arise out of land  and  things attached  to the earth, or permanently fastened to  anything attached to the earth."     The High Court went into a discussion from the point  of view  of  mechanics  relating to  transmission  of  electric energy.   It was of the view that electricity could  not  be regarded as an article or matter which could be possessed or moved  or  delivered.  It relied on  certain  decisions  and referred  to Entries  Nos. 53 and 54 in List II  of  Seventh Schedule  to the Constitution and held that electricity  did not  fall within the meaning of "goods" in the two Acts  and therefore  the Electricity Board could not be held to  be  a "dealer"   in  respect  of  its  activity   of   generation, distribution, sale and supply of electric energy.     Mr. I.N. Shroff has relied on certain decisions in which the same point was involved as in the present case.  namely, whether electricity is "goods" for the purpose of imposition of  sales  tax.’ In Kumbakonam Electric  Supply  Corporation Ltd.  v.  Joint Commercial Tax Officer, Esplanade  Division, Madras(1),  the Madras High Court was called upon to  decide whether  electricity  is  "goods" for the  purposes  of  the Madras General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956.  After referring to the definition of "goods"  as given  in the Sale of Goods Act, 1930, it was observed  that under that definition goods must be property and it must  be movable.  According to the learned Madras Judge any kind  of property  which is movable would fall within the  definition of  "goods"  provided it was transmissible  or  transferable from  hand  to hand or capable of delivery  which  need  not necessarily be in a tangible or a physical sense.  Reference was also (1) 14 S.T.C. 600. L6 Sup. C I.169-9 944 made  to  the definition given in the  General  Clauses  Act which was quite wide and it was held that if electricity was property  and  it  was movable it  would  be  "goods".   The learned  Judge found little difference  between  electricity and  gas  or  water which would be  property  and  could  be subjected  to a particular process, bottled up and sold  for consumption.   It was observed that electricity was  capable of  sale as property as it was sold, purchased and  consumed everywhere.  A "dealer" was defined by the Central Sales Tax Act  practically  in the same way as in the  Madras  General Sales Tax Act and it meant a person who carried on  business of buying and selling goods.  In the opinion of the  learned Judge the concept of dealer, goods and sale comprehended all kinds  of  movable property.  He further relied  on  certain decisions  which  have been cited before and which  will  be presently  noticed.   A similar view was  expressed  by  Tek Chand,  J. of the Punjab & Haryana High Court in  Malerkotla Power  Supply  Company  v. The Excise  &  Taxation  Officer, Sangrur,  & Ors.(1)  It was held that electric  energy  fell within  the definition of "goods" in both the  Punjab  Sales Tax  Act,  1948  and  the  Central  Sales  Tax  Act,   1956. According  to  the  learned Judge electric  energy  has  the commonly accepted attributes of movable property.  It can be stored  and transmitted.  It is also capable of  theft.   It may  not be tangible in the sense that it cannot be  touched without considerable danger of destruction or injury but  it was perceptible both as an illuminant and a fuel and also in other  energy-giving  forms.   Electric energy  may  not  be property in the sense of the term "movable property" as used

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in  the  Punjab & Central General Clauses  Acts  in  contra- distinction to "immovable property" but it must fall  within the  ambit of "goods" "even if in a sense it was  intangible or  invisible".   As  pointed out in  the  Madras  case  the statement contained in American Jurisprudence(2)  recognises that  electricity is property capable of sale and it may  be the  subject  of larceny. In Naini Tal  Hotel  v.  Municipal Board(a) it was held that for the purpose of Art. 52 of  the Indian  Limitation Act electricity was property  and  goods. In Erie County Natural Gas & Fuel Co. Ltd. v. Carroll(4),  a question arose as to the measure of damages for a breach  of contract  to  supply  gas.  Lord  Atkinson  delivering   the judgment of the Privy Council applied the same rule which is applicable where the contract is one for sale of goods.   In other words gas Was treated to be "goods".     The  High  Court, in the present case, appears  to  have relied  on Rash Behari v. Emperor(5) in which  approval  was accorded to the statement in Pollock & Mulla’s Commentary on Sale  Goods Act, 1913 that it was doubtful whether that  Act was   applicable  to  such  "goods"  as  gas,   water   ’and electricity.  The context (1) 22 S.T.C. 325. (2)  18 American Jurisprudence 407 (S. 2 Electy.) (3) A.I.R. (1946) All. 502. (4) [1911] A.C. 105. (5) A.I,R. [1936] Cal. 753. 945 which  this  matter  is discussed in the  Calcutta  case  is altogether different and distinguishable and what was  being decided  there  was  the scope and ambit of  s.  39  of  the Electricity Act, 1910, As regards the Entries in List 11  of the Seventh Schedule to the Constitution, the relevant  ones may be produced: "53. Taxes on the consumption or sale of electricity. 54.  Taxes  on  the sale or purchase  of  goods  other  than newspapers,  subject to the provisions of entry 92A of  List I".    The  reasoning  which prevailed with the High  Court  was that a well-defined distinction existed between the sale  or purchase of "goods" and consumption or sale of  electricity; otherwise  there  was no necessity of having Entry  No.  53. But  under Entry 53 taxes can be levied not only on sale  of electricity  but  also on its consumption  which  could  not probably have been done under Entry 54.  It is difficult  to derive much assistance from the aforesaid entries.  What has essentially to be seen is whether electric energy is "goods" within  the  meaning of the relevant provisions of  the  two Acts.   The  definition in terms is very wide  according  to which  "goods"  means all kinds of movable  property.   Then certain  items  are specifically excluded  or  included  and electric  energy  or electricity is. not one of  them.   The term  "movable property" when considered with  reference  to "goods"  as defined for the purposes of sales tax cannot  be taken  in a narrow sense and merely because electric  energy is  not  tangible or cannot be moved or  touched  like,  for instance,  a piece. of wood or a book it cannot cease to  be movable  property  when it has all the  attributes  of  such property.   It is needless to repeat that it is  capable  of abstraction, consumption and use which, if done dishonestly, would   attract  punishment  under  s.  39  of  the   Indian Electricity  Act, 1910. It can be transmitted,  transferred, delivered,  stored,  possessed etc. in the same way  as  any other movable property.  Even in Banjamin on Sale, 8th Edn., reference  has  been made at page 171 to  County  of  Durham Electrical, etc., Co. v. Inland Revenue(1) in which electric

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energy was assumed to be "goods".  If there can be sale  and purchase of electric energy like any other movable object we see  no  difficulty  in holding  that  electric  energy  was intended  to be covered by the definition of "goods" in  the two  Acts.   If  that had not been the  case  there  was  no necessity of specifically exempting sale of electric  energy from  the payment of sales tax by making a provision for  it in the Schedules to the two Acts.  It cannot be denied  that the Electricity Board carried on principally the business of selling,   supplying  or distributing electric  energy.   It would  therefore  clearly  fall within the  meaning  of  the expression "dealer’’ in the two Acts. (1) [1909] 2 K.B. 604. 946     As regards steam there has been a good deal of  argument on the question whether it is liable to be assessed to sales tax in the hands of the Electricity Board.  According to Mr. Shroff  the  Electricity Board carried on  the  business  of selling steam to the Nepa Mills and that this has lasted for a  number  of  years.  It has  been  submitted  that  simply because  the  Electricity  Board does not  have  any  profit motive in supplying steam it cannot escape. payment of sales tax because the steam is nevertheless being sold as "goods". The High Court was of the view that the water which the Nepa Mills  supplied  free to the Electricity  Board  became  the property of the Board and in return for this free supply the Board  agreed  to give steam to Nepa Mills at a  rate  based solely  on the coal consumed in producing steam.  The  mills had  also agreed to reimburse the Electricity Board for  the loss sustained on account of the mills not taking the  "full demand of steam".  According. to the High Court there was no contract  for the sale of steam as such and it was only  for the  labour  and cost involved in its supply to  the  mills. The  High  Court relied on the findings of the  Tribunal  on this  point and held that the turnover in respect  of  steam was  not taxable.  The tribunal in its order dated June  16, 1966  referred to certain conditions of working  arrangement which was reduced to writing but which had not been properly executed  as  a  contract which showed that  the  mills  was supplying water free and the Electricity Board was making  a pro rata charge of conversion of water into steam.  It seems to  us  that  the  High Court was right  in  coming  to  the conclusion,  on the finding of the tribunal, that  the  real arrangement   was for supplying steam on actual  cost  basis and in that sense it was more akin to a labour contract than to sale.     Mr. Shroff has argued that the document which was relied upon  by  the  tribunal could not be looked  at  as  it  was neither  admissible  in evidence nor had  it  been  properly executed as a contract between the Electricity Board and the mills  and  it happened to be a mere draft of  an  agreement which  was proposed to be entered into. It is too  late  for Mr.  Shroff  to take these objections because  these  should have been raised before the Tribunal and the High Court.     It  is  stated in Halsbury’s Laws of England,  III  Edn. Vol. 34, page 6 that "a contract of sale of goods"  must  be distinguished  from  a contract for work  and  labour.   The distinction  is  often a fine one. A contract of sale  is  a contract  whose main object is the transfer of the  property in,  and  the  delivery of possession of,  a  chattel  as  a chattel  to  the  buyer.  Where  the  main  object  of  work undertaken by the payee. of the price is not the transfer of a  chattel  qua chattel, the contract is one  for  work  and labour.   It  has  been  laid down  by  this  Court  in  The Government   of  Andhra Pradesh v. Guntur  Tobaccos  Ltd.(1)

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that in business transactions  (1)  16 S.T.C. 240.         947 the  works contracts are frequently not recorded in  writing setting  out all the covenants and conditions  thereof,  and the terms and incidents of the contracts have to be gathered from the evidence and attendant circumstances.  The question in  each  case is one about the true agreement  between  the parties and the terms of the agreement must be deduced  from a  review  of  all  the  attendant  circumstances.   On  the findings  of the tribunal and the High Court we are  of  the opinion that the arrangement relating to supply of steam  in return  for  the water supplied by the mills on  payment  of actual  cost was not one of sale but was more in the  nature of a works contract.     In the result the answer of the High Court to the  first question  is discharged and it is held that the  Electricity Board  is  a  "dealer" within the meaning  of  the  relevant provisions  of the two Acts in respect of its activities  of generation,  distribution,  sale  and  supply  of   electric energy.   The  answers  to  the  second,  third  and  fourth questions  are affirmed. The answer given by the High  Court to  the fifth question is discharged.  It is unnecessary  to express  any opinion on that question because Mr. Desai  has not  pressed  for  any decision being given by  us  and  has accepted  the  liability in respect of the purchase  tax  as determined  by the assessing authorities for the  assessment orders  in question. The appeals are allowed to  the  extent indicated  above.   In  view of all  the  circumstances  the parties are left to bear their own costs. y.p.                                Appeals allowed in pan. 948