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PETITIONER: THE SALES TAX OFFICER, PILIBHIT

       Vs.

RESPONDENT: MESSRS. BUDH PRAKASH JAI PRAKASH.

DATE OF JUDGMENT: 03/05/1954

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA MAHAJAN, MEHAR CHAND (CJ) MUKHERJEA, B.K. BOSE, VIVIAN BHAGWATI, NATWARLAL H.

CITATION:  1954 AIR  459            1955 SCR 1133  CITATOR INFO :  R          1955 SC 661  (88,131,147)  D          1958 SC 452  (9)  R          1958 SC 560  (14,21)  F          1958 SC 764  (5,6,8)  E          1959 SC 135  (4,27)  RF         1961 SC1065  (4)  RF         1961 SC1534  (11)  R          1962 SC1037  (10)  F          1963 SC1207  (43,50)  R          1965 SC1082  (9,14,16)  RF         1967 SC1895  (247)  RF         1970 SC 898  (46)  R          1976 SC1016  (9)  E          1978 SC 449  (29,42,52)  D          1985 SC1293  (43)  RF         1986 SC1556  (4,23,29)  RF         1990 SC 313  (23)

ACT: Government of India Act, 1935, Schedule VII, List II,  entry No.  48-Sale of goods-Meaning of---U.  P. Sales Tax Act  (Xv Of  1948),  s.  2(h)-Explanation  III  to  s.  2(h)  and  s. 3B--Ultra vires Provincial Legislature.

HEADNOTE: Held,  that  there is a  well-defined  and  well-established distinction between a sale and an agreement to sell. The words "Taxes on the sale of goods" in entry No. 48, List II,  Schedule  VII  of the Government of  India  Act,  1935, confer  power on the Provincial Legislature to impose a  tax only when there has been a completed sale and not when there is only an agreement to sell. Accordingly section 2(b) of the Uttar Pradesh Sales Tax Act, XV  of  1948, enlarging the definition of "sale"  so  as  to include forward contracts must, to that extent, be  declared ultra vires. For  the same reason Explanation III to section  2(h)  which provides  that  forward contracts "shall be deemed  to  have been  completed  on  the date  originally  agreed  upon  for

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delivery" and section 3B of the Act must also be held to  be ultra vires. Colley v. Overseas Exporters ([1921] 3 K. B. 302 at 309, 310 referred to.

JUDGMENT: CIVIL APPELATE JURISDICTION: Civil Appeal No. 23 of 1954. Appeal  under  article 133(1) of the Constitution  of  India from the Judgment and Decree dated the 28th February,  1952, of  the    High  Court of Judicature at  Allahabad  in  Writ Application No. 7297 of 1951. C.   P. Lal for the appellant. N.   C.  Chatterjee (Radhey Lal Aggarwal, with him) for  the respondent. 1954.  May 3. The Judgment of the Court was delivered by VENKATARAMA  AYYAR  J.-This is an appeal by  the  Sales  Tax Officer, Pilibhit, against the judgment of the High Court of Allahabad  granting firstly, a writ of  certiorari  quashing certain  assessment orders made against the respondent,  and secondly, a writ of prohibition in respect of certain  other proceedings for 244 assessment of tax under the provisions of the Uttar  Pradesh Sales  Tax Act (Act XV of 1948).  The respondent is  a  firm doing  business  in forward contracts, and was  assessed  in respect of such contracts to a tax of Rs. 1,082-8-0 for  the year  1948-1949  by  an order  dated  27th  February,  1950, Exhibit A, and to a tax of Rs. 7,369 for the year  1949-1950 by an order dated 23rd May, 1950, Exhibit B. For the period, 1st April, 1950, to 31st January, 1951, the respondent  paid a  sum of Rs. 845-4-0 as tax.  Assessment  proceedings  were also started by the appellant in respect of certain  forward contracts   relating  to  gur  and  peas.   The   respondent challenged  the  legality of these proceedings  and  of  the assessment orders on the ground that the Act in so far as it imposed  a  tax  on forward contracts was  ultra  vires  the powers  of the Provincial Legislature.  The  learned  Judges agreed with this contention, and issued a writ of certiorari quashing  the orders of assessment, Exhibits A and B, and  a writ  of  prohibition  in respect  of  the  proceedings  for assessment of tax on forward contracts in gur and peas.  The matter now comes before us in appeal under a certificate  of the’ High Court under article 133(1) of the Constitution.       Under  the  Government of India Act,  1935,  the  Pro- vincial Legislature derived its power to impose a tax on the sale  of  goods  under entry 48 in List 11  of  the  Seventh Schedule,  and the Uttar Pradesh Sales Tax Act, XV of  1948, was enacted in exercise of this power.  Section 2(h) of  the Act defines "sale" as follows :       "Sale"  means  within its grammatical  variations  and cognate expressions, any transfer of property -in goods  for cash or deferred payment or other valuable consideration and includes forward contracts but does not include a  mortgage, hypothecation, charge or pledge."     It  is  the  extended definition of  sale  as  including forward  contracts  in  this section that is  relied  on  as conferring authority on the appellant to make the orders  in Exhibits  A and B. The point for decision in this appeal  is whether the power to impose a tax on the sale of goods under entry  48  includes  a  power to impose  a  tax  on  forward contracts.                             245 Under the statute law of India which is based on English law

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on  the  subject, a sale of goods and an agreement  for  the sale  of  goods  are treated as two  distinct  and  separate matters.  Section 4 of the Indian Sale of Goods Act (Act III of 1930), runs as follows: (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. (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."   It  will  be noticed that though the section  groups  both sales  and agreements to sell under the single generic  name of "contracts of sale"  following in this respect the scheme of  the English Sale of Goods Act, 1893, it treats  them  as separate categories, the vital point of distinction  between them  being  that whereas in a sale there is a  transfer  of property in the goods from the seller to the buyer, there is none in an agreement to sell.  When the contract is to  sell future goods, and under section 6(3)of the Sale of Goods Act even  if  "the seller purports to effect a present  sale  of future goods, the contract operates as an agreement to  sell the goods", there can be no transfer ’of title to the  goods until  they actually’ come into existence ; and  even  then, the conditions laid down in section 23 of the Act should  be satisfied  before the property in the goods can pass.   That was  also the law under the repealed provisions  in  Chapter VII  of the Indian Contract.  Act, 1872.  Section 77 of  the Contract Act defined "sale" as follows: "Sale" is the exchange of property for a price.  It involves the  transfer  of the ownership of the thing sold  from  the seller to the buyer." 246 Section 79 enacted that, "Where there is a contract for the sale of a thing which has yet  to be ascertained, made or finished, the  ownership  of the  thing  is  not transferred to the buyer,  until  it  is ascertained, made or finished." The corresponding provisions of the English Act are sections 1, 16 and rule 5 of section 18.  Section I is as follows: (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 money consideration, called  the  price. There  may be a contract of sale between one part-owner  and another. (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." Section 16 enacts that, "Where  there  is a contract for the sale  of  unascertained goods no property -in the goods is transferred to the  buyer

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unless and until the goods are ascertained." Section 18, rule 5, provides for the passing of property is future goods after they are ascertained. The  distinction  between a sale and an  agreement  to  sell under  section  1  of  the English Act  is  thus  stated  by Benjamin on Sale, Eighth Edition, 1950: "In order to constitute a sale there must be- (1)An  agreement to sell, by which alone the  property  does not pass; and (2) an actual sale, by which the property passes. It will be observed  that the definition of a contract of  sale,  above cited includes a mere agreement to sell as well as an actual sale." 247 This distinction between sales and agreements to sell  based upon  the passing of the property in the goods is  of  great importance  in  determining the rights of  parties  under  a contract.  The position is thus stated in Halsbury’s Laws of England, Volume 29, page 15, paragraph 13: "An  agreement  to  sell,  or, as it  is  often  stated,  an executory  contract of sale, is a contract pure and  simple, whereas  a  sale, or, as it is called  for  distinction,  an executed contract of sale, is a contract plus a  conveyance. Thus,  by  an agreement to sell a mere jus  in  personam  is created, by a sale a jus in rem is transferred.  Where goods have been sold, and the buyer makes default in payment,  the seller  may  sue  for  the  contract  price,  but  where  an agreement to buy is broken, usually the seller’s only remedy is  an  action for unliquidated damages.  Similarly,  if  an agreement  to  sell be broken by the seller, the  buyer  has only  a personal remedy against the seller.  The  goods  are the property of the seller and he can dispose of them.  They may  be taken in execution for his debts, and if he  becomes bankrupt  they  pass to his trustee in bankruptcy.   But  if there has been a sale, and the seller breaks his  engagement to  deliver  the goods, the buyer has not  only  a  personal remedy  against the seller, but also the  usual  proprietary remedies  in respect of the goods them selves, such  as  the actions  for conversion and detinue.  Again, if there be  an agreement for sale and the goods perish, the loss as a  rule falls on the seller, while if there has been a sale the loss as a rule falls upon the buyer." Thus,  there having existed at the time of the enactment  of the  Government of India Act, 1935, a welldefined 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 authorises  the  imposition of a tax only when  there  is  a completed sale involving transfer of title. This conclusion is further strengthened, when regard is hood to the nature of the levy, Section 3 of the, Act 248 provides for a tax being imposed at three pies in the  rupee on  the turnover of the assessee, and "turnover" is  defined in  section 2 (i) as "the aggregate of the proceeds of  sale by  a dealer", and that would consist of the price  and  any charges  paid at the time of the delivery of the  goods,  as provided  in Explanation I. The substance of the  matter  is that the sales tax is a levy on the price of the goods,  and the reason of the thing requires that such a levy should not be  made, unless the stage has been reached when the  seller can  recover  the  price under the contract.   It  is  well- settled  that an action for price is maintainable only  when there  is a sale involving transfer of the property  in  the

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goods to the purchaser.  Where there is only an agreement to sell,  then the remedy of the seller is to sue  for  damages for  breach of contract and not for the price of the  goods. The law was thus stated in Colley v. Overseas Exporters(1): In  former days an action for the price of goods would  only lie  upon  one  or other of two  counts.   First,  upon  the indebitatus  count for goods sold and delivered,  which  was pleaded  as follows: ’Money payable by the defendant to  the plaintiff  for goods sold and delivered by the plaintiff  to the  defendants’: Bullen and Leake, Precedents of  Pleading, 3rd  ed., p. 38.  This count would not lie before  delivery: Boulter v. Arnott(2).  The count was applicable when upon  a sale of goods the property has passed and the goods had been delivered to the purchaser and the price was payable at  the time of the action brought.  Secondly, upon the  indebitatus count  for  goods bargained and sold, which was  pleaded  as follows: Money payable by the defendant to the plaintiff for goods bargained and sold by the plaintiff to the defendant’: Bullen  and Leake, p. 39.  This count was  applicable  where upon  a  sale  of  ’goods the property  had  passed  to  the purchaser  and  the  contract  had  been  completed  in  all respects except delivery, and the delivery was not a part of the consideration for the price or a condition precedent  to its payment.  If the property had not passed the count would not lie: Atkinson v. Bell(3).  In my view the law as to the (1)  [1921] 3 K. B. 302 at 309 310, (2)  (1833) 1 Cr, & M. 333. (3) (1828) 8 B & C. 277, 249 circumstances  under which an action will lie for the  price of  goods  has not been changed by the Sale  of  Goods  Act, 1893." That is also the law in this country under section 55 of the Sale of Goods Act.  The only exception to this rule is when, under an agreement between the parties, the price is payable on  a day certain irrespective of delivery, and that is  not material for the purpose of the present discussion. The position therefore is that a liability to be assessed to sales tax can arise only if there is a completed sale  under which price is paid or is payable and not when there is only an  agreement to sell, which can only result in a claim  for damages.   It  would be contrary to all principles  to  hold that  damages  for  breach  of contract  are  liable  to  be assessed  to  sales tax on the ground that they are  in  the same  position  as sale price.  The  power  conferred  under entry 48 to impose a tax on the sale of goods can  therefore be exercised only when there is a sale under which there  is a transfer of property in the goods, and not when there is a mere  agreement to sell.  The State Legislature  cannot,  by enlarging  the definition of " sale " as  including  forward contracts, arrogate to itself a power which is not conferred upon  it  by  the Constitution Act, and  the  definition  of "sale"  in  section  2(h) of Act XV of 1948  must,  to  that extent,  be  declared  ultra vires.  For  the  same  reason, Explanation III to section 2(h) which provides that  forward contracts  "shall  be deemed to have been completed  on  the date  originally agreed upon for delivery", and section  3-B which enacts that, "Notwithstanding  anything  contained  in  section  3,   the turnover of any dealer in respect of transactions of forward contracts, in which goods are not actually delivered,  shall be taxed at a rate not exceeding rupees two per unit as  may be prescribed " must also be held to be ultra vires. In  the  result,  the decision of the  High  Court  must  be

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affirmed and this appeal dismissed with costs. Appeal dismissed, 32 250