Document Fragment View

Matching Fragments

468

which by s. 2 (c) defined "goods' as meaning all kinds of movable property (except certain kinds which arc not material in this case) and included all materials, commodities and articles including those to be used in the construction, fitting out, improvement or repair of immovable property, and by s. 2 (h) defined the expression "sale' as meaning every transfer of property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration and includes also a transfer of property in goods- involved in the execution of a works contract. Power of the Provincial Legislature of Madras to legislate in respect of a levy of tax on the value of goods used in the execution of a works contract was challenged by a firm of building contractors, and this Court held that the power under Entry 48, List 11, Seventh Schedule, did not include power to legislate for levying tax on the value of goods used "'in the course of a building contract which was one, entire and indivisible". The Court held that the expression "'sale of goods" in Entry 48 List II was used not in the popular sense but in the strictly limited sense in which it was defined in the Sale of Goods Act and that the Madras Provincial Legislature had no power to legislate under the power derived under ]Entry 48 in List II for taxing transactions other than those of sales strictly so called under the Sale of Goods Act. It was observed "the expression " sale of goods' in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale." In Gannon Dunkerley & Company's case (1) the Court was (1) (1959) S.C.R. S79, concerned to adjudicate upon the validity of the provisions enacted in acts of Provincial Legislatures imposing liability to pay sales tax-on the value of goods used in the execution of building contracts, and the judgment of the Court proceeded on the ground that power conferred by Entry 48 List II was restricted to enacting legislation imposing tax liability in respect of sale of goods as understood in the Sale of Goods Act, 1.930, and that the Provincial Legislature under the Government of India Act, 1935 had no power to tax a transaction which was not a sale of goods, as understood in the Sale of Goods Act. The ratio decidendi of that decision must govern this case. According to S.4 of the Sale of Goods Act to constitute a sale of goods, property in goods must be transferred from the the seller to the buyer under ;a contract of sale. A contract of sale between the parties is therefore a pre- requisite to a sale. The transactions of despatches of sugar by the assessees pursuant to the directions of the Controller were not the result of any such contract of sale. It is common ground that the Province of Madras intimated its requirements of sugar to the Controller, and the Controller called upon the manufacturing units to supply the whole or part of the requirement to the Province. In calling upon the manufacturing units to supply sugar, the Controller did not act as an agent of the State to purchase goods : he acted in exercise of his statutory authority. There was manifestly no offer to purchase sugar by the Pro- vince, and no acceptance of any offer by the manufacturer. The manufacturer was under the control Order left no volition : he could not decline to carry out the order; if he did so lie was liable to be punished for breach of the order and his goods were liable to be forfeited. The Government of the Province and the manufacturer had no opportunity to negotiate, and sugar was despatched pursuant to the direction of the Controller and not in acceptance of any offer by the Government.

In so far as building contracts were concerned two reasons why there could not be a sale of goods were mentioned. The first was that there was no agreement express or implied to sell 'goods'. It was observed :-

"............... We are concerned here with a building contract, and in the case of such a contract, the theory that it can be broken up into its component parts and as regards one of them it can be said that there is a sale must fail both on the grounds that there is no agreement to sell materials as such, and that property in them does not pass as movables."

Before considering the facts of this case in the light of the Sugar and Sugar Products Order 1946, I shall summarise what I have said so far. Sales tax is a tax which may be laid on goods or services. It assumes numerous shapes and forms. It is a modern tax being the product of the First World War. The concept of 'sale' is of course much older and even the English Sale of Goods Act 1893 on which our own statute is based, was prior to the first imposition of tax in modern times. In India, the tax was first levied in 1937 under laws made under entry No. 48 which read-"'Taxes on the sale of goods". It was introduced as the main source of revenue to the Provinces under a scheme of Provincial Autonomy. Being a commodity tax it came into competition with other commodity taxes like excise but it was held that the entry comprised, wholesale, retail and turnover taxes from the stage of manufacture or production to consumption. Later textual interpretation based on statutes relating to sale of goods and books on the subject of sale, pointed out intrinsic limitations. One such limitation was that the term "sale' was used in the limited sense it bears in that part of the law of contract which is now incorporated in the Sale of Goods Act. As a result of this fundamental con- sideration forward contracts' were held to be outside the scope of the Entry. The sale, it was held, had to be a completed sale with passing of property before the tax could become payable. A further limitation was pointed out in certain cases relating to building contracts in which it was held that though property in materials passed, it did so without an agreement, express or implied, in that behalf, and only when the materials ceased to be goods and became immovable property. It was held that the supremacy of the Provincial Legislatures did not extend to levying a tax on sales in these circumstances by modifying the definition of sale. It was however held that if the parties agreed to divide a works contract into labour plus materials, the tax might be leviable. It was also held that a tax on building materials was leviable by the legislature having power to levy a tax not expressly mentioned. It was, however, held that if the taxing Province had the goods at the time of the contract or there was other substantial connection with the contract by reason of some element having taken place there, the Legislature could validly make a law which treated the whole transaction as having taken place in the Province.

It was argued that there must be mutuality. That one party must be free to offer and must offer and the other side must be free to accept and must accept 'the offer before a sale tan be said to arise. But sales often take place without volition of a party. A sick man is given medicines under the orders of his doctor and pays for them to the chemist with tax oil the price. He does not even know the names of the medicines. Did he make an offer to the chemist from his sick bed ? The affairs of the world are very complicated and sales are not always in their elementary forms. Due to short supply or maldistribution of goods, controls have to be imposed. There are permits, price controls, rationing and shops which are licensed. can it be said that there is no sale because mutuality is on one account or another? It was not said in 'the Tata Iron and Steel case (1) which was a case of control, that there was no sale. The entry should be interpreted in a liberal spirit and not cut down by narrow technical considerations. The entry in other words should not be shorn of all its content to leave a mere husk of legislative power. For the purposes of legislation such as on sales tax it is only necessary to see whether there is , a sale express or implied.' Such a sale was not found in ""forward contracts" and in respect of materials used in building contracts. But the same cannot be said of all situations. I for one would not curtail the entry any further. The entry has its meaning and within its meaning there is a plenary power. If a sale express or implied is found to exist then the tax must follow. I am of the opinion that in these transactions there was a sale of sugar for a price and the tax was payable. I would, therefore, dismiss these appeals with costs.