1968 (11) TMI 85 - SC - VAT and Sales Tax

Madhya Pradesh Electricity Board: Sales Tax Liability Clarified

The Supreme Court held that the Madhya Pradesh Electricity Board qualifies as a 'dealer' under sales tax acts for its activities involving electric ... Whether electric energy is 'goods' for sales tax purposes - whether a public electricity undertaking is a 'dealer' - distinction between contract of sale and contract for work and labour (works contract) - taxable turnover and subsidiary products (coal-ash) - taxability of supply of specification and tender forms - purchase tax liability for goods consumed in generation and supply of electricityWhether electric energy is 'goods' for sales tax purposes - whether a public electricity undertaking is a 'dealer' - Electric energy is 'goods' within the meaning of the sales tax enactments and the Madhya Pradesh Electricity Board is a 'dealer' in respect of generation, distribution, sale and supply of electric energy. - HELD THAT: - The statutory definition of 'goods' is broad, covering all kinds of movable property. Electricity, though intangible, possesses the attributes of movable property: it is transmissible, transferable, deliverable, storable, consumable and capable of being the subject of sale and of dishonest abstraction. Earlier decisions treating gas and similar energy forms as goods were considered persuasive. The fact that the Schedules to the sales tax Acts specifically exempt sale of electric energy supports the conclusion that electricity falls within the definition of 'goods' and that an undertaking principally engaged in selling and supplying electric energy falls within the definition of 'dealer'.High Court answer to this question discharged; Electricity Board is a 'dealer' insofar as it generates, supplies, distributes and sells electric energy.Taxable turnover and subsidiary products (coal-ash) - Sale of coal-ash produced regularly and sold by the Electricity Board is taxable as part of its turnover. - HELD THAT: - The Tribunal had found that coal-ash was regularly and continuously produced as a subsidiary product and sold; the High Court's conclusion that such activity made the Board a dealer with respect to coal-ash was affirmed. Regular production and sale of a by-product brings it within taxable turnover rather than rendering it immune by virtue of the principal commodity being exempt.Answer of the High Court on this question affirmed; sales of coal-ash are assessable to sales tax.Distinction between contract of sale and contract for work and labour (works contract) - taxability of supply of steam - Supply of steam to Nepa Mills on an actual-cost basis was not a sale of goods but akin to a works contract and not taxable as turnover of sale. - HELD THAT: - On the Tribunal's findings, accepted by the High Court and this Court, the arrangement with the mills involved the mills supplying water and the Board converting it into steam charging on a pro rata/cost basis without profit motive; the true nature of the transaction was for labour and conversion rather than transfer of a chattel as such. Authorities distinguishing contracts of sale from contracts for work and labour were applied; terms and attendant circumstances must determine the real agreement. Objections to admissibility of documents relied upon below were not open at this stage.Answer of the High Court on this question affirmed; turnover representing supply of steam under the found arrangement is not liable to sales tax.Taxability of supply of specification and tender forms - Supply of specification and tender forms by the Electricity Board does not constitute a business of selling marketable goods and is not assessable to sales tax. - HELD THAT: - The High Court held, on the Tribunal's findings, that the Board was not carrying on any trade or business of selling such forms as marketable goods involving profit. A charge for providing tender/specification forms did not amount to sale of goods forming part of taxable turnover.Answer of the High Court on this question affirmed; no sales tax on supply of specification and tender forms.Purchase tax liability for goods consumed in generation and supply of electricity - The question whether the Electricity Board was liable to purchase tax on goods procured from unregistered dealers for consumption in producing electric energy was not finally decided by this Court. - HELD THAT: - The High Court had held that because the Board was not a dealer in respect of electric energy it could not claim exemption from purchase tax; however this Court discharged the High Court's answer and expressly declined to give an opinion on the point. Counsel for the Board has not pressed the matter before this Court and accepted the purchase tax liability as determined by the assessing authorities. Consequently the Court did not adjudicate the legal question and left the assessment aspect as accepted in the proceedings.Left undecided by this Court for determination consistent with the parties' positions; no express opinion given on purchase tax liability.Final Conclusion: The appeals are partly allowed. The Supreme Court held that electric energy is 'goods' and the Madhya Pradesh Electricity Board is a 'dealer' in respect of electricity (answer to question 1 discharged); the High Court's holdings that coal-ash sales are taxable and that supply of steam and tender/specification forms are not taxable were affirmed; the question of purchase tax liability was not finally decided by this Court and no opinion was expressed. Parties to bear their own costs. Issues Involved1. Whether the Madhya Pradesh Electricity Board is a 'dealer' under the C.P. and Berar Sales Tax Act, 1947, and the Madhya Pradesh General Sales Tax Act, 1958, in respect of its activity of generation, distribution, sale, and supply of electric energy.2. Whether coal-ash sold by the Electricity Board is subject to sales tax.3. Whether steam supplied to Nepa Mills is salable goods and if it is, whether the turnover representing the supply thereof is liable to be assessed to sales tax.4. Whether specification and tender forms sold by the Electricity Board are subject to sales tax.5. Whether the Electricity Board is liable to purchase tax on goods purchased from unregistered dealers for consumption or use in generating, supplying, and distributing electricity.Detailed Analysis1. Dealer Status of the Electricity Board:The primary issue was whether the Madhya Pradesh Electricity Board qualifies as a 'dealer' under the relevant sales tax acts. The definition of 'dealer' in both the C.P. and Berar Sales Tax Act, 1947, and the Madhya Pradesh General Sales Tax Act, 1958, includes any person who carries on the business of buying, selling, supplying, or distributing goods. The court held that electric energy qualifies as 'goods' under these acts, despite its intangible nature. It can be stored, transmitted, and consumed, and it is capable of being sold and purchased like any other movable property. Therefore, the Electricity Board, which engages in the business of selling, supplying, and distributing electric energy, falls within the definition of a 'dealer.'2. Taxability of Coal-Ash:The court affirmed the High Court's decision that the Electricity Board is a 'dealer' in respect of the sale of coal-ash. Since the Board regularly produced and sold coal-ash, it was engaged in a business activity subject to sales tax. The sale transactions of coal-ash were therefore liable to be assessed to sales tax.3. Taxability of Steam:The court examined whether steam supplied to Nepa Mills constitutes salable goods and if the turnover from its supply is taxable. The High Court had concluded that the supply of steam was not a business activity aimed at profit but rather a labor contract. The arrangement was for converting water supplied by the mills into steam, which was provided at actual cost. The court agreed with this finding, stating that the supply of steam was more akin to a works contract than a sale. Therefore, the turnover from the supply of steam was not taxable.4. Taxability of Specification and Tender Forms:The High Court held that the sale of specification and tender forms by the Electricity Board did not constitute a business activity aimed at profit. Therefore, these transactions were not subject to sales tax. This issue was not pressed by the Commissioner of Sales Tax in the appeals.5. Liability to Purchase Tax:The High Court had held that since the Electricity Board was not a 'dealer' in respect of the sale and supply of electric energy, it was not liable to purchase tax on goods bought for generating, supplying, and distributing electricity. However, the court discharged this finding, noting that the Electricity Board accepted the liability for purchase tax as determined by the assessing authorities.ConclusionThe Supreme Court concluded that the Madhya Pradesh Electricity Board is a 'dealer' in respect of its activities involving electric energy. The sales of coal-ash are taxable, while the supply of steam to Nepa Mills is not taxable as it constitutes a works contract. The sale of specification and tender forms is not subject to sales tax, and the Board's liability for purchase tax stands as determined by the assessing authorities. The appeals were partly allowed, with each party bearing its own costs.