1970 (7) TMI 61 - SC - VAT and Sales Tax

Supreme Court: Wheat supplies not sales under Sales Tax Act

The Supreme Court held that supplies made under the U.P. Wheat Procurement (Levy) Order, 1959, do not constitute 'sales' under the U.P. Sales Tax Act, ... Whether the sale made to the Regional Food Controller under the U.P. Wheat Procurement (Levy) Order, 1959, are sales within the meaning of 'sale' under section 2(h) of the U.P. Sales Tax Act? Whether in the circumstances of the case, the assessees are liable to pay sales tax on the sales made to the Regional Food Controller under the provisions of the U.P. Wheat Procurement (Levy) Order, 1959? Held that:- Appeal allowed. Unable to hold that there was any contract between the assessees and the State pursuant to which the goods were sold within the meaning of the U.P. Sales Tax Act. On the date of the commencement of the U.P. Wheat Procurement (Levy) Order, upon the licensed dealer was imposed a liability to deliver half the quantity of wheat on hand, and he had also to supply to the State Government 50 per cent. of the quantity of wheat procured or purchased by him every day beginning with the date of commencement of the Order. If he failed to carry out the obligation he was liable to be penalized. To ensure that he carried out his obligation his premises were liable to be searched and his property sequestered. The Order ignored the volition of the dealer. Issues Involved:1. Whether the supplies made to the Regional Food Controller under the U.P. Wheat Procurement (Levy) Order, 1959, constitute 'sales' within the meaning of section 2(h) of the U.P. Sales Tax Act, 1948.2. Whether the assessees are liable to pay sales tax on the price of wheat supplied to the Regional Food Controller under the provisions of the U.P. Wheat Procurement (Levy) Order, 1959.Issue-Wise Detailed Analysis:1. Definition of 'Sale':The primary issue revolves around whether the supplies made to the Regional Food Controller qualify as 'sales' under section 2(h) of the U.P. Sales Tax Act, 1948. The term 'sale' is defined as any transfer of property in goods for cash, deferred payment, or other valuable consideration, excluding transactions like mortgages or pledges. The court examined the legislative competence under entry 48, List II, of the Government of India Act, 1935, which restricts the legislature to levy tax only on transactions that are 'sales' as per the Indian Sale of Goods Act, 1930.The court referred to previous judgments, including State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. and New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, which emphasized that a 'sale' involves a contract where the seller agrees to transfer property in goods to the buyer for a price. Essential elements of a valid sale include competent parties, mutual assent, transfer of property, and a price in money paid or promised.2. Compulsory Acquisition versus Sale:The court analyzed the U.P. Wheat Procurement (Levy) Order, 1959, which mandates licensed dealers to sell 50% of their wheat stock to the State Government at controlled prices. The order compels dealers to deliver specified quantities to the Controller or an authorized person, with enforcement officers empowered to ensure compliance through entry, search, and seizure.The court concluded that the obligation to deliver wheat arises from the statutory order, not from any contractual agreement. The order sets up a machinery for compulsory acquisition by the State Government, ignoring the volition of the licensed dealers. The court noted that a sale predicates a contract of sale of goods between competent parties for a price paid or promised. However, the transaction in question involves an obligation to supply goods imposed by statute, without any consensual arrangement or contract.3. High Court's Interpretation:The High Court had relied on its earlier judgment in Commissioner of Sales Tax, U.P. v. Ram Bilas Ram Gopal, which interpreted the Levy Order as embodying a contractual arrangement, despite the compulsive nature of the transaction. The High Court assumed a contract of sale, suggesting that the restrictions imposed by statute did not vitiate the free consent of the parties under section 14 of the Indian Contract Act.4. Supreme Court's Conclusion:The Supreme Court disagreed with the High Court, emphasizing that the Levy Order does not contemplate a contract of sale. The court referred to decisions like New India Sugar Mills' case and Indian Steel & Wire Products Ltd. v. State of Madras, which distinguished between transactions involving mutual assent and those imposed by statutory compulsion. The court reiterated that a transaction involving compulsory acquisition without mutual assent cannot be regarded as a sale.The court also referenced the decision in Kirkness (Inspector of Taxes) v. John Hudson & Co. Ltd., where the House of Lords held that compulsory acquisition does not constitute a sale, as it lacks mutual assent.Final Judgment:The Supreme Court allowed the appeals, setting aside the High Court's order. The court answered the reframed questions in the negative, concluding that the supplies made under the U.P. Wheat Procurement (Levy) Order, 1959, do not constitute 'sales' within the meaning of the U.P. Sales Tax Act, 1948, and the assessees are not liable to pay sales tax on such transactions. The appellants were awarded costs in both the Supreme Court and the High Court.