Purchase tax on forest produce upheld for completed purchases, while bamboo extraction rights were treated as a profit a prendre.

Purchase-tax notifications on standing trees and bamboos were upheld as intra vires because the levy operated on completed purchases and did not amount to impermissible double taxation. The timber contracts were treated as agreements to sell standing timber, with property passing only after felling, checking and removal, so purchase tax did not apply to those transactions. By contrast, the bamboo agreement conferred exclusive extraction and ancillary rights over forest land for a royalty-based consideration, making it a profit a prendre and therefore immovable property outside the State's power to tax as a sale or purchase of goods.

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Issues: (i) Whether the impugned purchase-tax notifications were ultra vires the Constitution and the Orissa Sales Tax Act, 1947 on the grounds of taxing an agreement to sever and of double taxation. (ii) Whether the timber contracts were contracts of sale of standing timber exigible to purchase tax, or only agreements to sell attracting tax only after severance. (iii) Whether the bamboo contract was a contract of sale of goods or a grant of a profit a prendre beyond the State's taxing power.

Issue (i): Whether the impugned purchase-tax notifications were ultra vires the Constitution and the Orissa Sales Tax Act, 1947 on the grounds of taxing an agreement to sever and of double taxation.

Analysis: The governing statutory scheme permitted the State to declare goods liable to purchase tax and to specify rates from time to time, while the provisos to section 3-B and section 8 ensured that the same goods were not taxed at more than one point in the same series of sales or purchases. The notifications operated on the turnover of purchases of standing trees and bamboos agreed to be severed, and the taxable event was the completed purchase of goods, not a mere agreement to sever. The omission of the words "before sale or under the contract of sale" did not alter the character of the levy, because the provisions necessarily contemplated severance under the contract after the purchase was complete. The later notifications, expressed to be in supersession of earlier ones and operating prospectively, did not wipe out liabilities already incurred under the earlier notifications.

Conclusion: The impugned notifications were valid and intra vires, and the challenge based on alleged double taxation failed.

Issue (ii): Whether the timber contracts were contracts of sale of standing timber exigible to purchase tax, or only agreements to sell attracting tax only after severance.

Analysis: The timber contracts, read with the sale notice and forest rules, were conditional and subject to extensive governmental control over entry, felling, removal, checking, permits, instalment payments, and termination. The purchaser did not obtain property in the standing trees when the contracts were made; property passed only after the trees were felled, checked, examined, and removed, when the goods became timber. On that footing, the transactions were not purchases of standing trees agreed to be severed, so purchase tax under the impugned provisions did not apply. However, timber and sized or dressed logs were held to be the same commercial commodity, so sales of logs could not again be taxed at a second point in the same series of sales, assuming the dealer definition stood.

Conclusion: The timber contracts were agreements to sell standing timber, not purchase transactions exigible to the impugned purchase tax; the levy on those contracts failed, though the commodity identity finding favoured the assessee on the separate sales-tax point.

Issue (iii): Whether the bamboo contract was a contract of sale of goods or a grant of a profit a prendre.

Analysis: The bamboo agreement, viewed as a whole, conferred a long-term and exclusive right to enter upon forest land, fell, cut, obtain and remove bamboos, and enjoy ancillary rights to use land, roads, streams, sites, and forest produce for carrying on the business. The consideration was described as royalty, including minimum royalty, and not merely as price for goods. These features showed that the instrument was not a divisible sale of standing and future bamboos but an interest in land amounting to a benefit to arise out of land. In Indian law such a profit a prendre is immovable property and lies outside the State's power to tax as a sale or purchase of goods.

Conclusion: The bamboo contract was a profit a prendre and not a sale of goods, so amounts payable under it were not exigible to purchase tax.

Final Conclusion: The appeals succeeded in overturning the High Court's invalidation of the purchase-tax notifications, but the consequential reliefs were tailored by quashing the notice against the company and modifying the assessment against the firm to exclude purchase tax on the timber-contract amounts.

Ratio Decidendi: A tax on the turnover of purchases of standing trees or bamboos agreed to be severed is valid where the levy is on a completed purchase of goods, while a long-term forest agreement conferring exclusive extraction rights and ancillary benefits over land may constitute a profit a prendre outside the taxing power applicable to sales or purchases of goods.

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