Forest produce leases may be sales of goods, but State sales alone do not make the government a dealer.

Extraction of bamboos and salai wood under a lease was treated as a sale of severed forest produce, because the lessee had exclusive rights to fell, cut, remove and utilise the produce for consideration linked to quantity extracted; the produce became liable to sales tax after the exemption period ended. Mere sale of forest produce grown on government land did not, however, amount to carrying on the business of buying, selling, supplying or distributing goods, absent the indicia of trading activity, continuity, regularity and profit-motive; the State and its forest department were therefore not dealers. Recovery of the tax as arrears of land revenue could not stand where the underlying demand was not legally payable.

---

---

Issues: (i) Whether the extraction of bamboos and salai wood under the lease amounted to a sale of goods chargeable to sales tax; (ii) whether the State Government or its forest department, by selling forest produce grown on its land, was carrying on the business of buying, selling, supplying or distributing goods so as to be a dealer; (iii) whether the sales tax demand could be recovered as arrears of land revenue.

Issue (i): Whether the extraction of bamboos and salai wood under the lease amounted to a sale of goods chargeable to sales tax.

Analysis: The lease conferred full and exclusive liberty to enter the forest area, fell, cut and extract bamboos and salai wood, and remove and utilise the produce, with consideration fixed by reference to the quantity extracted. The forest rules regulated annual coupes and restricted extraction to earmarked produce. On these features, the transaction was not a mere grant of a right to collect forest produce, but in substance a sale of goods in respect of severed forest produce.

Conclusion: The transaction was a sale of goods and, after the exemption period ended, the produce became liable to sales tax.

Issue (ii): Whether the State Government or its forest department, by selling forest produce grown on its land, was carrying on the business of buying, selling, supplying or distributing goods so as to be a dealer.

Analysis: The statutory definition required not only inclusion of the Government or its departments, but also that they carry on the business of buying, selling, supplying or distributing goods. Mere sale of forest produce grown on government land, without the indicia of a trading activity carried on with continuity, volume, regularity and profit-motive, did not amount to business. The authorities relied on by the respondents did not displace this principle on the facts of the case.

Conclusion: The State Government and its forest department were not dealers in respect of these sales.

Issue (iii): Whether the sales tax demand could be recovered as arrears of land revenue.

Analysis: The recovery mechanism could not be sustained once the demand itself was not legally payable. Although statutory provisions were cited for recovery of sale price as arrears of land revenue, they could not be invoked to support recovery of an invalid sales tax demand.

Conclusion: The impugned recovery as arrears of land revenue was not sustainable.

Final Conclusion: The demand notices and recovery communications were liable to be quashed, and the petitioner was entitled to relief against recovery of the impugned sales tax.

Ratio Decidendi: For sales tax purposes, mere sale of forest produce by the State does not by itself constitute carrying on the business of a dealer unless the statutory requirements of trading activity and profit-motive are satisfied.

---