TaxTMI 
TaxTMI 
1976 (11) TMI 178
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Government forests in Vindhya Pradesh which, on "States reorganisation" in 1956, became part of Madhya Pradesh. The transaction itself was dressed up as a lease deed executed by the then State of Vindhya Pradesh on August 4, 1956, in favour of Orient Paper Mills, the respondent herein. At that time no sales tax could be levied under the law from the forest department of the appellant-State or the respondent-mills. However, on April 1, 1959, the M. P. General Sales Tax Act, 1958 (hereinafter referred to acronymically as M.G.S.T. Act), came into force. On the footing that the forest department was a dealer it got itself registered as such, under the sales tax law, on November 3,1962. The respondent, of course, is a registered dealer under the same law. Subsequently, the Chief Conservator of Forests, representing the appellant, demanded of the respondent that it pay sales tax on the timber extracted under the "lease deed", whereupon the claim was repudiated by the respondent. In consequence, the appellant proceeded to levy the sum representing the sales tax on the value of the timber cut and removed as per the terms of the contract, resorting to revenue recovery proceedings authoris....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her of the findings. We may borrow the formulation of the four points set out in the judgment of the High Court: "(i) The transaction is not a sale of goods and no sales tax is payable in respect of bamboos and salai wood extracted thereunder by the petitioner. (ii) No sales tax is payable under the terms of the lease deed dated August 4, 1956, and, therefore, such tax cannot be recovered. (iii) Neither the State Government nor the forest department of that Government is or could be a dealer and for this reason also no sales tax is payable or recoverable. (iv) The sales tax, even if payable, is not recoverable as arrears of land revenue, particularly when the revenue recovery certificate was issued by the Divisional Forest Officer." The time is set true for stating the decisive statutory changes which occurred after the High Court ruled against the State, calculated to undo the disability discovered by that pronouncement. This development deserves attention as the sole point on which the State lost in the High Court, viz., that the forest department is not doing business, ceases to have relevance today on account of the amendment to the Madhya Pradesh General Sales T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plea to bomb the tax demand having been shot down by retroactive legislative missiles, the respondent has sought a manouvre to victory by reliance on the contention covered by formulation No. (1) set out at the beginning. Point No. (2) hinges on the result of point No. (1) and deserves no separate discussion. The High Court's holding on these twin points is in favour of the respondent on the basic submission of non-exigibility of tax on the score that the transactions in question are not sales at all and the payments not price of goods at all but mere royalty under a lease. A short legal survey will take us to an easy solution of this issue. Section 64A of the Sale of Goods Act enables the seller, under certain circumstances, to recover, as sale price, any sales tax which the vendor has had to pay. So, if in the present case, the forest department of the State is liable to pay sales tax on the bamboo and salai wood cut and removed by the respondent, the claim to recover it from the buyer is good under the said section 64A. The next logical series of questions are: Whether the forest department is liable to sales tax on the timber covered by the demise? Can the timber so ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....initional expression in section 2(o) and the former in section 2(n). They may be read here: "(o) 'sale price' means the amount payable to a dealer as valuable consideration for the sale of any goods, less any sum allowed as cash discount according to ordinary trade practice but including any sum charged for anything done by the dealer in respect of the goods at the time or before delivery thereof other than the cost of freight or delivery or the cost of installation when such cost is separately charged and the expression 'purchase price' shall be construed accordingly. (n) 'sale' with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or for other valuable consideration and includes a transfer of property in goods involved in the supply or distribution of goods by a society or club or any association to its members, but does not include a mortgage, hypothecation, charge or pledge, and the word 'purchase' shall be construed accordingly." For all these words to apply, the pivotal factor is "goods", which is defined in substantially similar manner in both the Sale of Goods Act and in section 2(g) of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imum royalty has to be paid, thus showing that the provision for payment is sometimes de-linked from the exploitation of the forest or the value of the timber cut. Considerable reliance was placed for taking the document out of the category of mere sale of goods, on clause 5 of the deed, which reads: "The lessees shall with the previous permission in writing of the State Government be at liberty to make dams, cross streams, cut canals, make water-course irrigation works, construct roads, railways and tramways and do any other works useful or necessary for the purposes of the business connected with these presents in or upon the leased area provided that they are in accordance with the plan approved by the State Government and also with the like approval to widen or deepen any existing creeks or channels or waterways for the purposes of the said business and all timbers required for the above purposes shall be allowed half royalty rates in the case of timbers of reserved species and free in case of timbers of unreserved species by the State Government." There is also provision for renewal of the lease deed which savours, again, of a transaction of real property since renewa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut and removed in the manner as may mutually be settled and such account shall be open to inspection by the Forest Officer authorised in this behalf by the Divisional Officer concerned." Shri Shroff went to the extent of saying that the real nature of the transaction was disclosed in the deed itself in clause 2(k): "(k) The lessees in conducting their operation on the leased area shall not in any way interfere with the surface of land save and in so far as may be necessary in connection with and for the purposes of this licence." Clause 4 bears on its bosom, in his submission, the imprint of a contract for sale of goods and it may be read: "4. Without prejudice to the provisions of this lease, the rights, liberties and privileges of the lessees hereinbefore mentioned shall extend only to bamboos and salai wood within the leased area and nothing herein shall in any way be deemed to authorise the lessees to interfere with the working of the forest areas within the leased area or the rights, liberties, privileges of other contractors of the said forest lands." We are considerably impressed with this analysis. The upshot of the whole transaction is that, for a price fixe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ut were capital receipts, representing the price of the minerals removed. There was also a provision for minimum royalty which was pressed into service by the party. The Judicial Committee held that the royalty payable under the lease was not the price of the actual coal extracted but represented compensation which the lessees paid to the lessor for that species of occupation which the contract allowed and it was therefore "income from other sources" within the meaning of the relevant Income-tax Act. We must point that the legal setting in which a question is considered colours the ratio of the case. The Judicial Committee was considering an issue arising under the Income-tax Act and, interpreting the clauses of a deed with particular terms, to ascertain whether the payments made thereunder fell within the meaning of "income" understood in its broadest connotation in England and in India. Construing, as we do, a special statute and a differently worded deed and the signification of the words used therein, we are unable to draw any legitimate instructional inferences from a decision contextually different, concerned with a different branch of law; and dealing with different issues a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tum fulmen. In view of our finding that there is a "sale of goods" under the contract, the State is entitled to succeed. Counsel for the respondent, when we briefly indicated our mind, and even otherwise by way of abundant caution, rightly urged that his client had a good case for reduction of the quantum of tax even if sales tax was payable by-the forest department which could be shifted to the respondent by virtue of section 64A of the Sale of Goods Act. He prayed for an opportunity to establish that he was being called upon to foot a larger bill than was legally tenable. We regard this a reasonable request and, indeed, Shri Shroff, for the State has very rightly agreed with this prayer of the respondent. For one thing, the amending Bill whereby the liability was being de novo fastened was enacted into law after the judgment of the High Court. Read with section 82 of the Indian Forest Act, the amount was being recovered as if it were land revenue. This process deprived the respondent of his right to challenge the quantification of the tax. It is fair-and the State agrees to be fair-that the respondent should be enabled to prove his case that the sum claimed was much higher ....