1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the said Act').
2. The facts on which this reference arises may be briefly stated as follows : The respondent was assessed for the period from 29th October, 1962, to 17th October, 1963. During the period of assessment, on 7th September, 1962, the respondent entered into an agreement with the Government of Maharashtra under which the Government agreed to sell to the respondent and the respondent agreed to purchase from the Government certain forest produce described in the first schedule to the said agreement situated in the area specified in the said schedule, and on the terms and conditions stated in the agreement. Briefly stated the first schedule shows that the said forest produce consisted, in the area not meant for felling, of standing trees of teak and other first class species bearing marginal hammer-mark on a blaze at base and at breast height and standing miscellaneous trees bearing a marginal hammer-mark on the blaze only. In the area meant for clear felling the said forest produce consisted of standing trees of teak and other first class species marked as set out therein and standing miscellaneous trees marked as set out therein. The said schedule also shows that included in the goods sold were felled trees bearing marginal hammer-mark at the stump and butt-end. The second and third schedules impose certain conditions on the respondent. Clause 7(iv) of the third schedule, which imposes a condition and which is very relevant for the purpose of this reference, runs as follows :
'No timber shall be removed by the contractor from his coupe unless it is hammer-marked at stump site by a suitable device by the forest department.'
3. Clause 2 of the said contract provides, inter alia, that the respondent, who is referred to as 'the forest contractor' in the said contract, may collect and remove, in accordance with the conditions of the contract, and during the period from the date the forest contractor furnishes the necessary coupe boundary certificate after inspection of the contract area, to the 31st day of May, 1963, the forest produce referred to therein. There are provisions in the contract for removal of the forest produce by the forest contractor in a particular manner to certain specified depots and imposing certain restrictions making it obligatory on the forest contractor to sell certain timber to agriculturists and residents of the village Patol as set out in the contract. Under clause 7 the respondent bound himself, inter alia, not to do any act in contravention of the Indian Forest Act, the Forest Contract Rules or of the said contract and the said clause provided further for a penalty for every such act. The total turnover of sales, which was not in dispute, amounted to Rs. 82,986, out of which sales of firewood, which were exempt from the tax, amounted to Rs. 8,796. The respondent claimed that the remaining sales of Rs. 74,188 were resales of timber, which was purchased by him from the Divisional Forest Officer, who was a registered dealer, and the said sales were exempt from tax. The contention of the respondent before the Sales Tax Officer was that the purchase of timber having been made from a registered dealer, he was entitled to deduct from his turnover these resales under section 8(ii) of the said Act. The Sales Tax Officer disallowed this claim on the ground that it was not a resale within the meaning of section 2(26) of the said Act in so far as the respondent had processed the forest coupe from which the forest produce was extracted. The respondent appealed to the Assistant Commissioner of Sales Tax, who confirmed the order of the Sales Tax Officer, holding that the respondent had purchased standing timber only and was a manufacturer within the meaning of section 2(17) of the said Act. The respondent preferred a second appeal, which came up before the Sales Tax Tribunal. The Tribunal came to the conclusion that the most important condition of the contract was that contained in clause 7(iv) of the third schedule, under which the respondent was prevented and prohibited from removing anything other than logs marked with a hammer-mark at the stump site by the forest department. The Tribunal held that the respondent was never the owner of every tree that was standing in the coupe. No doubt, the respondent had felled the trees and cut them into suitable logs, sized as required by the stipulation in the contract deed. The logs which he had hacked always remained the property of the forest department and it was only when the hammer-mark on the suitable logs was put that the timber became salable and ascertained goods. The Tribunal has observed that unless the subject-matter of sales is ascertained and goods are in a deliverable state no sale transaction is conceivable. In the opinion of the Tribunal in the sale of the coupe, no timber was sold by the Divisional Forest Officer and it was only when the hammer-marks on the logs were made that the timber became available. It may be pointed out that the only manufacturing process which the respondent was supposed to have carried on was felling of timber trees before taking delivery of the timber in the coupe.
4. On the facts set out above, two questions have been referred to us for our consideration and they are as follows :
'(1) Whether on the interpretation of the terms of the contract of the respondent with the Divisional Forest Officer, Yeotmal Division, the Honourable Tribunal was justified in holding that the subject-matter of contract was hammer-marked logs and not the marked standing trees as stated in the first schedule to the contract
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the respondents were not 'manufacturers' within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959, qua the transactions of purchases of forest coupe and sale of timber produced therefrom ?'
5. In our opinion, the questions referred to us by the Tribunal do not really bring out the controversy between the parties before us, and the real questions, which are necessary to be considered for the satisfactory solution of the real controversy between the parties, are as follows :
'(1) Whether on the correct interpretation of the said agreement dated 7th September, 1962, between the respondent and the Government, what were sold to the respondent and purchased by the respondent were logs with a hammer-mark at the stump and not the standing trees marked as set out in the first schedule to the said contract
(2) Whether the respondent was a 'manufacturer' within the meaning of the said term in section 2(17) of the Bombay Sales Tax Act, 1959, in respect of the goods purchased by him under the agreement dated 7th September, 1962 ?'
6. In connection with these questions, it was strenuously urged by Mr. Naik, the learned counsel for the applicant, that under the said contract and looking to the provisions of the first schedule thereto, once the boundary certificate in respect of the coupe referred to in the said agreement was furnished by the respondent, there was a sale to the respondent of all the standing trees in the coupe marked as set out in the first schedule. In support of this argument, he placed strong reliance on clauses (1) and (2) of the said agreement and on the contents of the first schedule, to which we have already made reference. The difficulty in the way of Mr. Naik is, however, that the contract does not end with the first schedule and the condition contained in the aforesaid clause 7(iv), which we have already set out, and which is admittedly a condition of the contract, provides that no timber shall be removed by the contractor, viz., the respondent, from his coupe unless it is hammer-marked at stump site by a suitable device by the forest department. The provision that the hammer-mark should be put on the stump site clearly shows that before this condition could be complied with, the standing trees would necessarily have to be felled. After the standing timber, which had been marked as stated in the first schedule, was felled by the respondent, it was for the officers or agents of the forest department to put the hammer-mark at the stump site, and only after this was done could the respondent remove the said felled timber from the coupe. In these circumstances, in our opinion, the marked trees, being goods agreed to be sold under the said agreement, could not be said to be in a deliverable state till they were felled and the hammer-mark was put at the stump site by the officers of the forest department. The property passed to the respondent only at that stage and it was then that the sale took place. It is an admitted position that the only manufacturing activity, which the respondent is alleged to have carried on, is the felling of the timber. This activity necessarily took place before the hammer-mark was put at the stump site on the felled timber, and hence before the sale took place.
7. In our opinion, the questions framed by us must be answered as follows :
No. (1) in the affirmative.
No. (2) in the negative.
8. As the respondents are absent, there will be no order as to costs.
9. Reference answered accordingly.