1. This order will also govern the disposal of Miscellaneous Civil Cases Nos. 97 to 103, all of 1967.
2. These eight Miscellaneous Civil Cases are all references under Section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958, (hereinafter called the Act), and arise out of proceedings initiated against the Madhya Pradesh Electricity Board, Jabal-pur, for assessment to sales tax and purchase tax for the periods from 1957-58 to 1964-65. The common questions in these references, which have been referred to this Court for decision by the Sales Tax Tribunal (Board of Revenue), are :--
'1 On the facts and circumstances of the case whether or not the Madhya Pra-desh Electricity Board is a dealer within the meaning of Section 2(c) of the C. P. & Berar Sales Tax Act, and Section 2(d) of the Madhya Pradesh General Sales Tax Act, 1958, in respect of its activity of generation, distribution, sale and supply of electrical energy?
2. On the facts and circumstances of the case, whether or not the turnover re-presenting the sale of coal-ash is liable to be assessed to sales tax?
3. On the facts and circumstances of the case, whether or not steam is saleable goods and if they are saleable goods is the turnover representing the supply thereof liable to be assessed to sales tax in the hands of the assessee?
4. On the facts and circumstances of the case, whether or not the inclusion of the turnover arising out of the sale of specification and tender forms in the taxable turnover in the different periods was legal and proper?
5. On the facts and circumstances of the case, whether or not purchase of taxable goods from unregistered dealers for use in activities not directly concerned with the main business activity of the assessee namely generating, distributing and supplying of electricity is liable for purchase tax?'
3. The Material facts are that the assessee the Madhya Pradesh Electricity Board, is a body constituted under Section 5 of the Electricity (Supply) Act, 1948. It is charged under Section 18 of that Act with the general duty of promoting, the co-ordinated development of the generation, supply and distribution of electricity within the State in the most efficient and economical manner. In the assessment years the assessee-Board sold, supplied and distributed electricity to various consumers. It also sold coal-ash, a waste product: and supplied steam to Nepa Mills of Burhanpur. The assessee also supplied on payment specification and tender forms to persons intending to give tenders for the various works undertaken by the Board. In the assessment years, the assessee 'purchased Gitti, Murram, sand etc, from unregistered dealers and consumed them in the manufacture of other goods.'
The assessment for the period from. 1st April 1957 to 31st March 1959 is governed by the C. P. and Berar Sales Tax Act, 1947; the assessment for the remaining period is governed by the M. P. General Sales Tax Act, 1958. No sales tax is payable in respect of sale of electrical energy under Section 6 of the 1947 Act, read with item No. 29 of Schedule II to that Act. So also, under the Act of 1958 sale of electrical energy is exempt from sales tax under Section 10, read with item No. 13 of the Schedule to the Act. The turnover of the sale of electrical energy is, however, taken into account for determining the gross turnover. The Assistant Commissioner of Sales Tax, Jabal-pur, assessed the Board to sales tax on its turnover of sale of coal-ash and tender and specification forms, and the supply of steam to Nepa Mills. He also imposed on the Board purchase-tax on Gitti, Murram, sand etc., purchased from unregistered dealers and consumed in the manufacture of other goods. The assessee was allowed deduction for the sales of tax-free goods. This assessment was upheld in appeal by the Deputy Commissioner of Sales Tax, Jabal-pur.
In second appeal, which the assessee then preferred, the Sales Tax Tribunal took the view that the assessee is not a 'dealer' within the meaning of the terms as defined in the Acts of 1947 and 1958 inasmuch as it is not engaged in the business of selling and supplying electricity with a view to earn a profit but only with a view to promote the co-ordinate development, in the most efficient and economical manner, of the general supply and distribution of electricity. The Tribunal further held that the assessee used low-grade coal in thermal generation and the waste coal-ash product was not fit for any purpose and that the assessee did not produce coal-ash for the purpose of sale; and that for this reason, and also for the reason that the assessee was not a dealer, the sales of coal-ash were not taxable.
In regard to the supply of steam to Nepa Mills, the Tribunal, on examining the terms of the arrangement under which the assessee supplied steam to Nepa Mills, came to the conclusion that the supply of steam was an isolated transaction, and that this activity of the assessee-Board was undertaken on 'no profit no loss' basis. The Tribunal was also inclined to hold that steam was not 'saleable' goods as it was not any article which could be brought to the market and could be bought and sold there. It was, therefore, held by the Tribunal that the supply of steam was not liable to be assessed to sales tax. The Tribunal further held that the specification and tender forms were not marketable goods and there was no profit element in the sale of those forms; and that, therefore, no sales tax could be levied on the sale of those forms. On the question of the liability of the Board to purchase-tax, the Tribunal held that as the assessee was not a 'dealer' in respect of the sale and supply of electricity, no purchase-tax could be imposed on it on goods purchased by it and consumed 'in furtherance of and in aid of the business activity of generating, supplying and distributing electricity'.
4. Taking first the question whether the assessee is a 'dealer' within the meaning of Section 2 (c) of the C. P. and Berar Sales Tax Act, 1947, and Section 2 (d) of the M. P. General Sales Tax Act, 1958, in respect of its activity of generation, distribution, sale and supply of electrical energy, the view of the Tribinal that the assessee does not sell and supply electricity with a view to earn profit but only with a view to promote a co-ordinated development, in a most efficient and economical manner, of the general supply and distribution of electricity is not right. It is no doubt true that the expression 'carries on the business of selling or supplying goods' occurring in the definitions of 'dealer' given in the Acts of 1947 and 1958 means carrying on of continuous trading operation with a view to earn profits. The test is the object withwhich the activity is carried on and not whether the person carrying on the acti-actually gets profits or loss (see State of M. P. v. B. N. C. Mills Ltd. 1961-12 STC 333 = 1961 MPLJ 129). But it is erroneous to say that the Madhya Pradesh Electricity Board, constituted under the Electricity (Supply) Act, 1948, carries on the activity of distribution and supply of electricity on 'no profit no loss' basis.
In this connection, it would be pertinent to refer to the salient provisions of the Electricity (Supply) Act, 1948, which unmistakably show that the assessee-Board carries on the activity of distribution and supply of electricity with a view to earn profits. That Act is an Act to provide 'for the rationalisation of the production and supply of electricity'. Section 59 thereof says that 'The Board shall not, as far as practicable and after taking credit for any subventions from the State Government under Section 63, carry on its operations under this Act at a loss, and shall adjust its charges accordingly from time to time'. The direction in this provision that the Board shall not carry on its operations at a loss does mean that it shall not earn profits. The provision only emphasizes the fact that the operations, which the Board carries on, is not for sport or pleasure.
Section 67 of the aforesaid Act lays down that the revenues of the Board shall, after meeting its operating, maintenance and management expenses and after provision has been made for the payment of taxes on its income and profits, be distributed as far as they are available in the order stated in that provision. In regard to the balance remaining after meeting the liabilities mentioned in Clauses (i) to (ix) of Section 67, it is provided by Clause (x) that one-half of the balance shall be applied in the reduction of tariffs or for such other purposes beneficial to electrical development in the State, as the Board may think fit, and the remaining one-half shall be made available to the Consolidated Fund of the State. The reference in Section 67 to the payment of taxes on the Board's income and profits, and the tenth clause of Section 67, unmistakably show that the Board carries on its operations with a view to earn profits. That the Board earns profits and makes gains is again emphasized by Section 80, which says that for the purposes of the Indian Income-tax Act, 1922, the Board shall be deemed to be a company within the meaning of that Act and shall be liable to income tax and super-tax, accordingly on its income, profits and gains. There can, therefore, be no doubt that the assessee-Board carries on the businesss of selling and supplying electricity as a trading operation with a view to earn profits. Learned counsel for the assessee and the learned Advocate General appearing for the Commissioner of Sales Tax, both assailed before us the view of the Tribunal thatthe assessee-Board, distributed and supplied electrical energy on 'no profit no loss' basis, and contended that the Board carries on its operations under the Act as trading operations and with a view to earn profits.
5. In connection with the question whether the assessee-Board is a 'dealer', as defined in Section 2(c) of the C. P. and Berar Sales Tax Act, 1947 and Section 2(d) of the M. P. General Sales Tax Act, 1958, the real point that requires consideration is whether when the Board carries on the activity of selling or supplying electrical energy, it does the business of selling or supplying goods. Under the definition of 'dealer', given in the Acts of 1947 and 1958, the business of buying, selling, supplying or distributing, which makes a person a dealer, must be a business of buying, selling, supplying or distributing goods. Section 2 (d) of the C. P. and Berar Sales Tax Act, 1947, defines 'goods' thus-
' 'goods' means all kinds of movable property other ' than actionable claims, stocks, shares, securities or Government Stamps, and includes all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of immovable property;'
In the Act of 1958, the definition of 'goods.' as given in Section 2 (g), is as follows-
' 'goods' means all kinds of movable property other than actionable claims, newspapers, stocks, shares, securities or Government stamps and includes all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of movable or immovable property; and also includes all growing crops, grass, trees, plants and things attached to, or forming part of, the land which are agreed to be severed before sale or under the contract of sale; ' It will be seen that these definitions of the word 'goods' make all kinds of movable property 'goods' and include into as well as exclude therefrom certain items. Electrical energy does not fall under the inclusive or exclusive parts of the definitions. Now 'movable property' has not been defined in the Act of 1947 or the 1958 Act. In Section 2(24) of the M. P. General Clauses Act, 1957, 'movable property' has been denned to mean 'property of every description, except immovable property'. Section 2 (18) of the said Act states that ' 'immovable property' includes land, benefits to arise out of land and things attached to the earth, or permanently fastened to anything attached to the earth'.
6. Now, electrical energy is by no means 'immovable property'. It is not even any matter capable of possession, or capable of being moved in an existent state. Its real nature is not understood. One cannot see it; its presence or influence is only known by its effect. As a working hypothesis for explaining the phenomenon, it hasbeen assumed that electricity is 'a highly subtle imponderable fluid'. But it is altogether erroneous to say that when electricity generated by the assessee-Board is distributed or supplied through wires, there is a flow of some fluid or liquid. When a wire carries any current of specified ampere, the electrons flow continuously in direct or alternating directions; the current is caused by the flow of electrons. Electrons are subject to forces of several common types including electrostatic, and the function of a generator is to drive electrons against electrostatic forces.
The transmission of power by electricity is thus done by driving electrons against electrostatic forces in one place and later on these forces drive electrons in another place and supply power to operate electrical goods such as lights, heaters, fans etc. Electrical power generation is, therefore nothing but conversion into electrical form of energy or another form of energy. Such being the nature of electricity, it is difficult to regard electricity as some article or matter which can be possessed or moved or delivered. In construing the definitions of 'goods' and 'sale', as given in the Sales-tax Tax Acts, it must be remembered that for the purposes of those Acts 'sale of goods' has the same meaning which it has in the Sale of Goods Act, 1930 (see Madras State v. G. Dunkerley & Co. (Madras) Ltd. AIR 1958 SC 560 and Banarsi Das v. State of M. P. AIR 1958 SC 909. The Sale of Goods Act, 1930, is not applicable to electricity. It has been observed by the Calcutta High Court in Rash Behari v. Emperor. AIR 1936 Cal 753 at p. 766 that the view expressed in Pollock and Mulla's 'Sale of Goods Act, 1930' that the Act is not applicable to electricity is correct.
It is also noteworthy that the Constitution itself does not contemplate sale or purchase of electricity as 'goods'. In List-II of the Seventh Schedule to the Constitution, there is a specific entry with regard to 'Taxes on the consumption or sale of electricity'. That entry is Entry No. 53. The next entry, namely, Entry No. 54 is as regards 'Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List-I'. It is obvious that these two entries are on the basis that in the supply and consumption of electricity, there is no sale or purchase of electricity as goods. The aforesaid two entries mean that though a tax on the con-sumption or sale of electricity can be levied, it cannot be levied as a sales-tax treating electricity as 'goods'. The fact that electrical energy is included in the list of ex-empted goods given in the Schedules to the Sales Tax Acts of 1947 and 1958 is by no means decisive of the fact that electrical energy is 'goods' or that the assessee-Board is a 'dealer' as defined in those Acts.
In this connection, it would be pertinent to refer to the observations in Adams v. Rau, 46 CLR 572 at p. 577-578. That was a case which dealt with an assessment under the Australian Sales Tax Assessment Act (No. 1 of 1930). The observations, which deserve attention, are as follows:
'It is necessarily unsafe to reason from what is expressly excluded from the operation of such a statute in order to fix the connotation of the general description by which the subjects are defined. For it must always be uncertain whether the exemption is introduced as a definite exception of something which otherwise would be included, or by way of contrast, and to ensure that the general description was not enlarged, or simply because the Legislature was as uncertain of the precise application of the description as those who are called upon to interpret and apply it. The definition should receive an operation according to the natural and ordinary meaning of its terms, neither widened nor narrowed by inferences sought to be drawn from special provisions, exclusions and exemptions. After all, it is a taxing Act and its ambit should not be enlarged by anything less than the clearest implication. In applying the definition doubtful cases must be decided as they arise. No paraphrase of what the Legislature has said can provide a substitute for the definition of the statute. If a substitute is found necessary, only the Legislature can supply it.'
7. In our judgment, electricity does not fall within the meaning of the definition of 'goods' given in the Sales Tax Acts of 1947 and 1958, and when the assessee-Board distributes and supplies electrical energy there is no sale of electricity as goods. That being so, the assessee-Board cannot be held to be a 'dealer', as defined in Section 2 (c) of the 1947-Act or Section 2 (d) of the 1958-Act, in respect of its activity of generation, distribution, sale and supply of electrical energy.
8. Our attention has been drawn to Kumbakonam Elec. Supply Corpn. Ltd. v. Joint C. T. O., 1963-14 STC 600 : (AIR 1964 Mad 477) where it has been held that electricity is 'goods' for the purposes of the Madras General Sales Tax Act, 1959, and the Central Sales Tax Act, 1956. In that case, a single Judge of the Madras High Court took the view that electricity is property and is capable of movement and delivery, and that electricity is 'as much property as gas or water which is subjected to a particular process, bottled up and sold for consumption'. With all due respect to the learned Single Judge, we do not find ourselves in agreement with this view. The exposition of electricity on which the learned Single Judge based his conclusion that electricity is 'as much property as gas or water' and is capable of movement and delivery is not scientifically correct. There is a vast difference between gas, which can be compressed in a cylinder and thus moved and delivered, and electricity.
9. The sales of coal-ash by the assessee-Board are clearly liable to sales tax. The Sales-tax Tribunal has found that the coal-ash-sold by the Board is necessarily a waste product of the coal used by the assessee-Board for thermal generation of power. The Tribunal, howeverr, took the view that as the assessee did not produce coal-ash for purposes of sale, the turnover of sales of coal-ash could not be subjected to any tax. This view is not in accord with the decision of the Supreme Court in State of Guiarat v. Raipur . 1967-19 STC 1 : (AIR 1967 SC 1066). In that case, the Supreme Court has held that in the turnover of a person carrying on the business of selling one commodity, the price received by him by the sale of another commodity will not be included unless he carries on the business of selling that other commodity; that the question whether a person carries on the business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive; that it is not necessary that profits must in fact be earned; and that when a subsidiary product is turned out in the factory of the assessee and that product is regularly and continuously sold from time to time, an intention to carry on business in such product may be reasonably attributed to the assessee.
In the case before the Supreme Court, a textile manufacturing company turned out, in the course of manufacture of cloth, Kolsi and waste caustic liquor as by-products or subsidiary products and sold them regularly. It was held that the sale of such products would be incidental to the business of manufacturing and selling cloth and would, therefore, be liable to sales-tax. In the statement of the case submitted by the Tribunal, the particulars of turnover of coal-ash sold by the assessee-Board in all the relevant assessment years have been given. Those particulars clearly show that he assessee-Board regularly and continu-ously produced coal-ash as a subsidiary product and sold it regularly from time to time. On the test laid down by the Supreme Court in 1967-19 STC 1 : (AIR 1967 SC 1066) (supra) it must be held that the assessee-Board is a dealer in regard to the sale of coal-ash and the sale transactions of coal-ash are liable to be assessed to sales tax. Shri Chitale, learned counsel appearing for the assessee-Board, did not dispute before us the liability of these transactions to salestax.
10. Coming to the question of liability to sales tax of the turnover representing the supply of steam by the assessee to Nepa Mills, it is first necessary to note the ar-rangement under which steam was supplied by the assessee to the said Mills in all the relevant assessment years. It has been found by the Tribunal that Nepa Mills agreed to give free water-supply for the Board's colony and power-house. The Board agreed to supply steam to the Nepa Mills at the rate of Rs. 3 per unit of 1000 Ws. of steam, fixed on the basis of the cost of coal consumed in producing steam. There was also a condition that Nepa Mills would reimburse the assessee-Board for the loss sustained by the Board on account of the Mills not taking their full demand of steam from the date of commencement of the operations of Chandni Power Station. The Sales Tax Tribunal came to the conclusion that steam' was not 'goods' and that the supply of steam by the assessee-Board to the Nepa Mills was an 'isolated transaction' undertaken on 'no profit, no loss' basis.
11. In our opinion, steam falls within the definition of 'goods' given in the Sales Tax Acts of 1947 and 1958. Steam is nothing but an elastic aeriform fluid into which water is converted when heated to the boiling-point. It can be moved and delivered by means of steampipes. It is a tangible property; it is visible. It has weight and can be felt by anyone. Steam inhalation is often taken by persons having sore throat (Laryngitis). In Nizam Sugar Factory Ltd v. Com-1956 Hyd 194), it has been held that steam mr. of Sales Tax, 1957-8 STC 61 : (AIR is 'goods'. But the supply of steam by the assessee to Nepa Mills is not taxable for the reason that when the assessee supplied steam to the Mills it was not with a profit motive. It may be taken that the water, which the Nepa Mills supplied free to the assessee-Board, became the property of the Board. It was in the return of this free supply of water that the Board agreed to give steam to the Nepa Mills at a rate based solely on the coal consumed in producing steam.
The Mills also agreed to reimburse the Board for any loss sustained on account of the Mills not taking the full demand of steam. This reimbursesment was also based on the coal consumed in the production of steam. It is thus plain that the supply of steam to the Nepa Mills by the Board was not with a profit motive. There was no contract for the sale of steam. The contract was only for the labour and cost involved in the supply of steam to the Nepa Mills. The Sales Tax Tribunal has observed that it was not established that steam in excess of the assessee's requirements was produced with a view to under-taking the activity of selling it with a profit motive. On this finding and on the basis of the arrangement entered into between the assessee Board and the Nepa Mills with regard to the supply of steam, the conclusion is inevitable that the turnover representing the supply of steam is not taxable.
11-A. The answer to the next question of the taxability of sales of specification and tender forms by the assessee-Board is plain enough. The specification and tender forms are given by the assessee-Board at a certain price to the persons who desire to give tenders for certain contracts. If tenders have to be given in certain prescribed forms and according to certain prescribed specifications, then it cannot be held that by supplying specification and tender forms at a price to the persons concerned the assessee-Board carries on the business of selling specification and tender forms. The point is plain enough and does not require elaboration.
12. In regard to the last question, if, as we think, the assessee is not a dealer in respect of its activity of generation, distribution, sale and supply of electrical energy, then the assessee is clearly not entitled to purchase any taxable goods for the aforesaid activity without paying any sales tax to the selling dealer. The question, therefore, of the assessee becoming liable to purchase-tax under Section 4(6) of the C. P. and Berar Sales Tax Act, 1947, or Section 7 of the M, P. General Sales Tax Act, 1958, cannot arise. Those provisions apply only when taxable goods are purchased by a registered dealer; free of taxes.
13. For these reasons, our answer to the first question is that the assessee-Board is not a 'dealer' within the meaning of Sec-ction 2(c) of the 1947-Act and Section 2(d) of the 1958-Act in respect of its activity of generation, distribution, sale and supply of electrial energy. The second question is answered by saying that the turnover representing the sale of coal-ash is liable to sales tax. The answer to the third and fourth questions is that the assessee-Board is not liable to be taxed on the turnover representing the supply of steam to the Nepa Mills and on the turnover of the sales of specification and tender forms. In view of our answer to the first question, the fifth question must be answered by saying that the assessee-Board cannot be made liable for purchase-tax.
14. As the first and the main question was referred at the instance of both the assessee and the Commissioner of Sales Tax, and the other questions were referred at the instance of the Commissioner of Sales Tax, we leave the parties to bear their own costs of these references.