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The State of Madhya Pradesh and ors. Vs. the Bengal Paper Mills Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 225 of 1974
Judge
Reported in1979MPLJ478; [1979]44STC347(MP)
AppellantThe State of Madhya Pradesh and ors.
RespondentThe Bengal Paper Mills Company Ltd.
Appellant AdvocateL.S. Baghel, Deputy Adv.-General and ;M.V. Tamaskar, Government Adv.
Respondent AdvocateA.K. Mitra and ;J.P. Upadhyay, Advs.
DispositionAppeal dismissed
Cases ReferredBoard of Revenue v. Ansari
Excerpt:
.....aside. - that the following conditions must be satisfied before a sale can be said to take place in the course of inter-state trade or commerce: and (ii) that the sale occasions the movement of goods from one state to another, are satisfied, the sale becomes an inter-state sale within section 3(a). the condition of passing of property in the state where the goods are transported is not stated to be a necessary condition at this place for making the sale an inter-state sale. the appeal must, therefore, fail......that the contract in its true sense was a contract for sale of bamboos; that the sales were inter-state sales; that the state was not a dealer under the central sales tax act; and that the state was not entitled to recover any sales tax from the respondent. the respondent's suit was decreed on these findings. it is against this decree that the present appeal has been filed by the state and its officers who were defendants in the trial court.3. the question whether the contract resulted in sales of bamboos by the state to the respondent is concluded against the respondent by the decision of the supreme court in state of m.p. v. orient paper mills a.i.r. 1977 s.c. 687. in that case, a similar contract between the state and the orient paper mills for extraction of bamboos was construed by.....
Judgment:

G.P. Singh, C.J.

1. The respondent in this appeal is a company incorporated under the Indian Companies Act. The respondent carries on the business of manufacturing paper. The respondent's paper mills are situated at Raniganj in the State of West Bengal. The respondent obtained a forest contract on 8th May, 1968, for extraction of bamboos from the forests situated in the Bilaspur, Raigarh and North Surguja Forest Divisions of the State of Madhya Pradesh. The contract is for a period of 12 years commencing from 16th October, 1968, and ending on 30th June, 1980. Between 1968 and 1971, the appellant-State recovered from the respondent diverse sums of money aggregating Rs. 1,70,786.48 on account of sales tax alleged to be payable under the Madhya Pradesh General Sales Tax Act, 1958, in respect of bamboos felled and removed by the respondent from the forests in Madhya Pradesh to its mills at Raniganj in West Bengal. The respondent also paid a sum of Rs. 1,385.56 on account of sales tax in respect of bamboos and/or timber utilised by the respondent for constructing huts for the labourers employed in the said forests and for providing them with fuel. The respondent instituted the suit out of which this appeal arises on 3rd March, 1972, claiming that the aforesaid sums as sales tax were paid under a mistaken belief that the same were lawfully payable to the appellant-State as part of price under the contract. The respondent contended that on a true construction of the contract dated 8th May, 1968, there was no sale of bamboos by the appellant-State to the respondent. In the alternative, the respondent pleaded that the sales were in the course of inter-State trade and commerce and were not liable to tax under the Madhya Pradesh General Sales Tax Act. It was also pleaded that the State was not a dealer either under the Madhya Pradesh Act or under the Central Sales Tax Act, 1956. The respondent prayed for recovery of Rs. 1,72,172.01 paid as sales tax to the appellant-State.

2. The District Judge, Bhopal, who tried the suit, by his judgment and decree dated 10th April, 1974, held that the contract in its true sense was a contract for sale of bamboos; that the sales were inter-State sales; that the State was not a dealer under the Central Sales Tax Act; and that the State was not entitled to recover any sales tax from the respondent. The respondent's suit was decreed on these findings. It is against this decree that the present appeal has been filed by the State and its officers who were defendants in the trial court.

3. The question whether the contract resulted in sales of bamboos by the State to the respondent is concluded against the respondent by the decision of the Supreme Court in State of M.P. v. Orient Paper Mills A.I.R. 1977 S.C. 687. In that case, a similar contract between the State and the Orient Paper Mills for extraction of bamboos was construed by the Supreme Court and it was held that the contract resulted in sale of bamboos. Following that decision, we affirm the finding reached by the trial court. The Learned Counsel for the respondent tried to distinguish the case of the Orient Paper Mills A.I.R. 1977 S.C. 687 on the ground that there was some difference between the contract considered in that case and the contract before us. We do not, however, find any substantial difference between the two contracts and we do not accept the contention that the Orient Paper Mills' case A.I.R. 1977 S.C. 687 is not applicable.

4. The next question is whether the sales of bamboos arising under the contract are inter-State sales or intra-State sales. We have earlier stated that the respondent's paper mills are situated at Raniganj in West Bengal. Under clause 4 of the contract, it is specifically provided that the forest produce extracted by the respondent shall be used only for the purpose of manufacturing paper at the respondent's paper mills situated at Raniganj in Burdwan district of West Bengal and shall not be used or permitted to be used for any other purpose whatsoever. Because of Clause 4 of the contract it was obligatory on the respondent to remove the felled bamboos to Raniganj in West Bengal for being used for the purpose of manufacturing paper in its paper mills situated there. It was not open to the respondent to dispose of or otherwise utilise the bamboos extracted by it under the contract. The respondent could not divert the use of bamboos extracted, as that would have amounted to a breach of the contract. It is not disputed before us that the bamboos in respect of which the sales tax was paid by the respondent were, in fact, taken to Raniganj in West Bengal for the use in the respondent's mills. In these circumstances, it is clear to us that the movement of bamboos from the State of Madhya Pradesh to the State of West Bengal was under a covenant of the contract of sale and that the said movement was a necessary incident of sale. There was a direct nexus between the movement of goods from one State to another and the sale. The sales of bamboos under the contract, in our opinion, constituted inter-State sales under Section 3(a) of the Central Sales Tax Act. As construed by the Supreme Court, a sale falls under Section 3(a) 'if the movement of goods from one State to another is under a covenant or incident of the contract of sale': see Tata Iron and Steel Company Limited v. Sarkar [1961] 1 S.C.R. 379 at 390, Tata Engineering and Locomotive Company Limited v. Assistant Commissioner [1970] 3 S.C.R. 862 at 866 and State of Bihar v. Tata Engineering and Locomotive Company [1971] 2 S.C.R. 849 at 854.

5. The Learned Counsel for the appellant-State contended that the property in bamboos passed to the respondent the moment the bamboos were felled within the State of Madhya Pradesh and that the subsequent movement of the goods to the State of West Bengal for utilisation in the respondent's mills did not make the sale an inter-State sale. The Learned Counsel relied upon the case of Balabhagas Hulaschand v. State of Orissa [1976] 37 S.T.C. 207 at 213, 215 (S.C.) and drew our attention to proposition No. (iii) at page 215. This case is an authority for the proposition that the word 'sale' in Section 3(a) of the Central Sales Tax Act includes an agreement to sell. After discussing a number of cases, the court at page 215 observed as follows:

That the following conditions must be satisfied before a sale can be said to take place in the course of inter-State trade or commerce:

(i) that there is an agreement to sell which contains a stipulation express or implied regarding the movement of the goods from one State to another;

(ii) that in pursuance of the said contract the goods in fact moved from one State to another; and

(iii) that ultimately a concluded sale takes place in the State where the goods are sent which must be different from the State from which the goods move.

The third proposition extracted above must, in our opinion, be read in the context and confined to those cases where the movement of goods from one State to another is under an agreement to sell but before the sale. In this type of cases, the sale takes place in the State, where the goods are sent, which is different from the State from which the goods move. It is not possible to hold that the Supreme Court in the Balabhagas Hulaschand's case [1976] 37 S.T.C. 207 at 213, 215 (S.C.), which is a case decided by a Bench of two Judges, overruled the settled legal position that the passing of property in the destination State is not the test under Section 3(a). In Tata Iron and Steel Company Limited v. Sarkar [1961] 1 S.C.R. 379, which was a case decided by a Bench of five Judges, Shah, J. (as he then was), delivering the majority judgment, observed:

Clause (a) of Section 3 covers sales, other than those included in Clause (b), in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale, and property in the goods passes in either State.

These observations were quoted with approval in Tata Engineering and Locomotive Company Limited v. Assistant Commissioner [1970] 3 S.C.R. 862 and State of Bihar v. Tata Engineering and Locomotive Company [1971] 2 S.C.R. 849, which are also cases decided by the five-Judge Benches. Further, the Supreme Court in the Balabhagas Hulaschand's case [1976] 37 S.T.C. 207 at 213, 215 (S.C.), analysing Clause (a) of Section 3, observed, at page 213, that if two conditions, viz., (i) that there is a sale or purchase of goods; and (ii) that the sale occasions the movement of goods from one State to another, are satisfied, the sale becomes an inter-State sale within Section 3(a). The condition of passing of property in the State where the goods are transported is not stated to be a necessary condition at this place for making the sale an inter-State sale. As earlier stated by us, it is clear that, from the third proposition at page 215, it cannot be inferred that the Supreme Court intended to depart from the earlier decisions that passing of property in the destination State is not the true test for purposes of Section 3(a). The said proposition has to be confined to the particular facts of that case, in other words, to the class of cases where the transportation takes place under an agreement to sell and the sale takes place in the State to which the goods are transported. In State of Bihar v. Tata Engineering and Locomotive Company [1971] 2 S.C.R. 849, the assessee was a public limited company of Bombay. It manufactured at Jamshedpur in Bihar trucks, bus chassis and spare parts and sold them to its appointed dealers with each of whom it had entered into an agreement. Under the agreement, each dealer was assigned the territory in which he alone could sell the goods manufactured by the assessee and was forbidden to sell the same to any purchaser outside his assigned territory. The dealers placed their indents with, and made payments to, the Bombay office, which issued delivery orders to its Jamshedpur works. After taking delivery of the goods at Jamshedpur, each dealer removed the goods to his own territory outside Bihar. It was held that the sales were inter-State sales. It will appear from the facts of this case that the sales were complete at Jamshedpur within the State of Bihar where the dealers took delivery, but the sales were held to be inter-State sales, as the dealers were required to move the goods under the agreement to their respective territories assigned to them outside the State of Bihar. The ratio of this case fully applies to the facts of the instant case. After felling the bamboos, the property in the bamboos passed to the respondent in the State of Madhya Pradesh; but as the respondent was required under the agreement to use the bamboos only for the purpose of its mills at Raniganj in West Bengal, the bamboos were moved from the State of Madhya Pradesh to the State of West Bengal. The sale, therefore, occasioned the movement of goods from one State to another making it an inter-State sale under Section 3(a).

6. The next question that arises for consideration is whether the appellant-State is a 'dealer' within the meaning of Section 2(b) of the Central Sales Tax Act. The definition of 'dealer' in Section 2(b), as it stood at the relevant time, was as follows:

'Dealer' means any person who carries on the business of buying or selling goods and includes a Government which carries on such business.

The Government in selling forest produce does not carry on a business. In Orient Paper Mills Ltd. v. State of M.P. 1971 M.P.L.J. 560, the High Court held in the context of the definition of 'dealer' in the Madhya Pradesh General Sales Tax Act, as it then stood, that the Government in granting leases of bamboos did not carry on any business and was not a dealer. By the time this case came up before the Supreme Court in appeal, the definition of 'dealer' was amended in the State Act by Act No. 13 of 1971. This amending Act added an explanation to include within the definition of 'dealer' the Central or a State Government which buys, sells, supplies or distributes goods 'whether or not in the course of business'. Because of this amendment, which was retrospective, the State Government became a dealer under the State Act. However, under the Central Act, as it stood at the relevant period, the State Government was not a dealer within the definition of that term, as it did not carry on business by selling annually the forest produce. The decision of our Court in the Orient Paper Mills' case 1971 M.P.L.J. 560 was approved by the Supreme Court in Board of Revenue v. Ansari [1976] 38 S.T.C. 577 (S.C.), where it was held that the Forest Department of the Government of Andhra Pradesh, while selling timber, fuel, bamboos, minor forest produce, etc., was not a 'dealer' under Section 2(1)(e) of the Andhra Pradesh General Sales Tax Act on the reasoning that as the auctions of the forest produce by the Government of Andhra Pradesh were carried on only annually and not at frequent intervals and the important element of frequency was lacking, it could not be said that the Government of Andhra Pradesh was carrying on the business of selling forest produce. We have, therefore, no hesitation in holding that the State of Madhya Pradesh was not a dealer at the relevant time under Section 2(b) of the Central Sales Tax Act. We may here mention that the definition in Section 2(b) of the Central Sales Tax Act was also amended by the amending Act of 1976. Explanation 2 added in this definition by the amending Act is similar to the explanation added in the State Act. It may be that, from the date this amending Act came into force, a State Government may become a dealer even under the Central Sales Tax Act although it does not carry on business. That question, however, does not arise in the instant case.

7. On the findings reached above that the appellant-State was not a dealer under the Central Sales Tax Act at the relevant time and the sales were inter-State sales, it necessarily follows that no sales tax was payable on the sales of bamboos arising under the contract. Liability to pay sales tax under the Central Sales Tax Act is only on sales by a dealer. As the appellant-State was not a dealer, no sales tax was payable under the Central Sales Tax Act. As regards the liability to pay sales tax under the Madhya Pradesh General Sales Tax Act, the State was no doubt a dealer; but the sales, being inter-State sales, could not be taxed under this Act. The result, therefore, is that no sales tax was at all payable on the sales arising under the contract. It is not disputed before us that, if that be the legal position, the respondent paid the sales tax as part of price under the contract under a mistaken belief that the sales were exigible to sales tax. The appeal must, therefore, fail.

8. The appeal fails and is dismissed with costs.


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