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The Titaghur Paper Mills Company Ltd. and anr. Vs. State of Orissa and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Constitution
CourtOrissa High Court
Decided On
Case NumberOriginal Jurisdiction Case No. 811 of 1977
Judge
Reported in[1980]45STC170(Orissa)
AppellantThe Titaghur Paper Mills Company Ltd. and anr.
RespondentState of Orissa and ors.
Appellant AdvocateS.R. Banerjee, ; G. Rath, ; R. Mohanty, ;B.K. Mohanty, ;A.B. Misra, ;S.C. Ghosh, ; S.C. Mohapatra, ;R.C. Patnaik, ;P.C. Misra, ;H. Patel, ;D.P. Mohanty, ;A. Pasayat, ;B. Agarwalla, ;A. Agarwalla, ;N.
Respondent AdvocateB.M. Patnaik, Adv. General, ;G.B. Patnaik, Government Adv. ;and A.K. Roy, Standing Counsel (C.T.)
DispositionPetition allowed
Cases ReferredKrupasindhu Sahu and Sons v. State of Orissa
Excerpt:
- motor vehicles act, 1988 [c.a. no. 59/1988]section 173(1) proviso; [d. biswas, amitava roy & i.a.ansari, jj] appeal without statutory deposit but within limitation/or extended period of limitation maintainability - held, if the provision of a statute speaks of entertainment of appeal, it denotes that the appeal cannot be admitted to consideration unless other requirements are complied with. the provision of sub-section (1) of section 173 permits filing of an appeal against an award within 90 days with a rider in the first proviso that such appeal filed cannot be entertained unless the statutory deposit is made. the period of limitation is applicable only to the filing of the appeal and not to the deposit to be made. it, therefore, appears that an appeal filed under section 173 cannot.....n.k. das, j.1. all these petitions challenge the notifications of the government of orissa in the finance department being s.r.o. no. 372 of 1977 and s.r.o. no. 373 of 1977 both dated 23rd may, 1977, under section 3-b and section 5 of the orissa sales tax act of 1947 and also notifications s.r. 0. nos. 900 and 901 of 1977 dated 29th december, 1977, under sections 3-b and 5 of the orissa sales tax act. the first notification came into operation from 1st june, 1977, and the second notification came into effect from 1st january, 1978. both these notifications relate to the imposition of purchase tax on 'bamboos agreed to be severed and standing trees agreed to be severed'.the notifications of 23rd may, 1977 (hereinafter referred to as 'the notifications of may'), run as follows:s.r.0. no......
Judgment:

N.K. Das, J.

1. All these petitions challenge the notifications of the Government of Orissa in the Finance Department being S.R.O. No. 372 of 1977 and S.R.O. No. 373 of 1977 both dated 23rd May, 1977, under Section 3-B and Section 5 of the Orissa Sales Tax Act of 1947 and also Notifications S.R. 0. Nos. 900 and 901 of 1977 dated 29th December, 1977, under Sections 3-B and 5 of the Orissa Sales Tax Act. The first notification came into operation from 1st June, 1977, and the second notification came into effect from 1st January, 1978. Both these notifications relate to the imposition of purchase tax on 'bamboos agreed to be severed and standing trees agreed to be severed'.

The notifications of 23rd May, 1977 (hereinafter referred to as 'the notifications of May'), run as follows:

S.R.0. No. 372/77. -- In exercise of the powers conferred by Section 3-B of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), the State Government do hereby declare that standing trees and bamboos agreed to be severed shall be liable to tax on turnover of purchase with effect from the first day of June, 1977, and direct that the following amendment shall be made in the notification of Government of Orissa, Finance Department No. 20209 -- CTA-14/76-F. dated the 23rd April, 1976:

Amendment. -- In the schedule to the said notification, after serial numbers 2 and 16, the following new serial and entry shall be inserted under appropriate heading, namely: -- Serial No. Description of goods(1) (2)2A Bamboos agreed to be severed.16A Standing trees agreed to be severed.

The other notification is as follows:

S.R. 0. No. 373/77. -- In exercise of the powers conferred by the first proviso to Sub-section (1) of Section 5 of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), the State Government do hereby direct that the following amendment shall be made in the notification of the Government of Orissa, Finance Department No. 20212 -- CTA-14/76-F. dated the 23rd April, 1976, and that the said amendment shall take effect from the first day of June, 1977.

Amendment. -- In the schedule to the said notification, after serial numbers 2 and 16, the following new serial and entry shall be inserted under appropriate heading, namely: -- Serial No. Description of goods Rate of tax(1) (2) (3)2A Bamboos agreed to be severed. Ten per cent16A Standing trees agreed to be severed. Ten per cent.

The other two notifications, namely, S.R.O. Nos. 900 and 901 of 29th December, 1977 (hereinafter referred to as 'the December notifications'), were also to the same effect, but it is stated therein that these notifications were made in supersession of the previous notifications in the matter. The notifications of December, 1977, had to be issued as a consequence of amendment of Section 5 of the Act.

2. Out of all the petitioners, the petitioners in 0. J.C. Nos. 811 of 1977, 1090 of 1977, 740 of 1978, 140 of 1978 and 970 of 1979 (hereinafter referred to as 'the bamboo contractors') have challenged the notifications relating to bamboos agreed to be severed and the petitioners in all other writ petitions (hereinafter referred to as 'the forest contractors') have challenged the notifications relating to the standing trees agreed to be severed. But the stand taken by all of them is common.

3. The petitioners in the bamboo exploitation contracts are owners of paper mills engaged in the production of paper. They require bamboos for the purpose of paper pulp. They have taken settlement of some forest areas of the State Government ranging from 12 to 16 years in different cases, with an option of renewal of the respective leases. Documents have been executed for the purpose of extraction of bamboos which are in existence or may come into existence over the contract areas and these contractors may fell, cut, obtain and remove from the said areas according to the fixed time-table during the period for which the agreements stand enforceable. A fixed amount is to be paid which would be pledged as security for the due performance and observance of the terms of agreement. The Orissa Forest Contract Rules would be deemed to be a part of the agreement. The agreement purported to be sale and purchase of different varieties of bamboos subject to the rules for cutting in the annual coupes of felling trees. A minimum royalty to be paid has also been fixed and the period for the same has also been enumerated. The royalty is to be paid by advance deposit and this would always be in excess of the royalty actually due on bamboos cut in the contract areas. Besides the above, a minimum royalty per year has also been fixed and the company will not be entitled to refund of whole or part of the minimum royalty, if the company fails to cut the minimum quantity of bamboos in the year excepting under certain circumstances. During the period of operation of the agreement, the company would have the right to use any land or stream outside the licensed area from the contract area as well as all lands, roads and streams within the contract area. The company will also meet the local demand of bamboos to the extent to which permits are issued by the forest department to the local people for their bona fide, domestic and agricultural requirement. The company will also be at liberty to make dams across streams, cut canals, make watercourses, irrigation works, roads, bridges, buildings and tramways and any other work useful or necessary for the purpose of the said business in or upon the licensed areas. The company in conducting its operations on the contract areas shall not in any way interfere with the surface of the land save and so far as may be necessary for the immediate purpose of carrying on the necessary operations in connection with the said business. If the Government requires any area already covered in the agreement for any purpose of development, then, it will have the right to any reasonable portion of the same, giving in return any place thereof with equal facilities for bamboo extraction in other convenient area. The right of the Government to extract bamboos from any portion in the contract area for departmental works was subjected to a limited number. The cutting of the bamboos will be subject to the cutting rules, which will also be subject to the working plan of the forest division. All shoots shall be cut within one foot from the ground level or in any case not higher than the second internode from the ground and no clumps less than two seasons growth shall be felled. Out of the green clumps only fully matured clumps shall be removed in such a way that not less than six clumps of more than two seasons growth are left evenly distributed over the whole clumps. A minimum of ten clumps must be left in each clump, which will include all bamboos of two seasons growth or less. Bamboos will not be cut in the flowering year and no salai bamboo would be cut during a particular period. The company would be given lands within the contract areas for construction of storehouses, sheds, depots, bungalows, staff-offices, agencies, etc.

4. In the writ petitions challenging the notifications relating to imposition of purchase tax on 'trees agreed to be severed', the petitioners have taken settlement of forest coupes in annual auction for exploitation of timber and other forest produce. They have also entered into agreements with the Government with stipulations stated therein. In the agreements, the stipulations are that the bid amount will be paid in different instalments in certain proportion and they will be bound by the Forest Act and the Rules and the Forest Contract Rules made under the authority of the Government, which form part of the agreement. They will be bound to fell all marked trees irrespective of whether they are marketable or not. They shall be bound to clear and fell all trees in the coupes except the standards and those described in the agreement and no timber should be removed from the stump site and cannot be cut unless it is branded with departmental sale hammer mark on it. Gum trees below three feet girth at breast height are not to be tapped. No cut is to be made over the partially healed up surface on the old wounds, and blaze is to be towards the top of the tree. As many such blazes are to be made 18' apart round the trees as its girth will permit. The lowest row of blazes may be 6' above the round. Similarly, more rows may be made higher up the trees taking care that the blazes of the two consecutive rows are not one row more than the other. They will be issued permit books for the season which are to be returned after the contract period for felling and carrying the trees cut. They shall not deprive the local tenants from enjoyment of forest produce for their bona fide domestic use. Except for local sale to the tenants, the firewood should be converted to billets, stacked and presented for passing before removal from the coupes. Unmarked trees of 45 cm. and above in girth and breast height shall not be felled in the clear felling including coppice coupes. They will be entitled to a maximum quantity of materials specified in the notice subject to availability. They will pay sales tax on the instalment amount as per the Sales Tax Rules along with instalment of the consideration money. They will also register their own hammer mark which are to be put on the trees to be felled. They shall not commence work in the contract area before payment of the first instalment.

5. The petitioners who have taken settlement of forest areas for exploitation of bamboos and the petitioners who have taken annual settlement for exploitation of timber and other forest produce have challenged the notifications of the State Government in the Finance Department on the following grounds. According to the impugned notifications, they are bound to submit returns. Notices have been issued to them and, in many cases, assessments have also been completed and demands have been made.

They contend that the purchase tax is not exigible. By imposition of purchase tax, the State Government is taxing the same goods twice, namely, sales tax as well as purchase tax. The notifications are beyond the competence of the Government and are ultra vires the Act. Besides the above submissions, they also contend that those, who have taken settlement of forest for exploitation of bamboos, have got interest in the land and all the petitioners contend that the contract taken up by them amounts to works contract and, as such, is not exigible to tax under the Orissa Sales Tax Act and the notifications.

6. Without going into the question, whether the standing trees and standing bamboos agreed to be severed are included in the definition of 'goods', it is contended that, even assuming those to be goods, the transactions do not amount to sale of goods and the imposition of purchase tax amounts to taxing the same article more than once, which is forbidden by law, and the State Government has no competence to impose such tax. They also contend that the notifications amount to excessive delegation and they do not carry on the business of sale and purchase. Instead of going into the question whether the 'standing trees and bamboos agreed to be severed' are 'goods' as defined in the Sale of Goods Act and the Orissa Sales Tax Act, the contention of the petitioners both in the cases of bamboos and timber and forest produce, are that (a) there is a double taxation which is against the provisions of the Act; (b) there is no 'sale of goods' by these transactions under the Act so that those are exigible to tax under the Act; and (c) in so far as bamboo contracts are concerned, these are in the nature of profit a prendre and, as such, the transactions are not exigible to impost under the Orissa Sales Tax Act. If the petitioners succeed on these points, consideration of other questions would not arise.

7. A preliminary question has been raised for consideration in these cases. The notification of the Finance Department of the Government of Orissa was issued under Section 3-B of the Orissa Sales Tax Act on 23rd May, 1977, imposing purchase tax on bamboos agreed to be severed and standing trees agreed to be severed. This notification is under challenge in this Court. Meanwhile, another notification was issued on 29th December, 1977, under Section 3-B of the Act, which is as follows:

In exercise of the powers conferred by Section 3-B of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), and in supersession of all previous notifications issued on the subject, the State Government do hereby declare that the goods mentioned in column (2) of the schedule given below, shall be liable to tax on turnover of purchase, with effect from the first day of January, 1978.

8. In the aforesaid notification of 29th December, 1977, the previous items relating to bamboos agreed to be severed and trees agreed to be severed have also been included. Admittedly, by virtue of the amending Ordinance in 1977, the subsequent notification had to be issued in a consolidated form. This second notification has also been challenged in these writ petitions.

9. The question that arises for consideration is: whether the liabilities accrued by the first notification of May, 1977, have been wiped out by the notification of December, 1977. We have already expressed our tentative decision on this point by order dated 17th July, 1979 The order of the Court dated 17th July, 1979, was as follows:

During the course of argument in O.J.C. No. 811 of 1977, a second notification dated 29th December, 1977, was issued, which expressly superseded the earlier notification dated 23rd May, 1977, whose validity is under challenge. A preliminary point was taken that, upon issuance of the second notification, the earlier notification dated 23rd May, 1977, was completely superseded and became non est and that tax liability under the first notification did not survive and could not be enforced. Elaborate arguments were heard on this preliminary point. This preliminary point fails and will be dealt with in the main judgment.

that liabilities accrued under the notifications of May, 1977, cannot be wiped out by the notifications of December, 1977.

Much emphasis has been laid on the words 'supersession of previous notifications'. It is contended that by virtue of the expression 'superseding the previous notifications' the liabilities accrued under the first notification are wiped out. On behalf of the State Government, it is contended that this being a delegated power, the executive Government cannot wipe out the liabilities accrued under the first notification.

10. The notifications in question are issued in exercise of powers of subordinate delegation. The norm for the operation of delegated legislation has received judicial attention and it is established that exercise of power of subordinate delegation will be prospective and cannot be retrospective unless the statute authorises such an exercise expressly or by necessary implication. This dictum being based on the constitutional provisions embodied in Articles 245 and 265, recourse to any other Act to derive a meaning to the contrary would not be tenable. The power to impose and assess a tax is essentially a legislative function: vide Rajnarain v. Chairman, Patna Administration [1955] 1 S.C.R. 290.

In Strawboard . v. Gutta Mill Workers' Union A.I.R. 1953 S.C. 95 at 98, para 6, an industrial dispute had been referred by the Governor to the Labour Commissioner or a person nominated by him with the direction that the award should be submitted not later than 5th April, 1950. The award, however, was made on 13th April, 1950. On 26th April, 1950, the Governor issued a notification extending the time up to 30th April. It was held that in the absence of a provision authorising the State Government to extend from time to time the period within which the tribunal or the adjudicator could pronounce the decision, the State Government had no authority to extend the time and the award was, therefore, made without jurisdiction and, as such, was a nullity. In this case, attempt was made to take recourse to the General Clauses Act to impute power of amendment and modification conferred on the Government to be exercisable so as to validate the acts of the Governor. Their Lordships finally held 'if .therefore, the amending order operates prospectively, i.e., only as from the date of the order, it cannot validate the award which had been made after the expiry of the time specified in the original order and before the date of the amending order, during which period the adjudicator was functus officio and had no jurisdiction to act at all. We do not think the respondents can derive any support from Section 21 of the U.P. General Clauses Act.

11. Basing on the above case and with reference to the principles evolved in Howell v. Falmouth Boat Construction Co. Ltd. [1951] A.C. 837 at 847, it was held by the Mysore High Court that unless the power to legislate conferred on an executive body by the legislature expressly mentions that such power can be exercised retrospectively, it can only be exercised prospectively. Hence a power conferred by the legislature on a subsidiary body, e. g., Government, to issue notifications, if couched in general language, can, unless it is expressly stated that the same can be exercised retrospectively, only be exercised prospectively (see India Sugars and Refineries Ltd. v. State of Mysore A.I.R. 1960 Mys. 326, paras 13 and 14).

This view was affirmed by the Supreme Court in the Income-tax Officer, Alleppey's case A.I.R. 1970 S.C. 385, wherein it was held that the Parliament can delegateits legislative powers within the limits. Where any rule or regulation is made by any person or authority to whom such powers have been delegated by the legislature, it may or may not be possible to make the same so as to give retrospective operation. It will depend on the language employed in the statutory provision, which may, in express terms or by necessary implication, empower the authority concerned to make a rule or regulation with retrospective effect. But where no such language is to be found, it has been held by the courts that the person or authority exercising subordinate legislative functions cannot make a rule, regulation or bye-law which can operate with retrospective effect (see para 5). This case also distinguishes exercise of delegated legislation under the provisions other than Article 309 (which under a proviso stipulates that rules can.be made with retrospective operation -- see para 7).

The Supreme Court reiterates this view in the Hukam Chand's case A.I.R, 1972 S.C. 2427 by-holding that unlike sovereign legislature, which has power to enact laws with retrospective operation, the authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The initial difference between subordinate legislation and the statute laws lies in the fact that a subordinate law-making body is bound by the terms of its delegated or derived authority and that court of law, as a general rule, will not give effect to the rules thus made, urrless satisfied that all the conditions precedent to the validity of the rules have been fulfilled (see para 6). A similar view is also expressed by the Supreme Court in the Kerala State Electricity Board's case A.I.R. 1976 S.C. 1031, wherein it has been reiterated that subordinate legislation cannot be said to be valid unless it is within the scope of the rule-making power as provided in the statute (see para 25).

The notifications in question have been issued under Section 3-B of the Orissa Sales Tax Act, which reads as follows:

The State Government may, from time to time, by notification, declare any goods or class of goods to be liable to tax on turnover of purchases:

Provided that no tax shall be payable on the sales of such goods or class of goods declared under this section,

The terminology used in this section does not, expressly or by necessary implication, indicate any delegation to the State Government to issue notifications that would have any retrospective operation. Consequently, if the State Government were to issue a notification with retrospective effect, such a notification shall be ultra vires in view of the Income-tax Officer, Alleppey's case A.I.R. 1970 S.C. 385, which case also relates to a notification retrospectively authorising and investing powers of a Tax Recovery Officer in a specific authority and such a notification, in the absence of any statutory provision, was declared ultra vires.

A valid notification under Section 3-B of the Orissa Sales Tax Act would clearly mean such a notification as would be prospectively operative. It cannot under any circumstances be even implied to be retrospective as the State Government is not delegated with such power under the statute. An attempt has been made to interpret the word 'supersession' in a manner so as to retrospectively wipe out the effects of notifications of the past. Reliance has been placed on the Amraoti Municipal Committee's case A.I.R. 1964 S.C. 1166, which, in fact, holds: when a notification issued in supersession of all past notifications is struck down, the past notifications do not ipso facto revive. This principle in no way enables a conclusion of the nature laboured at, i. e., a notification issued in exercise of powers of subordinate legislation would wipe out the effect of all past notifications ab initio by virtue of using the expression 'supersession'. Such a contention is untenable, as any retrospective operation through 'supersession' would be ultra vires when the statute does not authorise retrospective operation of exercise of powers of subordinate legislation (as is the case in the Orissa Sales Tax Act: Section 3-B). Any reference to the General Clauses Act is of no relevance in this context, when the provisions of the Constitution of India regulate the appropriate interpretation and as the matter is already settled in Strawboard . v. Gutta Mill Workers' Union A.I.R. 1953 S.C.95.

We, therefore, hold that the notifications dated 23rd May, 1977, remained in force and were operative till the notifications dated 29th December, 1977, came into operation.

12. The scheme of the Orissa Sales Tax Act provides a liability on every dealer for sales tax or purchase tax whose gross turnover during the year is more than Rs. 25,000 and under Section 4 of the Act is liable to pay the said taxes subject to the provisions of Sections 3-B, 5, 6, 7 and 8. The definitions of several terms are to be found in Section 2. The expression 'taxable turnover' is residual part of the dealer's gross turnover that remains after deducting several items enumerated in Section 5(2)(a) of the Act. From these provisions, it would be found that all goods unless they are notified to be tax-free are liable to be taxed at specified rates under Section 5 of the Orissa Sales Tax Act on sales. Section 3-B of the Act authorises the State Government to impose tax at the purchase point on certain goods or class of goods and, in that event, they shall no more be taxable at the sale point. Section 8 authorises the State Government to prescribe the points where the goods are to be taxed in the series of sales or purchases by successive dealers and provides that the same goods shall not be taxed at more than one point in the same series of sales or purchases by the successive dealers. It is not disputed that the Act envisages single point taxation. So, if particular goods are liable for sales tax, then no purchase tax is leviable in respect of the same goods. Whenever the State Government purports to exercise its power under Section 3-B, under the scheme of the Sales Tax Act, it used to have a triology of notifications, namely, the notification under Section 3-B notifying the goods to be taxable at the purchase point, notification prescribing the rate of purchase tax and the notification deleting the goods from the taxable list at the sale point. This can be illustrated from the previous notifications made by the State Government. Notification dated 30th December, 1957 (No. 33927-CTA-130/57-F.), enumerates the goods and the rates at which they are taxable at the sale point. In serial number 5, one of the items is 'fish' and the rate of tax is 3 per cent. But by another notification dated 21st January, 1959 (No. 1858-CTA-5/59-F.), 'fish' became taxable at the purchase point and another notification was made prescribing the rate of purchase tax at 3 per cent. Besides the above two notifications, a third notification was made deleting 'fish' from taxation at the sale point. It is not disputed that the State Government always issues such notifications, namely, if any goods are notified to be exigible to tax at the purchase point, another notification is issued deleting the said goods from the list of goods exigible to tax at the sale point. But no such notification deleting these goods has been made in the present cases which have been made exigible at purchase point from taxability at the sale point, even though they are liable for sales tax. The State Government contends that the goods which are now taxable at the sale point are different from those which are taxable at the purchase point. In other words, the contention of the State Government is that bamboos agreed to be severed and trees agreed to be severed are commercially different products and, therefore, the Government is competent to tax them, both at the sale point and purchase point. Till the notifications of May, 1977, came into effect, admittedly-bamboos and timber agreed to be severed were both taxable at the sale point. So also trees agreed to be severed and timber were taxable at the sale point. The present contention of the State Government is that those are different commodities.

13. It is not disputed that, in finding out the true meaning of the entries mentioned in the Sales Tax Act, what is relevant is not the dictionary meaning but how those entries are understood in common parlance, specially in commercial circles. In common parlance, trees once they are felled and severed are known as timber. The nature or the character of felled trees does not change when they are brought outside the forest for purpose of sale. Even though a tree after felling might be sawn into separate logs, still its characteristic remains the same as well as its identity as understood in common parlance. In State of Madhya Bharat v. Hiralal [1966] 17 S.T.C. 313 (S.C.), the Supreme Court in construing the relevant entry 'iron and steel' held that when a dealer purchased scrap iron locally and imported iron plates from outside and after converting them into bars, flats and plates in his mills, sold them in the market, they continued to be 'iron and steel' and, in spite of the change effected because of the process the goods had undergone, the goods sold in the market did not cease to be 'iron and steel'. Similarly, in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool [1960] 11 S.T.C. 827 (S.C.), the Supreme Court observed that although groundnut oil in question had been subjected to chemical process, the essential nature of the goods had not changed and hydrogenated groundnut oil continued to be groundnut oil. In State of Gujarat v. Sakarwala Brothers [1967] 19 S.T.C. 24 (S.C.), the Supreme Court observed that although sugar was processed into patasa, harda and alchidana, it did not change its essential characteristic and its identity continued to be the same and these items could be construed as sugar. Keeping in view the aforesaid observations of the Supreme Court, it can be said that there is no material distinction between the trees and bamboos to be severed and timber and bamboos already felled; as something distinct, the same timber or bamboo cannot be subject to purchase tax as well as sales tax. It may be mentioned here that, previously, the Divisional Forest Officer was being assessed with sales tax for the settlement of the forest areas. This matter was challenged by the forest department on the ground that such officer does not carry on the business of sale. This Court in Straw Products Ltd. v. State of Orissa (1977) 1 C.W.R. 455 held that the forest officer selling trees of spontaneous growth is not a dealer as envisaged in the Act, inasmuch as he does not carry on the business of sale of such property. This Court did not accept the principles laid down in State of Madhya Pradesh v. Orient Paper Mills A.I.R. 1977 S.C. 687, but followed the principles laid down in Board of Revenue v. A.M. Ansari A.I.R. 1976 S.C. 1813. The decision was in favour of the petitioner of that case. The State Government has filed an appeal in the Supreme Court challenging the aforesaid decision of this Court. During the pendency of the appeal in the Supreme Court, the impugned notifications have come into existence. Meanwhile, also an Ordinance has been promulgated extending retrospectively the definition of the word 'dealer' so as to include those forest officers. The resultant position is that the forest officers are now liable to pay the sales tax on these settlements of forest areas. In the agreement relating to exploitation of timber and forest produce, there is a stipulation that the persons taking auction are liable to reimburse the sales tax to the forest department. The position thus is that on these settlements, sales tax is imposed and collected. At the same time, those trees and timber which are agreed to be severed and which are exigible to sales tax have also become exigible to purchase tax under the impugned notifications. The sum total of both the taxes is more than 13 per cent, which is the maximum taxable limit under Section 5 of the Act.

Although the documents are or purchase of 'standing trees or bamboos agreed to be severed', what really are appropriated to the contracts of sale are the severed trees or bamboos and not the standing trees or bamboos. Also Section 2(n) of the Orissa Forest Act defines the term 'timber' to include 'trees fallen or felled and all wood cut up or sawn'. In the absence of special definition in the Sales Tax Act, the meaning of 'timber' as given in the Orissa Forest Act is relevant for ascertaining its true meaning.

In common parlance, trees or bamboos after those are severed are timber and bamboos respectively. The nature and character of the felled one does not change when it is brought outside the forest for purpose of sale. There is no material distinction between the two.

14. By virtue of Section 8 of the Orissa Sales Tax Act, any type of goods is taxable only at one point and double taxation is not at all envisaged under the Act. Therefore, such imposition amounts to double taxation and is against the provisions of the Orissa Sales Tax Act.

15. It is not disputed that the sale of goods envisaged under the Orissa Sales Tax Act relates only to movables and the definition of sale of goods under the Sale of Goods Act is to be accepted for sales or purchases for impost of taxes under the Orissa Sales Tax Act. Section 3 of the Transfer of Property Act brought in a negative definition of immovable property which does not include standing timber, growing crops or grass and things attached to or forming part of the land which are agreed to be severed before their sales or under the contract of sale.

16. The Supreme Court had to examine the difference between the 'standing timber' and 'trees' (the same principle also is applicable to 'bamboos in clusters in the forest' and 'bamboos earmarked to be severed under a contract') in Smt. Shantabai v. State of Bombay A.I.R. 1958 S.C. 532 and it was held:

'Standing timber' must be a tree that is in a state fit for these purposes (to be used as a wood) and further a tree that is meant to be converted into timber, so shortly that it can already be looked upon as timber for all practical purposes, even though it is still standing.... Now, of course, a tree will continue to draw sustenance from the soil so long as it continues to stand and live; and that physical fact of life cannot be altered by giving it another name and calling it 'standing timber'. But the amount of nourishment it takes, if it is felled at a reasonably eary date, is so negligible that it can be ignored for all practical purposes and though, theoretically, there is no distinction between one class of tree and another, if the drawing of nourishment from the soil is the basis of the rule (where is was helt to be), the law is grounded, not so much on logical abstractions as on sound and practical common sense. It grew empirically from instance to instance and decision to decision until a recognisable and workable pattern emerged; and here, this is the shape it has taken.

The same analogy applies in the case of 'bamboos' and 'bamboos agreed to be severed'. Bamboos like trees are immovable property, but those bamboos which have become ripe for cutting and are to be felled at a reasonably early date, will not be treated as live bamboo clusters, but as bamboos. Therefore, the bamboos agreed to be served and bamboos are commercially the same thing. So also trees agreed to be served and timber are not diffrent, but the same goods.

17. Entry No. 54, List II, of Seventh Schedule of the Contitution of India, enumerates the legislative power of the State Legislature and it provides that the State Goverment is empowered to impose a tax by enactment either on sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. The power to tax any goods can be availed of only whre there has been in fact a sale as recognised by the general law, namely, the Sale of Goods Act. Therefore, to constitute a sale, beside agreement between the parties having capacity for the purpose of transferring title to the goods, (sic) money consideration, as a result of the transaction, the property must actually pass in the goods. If, under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale (see Sales Tax Officer v. Budh Prakash Jai Prakash A.I.R. 1954 S.C. 459). Entry 54, List II of the Seventh Schedule of the Constitution of India authorises the imposition of tax only when there is a completed sale involving transfer of title. The charging section, definition of turnover and purchase and sale price conceive of price being paid at the time of delivery. This does not mean that the State Legislature can extend the import of the expression 'sale of goods' so as to impose liability for tax on transaction which are not sale of good within the meaning of the Sale of Goods Act.

Trees which are otherwise immovable property construed to be movables because of the fact of impending severance which is evident from the Shantabai's case, A.I.R. 1958 S.C. 532. In a contract for purchse of 'bamboos agreed to be severed' (with restriction as regards the manner of felling), the question arises whether the property in goods vest in the buyer at the time opf the contract or when the bamboos are severed. This question came up for consideration before the Supreme Court in Badri Prasad v. State of Madhya Pradesh, A.I.R. 1970 S.C. 706, and it was held:

It is true that trees which are agreed to be served before sale or under the contract of sale are 'goods' for the purposes of the Sale of Goods Act. But, before they cease to be proprietary' right or interest in proprietary rights within the meaning of Section 3 and 4(a) of the Act, they must be felled under the contract. It will be noticed that, under Clause 1 of the contract, the plaintiff was entitled to cut teak trees of more than 12 inches girth. It had to be ascertained which trees fell within that description. Till this was ascertained, they were not 'ascertained goods' within Section 19 of the Sale of Goods Act. Clause 5 of the contract contemplated that stumps of trees after cutting had to be 3 inches high. In other words, the contract was not to sell the whole of the trees. In these circumstances, property in the cut timber would only pass to the plaintiff under the contract at the earliest when trees are felled.

In the case of State of Maharashtra v. Champalal Kishanlal Mohta A.I.R. 1971 S.C. 908, it was held that standing timber may not ordinarily be regarded as goods but by the inclusive definition in 2(7) of the Sale of Goods Act, 1930, timber agreed to be sold shall be severed. In State of Madhya Pradesh v. Orient Paper Mills A.I.R. 1977 S.C. 687 (on which the State Government has relied and about which we will discuss later on), the Supreme Court has also held that the taxing event occurs when the title to the goods is transferred. It has further been held:

We are satisfied that despite its description, the deed confers, in truth and substance, a right to cut and carry timber of specified species. Till the trees are cut, they remain the property of the owner, namely, the appellant. Once the trees are severed, the property passes.

Similarly, in two decisions of the Supreme Court, R. Abdul Quader and Co. v. Sales Tax Officer, 2nd Circle, Hyderabad A.I.R. 1964 S.C. 922, and Bhopal Sugar Industries v. D.P. Dube A.I.R. 1964 S.C. 1037, it has been held that the State Government cannot extend the import of the expression 'sale of goods' so as to impose liability for tax on transactions which are not, in fact, sale of goods within the meaning of the Sale of Goods Act. under the Sale of Goods Act, title can pass on the intention of the parties. In the case of standing trees or timber, title can pass either before severance or after severance and the intention of the parties is to be gathered from the documents, if title passes before severance or after. If the intention of the parties is that title would pass before severance, then, undoubtedly, the purchaser gets a right to cut and carry timber of specified species and till the trees are cut they remain the property of the owner and, therefore, to bring to . tax on the basis of the notifications is really taxing it at a point of time before the title passes, while they still remain the property of the owner and the notifications, therefore, purport to tax an agreement to sell or can also be said to be a tax on immovable property. If the parties have agreed that the property would pass after severance, then, what passes is 'timber' of the trees, which is still the subject-matter of tax on the sale point. There cannot be a third manner of passing of the property. Therefore, if the State Government purports to tax by the notifications on the purchase of 'bamboos agreed to be severed' or 'trees agreed to be severed', then what it does is to tax an agreement to sell or tax the bamboos at the purchase point, while it is still admittedly assessed on the point of sale.

under Section 4 of the Sales Tax Act, tax is only payable if there is sale or purchase within the meaning of the Act, provided the gross turnover exceeds the limit prescribed therein. The term 'sale' has been defined in Section 2(g) of the Act to mean any transfer of property in goods for cash or deferred payment or other valuable consideration and the word 'purchase' shall be construed accordingly. In other words, unless there is a sale there is no purchase and a sale takes place only when there is a transfer of property in goods. The Sales Tax Act does not purport to impose a tax on agreement of sale, but only on agreement of sale, the taxable event being the actual sale when the transfer of property in goods takes place. There is no sale until the goods are appropriated to the contract. Under the forest contract agreement, the actual sale or transfer takes place only when after compliance of all conditions of the contract the trees are felled by the contractor. In Madras State v. Gannon Dunkerley and Co. A.I.R. 1958 S.C. 560, it has been observed that:.though the .word 'sale' in its popular sense is not restricted to passing of title, and has a wider connotation as meaning the transaction of sale, and that in that sense an agreement to sell would, as one of the essential ingredients of sale, furnish sufficient nexus for a State to impose a tax, such levy could, nevertheless, be made only when the transaction is one of sale, and it would be a sale only when it has resulted in the passing of property in the goods to the purchaser....Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale.... And if under the contract of sale, title to the goods has not passed, then there is an agreement to sell and not a completed sale.

This view has been consistently followed by the Supreme Court in a series of cases subsequently. It has been held in all those cases that the expression 'sale of goods' as mentioned in entry No. 54 of List II of the Seventh Schedule of the Constitution of India carries the same meaning which it carries in the Sale of Goods Act, 1930, and under Section 4 of the Sale of Goods Act, a sale is complete only when 'the property in the goods is transferred from the seller to the buyer'. No tax can be imposed unless the taxable event, i.e., the transfer of property in the goods, takes place. The standing trees are the unascertained goods and continue to be the property of the Government until felled and title to the said trees are transferred in favour of the contractor only when after compliance of all conditions of the agreement the trees are felled or severed by him. The impugned notifications can be construed to impose purchase tax on standing trees or timber before severance and would amount to an impost of tax on an agreement to sell and not actual sale. In the Shantabai's case, Vivian Bose, J., had also observed that:

Trees and shrubs may be sold apart from the land, to be cut and removed as wood, and in that case they are movable property. But if the transfer includes the right to fell the trees for a term of years, so that the transferee derives a benefit from further growth, the transfer is treated as one of immovable property....

In English law an unconditional sale of growing trees to be cut by the purchaser has been held to be a sale of an interest in land; but not so if it is stipulated that they are to be removed as soon as possible....

In the first place, the duration of the grant is twelve years. It is evident that trees that will be fit for cutting twelve years hence will not be fit for felling now. Therefore, it is not a mere sale of the trees as wood. It is more. It is not just a right to cut a tree but also to derive a profit from the soil itself, in the shape of the nourishment in the soil that goes into the tree and makes it grow till it is of a size and age fit for felling as timber; and if already of that size, in order to enable it to continue to live till the petitioner chooses to fell it.

In another judgment, i.e., in Mahadeo v. State of Bombay A.I.R. 1959 S.C. 735, the Supreme Court was considering ah agreement by which some of the proprietors in the State of Madhya Pradesh granted to another person the right to take various produce and it was contended that the petitioners were enjoying profit a prendre and therefore were not hit by the provisions of the Madhya Pradesh Abolition Act. In that case, the petitioners, who were granted licence to cut, gather and carry away the produce in the shape of timber or wood, had also the right to install fadis (collection godowns) and construct kothas (godowns) on any open plot of land with the permission of the proprietor. That is not a naked right to take the leaves of tendu trees but a right of ingress and of regress from the land. There are further benefits including the right to occupy the land, to erect buildings and to take other forest produce not neces-sarily standing timber, growing crop or grass and, in that ease, the rights conveyed comprise more than leaves of the trees, and it may not be correct to refer to it as being in respect of 'growing crop' simplciter. In Board of Revenue v. A.M. Ansari A.I.R. 1976 S.C, 1813, where the question of granting the right to pluck, cut, carry away and appropriate various produce existing on the land arose, it was held that the acquisition was not an interest in the soil, but merely a right to cut the fructus naturales and the agreements in question possessed the characteristics of licences and did not amount to leases. It is essential, therefore, to look to the substance and essence of the agreement and not to its form.

18. In the cases of settlement of bamboos, the agreement clearly shows that it is for a period consisting of several years, coupled with an option of renewal. The bamboos are to be cut up to a particular height and up to a particular girth. The Forest Contract Rules is also a part of the agreement. We would discuss later on about the provisions of the Forest Contract Rules. The agreement also is in respect of bamboos which have not come into existence at the time of acceptance and will come in future. The transferee has also the right of erection of structures and constructing roads, etc., for the purpose of exploiting bamboos. The necessary stipulations have been enumerated in para 3 above.

In the Forest Contract Rules, there are various provisions regarding payment of instalments, marking of the trees, grant of permits; all of which have to be complied with before the trees are felled and removed by the contractor. Under the Rules, time is to be the essence of the forest contract and the contractor has no right to extract and remove trees beyond the specified period. The security deposit is to be fixed at a particular per Cent of the purchase price which is retained by the forest authorities. The forest officer has the power to stop extraction of the forest produce if the instalments payable under the agreement have not been paid in time and removal of the forest produce exceeding the amount of instalments already paid is prohibited. No forest produce can be removed except under permit issued to that effect and the permit book has to be obtained by the contractor on payment. The contractor is permitted to extract the forest produce along the forest roads subject to the approval of the D.F.O., and the D.F.O. under certain circumstances can close down the roads for the purpose of extraction of the forest produce. The contractor is also required to register his property mark in the office of the D.F.O. and no timber shall be conveyed from the contract area without the impress of the forest contractor's registered property mark and the D.F. 0. has the right to mark any piece of timber with Government hammer mark before it is removed from the stump site. We have already mentioned above that the Forest Contract Rules is also a part of the agreement relating to the document for exploitation of bamboos. under Section 18 of the Sale of Goods Act, no property in the goods is transferred unless and until the goods are ascertained. So, until the trees are duly marked, they cannot be characterised as 'ascertained goods'. Also under Section 19 of the said Act, the property in the goods is transferred only at such time as the parties to the contract intend it to be transferred and, for the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

Judging the contracts or documents for bamboo exploitation or for timber and other forest produce, the said conditions of sale and the Contract Rules forming part of the agreement are relevant for ascertaining the intention of the parties. They clearly show that the property in the goods does not pass to the contractor on mere execution of the agreement. There is transfer of the goods only when the forest contractor or the transferee under the bamboo contract is allowed to fell the trees after he has complied with all the conditions of the agreement.

In view of the aforesaid circumstances and the transactions and the conditions stipulated in the documents, 'title in the goods' (these properties are goods under the Sale of Goods Act or the Orissa Sales Tax Act) does not pass until the trees (also bamboos) are severed from the ground and the goods till then are unascertained goods. The imposition of purchase tax by the impugned notifications can amount to imposition on an agreement for sale. In the case of bamboo exploitation, it also amounts to taxing some goods when there has been no sale and purchase. Bamboos which will come in future are also the subject-matter of transfer. In view of the decisions of the Supreme Court stated above, such transactions also amount to profit a prendre, but cannot amount to sale or purchase of goods as envisaged under the Sale of Goods Act.

When profit a prendre becomes the form of a grant, to take all future bamboos that may grow over a considerable length of time and, further, the stipulation of option for renewal, they can amount to benefits arising out of land and cannot be said to be simple rights for the goods alone.

It is contended by the opposite parties that these are unascertained goods appropriated to the contract. In view of the discussions made above, it cannot be said that there has been any appropriation at the time of the transaction, inasmuch as the restrictions, stipulations and uncertainties emerging out of the documents clearly indicate impossibility of appropriation.

Reliance has been placed by the State Government on State of Madhya Pradesh v. Orient Paper Mills Ltd. A.I.R. 1977 S.C. 687 A Division Bench of the Supreme Court, while examining a bamboo exploitation contract, has held that the contract is merely a contract more like a sale of standing timber coupled with a licence to enter into, and to do certain things on another's land. This judgment has not taken into consideration any of the earlier judgments of the Supreme Court on the point. In Mamleshwar Prasad v. Kanahaiya Lal A.I.R. 1975 S.C. 907, the principles of per incuriam have been explained which should be limited to decisions given without notice of some inconsistent statutory provisions or authority binding on the court concerned. The Supreme Court has observed:

In exceptional instances, where by obvious inadvertence or oversight a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedents.... A prior decision of this court on identical facts and law binds the court on the same points in a later case.

While deciding the case reported in State of Madhya Pradesh v. Orient Paper Mitts Ltd. A.I.R. 1977 S.C. 687, the earlier judgments of larger Benches of the Supreme Court reported in Smt. Shantabai v. State of Bombay A.I.R. 1958 S.C. 532, Mahadeo v. State of Bombay A.I.R. 1959 S.C. 735 and Board of Revenue v. A.M. Ansari A.I.R. 1976 S.C. 1813 have not been looked into as authorities. It has been held in Mattulal v. Radhe Lal A.I.R. 1974 S.C. 1596 that if there are contradictory decisions of the Supreme Court, the former decision of a larger Bench is to be followed than a later decision. So also in Union of India v. K.S. Subramanian A.I.R. 1976 S.C. 2433, it has been held that the decision of a larger Bench of the Supreme Court is to be followed in preference to those expressed by a smaller Bench of the Court and the practice has now crystallised into a rule of law declared by the Supreme Court. It has been observed:

The proper course for a High Court is to try to find out and follow the opinions expressed by larger Benches of the Supreme Court in preference to those expressed by smaller Benches of the court. That is the practice followed by the Supreme Court itself. The practice has now crystallised into a rule of law declared by the Supreme Court.

In the aforesaid circumstances, the judgment of the Orient Paper Mills' case A.I.R. 1977 S.C. 687 cannot be said to be binding and the dictum laid by larger Benches is to be followed.

The State Government has also relied on an unreported decision of the Patna High Court in Titaghur Paper Mills v. State of Bihar Since reported in [1980] 45 S.T.C. 130. It is distinguishable both on facts as well as grounds and it cannot be considered to be an authority in law. In that case, the agreement, which was considered, had several peculiar features, which are specifically absent in the case of the agreement under consideration in these cases, namely, the minimum or maximum royalty is not linked with any tonnage of bamboo cut; the failure of the lessee to cut and remove the bamboo within a period allowed for such operation made him liable to pay cost of felling, and the rent payable for any land used for storing bamboos. The Patna judgment Since reported in [1980] 45 S.T.C. 130 strongly relied on some observations in the Orient Paper Mills' case A.I.R. 1977 S.C. 687, about which we have already discussed. The interpretation of the expression 'royalty paid' has been made without really appreciating the meaning of the word 'royalty'. Royalty is a word used in a sense in connection with mining leases, being a payment to the lessor proportionate to the amount of the demised mineral worked out within a certain period. It includes any other reservation in respect of minerals. Royalty has also been extended in relation to payment for land and also in connection with the liberary or dramatic work, being payment made to the author, editor or composer or for a piece of music. Rights or privileges for which remuneration is payable in the form of royalty -- payments made for the right to enter on land and cut and remove timber have been held to be royalty (see McCaulay v. Federal Commissioner of Taxation 69 C.L.R. 235). The Patna High Court has followed the Orient Paper Mills' case, A.I.R. 1977 S.C. 687, in preference to the judgment of a larger Bench, which cannot be said to be the practice which has been crystallised to be a rule of law of the Supreme Court, and the definition of a 'dealer', which was brought into use, did not require carrying on a business to become a dealer.

Reliance has also been placed by the State Government on the decision of Krupasindhu Sahu and Sons v. State of Orissa [1975] 35 S.T.C. 270. The question which arises for consideration in these cases did not arise in that case. The question for consideration in that case was when a log of wood is cut into pieces, whether the pieces of wood can be described as timber in common parlance. This decision is of no help for deciding the question in issue in the present cases.

19. For the reasons stated above, we hold as follows:

(1) That the bamboos and trees agreed to be severed are nothing but bamboos and timber after those are felled. When admittedly timber and bamboos are liable for taxation at the sale point, taxation of those goods at the purchase point amounts to double taxation and, as such, the notifications are ultra vires the provisions of the Act.

(2) The impugned notifications amount to taxation on agreements of sale, but not on sale and purchase of goods; and

(3) In the case of bamboo exploitation contracts, the impugned notifications amount also to impost of tax on profit a prendre and, as such, are against the provisions of the Orissa Sales Tax Act.

20. In view of the aforesaid findings, we do not consider it necessary to go into the other questions raised by the petitioners, namely, whether it is a works contract and whether the notifications amount to excessive delegation, or whether there has been business of purchase by the petitioners or whether there has been restriction on trade and business.

21. In the result, all the writ petitions are allowed. The impugned notifications of May, 1977, and December, 1977, in so far as relating to 'bamboos agreed to be severed' and 'trees agreed to be severed' are quashed.

In the circumstances of the cases, there will be no order as to costs.

S.K. RAY, C.J.

22. I agree that the impugned notifications must be quashed. In the series of sales in question, the first sale, that is, the taxable event, started from the D.F. 0. He is the taxable person, who sold the taxable goods, namely, the timber. What is sold by the D.F.O. is purchased by the petitioners. The identity of the goods sold and purchased is the same. Thus, when such a sale is taxed, the purchase thereof is excluded from the levy of tax by virtue of Sections 3-B and 8 of the Orissa Sales Tax Act and, consequently, the levy of purchase tax by the impugned notifications is bad.


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