Vishnu Agencies (P) Ltd. v. Commercial Tax Officer (1978) 1 SCC 520 : AIR 1978 SC 449

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Y.V. CHANDRACHUD. J. – These appeals have been placed for hearing before a sevenJudge Bench in order to set at rest to the extent foreseeable, the controversy whether what is conveniently, though somewhat loosely, called a ‘compulsory sale’ is exigible to sales tax. When essential goods are in short supply, various types of orders are issued under the Essential Commodities Act, 1955 with a view to making the goods available to the consumer at a fair price. Such orders sometimes provide that a person in need of an essential commodity like cement,
cotton, coal or iron and steel must apply to the prescribed authority for a permit for obtaining the commodity. Those wanting to engage in the business of supplying the commodity are also required to possess a dealer’s licence. The permit-holder can obtain the supply of goods, to the extent of the quantity specified in the permit, from the named dealer only and at a controlled price. The dealer who is asked to supply the stated quantity to the particular permit holder has no option but to supply the stated quantity of goods at the controlled price. The question for our consideration, not easy to decide, is whether such a transaction amounts to a sale in the language of the law.

2. We will refer to the facts of civil appeal 724 of 1976, in which a company called M/s Vishnu Agencies (Pvt.) Ltd. is the appellant. It carries on business as an agent and distributor of cement in the State of West Bengal and is a registered dealer under the Bengal Finance (Sales Tax) Act, 1941, referred to hereinafter as the Bengal Sales Tax Act. Cement being a controlled commodity, its distribution is regulated by the West Bengal Cement Control Act, 26 of 1948, referred to hereinafter as the Cement Control Act, and by the orders made under Section 3(2) of
   that Act. Section 3(1) of the Cement Control Act provides, inter alia, for regulation of production, supply and distribution of cement for ensuring equitable supply and distribution thereof at a fair price. By the Cement Control Order, 1948 framed under the Cement Control Act, no sale or purchase of cement can be made, except in accordance with the conditions contained in the written order issued by the Director of Consumer Goods, West Bengal or the Regional Honorary Adviser to the Government of India at Calcutta or by officers authorised by them, at prices not exceeding the notified price.
3. The appellant is a licensed stockist of cement and is permitted to stock cement in its godown, to be supplied to persons in whose favour allotment orders are issued, at the price stipulated and in accordance with the conditions of permit issued by the authorities concerned. The authorities designated under the Cement Control Order issue permits under which a specified quantity of cement is allotted to a named permit-holder, to be delivered by a named dealer at the price mentioned in the permit. A permit is generally valid for 15 days and as soon as the price of cement allotted in favour of an allottee is deposited with the dealer, he is bound to deliver to the former the specified quantity of cement at the specified price.

5. The appellant supplied cement to various allottees from time to time in pursuance of the allotment orders issued by appropriate authorities and in accordance with the terms of the licence obtained by it for dealing in cement. The appellant was assessed to sales tax by the first respondent, the Commercial Tax Officer, Sealdah Charge, in respect of these transactions. It paid the tax but discovered on perusal of the decision of this Court in New India Sugar Mills Ltd. v. Commr of Sales Tax [AIR 1963 SC 1207], that the transactions were not exigible to sales tax. Pleading that the payment was made under a mistake of law, it filed appeals against the orders of assessment passed by Respondent 1. It contended in appeals before the Assistant Commissioner of Commercial Taxes that by virtue of the provisions of the Cement Control Act and the Cement Control Order, no volition or bargaining power was left to it and since there was no element of mutual consent or agreement between it and the allottees, the transactions were not sales within the meaning of the Sales Tax Act. The appellant further contended that if the transactions were treated as sales, the definition of “sale” in the Sales Tax Act was ultra vires the legislative competency of the Provincial Legislature under the Government of India Act, 1935 and of the State Legislature under the Constitution. The appellate authority rejected the first contention and upheld the assessments. It did not, as it could not, go into the second contention regarding legislative competence. The appellant adopted the statutory remedies open to it but since the arrears of tax were mounting up and had already exceeded a sum of rupees eight lacs, it filed a
   writ petition in the Calcutta High Court praying that the various assessment orders referred to in the edition be quashed and a writ of prohibition be issued directing the sales tax authorities to refrain from making any further assessments for the purpose of sales tax on the transactions between the appellant and the allottees.
6. Since the crux of the appellant’s contention is that the measures adopted to control the supply of cement leave no onsensual option to the parties to bargain, it is necessary first to notice the relevant provisions of law bearing on the matter. The West Bengal Cement Control Act, 26 of 1948, was enacted in order to “confer powers to control the production, supply and distribution of, and trade and commerce in, cement in West Bengal”. Section 3(1) of the Act
   empowers the Provincial Government to provide, by order in the Official Gazette, for regulating the supply and distribution of cement and trade and commerce therein. Section 3(2) provides by clauses (b) to (e) that an order made under sub-section (1) may provide for regulating or controlling the prices at which cement may be purchased or sold and for prescribing the conditions of sale thereof; regulating by licenses, permits or otherwise, the storage, transport, movement, possession, distribution, disposal, acquisition, use or consumption of cement; prohibiting the withholding from sale of cement ordinarily kept for sale; and for requiring any person holding stock of cement to sell the whole or specified part of the stock at such prices and to such persons or classes of persons or in such circumstances, as may be specified in the order. If any person contravenes an order made under Section 3, he is punishable under Section 6 with imprisonment for a term which may extend to three years or with fine or with both, and if the order so provides, any Court, trying such contravention, may direct that any property in respect of which the Court is satisfied that the order has been contravened shall be forfeited to the Government.

9. In exercise of the powers conferred by Section 3(1) read with clauses (b) to (a) of Section
   3(2) of the Act an older which may conveniently be called the Cement Control Order was
   promulgated by the Governor on August 18, 1948. The relevant clauses of that order contain the
   following provisions: By paragraph 1, no person shall after the commencement of the order sell
   or store for sale any cement unless he holds a licence and except in accordance with the
   conditions specified in such licence obtained from the Director of Consumer Goods, West
   Bengal, or any officer authorised by him in writing in this behalf. By paragraph 2, no person shall
   dispose of or agree to dispose of any cement except in accordance with the conditions contained
   in a written order of the Director of Consumer Goods, West Bengal or the authorities specified in
   the paragraph. By paragraph 3, no person shall acquire or agree to acquire any cement from any
   person except in accordance with the conditions contained in a written order of the Director of
   Consumer Goods, West Bengal, or the authorities specified in the paragraph. By paragraph 4, no
   person shall sell cement at a “higher than notified price”. By paragraph 8, no person or stockist
   who has any stock of cement in his possession and to whom a written order has been issued under
   paragraph 2 shall ^refuse to sell the same, “at a price not exceeding the notified price”, and the
   seller shall deliver the cement to the buyer “within a reasonable time after the payment of price”
   By paragraph 8A, every stockist or every person employed by him shall, if so requested by the
   person acquiring cement from him under a written order issued under paragraph 3, weigh the
   cement in his presence or in the presence of his authorised representative at the time of delivery.
10. As regards the batch of appeals from Andhra Pradesh, the levy of tax was challenged by
    three sets of persons, the procuring agents, the rice-millers and the retailers with the difference
    that the procuring agents were assessed to purchase tax, while the others to sales tax under the
    Andhra Pradesh General Sales Tax Act, 1957. By virtue of the provisions of the Andhra Pradesh
    Paddy Procurement (Levy) Orders, the paddy-growers can sell their paddy to licensed procuring
    agents appointed by the State Government only and at the prices fixed by the Government. The
    agriculturist has the choice to. select his own procuring agent but he cannot sell paddy to a private
    purchaser. The procuring agents in their turn have to supply paddy to the rice-millers at controlled
    prices. The millers, after converging paddy into rice, have to declare their stocks to the Civil
    Supplies Department. Pursuant to the orders issued by the Department, the rice-millers have to
    supply a requisite quantity of rice to the wholesale or retail dealers at prices fixed by the
    Department. Orders for such supply by the millers are passed by the authorities under the A. P.
    Procurement (Levy) and Restriction on Sale Order, 1957. Under this order, every miller carrying
    on rice-milling operations is required to sell to the agent or officer duly authorised by the
    Government the minimum quantities fixed by the Government at the notified price; and no miller
    or other person who gets his paddy milled in any rice-mill can move or otherwise dispose of the

rice recovered by milling at such rice-mill except in accordance with the directions of the
Collector. A breach of these provisions is liable to be punished under Section 7 of the Essential
Commodities Act, 1955 and the goods are liable to be forfeited under Section 6A of that Act. The
A. P. sales tax authorities levied purchase tax on the purchase of paddy by the procuring agents
from the agriculturists and they levied sales tax on the transactions relating to the supply of rice
by the millers to the wholesale and retail dealers and on the sales made by the retailers to their
customers. The case as regards the sales tax imposed on the transactions between the retail
dealers and the consumers stood on an altogether different footing, but the writ petitions filed by
the procuring agents and rice-millers raised questions similar to those involved in the writ petition
filed in the Calcutta High Court.

13. We may now notice the provisions of the Sales Tax Acts. Section 2(8) of the Bengal
    Finance (Sales Tax) Act, 6 of 1941, defines a “sale” to mean “any transfer of property in goods
    for cash or deferred payment or other valuable consideration, including a transfer of property in
    goods involved in the execution of a contract, but does not include a mortgage, hypothecation,
    charge or pledge”. Section 2(1) provides that the word “turnover” used in relation to any period
    means “the aggregate of the sale-prices or parts of sale-prices receivable, or if a dealer so elects,
    actually received by the dealer ….”. By clause (h) of Section 2, “sale-price” is defined to mean the
    amount payable to a dealer as valuable consideration for “the sale of any goods” By Section 4(1),
    every dealer whose gross turnover during the year immediately preceding the commencement of
    the Act exceeded-the taxable quantum is liable to pay tax under the Act on all “sales” effected
    after the date notified by the State Government.
14. Section 2(n) of the Andhra Pradesh Central Sales Tax Act, 1957 defines a “sale” as
    “every transfer of the property in goods by one person to another in the course of trade or
    commerce, for cash, or for deferred payment or for any other valuable consideration ….” Section
    5 of that Act is the charging section.
15. According to these definitions of ‘sale’ in the West Bengal and Andhra Pradesh Sales Tax
    Acts, transactions between the appellants on one hand and the allottees or nominees on the other
    are patently sales because indisputably, in one case the property in cement and in the other,
    property in paddy and rice was transferred for cash consideration by the appellants; and in so far
    as the West Bengal case is concerned, property in the goods did not pass to the transferees by way
    of mortgage, hypothecation, charge or pledge. But that is over-simplification. To counteract what
    appears on the surface plain enough, learned Counsel for the appellants have advanced a twofold
    contention. They contend, in the first place, that the word ‘sale’ in the Sales Tax Acts passed by
    the Provincial or State Legislatures must receive the same meaning as in the Sale of Goods Act,
    1930; or else, the definition of ‘sale’ in these Sales Tax Acts will be beyond the legislative
    competence of the Provincial and State Legislatures. Secondly, the appellants contend that since
    under the Sale of Goods Act, there can be no sale without a contract of sale and since the parties
    in these matters had no volition of their own but were compelled by law to supply and receive the

goods at prices fixed under the Control Orders by the prescribed authorities, the transactions
between them are not sales properly so called and therefore are not exigible to sales tax.

16. For examining the validity of the first contention, it is necessary to turn to the appropriate
    entries in the legislative lists of the Constitution Acts, for the contention is founded on the
    premise that the word ‘sale’ which occurs in those entries must receive the same meaning as in
    the Sale of Goods Act, 1930 since the expression “sale of goods” was, at the time when the
    Government of India Act was enacted, a term of well-recognised legal import in the general law
    relating to sale of goods and in the legislative practice relating to that topic both in England and in
    Indian Entry 48 in the Provincial List, List II of Schedule VII to the Government of India Act,
    1935 relates to: “Taxes on the sale of goods”. Entry 54 of List II, of the Seventh Schedule to the
    Constitution reads to say: “Taxes on the sale or purchase of goods other than newspapers, subject
    to the provisions of Entry 92A of List I”. We are not concerned with Entry 92A of the Union List
    but we may refer to it in order to complete the picture. It refers to: “Taxes on the sale or purchase
    of goods other than newspapers, where such sale or purchase takes place in the course of interState trade or commerce”.
17. The contention of the appellants that the expression “sale of goods” in Entry 48 in the
    Provincial List of the Act of 1935 and in Entry 54 in the State List of the Constitution must
    receive the same meaning as in the Sale of Goods Act is repelled on behalf of the State
    Governments with the argument that constitutional provisions which confer legislative powers
    must receive a broad and liberal construction and therefore the expression “sale of goods” in
    Entry 48 and its successor, Entry 54, should not be construed in the narrow sense in which that
    expression is used in the Sale of Goods Act, 1930 but in a broad sense. The principle that in
    interpreting a constituent or organic statute, that construction most beneficial to the widest
    possible amplitude of its powers must be adopted has been examined over the years by various
    Courts, including this Court, and is too firmly established to merit reconsideration. The decisions
    have taken the view that a Constitution must not be construed in a narrow and pedantic sense, that
    a broad and liberal spirit should inspire those whose duty it is to interpret it, that a Constitution of
    a Government is a living and organic thing which of all instruments has the greatest claim to be
    construed ut res magis valeat quam pereat, that the Legislature in selecting subjects of taxation is
    entitled to take things as it finds them in rerum natura and that it is not proper that a court should
    deny to such a Legislature the right of solving taxation problems unfettered by a priori legal
    categories which often derive from the exercise of legislative power in the same constitutional
    unit.
18. In order, therefore, to determine whether there was any agreement or consensuality
    between the parties, we must have regard to their conduct at or about the time when the goods
    changed hands. In the first place, it is not obligatory on a trader to deal in cement nor on any one
    to acquire it. The primary fact, therefore, is that the decision of the trader to deal in an essential
    commodity is volitional. Such volition carries with it the willingness to trade in the commodity
    strictly on the terms of Control Orders. The consumer too, who is under no legal compulsion to

acquire or possess cement, decides as a matter of his volition to obtain it on the terms of the
permit or the order of allotment issued in his favour. That brings the two parties together, one of
whom is willing to supply the essential commodity and the other to receive it. When the allottee
presents his permit to the dealer, he signifies his willingness to obtain the commodity from the
dealer on the terms stated in the permit. His conduct reflects his consent. And when, upon the
presentation of the permit, the dealer acts upon it, he impliedly agrees to supply the commodity to
the allottee on the terms by which he has voluntarily bound himself to trade in the commodity.
His conduct too reflects his consent. Thus, though both parties are bound to comply with the legal
requirements governing the transaction, they agree as between themselves to enter into the
transaction on statutory terms, one agreeing to supply the commodity to the other on those terms
and the other agreeing to accept it from him on the very terms It is therefore not correct to say
that the transactions between the appellant and the allottees are not consensual. They, with their
free consent, agreed to enter into the transactions.

25. We are also of the opinion that though the terms of the transaction are mostly
    predetermined by law, it cannot be said that there is no area at all in which there is no scope for
    the parties to bargain. The West Bengal Cement Control Act, 1948 empowers the Government by
    Section 3 to regulate or control the prices at which cement may be purchased or sold. The Cement
    Control Order, 1948 provides by paragraph 4 that no person shall sell cement at a “higher than
    notified price”, leaving it open to the parties to charge and pay a price which is less than the
    notified price, the notified price being the maximum price which may lawfully be charged.
    Paragraph 8 of the Order points in the same direction by providing that no dealer who has a stock
    of cement in his possession shall refuse to sell the same “at a price not exceeding the notified
    price”, leaving it open to him to charge a lesser price, which the allottee would be only too
    agreeable to pay. Paragraph 8 further provides that the dealer shall deliver the cement “within a
    reasonable time” after the payment of price. Evidently, within the bounds of reasonableness, it
    would be open to the parties to fix the time of delivery. Paragraph 8A which confers on the
    allottee the right to ask for weighment of goods also shows that he may reject the goods on the
    ground that they are short in weight just as indeed, he would have the undoubted right to reject
    them on the ground that they are not of the requisite quality. The circumstance that in these areas,
    though minimal, the parties to the transactions have the freedom to bargain militates against the
    view that the transactions are not consensual.
26. The resume of cases may yet bear highlighting the true principle underlying the decisions
    of this Court which have taken the view that a transaction which is effected in compliance with
    the obligatory terms of a statute may nevertheless be a sale in the eye of a law. The Indian
    Contract Act which was passed in 1872 contained provisions in its seventh chapter comprising
    Sections 76 to 123 relating to sale of goods which were repealed on the enactment of a
    comprehensive law of sale of goods in 1930. The Contract Act drew inspiration from the English
    law of contract which is almost entirely the creation of English courts and whose growth is
    marked by features which are peculiar to the social and economic history of England.

Historically, the English law of contract is largely founded upon the action on the case for
assumpsit, where the essence of the matter was the undertaking. The necessity for acceptance of
the undertaking or the promise led the earlier writers on legal theories to lay particular emphasis
on the consensual nature of contractual obligations.

43. It all began with the reliance in Gannon Dunkerley on the statement in the Eighth Edition
    (1950) of Benjamin on Sale that to constitute a valid sale there must be a concurrence of four
    elements, one of which is “mutual assent”. That statement is a reproduction of what the
    celebrated author had said in the second and last edition prepared by himself in 1873. The
    majority judgment in New India Sugar Mills also derives sustenance from the same passage in
    Benjamin’s eighth edition. But as observed by Hidayatullah J. in his dissenting judgment in that
    case, consent may be express or implied and offer and acceptance need not be in an elementary
    form (page 510). It is interesting that the General Editor of the 1974 edition of Benjamin’s Sale
    of Goods says in the preface that the editors decided to produce an entirely new work partly
    because commercial institutions, modes of transport and of payment, forms of contract, types of
    goods, market areas and marketing methods, and the extent of legislative and governmental
    regulation and intervention, had changed considerably since 1868, when the first edition of the
    book was published. The formulations in Benjamins second edition relating to the conditions of a
    valid ‘sale’ of goods, which are reproduced in the eighth edition, evidently require modification
    in the light of regulatory measures of social control. Hidayatullah, J., in his minority judgment
    referred to above struck the new path; and Bachawat J. who spoke for the Court in Andhra
    Sugars went a step ahead by declaring that “the contract is a contract of sale and purchase of
    cane, though the buyer is obliged to give his assent under compulsion of a statute” (page 716).
    The concept of freedom of contract, as observed by Hegde, J. in Indian Steel and Wire
    Productions, has undergone a great deal of change even in those countries where it was
    considered as one of the basic economic requirements of a democratic life (page 490). Thus, in
    Ridge Nominees Ltd, the Court of Appeal, while rejecting .the argument that there was no sale
    because the essential element of mutual assent was lacking, held that the dissent of the
    shareholder was overridden by an assent which the statute imposed on him, fictional though it
    may be, that a sale may not always require the consensual element mentioned in Benjamin on
    Sale, and that there may in truth be a compulsory sale of property with which the owner is
    compelled to part for a price against his will. Decisions in cases of ‘compulsory acquisition’,
    where such acquisition is patent as in Kirkness or is inferred as in Chhitter Mal fall in a separate
    and distinct class. The observations of Lord Reid in Kirkness that ‘sale’ is a nomen juris – the
    name of a particular consensual contract -have therefore to be understood in the context in which
    they were made, namely, that compulsory acquisition cannot amount to sale. In Gannon
    Dunkerley, Venkatarama Aiyar, J. was influenced largely by these observations and by the
    definition of ‘sale’ in Benjamin’s eighth edition. Gannon Dunkerley involved an altogether
    different point and is not an authority for the proposition that there cannot at all be a contract of
    sale if the parties to a transaction are obliged to comply with the terms of a statute. Since we are
    putting in a nutshell what we have discussed earlier, we would like to reiterate in the interest of

uniformity and certainty of law that, with great deference the majority decision in New India
Sugar Mills is not good law. The true legal position is as is stated in the minority judgment in
that case and in Indian Steel and Wire Products, Andhra Sugars. Salar Jung Sugar Mills and
Oil and Natural Gas Commission. To the extent to which Cement Distributors Pvt. Ltd. is
inconsistent with these judgments, it is also, with respect, not good law.

44. The conclusion which therefore emerges is that the transactions between the appellant,
    M/s Vishnu Agencies (Pvt.) Ltd., and the allottees are sales within the meaning of Section 2(g) of
    the Bengal Finance (Sales Tax) Act, 1941. For the same reasons, transactions between the
    growers and procuring agents as also those between the rice-millers on one hand and the wholesellers or retailers on the other are sales within the meaning of Section 2(n) of the Andhra Pradesh
    General Sales Tax Act, 1957. The turnover is accordingly exigible to sales tax or purchase tax as
    the case may be. The appeals are accordingly dismissed.