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Full Case Details
A.N. GROVER, J. – 5. Arguments which have been addressed by both sides have centred on
question Nos. 1 and 3 which are as follows:
“(1) On the facts and circumstances of the case whether or not the Madhya Pradesh
Electricity Board is a dealer within the meaning of Section 2 (c) of the C. P. and Berar Sales
Tax Act, and Section 2 (d) of the Madhya Pradesh General Sales Tax Act, 1958, in respect of
its activity of generation, distribution, sale and supply of electrical energy?
(3) On the facts and circumstances of the case, whether or not steam is saleable goods
and if they are saleable goods is the turnover representing the supply thereof liable to be
assessed to sales tax in the hands of the assessee?”
The definition of a “dealer” is given in the two Acts substantially is that any person who
carried on the business of buying, selling, supplying or distributing the goods is a “dealer” and
“goods” are defined by Section 2(d) by Act XXI of 1947, as meaning all kinds of movable
property other than actionable claims….and includes all material articles and commodities
whether or not to be used in the construction, fitting out, improvement or repair of immovable
property. The definition contained in Section 2(g) of Act II of 1959, is almost in similar terms
except that certain additions are there with which we are not concerned. Reference may be made,
at this stage, to the definition of “movable property” which has not been defined in the two Acts
given in Section 2(24) of the Madhya Pradesh General Clauses Act. It has been defined to mean
“property of every description, except immovable property”. Section 2(18) of that Act says that
“immovable property” includes land, benefits to arise out of land and things attached to the earth,
or permanently fastened to anything attached to the earth”.
- The High Court went into a discussion from the point of view of mechanics relating to
transmission of electric energy. It was of the view that electricity could not be regarded as an
article or matter which could be possessed or moved or delivered. - Mr I. N. Shroff has relied on certain decisions in which the same point was involved as in
the present case, namely, whether electricity is “goods” for the purpose of imposition of sales tax.
In Kumbakonam Electric Supply Corporation Ltd. v. Joint Commercial Tax Officer, Esplanade
Division, Madras [14 STC 600], the Madras High Court was called upon to decide whether
electricity is “goods” for the purposes of the Madras General Sales Tax Act, 1959, and the
Central Sales Tax Act, 1956. After referring to the definition of “goods” as given in the Sale of
Goods Act, 1930, it was observed that under that definition goods must be property and it must be
movable. According to the learned Madras Judge any kind of property which is movable would
fall within the definition of “goods”, provided it was transmissible or transferable from hand to
hand or capable of delivery which need not necessarily be in a tangible or a physical sense.
Reference was also made to the definition given in the General Clauses Act which was quite wide
and it was held that if electricity was property and it was movable it would be “goods”. The
learned Judge found little difference between electricity and gas or water which would be
property and could be subjected to a particular process, bottled up and sold for consumption. It
was observed that electricity was capable of sale as property as it was sold, purchased and
consumed every where. A “dealer” was defined by the Central Sales Tax Act practically in the
same way as in the Madras General Sales Tax Act and it meant a person who carried on business
of buying and selling goods. In the opinion of the learned Judge the concept of dealer, goods and
sale comprehended all kinds of movable property. He further relied on certain decisions which
have been cited before and which will be presently noticed. A similar view was expressed by Tek
Chand, J. of the Punjab and Haryana High Court in Malerkolta Power Supply Company v. The
Excise and Taxation Officer, Sangrur [22 STC 325]. It was held that electric energy fell within
the definition of “goods” in both the Punjab Sales Tax Act, 1948, and the Central Sales Tax Act,1956
According to the learned Judge electric energy has the commonly accepted attributes of
movable property. It can be stored and transmitted. It is also capable of theft. It may not be
tangible in the sense that it cannot be touched without considerable danger of destruction or
injury but it was perceptible both as an illuminant and a fuel and also in other energy giving
forms Electric energy may not be property in the sense of the term “movable property” as used in
the Punjab and Central General Clauses Acts in contra-distinction to “immovable property” but it
must fall within the ambit of “goods” even if in a sense it was intangible or invisible”. As pointed
out in the Madras case the statement contained in 18 Am. Jur. 407 [18 AJ 407 (2 Electy)]
recognises that electricity is property capable of sale and it may be the subject of larceny. In
Naini Tal Hotel v. Municipal Board [AIR 1946 All 502], it was held that for the purpose of
Article 52 of the Indian Limitation Act, electricity was property and goods. In Erie County
Natural Gas and Fuel Co. Ltd. v. Carroll [(1911) AC 105], a question arose as to the measure of
damages for a breach of contract to supply gas. Lord Atkinson delivering the judgment of the
Privy Council applied the same rule which is applicable where the contract is one for sale of
goods. In other words gas was treated to be “goods.
8. The High Court, in the present case, appears to have relied on Rash Behari v. Emperor
[AIR 1936 Cal 753], in which approval was accorded to the statement in Pollock and Mulla’s
Commentary on Sale Goods Act, 1913 that it was doubtful whether that Act was applicable to
such “goods” as gas, water and electricity. The context in which this matter is discussed in the
Calcutta case is altogether different and distinguishable and what was being decided there was the
scope and ambit of Section 39 of the Electricity Act, 1910. As regards the entries in List II of the
Seventh Schedule to the Constitution, the relevant ones may be produced:
“53. Taxes on the consumption of sale of electricity.
54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions
of Entry 92-A of List I.”
9. The reasoning which prevailed with the High Court was that a well-defined distinction
existed between the sale or purchase of “goods” and consumption or sale of electricity otherwise
there was no necessity of having Entry No. 53 but under Entry 53 taxes can be levied not only on
sale of electricity but also on its consumption which could not probably have been done under
Entry 54. It is difficult to derive much assistance from the aforesaid entries. What has essentially
to be seen is whether electric energy is “goods” within the meaning of the relevant provisions of
the two Acts. The definition in terms is very wide according to which “goods” means all kinds of
movable property. Then certain items are specifically excluded or included and electric energy or
electricity is not one of them. The term “movable property” when considered with reference to
“goods” as defined for the purposes of sales tax cannot be taken in a narrow sense and merely
because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of
wood or a book it cannot cease to be movable property when it has all the attributes of such
property. It is needless to repeat that it is capable of abstraction, consumption and use which, if
done dishonestly, would attract punishment under Section 39 of the Indian Electricity Act, 1910.
It can be transmitted, transferred, delivered, stored, possessed etc., in the same way as any other
movable property. Even in Benjamin on Sale, 8th Ed. reference has been made at p. 171 to
County of Durham Electrical, etc. Co. v. Inland Revenue [(1909) 2 KB 604], in which electric
energy was assumed to be “goods”. If there can be sale and purchase of electric energy like any
other movable object, we see no difficulty in holding that electric energy was intended to be
covered by the definition of “goods” in the two Acts. If that had not been the case there was no
necessity of specifically exempting sale of electric energy from the payment of sales tax by
making a provision for it in the schedules to the two Acts. It cannot be denied that the Electricity
Board carried on principally the business of selling, supplying or distributing electric energy. It
would therefore clearly fall within the meaning of the expression “dealer” in the two Acts.
- As regards steam there has been a good deal of argument on the question whether it is
liable to be assessed to sales tax in the hands of the Electricity Board. According to Mr Shroff, the
Electricity Board carried on the business of selling steam to the Nepa Mills and that this has
lasted for a number of years. It has been submitted that simply because the Electricity Board does
not have any profit motive in supplying steam, it cannot escape payment of sales tax because the
steam is nevertheless being sold as “goods”. The High Court was of the view that the water which
the Nepa Mills supplied free to the Electricity Board became the property of the Board and in
return for this free supply the Board agreed to give steam to Nepa Mills at a rate based solely on
the coal consumed in producing steam. The mills had also agreed to reimburse the Electricity
Board for the loss sustained on account of the mills not taking the “full demand of steam”.
According to the High Court there was no contract for the sale of steam as such and it was only
for the labour and cost involved in its supply to the mills. The High Court relied on the findings
of the Tribunal on this point and held that the turnover in respect of steam was not taxable. The
tribunal in its order, dated June 16, 1966, referred to certain conditions of working arrangement
which was reduced to writing but which had not been properly executed as a contract which
showed that the mills was supplying water free and the Electricity Board was making a prorata
charge of conversion of water into steam. It seems to us that the High Court was right in coming
to the conclusion, on the finding of the tribunal, that the real arrangement was for supplying
steam on actual cost basis and in that sense it was more akin to a labour contract than to sale.
- On the findings of the tribunal and the High Court, we are of the opinion that the
arrangement relating to supply of steam in return for the water supplied by the mills on payment
of actual cost was not one of sale but was more in the nature of a works contract. In the result, the
answer of the High Court to the first question is discharged and it is held that the Electricity
Board is a “dealer” within the meaning of the relevant provisions of the two Act’s in respect of its
activities of generation, distribution, sale and supply of electric energy. The appeals are allowed
to the extent indicated above.
