M/S NEW INDIA SUGAR MILLS LTD. vs. COMMISSIONER OF SALES TAX, BIHAR

CIVIL APPEAL No. 237/1961Supreme Court1962 INSC 34426 November 1962Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH56 pages
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What did the Supreme Court hold?

By a majority (Kapur and Shah, JJ.), the Supreme Court held that the transactions did not amount to sales and were not liable to sales tax. The Court reasoned that to constitute a sale of goods under the Sale of Goods Act, 1930, there must be a contract of sale, which requires property in goods to be transferred from seller to buyer under such a contract. This necessitates an offer and acceptance, signifying volition on the part of contracting parties. The despatches under the Controller's directions lacked this element of volition; the assessee was compelled to comply and had no choice. The intimation of requirements by the State to the Controller, or the allotment order to the assessee, did not constitute an offer, nor did compliance with despatch instructions amount to acceptance. The Court relied on State of Madras v. Gannon Dunkerley & Co. and distinguished The Toja Iron & Steel Co. Ltd. v. The State of Bihar. The operative direction was to allow the appeals, setting aside the High Court's order. Justice Hidayatullah, dissenting, held that there was an implied contract of sale, with implied offer and acceptance, making the transactions taxable, and would have dismissed the appeals.

What were the facts?

M/s New India Sugar Mills Ltd. (the assessee), a sugar factory in Bihar, was directed by the Sugar Controller, under the Sugar and Sugar Products Control Order, 1946, to supply sugar valued at Rs. 6,89,482/- to the authorized agents of the State of Madras during the assessment period April 1, 1947, to March 31, 1948. The Sales Tax Officer, Darbhanga, included this value in the assessee's taxable turnover, levying sales tax. The assessee contended that these despatches, made under the Controller's directions, did not constitute sales and were not liable for sales tax. The Board of Revenue initially set aside the assessment order, finding no contract existed. However, the Patna High Court, on reference, held the despatches liable to sales tax. The assessee appealed to the Supreme Court.

What were the issues?

1. Whether the despatches of sugar by the assessee to the Province of Madras, pursuant to directions issued by the Sugar Controller under the Sugar and Sugar Products Control Order, 1946, constitute a 'sale' of goods liable to sales tax under the Bihar Sales Tax Act, 1947, considering Entry 48 of List II of the Government of India Act, 1935, and the Sale of Goods Act, 1930. Assessee's Contention: The despatches were not sales as they were made under compulsion from the Controller, without any contract of sale involving offer and acceptance between the assessee and the State of Madras. The assessee relied on the principle that a contract of sale requires volition from both parties, citing State of Madras v. Gannon Dunkerley & Co. and explaining The Toja Iron & Steel Co. Ltd. v. The State of Bihar. Revenue's Contention (as per High Court's affirmative answer and dissenting opinion): The transactions constituted sales. Consent, though necessary, can be express or implied. The Controller's allotment, coupled with the State's instructions and the assessee's compliance, created an implied contract of sale at a fixed price, quantity, and quality, making the transactions taxable. The revenue implicitly relied on the interpretation of 'sale of goods' in Entry 48, List II, to include all forms of sales, even under controls, citing State of Madras v. Gannon Dunkerley & Co. and The Toja Iron and Steel Co. Ltd. v. The State of Bihar.

Which sections of the Income-tax Act were involved?

Section 2 (g),Section 25(3),Section 4

AI-generated summary — verify with the full judgment below

2 S.C.R. SUPREME COURT REPORTS 459 M/S NEW INDIA SUGAR MILLS LTD. v. COMMISSIONER OF SALES TAX, BIHAR (J. L. K.APtra, M. HIDAYATULLAH and SHAH, JJ.)

Sales Taz-Sugar Control-Allotment by Oontrolkr- Supply of Sugar under al/olment order-If amounts to eak- Bihar Sales Taa; Act 1947 (Bihar 19 of 1947), s. 2 (g)-Sugar and Sugar Product. Oonlrol Order 1946-Sak of Goods Acl, 1930 (3 of 1930), a. ~Governmem of India Acl, 1935 (26. Geo. 5 Oh. 2), Seven/Ji Schedule, !Mt II, Entry 48. Under the Sugar and Sugar Products Control Order, 1946, the consuming States intimated to the Sugar Controller of India their requirements of sugar and the factory owners sent state· ments of stocks of sugar hdd by them. The Controller made allotments to various States and addressed orders to the factory owners directing them to supply sugar to the States in question in accordance with the despatch instructions from the State Governments. Under such allotment orders, the assesses, a sugar factory in Bihar, despatched sugar to the State of Madras. The State of Bihar treated these transactions as sales and levied sales tax thereon, under the Bihar Sales Act, 194 7. The assesses contended th

The order continues below.

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