TMI Blog1988 (2) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember, 1979 to 31st August, 1983 is paid with interest and surcharge, the same would be recovered as arrears of sales tax. Obviously, the said proceeding was issued pursuant to subclause (25) of the abovesaid lease deed under which the petitioner agreed to pay all taxes payable under the laws in force from time to time. The petitioner has questioned the said proceeding in this writ petition impleading the State of Andhra Pradesh as the 1st respondent and the Divisional Forest Officer as the 2nd respondent. It is contended by the learned counsel for the petitioner, Sri K. Srinivasa Murthy, that the present case is squarely governed by the judgment of the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213. It is pointed out that the Supreme Court judgment considered a similar agreement entered into by a paper mill and came to the conclusion that there was no "sale" of the bamboos under the contract inasmuch as the goods were not put in a deliverable state at the time of contract and since the purchases were governed by the provisions of the Forest Laws of the State. The Supreme Court case, it is further pointed out, dealt not only with the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period from 1st October, 1975 to 30th September, 1995? In other words, what is the nature of the contract? Point No. 1: In this discussion under point No. 1, we assume that the contracts in question are contracts of sale. This discussion is subject to our findings on point No. 2. For the purpose of deciding this point, it is necessary to analyse the provisions of the contract, the provisions of the statute and the judgment of the Supreme Court. Terms of the contract: At the outset, it is necessary to refer to the various important clauses of the agreement dated 20th July, 1977 entered into by the petitioner-company and the Government of Andhra Pradesh. Clauses I to VII are contained in the preamble to the agreement while the regular agreement whose terms are mentioned in clause VII are 40 in number. The agreement contains a schedule showing that the subject-matter thereof is three areas of forest land consisting of Kakinada, Visakhapatnam and Eluru Divisions. The agreement describes the Governor of Andhra Pradesh as the "lessor" and the petitioner-company as the "lessee". Clause II provides that the lessor had agreed to allocate about one lakh tonnes of bamboos annually and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ltural requirement and prescriptions of the working plan that may be revised from time to time by the Forest Department. (2) Subject to item (3) below the lessee shall pay a royalty at the rate of Rs. 60 per tonne for bamboos felled and collected from 1st October, 1975 the rate of royalty being liable to be revised by the lessor from time to time at an interval of not less than 5 years. (3) The lessee shall pay an annual minimum royalty equal to 85 per centum of royalty on 1,00,000 tonnes of bamboos irrespective of whether the lessee felled and collected the said quantity or not and shall deposit rupees one lakh as security for the due performance of the obligations herein contained. (4) The lessee shall be intimated one year in advance of the coupes to be worked by him situated in any or all of the divisions indicated in the schedule and the lessee shall work in the leased areas in accordance with the prescriptions of the working plans in force and any subsequent changes made from time to time. The lessee shall work only one coupe every year in each of the felling series prescribed in the working plan and allotted under this contract. Each coupe is demarcated by natural boun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lessee. Sub-clause (9) deals with rebate on annual minimum royalty and states that the lessor reserves the following rights in the leased area: (i) to extract bamboos for departmental use; (ii) to permit the local free grantees residing near about and around the leased area and who are victims of fire, floods or earthquake, etc., to remove the bamboos in accordance with rules; (iii) to agree to grant mineral concessions; (iv) to permit the local inhabitants and buroods to remove bamboos; and (v) in lieu of the supplies made for any of the items indicated above, the minimum royalty may be reduced proportionately. Sub-clause (10) deals with the conditions under which the lessee can claim compensation. Sub-clause (11) is important and provides that the lessee, even before delivery of the bamboos cut, will be liable for loss by theft, fire and floods and other causes or natural calamities. It further states that the bamboos shall be considered to have passed into the possession of the lessee "for the purpose of that clause" from the time they are cut and royalty shall be payable for all bamboos that have been cut. Sub-clause (12) deals with the prohibition against the lessee doing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plantations. Sub-clause (25) states that the lessee shall be liable to pay all taxes under the laws in force from time to time. Sub-clause (28) states that if there is any fire or forest offences in the leased area the lessee shall render every assistance to the lessor in that connection. Sub-clause (29) is important and states that the lessee shall at all times comply with the provisions of the A.P. Forest Act, 1967 and all rules made by the Government thereunder and the provisions of this agreement should be deemed to be subject to the provisions of the said Act, as revised from time to time. Subclause (31) deals with the accounts and the payments to be done by the lessee. Sub-clause (34) states that all amounts due by the lessee could be recovered as arrears of land revenue as provided in the A.P. Forest Act, 1967. Sub-clause (37) states that the lessee shall not claim any compensatory areas in lieu of the areas assigned, alienated, disreserved or otherwise excluded from the leased areas by the lessor. Sub-clause (39) is important and states that the lease could be terminated by the lessor in the case of illicit fellings or non-payment of dues or serious irregularities commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted in the monsoon season from 1st July to 30th September. Flowering bamboos are protected and cannot be felled. The lessee is, however, responsible for theft, fire or flood damage to the bamboos before royalty is paid and they are removed and the "bamboos shall be considered to have passed into the possession" of the lessee "for this purpose". The lessee can construct roads, paths, storehouses and depots with the permission of the Forest Department. On completion of work in each coupe, the lessee is to give notice to the Forest Department who will take possession of the coupe. The lessee shall remove and weigh all stocks of bamboos within 6 months after the expiry of annual lease year, and if there is delay penalties can be levied. As and when such stocks are weighed at the weighing point, royalty is to be collected. The transport of bamboos is fully regulated and controlled by the Forest Department by issue of transit permits. All removals of felled bamboos are to be made through authorised routes. The lessee shall pay all taxes under the laws in force from time to time. The lessee shall, at all times, comply with the provisions of the A.P. Forest Act, 1967 and rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ......................." The word "goods" in section 2(h) of the Andhra Pradesh General Sales Tax Act, 1957 (before amendment by Act 18 of 1985) read as follows: "Section 2(h): 'Goods' means all kinds of movable property other than actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including those used or to be used in the construction, fitting out, improvement or repair of movable or immovable property, and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale and also includes motor spirit. Explanation: .................................." From the aforesaid definition in the Andhra Pradesh General Sales Tax Act, 1957 of "sale", it will be seen that there must essentially be a transfer of the "property" in "goods" for consideration. Explanation II is important and it states that notwithstanding anything contained in the Indian Sale of Goods Act, 1930, there is a sale or purchase of goods, if the goods are within the State, and (i) in the case of specific or ascertained goods, at the time the contract of sale or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the Properly in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale, when the time elapses or the conditions are fulfilled subject to which the property in goods is to be transferred. " It will thus be noticed that there is an essential distinction between a contract of sale and a sale of goods. The distinction is based upon the question whether the "property in the goods" has passed from one person to another. On the question of passing of "property" in the goods vis-a-vis specific, ascertained or unascertained goods sections 19 to 23 (section 24 is not relevant in the present case) are the most important. They read as follows: "Section 19: (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, adverted to sections 20 to 23 (see pages 242, 243 of 60 STC) and then considered the matter first from the point of transfer of property in specific goods and observed (page 244): "such purchase would be complete when the standing trees or bamboos are specific goods, that is, when they are identified and agreed upon at the time the contract of sale is made, and the contract is unconditional and further such standing trees or bamboos are in a deliverable state, that is, nothing remains to be done except for the buyer to enter upon the land of the seller and to fell and remove the trees or bamboos, as the case may be, without any let or hindrance. If these factors exist, then unless a different intention appears either from the terms of the contract or can be inferred from the conduct of the parties and other circumstances of the case, the property in such standing trees and bamboos would pass from the seller to the buyer when the contract is made and it is immaterial whether the time of payment of the price or the time of taking delivery of standing trees agreed to be severed or bamboos agreed to be severed or both is postponed". Their Lordships also considered the matter from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntil the respondent-firm had paid the amount..............and it was further open to the Divisional Forest Officer or the concerned Range Officer to stop further work if there was a default in payment of any instalment.................and the contract could also be terminated under rule 33 for such default." From these features, it was pointed (page 259 of 60 STC) that "if the property in the trees had passed to the respondent-firm" the further work or removal could not be stopped by the Forest Department and "the only remedy open to the seller would be to sue for the balance of the price'. Under rule 33 of the Orissa Rules the contract could itself be terminated, and the contractor would forfeit his right to all further trees to be severed if it committed any breach of the conditions. The mode of felling the trees was also not of the choice of the contractor but one prescribed by rule 20 of those Rules. Even after felling the trees, the Orissa contractor was not entitled to remove the felled trees by any route which he liked but only by prescribed routes and subject to permits for transport. Under rule 16 of the Orissa Rules, the felled trees could be removed only to prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere checked and examined and thereafter removed from the contract area. The same position would apply to the case of the bamboo contract assuming for the sake of argument that it is a contract of sale of goods." (emphasis* supplied) Is there a "sale" under the present contract? The question whether there is a "sale" under the contract dated 20th July, 1977 has to be decided on the basis of the (i) terms of the contract, (ii) the statutory provisions and (iii) the principles laid down by the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 above referred to. The contract was for the period 1st October, 1975 to 30th September, 1995, for 20 years and permitted the petitioner-company to fell, collect, store and remove the stocks of bamboos then growing or were likely to grow in the "leased areas mentioned in the schedule". The schedule indicates three forest divisions. Each year one lakh tonnes are to be cut at the bamboo coupes specified by the Forest Department, subject to the silvicultural requirements and prescriptions of the working plan. Only mature bamboos in the area specified and of a particular height were to be cut. They were not to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific goods, there must be an unconditional contract in respect of such goods in a "deliverable" state, whether the time of payment of the price or the time of delivery of the goods or both, are postponed. Again under section 21, if the goods are to be treated as "specific goods", and if the seller is bound to do something to the goods for the purpose of putting them in a deliverable state, the property does not pass until such thing is done and the buyer has notice thereof. Section 22 also deals with "specific goods" in a deliverable state and where the seller is bound to weigh, measure, test or is to do some other act or thing with reference to the goods for the purpose of ascertaining the price, the property does not pass until such act or thing is done and the buyer has notice thereof. Treating the goods as "unascertained" on 19th September, 1975 or on 20th July, 1977, the further requirement is that they must be in a deliverable state and the property passes when the goods are unconditionally appropriated to the contract by the seller with the assent of the buyer or by the buyer with the assent of the seller, such assent being express or implied or given before or after appropr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ........." Reliance is also placed on sub-clause (11) dealing with risk for theft, fire, floods, etc., placed on the lessee before removal. In our opinion, these submissions of the learned Government Pleader, cannot be accepted. Even if there is a "long-term selling arrangement" in regard to bamboos, there must be a "sale" of bamboos. Whatever nomenclature is applied unless there is a "sale" of goods as contemplated by the Indian Sale of Goods Act, 1930, there cannot be a sale liable to sales tax, as held by the Supreme Court. We have shown, after referring to the various clauses in the contract, that there is no "sale" on 19th September, 1975 or on 20th July, 1977 of the bamboos standing or to grow, inasmuch as the goods are not in a deliverable state. As per the above decision of the Supreme Court, the "sale" could be said to have taken place only if the buyer was in a position to remove the goods without "any let or hindrance". Hence the plea of "long-term selling arrangement" has no force. The further contention that the "coupes" in the present case are to be specified year after year and there is no such clause in the Orissa case, is not correct. It is clear (vide pages 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y states that "the bamboos shall be considered to have passed into the possession of the lessee, 'paper mills', for the purpose of this clause." In fact, even in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 (SC), there is a similar clause (see page 259 of 60 STC) and their Lordships stated that if title had not passed to the buyer, the risk cannot be passed -unless otherwise agreed" (section 26 of Indian Sale of Goods Act) and that this clause is a case where parties have otherwise so agreed for passing of risk before the passing of title. In the present case, this is clear enough from the words "for the purpose of this clause" mentioned in sub-clause (11). Hence this contention is also rejected. For all the above reasons, we hold that there is no "sale" of the "bamboos" either at the time of preliminary agreement dated 19th September, 1975 when G.O. Ms. No. 681 was issued or on 20th July, 1977 when the contract was entered into. We hold that this case is squarely governed by the Supreme Court judgment in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213. Point No. 1 is held accordingly in favour of the petitioner. Point No. 2.-The questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the quantum removed. The bamboo cannot be cut or removed except as provided in the contract and subject to the provisions of the A.P. Forest Act, 1967 and Rules and proceedings issued thereunder and unless the royalty and the penal levies, if any, are paid. The above terms are similar to those in the Orissa case. The Supreme Court summarised the position in that case, on this aspect, as follows. (pages 274-275 of 60 STC). "Having seen what the distinctive features of a profit a prendre, are, we will now turn to the bamboo contract to ascertain whether it can be described as a grant of a profit a prendre and thereafter to examine the authorities cited at the Bar in this connection. Though both the bamboo contract in some of its clauses and the timber contracts speak of 'the forest produce sold and purchased under this agreement', there are strong countervailing factors which go to show that the bamboo contract is not a contract of sale of goods. While each of the timber contracts is described in its body as 'an agreement for the sale and purchase of forest produce', the bamboo contract is in express terms described as 'a grant of exclusive right and licence to fell, cut, obta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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