1985 (3) TMI 226 - SC - VAT and Sales Tax

Whether the property in the trees which were the subject- matter of the timber contracts passed to the respondent-firm while the trees were still standing or after they were severed?

Held that:- Appeal allowed. Entries Nos. 2 and 17 in the Schedule to Notification No. 67181-C.T.A. 135/77-F (S.R.O. No. 901/77) dated December 29, 1977 levying purchase tax at the rate of ten per cent on the purchase of bamboos agreed to be severed and standing trees agreed to be severed, are not ultra vires either entry 54 in List II in the Seventh Schedule to the Constitution of India or the Orissa Sales Tax Act, 1947 but are constitutional and valid.

Under the impugned provisions the taxable event is not an agreement to sever standing trees or bamboos but the purchase of standing trees or bamboos agreed to be severed.

The absence in the impuged provisions of the words "before sale or under the contract of sale" is immaterial for the impugned provisions read as a whole clearly show that the severance of standing trees or bamboos has to be under the contract of sale and before the purchase thereof has been completed and not before sale of such trees or bamboos.

The subject-matter of the impugned provisions is goods and the tax that is levied thereunder is on a completed purchase of goods. When under section 3-B of the Orissa Sales Tax Act, 1947 any goods are declared to be liable to tax on the turnover of purchases, such goods automatically cease to be liable to sales tax by reason of the proviso to that section.

The word "supersession" in the notifications dated December 29, 1977 is used in the same sense as the words "repeal and replacement" and, therefore, does not have the effect of wiping out the tax liability under the previous notifications.

The timber contracts are not works contracts but are agreements to sell standing timber.

Under the timber contracts the property in the trees which were the subject-matter of the contracts passed to the respondent-firm, Messrs. M.M. Khara, only in the trees which were felled, that is, in timber, after all the conditions of the contract had been complied with and after such timber was examined and checked and removed from the contract area. The impugned provisions, therefore, did not apply to the transactions covered by the timber contracts.

Timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber. As the sales of dressed or sized logs by the respondent firm have already been assessed to sales tax, the sales to the first respondent firm of timber by the State Government from which logs were made by the respondent firm cannot be made liable to sales tax as it would amount to levying tax at two points in the same series of sales by successive dealers, assuming without deciding that the retrospectively substituted definition of "dealer" in clause (c) of section 2 of the Orissa Sales Tax Act, 1947 is valid.

During the period June 1, 1977 to December 31, 1977 the sales of logs by the respondent firm would be liable to tax at the rate of ten per cent.

The bamboo contract is not a lease of the contract areas to the respondent company, the Titaghur Paper Mills Limited.The bamboo contract is also not a grant of an easement to the respondent company. The bamboo contract is a grant of a profit a prendre which in Indian law is a benefit to arise out of land and thus creates an interest in immovable property.

Being a benefit to arise out of land, any attempt on the part of the State Government to tax the amounts payable under the bamboo contract would be not only ultra vires the Orissa Act but also unconstitutional as being beyond the State's taxing power under entry 54 in List II in the Seventh Schedule to the Constitution of India.

Thus the judgment of the High Court in so far as it holds the impugned provisions to be unconstitutional and ultra vires the Orissa Sales Tax Act, 1947 requires to be reversed. Though the High Court did not give these consequential reliefs in view of its findings that the impugned provisions were invalid, it becomes necessary for us to do so in order to do complete justice between the parties as we are entitled to do under article 142 of the Constitution of India.