TMI Blog1963 (11) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... certain goods indented by the firm before dissolution were received in March, 1957, after dissolution. The goods of the firm which remained after paying off the debts and liabilities of the firm and taking accounts between the parties, were distributed in specie amongst the surviving partners and the representatives of the deceased partner and this fact was recorded in a deed of dissolution dated 27th July, 1957. The Sales Tax Officer, Licence Circle, Ahmedabad, by an order dated 23rd April, 1958, assessed the firm to sales tax for the period 1st April, 1956, to 31st March, 1957, and in such assessment included the goods of the firm valued at Rs. 94,861 which were distributed in specie amongst the partners on the dissolution of the firm. This he did under section 26(3) of the Act on the ground that the goods were allotted to the partners and were, therefore, liable to be taxed as if they were sold to the partners. Against the decision of the Sales Tax Officer, the firm preferred an appeal to the Assistant Collector of Sales Tax, but the appeal failed. A revision application to the Additional Collector of Sales Tax followed, but that was also rejected. The firm there upon carried th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and the Tribunal accordingly referred both the questions to this Court. We will first take up for consideration the second question which arose directly out of the contention which found favour with the Tribunal, for it can be disposed of in a few words. As a matter of fact Mr. K. H. Kaji, learned Advocate appearing on behalf of the firm, found it difficult to sustain the order of the Tribunal on that ground and he fairly conceded that it was not possible to argue that the allotment of goods amongst the partners on the dissolution of a firm was under the fiction created by section 26(3) a sale simpliciter and not a sale in the course of business and was, therefore, not liable to be included in the turnover of sales and the machinery of assessment set out in section 14 was consequently not applicable to the assessment of tax on such allotment under section 26(3). The argument was obviously unsustainable because it ignored the basic principle which requires that when a statute enacts that something shall be deemed to have been done which in fact and truth was not done, the Court is entitled and bound to ascertain for what purpose and between what persons the statutory fic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he firm. The State insisted that such allotment constituted a sale of the goods by the firm to the partner and was, therefore, includible in the turnover of sales of the firm and relied on section 26(3) in support of this proposition. Now prima facie, having regard to section 26(3) it would appear that the question must be answered in favour of the State but, said Mr. K.H. Kaji, section 26(3) was beyond the legislative competence of the State Legislature and was ultra vires, and the State was, therefore, not entitled to rely on it for the purpose of upholding the validity of the assessment. He contended that the power of the State Legislature to tax to sale of goods was derived from Entry 54 in List II of the Seventh Schedule to the Constitution, which at the time when section 26(3) was enacted, was in the following terms, namely, "taxes on the sale or purchase of goods other than newspapers", and the expression "sale of goods" in this entry had the same meaning as sale of goods in the Indian Sale of Goods Act and the State Legislature was consequently not entitled to make any law levying tax on transactions which were not of the nature of sale of goods within the meaning of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it." When legislative power is conferred on a Legislature to legislate with regard to a particular topic of legislation, the Legislature must necessarily also have power to legislate on all matters which are ancillary or subsidiary to the main subject for otherwise it may not be possible to have effective legislation on the subject. Vide Edward Mills Co., Ltd. v. The State of Ajmer and Another (1955) 1 S.C.R. 735. and State of Rajasthan v. G. Chawla A.I.R. 1959 S.C. 544. The proposition is, therefore, now well established and beyond controversy that the Legislature has power to legislate not only on a subject-matter which falls directly within the subject of the legislative entry but also on a subject-matter which may be ancillary or subsidiary to such subject, for otherwise much of the legislation would be rendered ineffective on the ground that provisions which are necessarily incidental to effective legislation on the subject expressly within the power of the Legislature cannot be made by the Legislature on the ground that they fall outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that the provisions were beyond the legislative power of the State Legislature under Entry 48 in List II of Schedule VII to the Government of India Act, 1935, being the Constitution in force at the date when the provisions were enacted. The Supreme Court was, therefore, called upon to determine the scope and ambit of this entry which was in the same terms as Entry 54 with which we are concerned in the present case. The Supreme Court held that the expression "sale of goods" in this entry had the same meaning as it has under the Indian Sale of Goods Act and that the State Legislature was, therefore, entitled to legislate with respect to levy of tax only in respect of those transactions which constituted sale of goods within the meaning of the Indian Sale of Goods Act and was not entitled in exercise of its legislative power under that entry to levy tax on transactions which did not constitute such sales. The Supreme Court then examined the question as to what constituted sale of goods within the meaning of the Indian Sale of Goods Act and said that in order to constitute such sale it was necessary that three elements should exist in a transaction: first, there should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the petitioners to the State of Madras were not the result of any contract of sale and there was, therefore, no sale on which tax could be charged under the provisions of the Bihar Sales Tax Act, 1947. This argument was accepted by Shah, J., who delivered the majority judgment. The learned Judge emphasised the consensual element in a sale and following Gannon Dunkerley's case [1958] 9 S.T.C. 353. took the view that in order to constitute a sale of goods under the Indian sale of Goods Act, property in goods must be transferred from the seller to the buyer under a contract of sale. The learned Judge held that under the Sugar and Sugar Products Control Order, 1946, the petitioners were not left any violation but were bound on pain of forfeiture and imprisonment to carry out the directions of the Sugar Controller and to despatch sugar to the State of Madras as directed by him and there was, therefore, no contract of sale under which it could be said that there was transfer of property in the goods from the petitioners to the State of Madras and concluded that since there was no contract of sale under which property in the goods passed from the petitioners to the State of Madras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by a retail dealer himself of motor spirit or lubricants sold to him for retail sale was, therefore, beyond the legislative competence of the State Legislature. It will be seen that in all these cases the Supreme Court examined whether the transaction which was sought to be taxed by the State Legislature was a sale within the meaning of the Indian Sale of Goods Act and wherever it found that the transaction was not such sale, it struck down the legislation in so far as it purported to tax such transaction on the ground that the legislative power for levying tax on sale of goods was restricted to enacting legislation for levying tax only on transactions which conformed to the definition of sale of goods within the meaning of the Indian Sale of Goods Act and the State Legislature was not entitled to tax any transactions which were not sale of goods stricto sensu. We must, therefore, address ourselves to the question whether the transaction in question in the present case, namely, the allotment of goods of the firm amongst the partners on dissolution could be said to be sale of goods within the meaning of the Indian Sale of Goods Act and in order to determine this question we must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of transferring property in the goods and that property in the goods must actually pass as a result of agreement, we have no doubt that these elements existed in the present transaction. But it is not necessary to discuss this aspect of the question since, in our opinion, the third element namely, that there must be money consideration for the transfer of property in the goods, was absent and therefore even if the first two elements existed, the transaction could not be a transaction of sale of goods within the meaning of the Indian Sale of Goods Act. It was in respect of this third element that the learned Advocate-General failed in his attempt to make out that the allotment of goods of the firm amongst the partners on dissolution constituted sale of goods within the meaning of the Indian Sale of Goods Act. We do not see how when the residue of the property of the firm after payment of debts and liabilities and settlement of accounts is divided amongst the partners in specie any money consideration can be said to have been promised or paid by any partner to the firm or for the matter of that to the other partners as consideration for the goods allotted to him. Consideration undou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduces often assist in the determination of the question whether such provision can be regarded as an exercise of ancillary or subsidiary power of legislation. It must also be remembered that the legislation must not under the guise of making an ancillary or subsidiary provision for the purpose of effectuating the main legislation carry out an object beyond the powers of the Legislature enacting it and encroach upon a field not properly belonging to it. The provision must be regarded in its true nature and character and it must be ascertained having regard to the object or purpose of the provision as also the effect produced by it as to whether it is really and truly a provision relating to an ancillary or subsidiary matter or whether under the guise of making a provision on an ancillary or subsidiary matter what it really seeks to do is to trespass into some other field. It is in the light of these principles that we must now consider as to whether the provision enacted in section 26(3) is a provision enacted by the Legislature on a matter ancillary or subsidiary to tax on sales and purchases of goods and whether it was necessarily incidental to effective legislation on that subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax on sales of goods specified in Column 1 of Schedule B at the rates, if any, specified against them in Column 2 of that Schedule but declared that goods on the purchase of which the dealer has paid or is liable to pay purchase tax shall not be liable to be included in the turnover of goods for the purpose of charge of sales tax. Section 10A provided that notwithstanding anything contained in section 8 or 10 a registered dealer who is liable to pay purchase tax on purchases of goods under section 10 shall be entitled to elect to pay either purchase tax on purchases of such goods or sales tax, if any, on sales of such goods when they are sold without being processed or altered in any manner so that he would be liable to pay only one of the two taxes. A third tax called general sales tax was also imposed by section 9 on sales of certain kinds of goods but that tax was to be paid in any event irrespective of the liability to pay purchase tax on purchases of such goods. Though the structure of the taxes was thus altered, section 26(3) remained the same with only this inconsequential difference that the words "or a licence, as the case may" which occurred in that section were dropp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and this loophole was necessary to be plugged and was so plugged by the Legislature by section 26(3). Section 26(3) was, therefore, necessary for making the main legislation effective and was clearly within the ancillary or incidental power of the State Legislature. The argument though attractive is, in our opinion, defective in at least two respects. In the first instance it is based on the provisions of the amended Act. The provisions which must be considered for the purpose of deciding whether section 26(3) can be justified as an exercise of ancillary or subsidiary power are not the provisions of the amended Act but the provisions of the Act as unamended since section 26(3) formed part of the Act as originally enacted and it is at that date that we must see whether the enactment of section 26(3) was within the legislative competence of the State Legislature. If it was, the validity of the section must be sustained. But if it was not, the section must be declared to be invalid, for if the section was void as being beyond the legislative competence of the State Legislature at the date when it was enacted, no subsequent amendments of the Act can resuscitate it. But even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x a transaction which was not a sale by fictionally treating it as a sale and the attempt was clearly beyond the legislative competence of the State Legislature. But as we pointed out above the provisions which we have to consider for the purpose of determining the validity of section 26(3) are the provisions of the Act as unamended and it is in the light of those provisions that we have to see whether on the date when section 26(3) was enacted it was a measure which could be justified by resort to the doctrine of ancillary or subsidiary powers. On this part of the case the learned Advocate-General contended that even under the unamended Act, if a firm which was registered under the Act was allowed to distribute the goods in specie amongst the partners on dissolution without attracting the charge of tax, the consequence would be that there would be escapement of tax. If the registered firm sold the goods in the course of its business, it would be liable to pay sales tax on the sale of the goods, but if the registered firm distributed the goods in specie amongst the partners and any partner was not registered under the Act and did not obtain registration within a particular peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cult to see how it can be said that there is any avoidance of tax for the purpose of remedying which the State Legislature can intervene. If the State Legislature can say that by allotment of goods amongst partners the firm is avoiding tax and the State Legislature is, therefore, entitled to tax such allotment, the State Legislature should equally be entitled to say that if a dealer instead of selling the goods purchased by him gifts them or consumes them and thereby tax which would have been payable if the goods had been sold is avoided, it can tax such gift or consumption as if it were a sale. Clearly such a thing cannot be done and as a matter of fact the attempt of the Madhya Pradesh Legislature to tax consumption of goods by a dealer was declared to be ultra vires by the Supreme Court in Bhopal Sugar Industries case[1963] 14 S.T.C. 406. On the same principle we do not see how the attempt of the State Legislature in the present case can be sustained. The Act as it stood was quite effective in so far as it taxed sales of goods and if a dealer did not sell goods, he was obviously not liable to pay tax and it could not be urged that since by not selling, a dealer would be avoiding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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