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TMI Blog1974 (4) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... re passed the West Bengal Taxation Laws (Amendment) Act, 1972 (West Bengal Act 20 of 1972) (hereinafter referred to as the Taxation Laws Amendment Act), and by section 3(5) thereof, entry 25, column 1, of the Schedule to the Sales Tax Act, 1941, was omitted in order to bring the sale of country spirit amongst other articles under the incidence of sales tax. The said Taxation Laws (Amendment) Act had no previous sanction of the President nor did it obtain any subsequent assent of the President. It, however, obtained the assent of the Governor on 21st July, 1972, and came into effect from 7th August, 1972. Circulars were issued both by the Excise Directorate and the Directorate of Commercial Taxes intimating the licensees that the sale of country spirit would henceforth be liable to sales tax at the rate of 6 per cent. On such imposition of sales tax on the sale of country spirit by licensees, the petitioners have moved this court disputing the validity of such an imposition. According to the petitioners, section 3(5) of the Taxation Laws (Amendment) Act is ultra vires the Constitution. It is claimed to be ultra vires, firstly, because the sale made by them as licensees is not a sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensees are left with a gross profit varying between 5.7 per cent to 7.8 per cent so that imposition of a levy of 6 per cent on the sale, which the licensees cannot pass on to the consumers, would render their business totally unprofitable and such a restriction must be considered to be directly affecting their trade. Therefore, the legislation squarely comes within the purview of articles 301 and 301(b) of the Constitution but, admittedly, there being no previous sanction nor any subsequent assent by the President the legislation must be held to be beyond the sanction of the Constitution. Mr. P.K. Sengupta, appearing on behalf of the respondents, has contested each of these two points. According to Mr. Sengupta, the sale effected by the licensees though regulated by the Bengal Excise Act, Rules, Regulation's and Orders made thereunder is a sale not only in the popular sense but also in the legal sense and, as such, the State Legislature had ample legislative competence to impose sales tax as proposed by the said Taxation Laws (Amendment) Act. To answer the second point raised by Mr. Bose, Mr. Sengupta contends that the imposition of sales tax cannot be considered to be a restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their rival contentions. "Sale" carries two senses. In the popular sense, it connotes any transfer of property in the goods for valuable consideration. Such, however, is not the meaning of sale in the legal sense or as it is understood in the Sale of Goods Act. In the legal sense, where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called sale. Or, in other words, to constitute a sale there must be a contract of sale. Though the definition of the term "sale" in the Sales Tax Act is wide enough to mean and include sale as in popular parlance, such a meaning cannot be given to the term because, in that event, the legislation would be beyond the legislative competence of the State Legislature. It is now well-settled that entry 48, List II, Seventh Schedule, of the Government of India Act, 1935, which corresponds to entry 54, List II, of the Seventh Schedule of the Constitution, when it refers to "sale of goods", by "sale" it means sale as in the Indian Sale of Goods Act, 1930. This was first laid down by the Supreme Court in the case of State of Madras v. Dunkerley[1958] 9 S.T.C. 353 (S.C.); A.I.R. 1958 S.C. 560., and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be bargaining between the buyer and the seller was greatly reduced, that did not mean that there was no freedom of contract. So long as the transactions were not completely controlled and regulated resulting in total exclusion of mutual assent, they would still be sale liable to the incidence of taxation imposed by a State legislation made under entry 48 or 54 as aforesaid. In the case of Andhra Sugars v. State of Andhra Pradesh[1968] 21 S.T.C. 212 (S.C.); A.I.R. 1968 S.C. 599., the Supreme Court went a little further and it was held that even if one of the parties to the contract is compelled by the statutory regulation to enter into it on rigidly prescribed terms and conditions and has no bargaining freedom, still so long as the other party is left with such a freedom and the transaction is effected through a contract, such a contract would be a contract of sale. That was a case where the tax was imposed on purchase. Under the provisions of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961, the assessee was compelled to purchase sugarcane from cane growers by entering into an agreement prescribed by the statute and for a price, minimum of which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the majority decision in New India Sugar Mills case[1963] 14 S.T.C. 316 (S.C.); A.I.R. 1963 S.C. 1207. I would not go so far as the Kerala High Court has gone in Deputy Commissioner v. Sreedhara Shenoy[1973] 32 S.T.C. 181. in holding that, in view of the later Supreme Court decisions, presence of mutual assent is no longer a required ingredient in a sale under the Sales Tax Act. That will be going against the majority decision in the New India Sugar Mills case[1963] 14 S.T.C. 316 (S.C.); A.I.R. 1963 S.C. 1207., which has yet not been dissented from or overruled by the Supreme Court in its later decisions. Having found out the principle to be applied I would now proceed to consider the nature of the transaction gone into by a licensee when he effects sale of country spirit. In the first place, I would refer to the necessary provisions of the Bengal Excise Act, 1909. Under section 4, the State Government is to declare by notification what is country spirit. Section 5 authorises the State Government to specify the quantity of such an intoxicant as the limit of a retail sale. Under section 13, no such intoxicant can be manufactured except under the authority and subject to the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ums. Rule 54 enjoins that the licensees are to take their supplies from warehouses of the area and at such strength as is prescribed; under rules 193 and 194, the licensee is precluded from employing in his establishment any person convicted of non-bailable offence or an offence under the Excise Act and opium laws except with the permission of the Collector and every salesman employed must be approved by the Collector or the Superintendent whose name should be endorsed on the licence. On those provisions and on the conditions of licence, it is, therefore, quite evident that the business of the licensee is highly regulated. Perhaps it could not have been otherwise because the business is in respect of noxious article likely to harm the society unless controlled. It is also established that, in the matter of effecting the sale, he has no choice of the customer inasmuch as whoever steps in and offers the price fixed must be provided with the intoxicant in the prescribed strength, in the prescribed quantity and on the fixed price, provided only the customer is not ineligible in law to purchase. Therefore, there is no doubt that the licensee is obliged to effect sale within such statuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, the Supreme Court held that the packing provided at a price wholly controlled or fixed did not constitute any sale. On facts, it is quite established that there was no sale of gunny packing, but the packing was a part of the transaction of supply of cement. It is, in that context, that it was observed that if the price is wholly controlled then the supply is not a sale. This observation, however, cannot be held to be an authority for a wide proposition that, In every case, where price is fixed or otherwise wholly controlled, sale of commodities with such fixed prices would not constitute sale in the legal sense. Such a proposition will run counter to the earlier decisions of the Supreme Court where, notwithstanding the price being fixed, the transactions were held to be sales as in the cases of Indian Steel and Wire Products [1968] 21 S.T.C. 138 (S.C.); A.I.R. 1968 S.C. 478., Andhra Sugars[1968] 21 S.T.C. 212 (S C.); A.I.R. 1968 S.C. 599., State of Rajasthan v. Karam Chand Thappar[1969] 23 S.T.C. 210 (S.C.); A.I.R. 1969 S.C. 343. and Salar Jung Sugar Mills[1972] 29 S.T.C. 246 (S.C.); A.I.R. 1972 S.C. 87. For reasons aforesaid, I am unable to accept the first contention raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by them that regulatory and compensatory taxes do not operate as hindrance to free trade and do not come within the prohibition of article 301. Three learned judges, however, took a contrary view that section 4(1) of that Act did impede free trade and, article 304(b) not being complied with, was ultra vires the Constitution. In the case of State of Madras v. Nataraja Mudaliar[1968] 22 S.T.C. 376 (S.C.); A.I.R. 1969 S.C. 147. , the Supreme Court was considering a sales tax legislation. Though the views expressed by Bachawat, J., may somewhat support the contention of Mr. Sengupta, that was not the majority view. The majority proceeded on the earlier views that a tax including sales tax may in certain cases directly and immediately restrict or hinder the flow of trade, but every imposition of tax does not do so. On the legislation there under consideration, the majority, however, overruled the decision of the Madras High Court and held that the statute permitting imposition of varying rates of tax in different States does not necessarily impede free flow of trade. Proceeding on the above principle laid down by the Supreme Court, I have now to consider the point raised by Mr. Bose o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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