TMI Blog1979 (9) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... at standing trees and bamboos agreed to be severed shall be liable to tax on turnover of purchase with effect from the first day of June, 1977, and direct that the following amendment shall be made in the notification of Government of Orissa, Finance Department No. 20209-CTA14/76-F. dated the 23rd April, 1976: Amendment.-In the schedule to the said notification, after serial numbers 2 and 16, the following new serial and entry shall be inserted under appropriate heading, namely: Serial No. Description of goods (1) (2) 2A Bamboos agreed to be severed. 16A Standing trees agreed to be severed." The other notification is as follows: "S.R.O. No. 373/77.-In exercise of the powers conferred by the first proviso to sub-section (1) of section 5 of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), the State Government do hereby direct that the following amendment shall be made in the notification of the Government of Orissa, Finance Department No. 20212-CTA-14/76-F. dated the 23rd April, 1976, and that the said amendment shall take effect from the first day of June, 1977. Amendment.-In the schedule to the said notification, after serial numbers 2 and 16, the following n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract areas. Besides the above, a minimum royalty per year has also been fixed and the company will not be entitled to refund of whole or part of the minimum royalty, if the company fails to cut the minimum quantity of bamboos in the year excepting under certain circumstances. During the period of operation of the agreement, the company would have the right to use any land or stream outside the licensed area from the contract area as well as all lands, roads and streams within the contract area. The company will also meet the local demand of bamboos to the extent to which permits are issued by the forest department to the local people for their bona fide, domestic and agricultural requirement. The company will also be at liberty to make dams across streams, cut canals, make watercourses, irrigation works, roads, bridges, buildings and tramways and any other work useful or necessary for the purpose of the said business in or upon the licensed areas. The company in conducting its operations on the contract areas shall not in any way interfere with the surface of the land save and so far as may be necessary for the immediate purpose of carrying on the necessary operations in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade over the partially healed up surface on the old wounds, and blaze is to be towards the top of the tree. As many such blazes are to be made 18" apart round the trees as its girth will permit. The lowest row of blazes may be 6" above the round. Similarly, more rows may be made higher up the trees taking care that the blazes of the two consecutive rows are not one row more than the other. They will be issued permit books for the season which are to be returned after the contract period for felling and carrying the trees cut. They shall not deprive the local tenants from enjoyment of forest produce for their bona fide domestic use. Except for local sale to the tenants, the firewood should be converted to billets, stacked and presented for passing before removal from the coupes. Unmarked trees of 45 cm. and above in girth and breast height shall not be felled in the clear felling including coppice coupes. They will be entitled to a maximum quantity of materials specified in the notice subject to availability. They will pay sales tax on the instalment amount as per the Sales Tax Rules along with instalment of the consideration money. They will also register their own hammer mark whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are not exigible to impost under the Orissa Sales Tax Act. If the petitioners succeed on these points, consideration of other questions would not arise. 7.. A preliminary question has been raised for consideration in these cases. The notification of the Finance Department of the Government of Orissa was issued under section 3-B of the Orissa Sales Tax Act on 23rd May, 1977, imposing purchase tax on bamboos agreed to be severed and standing trees agreed to be severed. This notification is under challenge in this Court. Meanwhile, another notification was issued on 29th December, 1977, under section 3-B of the Act, which is as follows: "In exercise of the powers conferred by section 3-B of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947), and in supersession of all previous notifications issued on the subject, the State Government do hereby declare that the goods mentioned in column (2) of the schedule given below, shall be liable to tax on turnover of purchase, with effect from the first day of January, 1978." 8.. In the aforesaid notification of 29th December, 1977, the previous items relating to bamboos agreed to be severed and trees agreed to be severed have also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contrary would not be tenable. The power to impose and assess a tax is essentially a legislative function: vide Rajnarain v. Chairman, Patna Administration[1955] 1 S.C.R. 290. In Strawboard Manufacturing Co. Ltd. v. Gutta Mill Workers' UnionA.I.R. 1953 S.C. 95 at 98, para 6., an industrial dispute had been referred by the Governor to the Labour Commissioner or a person nominated by him with the direction that the award should be submitted not later than 5th April, 1950. The award, however, was made on 13th April, 1950. On 26th April, 1950, the Governor issued a notification extending the time up to 30th April. It was held that in the absence of a provision authorising the State Government to extend from time to time the period within which the tribunal or the adjudicator could pronounce the decision, the State Government had no authority to extend the time and the award was, therefore, made without jurisdiction and, as such, was a nullity. In this case, attempt was made to take recourse to the General Clauses Act to impute power of amendment and modification conferred on the Government to be exercisable so as to validate the acts of the Governor. Their Lordships finally held "i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nlike sovereign legislature, which has power to enact laws with retrospective operation, the authority vested with the power of making subordinate legislation has to act within the limits of its power and cannot transgress the same. The initial difference between subordinate legislation and the statute laws lies in the fact that a subordinate law-making body is bound by the terms of its delegated or derived authority and that court of law, as a general rule, will not give effect to the rules thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled (see para 6). A similar view is also expressed by the Supreme Court in the Kerala State Electricity Board's caseA.I.R. 1976 S.C. 1031., wherein it has been reiterated that subordinate legislation cannot be said to be valid unless it is within the scope of the rule-making power as provided in the statute (see para 25). The notifications in question have been issued under section 3-B of the Orissa Sales Tax Act, which reads as follows: "The State Government may, from time to time, by notification, declare any goods or class of goods to be liable to tax on turnover of purchases: Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained in force and were operative till the notifications dated 29th December, 1977, came into operation. 12.. The scheme of the Orissa Sales Tax Act provides a liability on every dealer for sales tax or purchase tax whose gross turnover during the year is more than Rs. 25,000 and under section 4 of the Act is liable to pay the said taxes subject to the provisions of sections 3-B, 5, 6, 7 and 8. The definitions of several terms are to be found in section 2. The expression "taxable turnover" is residual part of the dealer's gross turnover that remains after deducting several items enumerated in section 5(2)(a) of the Act. From these provisions, it would be found that all goods unless they are notified to be tax-free are liable to be taxed at specified rates under section 5 of the Orissa Sales Tax Act on sales. Section 3-B of the Act authorises the State Government to impose tax at the purchase point on certain goods or class of goods and, in that event, they shall no more be taxable at the sale point. Section 8 authorises the State Government to prescribe the points where the goods are to be taxed in the series of sales or purchases by successive dealers and provides that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timber were taxable at the sale point. The present contention of the State Government is that those are different commodities. 13.. It is not disputed that, in finding out the true meaning of the entries mentioned in the Sales Tax Act, what is relevant is not the dictionary meaning but how those entries are understood in common parlance, specially in commercial circles. In common parlance, trees once they are felled and severed are known as timber. The nature or the character of felled trees does not change when they are brought outside the forest for purpose of sale. Even though a tree after felling might be sawn into separate logs, still its characteristic remains the same as well as its identity as understood in common parlance. In State of Madhya Bharat v. Hiralal[1966] 17 S.T.C. 313 (S.C.)., the Supreme Court in construing the relevant entry "iron and steel" held that when a dealer purchased scrap iron locally and imported iron plates from outside and after converting them into bars, flats and plates in his mills, sold them in the market, they continued to be "iron and steel" and, in spite of the change effected because of the process the goods had undergone, the goods sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of timber and forest produce, there is a stipulation that the persons taking auction are liable to reimburse the sales tax to the forest department. The position thus is that on these settlements, sales tax is imposed and collected. At the same time, those trees and timber which are agreed to be severed and which are exigible to sales tax have also become exigible to purchase tax under the impugned notifications. The sum total of both the taxes is more than 13 per cent, which is the maximum taxable limit under section 5 of the Act. Although the documents are for purchase of "standing trees or bamboos agreed to be severed", what really are appropriated to the contracts of sale are the severed trees or bamboos and not the standing trees or bamboos. Also section 2(n) of the Orissa Forest Act defines the term "timber" to include "trees fallen or felled and all wood cut up or sawn". In the absence of special definition in the Sales Tax Act, the meaning of "timber" as given in the Orissa Forest Act is relevant for ascertaining its true meaning. In common parlance, trees or bamboos after those are severed are timber and bamboos respectively. The nature and character of the felled on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analogy applies in the case of "bamboos" and "bamboos agreed to be severed". Bamboos like trees are immovable property, but those bamboos which have become ripe for cutting and are to be felled at a reasonably early date, will not be treated as live bamboo clusters, but as bamboos. Therefore, the bamboos agreed to be severed and bamboos are commercially the same thing. So also trees agreed to be severed and timber are not different, but the same goods. 17.. Entry No. 54, List II, of the Seventh Schedule of the Constitution of India, enumerates the legislative power of the State Legislature and it provides that the State Government is empowered to impose a tax by enactment either on sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I. The power to tax any goods can be availed of only where there has been in fact a sale as recognised by the general law, namely, the Sale of Goods Act. Therefore, to constitute a sale, besides agreement between the parties having capacity for the purpose of transferring title to the goods, (sic) money consideration, as a result of the transaction, the property must actually pass in the goods. If, under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er may not ordinarily be regarded as goods but by the inclusive definition in section 2(7) of the Sale of Goods Act, 1930, timber agreed to be sold shall be severed. In State of Madhya Pradesh v. Orient Paper Mills[1977] 40 S.T.C. 603 (S.C.); A.I.R. 1977 S.C. 687. (on which the State Government has relied and about which we will discuss later on), the Supreme Court has also held that the taxing event occurs when the title to the goods is transferred. It has further been held: "We are satisfied that despite its description, the deed confers, in truth and substance, a right to cut and carry timber of specified species. Till the trees are cut, they remain the property of the owner, namely, the appellant. Once the trees are severed, the property passes." Similarly, in two decisions of the Supreme Court, R. Abdul Quader Co. v. Sales Tax Officer, 2nd Circle, Hyderabad[1964] 15 S.T.C. 403 (S.C.); A.I.R. 1964 S.C. 922., and Bhopal Sugar Industries v. D.P. Dube[1963] 14 S.T.C. 406 (S.C.); A.I.R. 1964 S.C. 1037., it has been held that the State Government cannot extend the import of the expression "sale of goods" so as to impose liability for tax on transactions which are not, in fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actor. In Madras State v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353 (S.C.); A.I.R. 1958 S.C. 560., it has been observed that: "..............though the word 'sale' in its popular sense is not restricted to passing of title, and has a wider connotation as meaning the transaction of sale, and that in that sense an agreement to sell would, as one of the essential ingredients of sale, furnish sufficient nexus for a State to impose a tax, such levy could, nevertheless, be made only when the transaction is one of sale, and it would be a sale only when it has resulted in the passing of property in the goods to the purchaser...................Thus, according to the law both of England and of India, in order to constitute a sale it is necessary that there should be an agreement between the parties for the purpose of transferring title to goods, which of course presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. Unless all these elements are present, there can be no sale..............And if under the contract of sale, title to the goods has not passed, then there is an agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 735., the Supreme Court was considering an agreement by which some of the proprietors in the State of Madhya Pradesh granted to another person the right to take various produce and it was contended that the petitioners were enjoying profit a prendre and therefore were not hit by the provisions of the Madhya Pradesh Abolition Act. In that case, the petitioners, who were granted licence to cut, gather and carry away the produce in the shape of timber or wood, had also the right to install fadis (collection godowns) and construct kothas (godowns) on any open plot of land with the permission of the proprietor. That is not a naked right to take the leaves of tendu trees but a right of ingress and of regress from the land. There are further benefits including the right to occupy the land, to erect buildings and to take other forest produce not necessarily standing timber, growing crop or grass and, in that case, the rights conveyed comprise more than leaves of the trees, and it may not be correct to refer to it as being in respect of "growing crop" simpliciter. In Board of Revenue v. A.M. Ansari[1976] 38 S.T.C. 577 (S.C.); A.I.R. 1976 S.C. 1813., where the question of granting the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a without the impress of the forest contractor's registered property mark and the D.F.O. has the right to mark any piece of timber with Government hammer mark before it is removed from the stump site. We have already mentioned above that the Forest Contract Rules is also a part of the agreement relating to the document for exploitation of bamboos. Under section 18 of the Sale of Goods Act, no property in the goods is transferred unless and until the goods are ascertained. So, until the trees are duly marked, they cannot be characterised as "ascertained goods". Also under section 19 of the said Act, the property in the goods is transferred only at such time as the parties to the contract intend it to be transferred and, for the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. Judging the contracts or documents for bamboo exploitation or for timber and other forest produce, the said conditions of sale and the Contract Rules forming part of the agreement are relevant for ascertaining the intention of the parties. They clearly show that the property in the goods does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich should be limited to decisions given without notice of some inconsistent statutory provisions or authority binding on the court concerned. The Supreme Court has observed: "In exceptional instances, where by obvious inadvertence or oversight a judgment fails to notice a plain statutory provision or obligatory authority running counter to the reasoning and result reached, it may not have the sway of binding precedents................... A prior decision of this court on identical facts and law binds the court on the same points in a later case." While deciding the case reported in State of Madhya Pradesh v. Orient Paper Mills Ltd.[1977] 40 S.T.C. 603 (S.C.); A.I.R. 1977 S.C. 687. , the earlier judgments of larger Benches of the Supreme Court reported in Smt. Shantabai v. State of BombayA.I.R. 1958 S.C. 532., Mahadeo v. State of BombayA.I.R. 1959 S.C. 735. and Board of Revenue v. A.M. Ansari[1976] 38 S.T.C. 577 (S.C.); A.I.R. 1976 S.C. 1813. have not been looked into as authorities. It has been held in Mattulal v. Radhe Lal[1976] 38 S.T.C. 577 (S.C.); A.I.R. 1976 S.C. 1813. that if there are contradictory decisions of the Supreme Court, the former decision of a larger Bench i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leges for which remuneration is payable in the form of royalty-payments made for the right to enter on land and cut and remove timber have been held to be royalty (see McCaulay v. Federal Commissioner of Taxation 69 C.L.R. 235. The Patna High Court has followed the Orient Paper Mills' case(2), in preference to the judgment of a larger Bench, which cannot be said to be the practice which has been crystallised to be a rule of law of the Supreme Court, and the definition of a "dealer", which was brought into use, did not require carrying on a business to become a dealer. Reliance has also been placed by the State Government on the decision of Krupasindhu Sahu Sons v. State of Orissa[1975] 35 S.T.C. 270.The question which arises for consideration in these cases did not arise in that case. The question for consideration in that case was when a log of wood is cut into pieces, whether the pieces of wood can be described as timber in common parlance. This decision is of no help for deciding the question in issue in the present cases. 19.. For the reasons stated above, we hold as follows: (1) That the bamboos and trees agreed to be severed are nothing but bamboos and timber after those ..... X X X X Extracts X X X X X X X X Extracts X X X X
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