Vishnu Agencies (P) Ltd. v. Commercial Tax Officer (1978) 1 SCC 520 : AIR 1978 SC 449

Vishnu Agencies (P) Ltd. v. Commercial Tax Officer  (1978) 1 SCC 520 : AIR 1978 SC 449

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Civil Appeals Nos. 724 of 1976 and 2488-2497 (NT) of 1972  decided on 16/12/1977

Headnote

(A) Constitution of India , Preamble— Interpretation of Constitution – Guiding principles.

In interpreting a constituent or organic statute, that construction most beneficial to the widest possible amplitude of its powers must be adopted. Constitution must not be construed in a narrow and pedantic sense, a broad and liberal spirit should inspire those whose duty it is to interpret it, a Constitution of a Government is a living and organic thing which of all instrument has the greatest claim to be construed ut res magis valeat quam pereat, the legislature in selecting subjects of taxation is entitled to take things as it finds them in rerum natura and it is not proper that a court should deny to such a legislature the right of solving taxation problems unfettered by a priori legal categories which often derive from the exercise of legislative power in the same constitutional unit.(Para 26)

The Constitution must be interpreted in the light of the common law, the principles and history of which were familiarly known to the framers of the Constitution, the language of the Constitution cannot be understood without reference to the common law, to determine the extent of the grants of power, the court must place itself in the position of the men who framed and adopted the Constitution and inquire what they must have understood to be the meaning and scope of those grants, when a power is conferred to legislate on a particular topic it is important, in determining the scope of the power, to have regard to what is ordinarily treated as embraced within that topic in legislative practice and particularly in the legislative practice of the State which has conferred that power, the object of doing so is emphatically not to seek a pattern to which a due exercise of the power must conform, but to ascertain the general conception involved in the words of the Act, and finally, Parliament must be presumed to have had Indian legislative practice in mind and, unless the context otherwise clearly requires, not to have conferred a legislative power intended to be interpreted in a sense not understood by those to whom the Act was to apply. Case law relied on.(Para 29)

(B) Government of India Act (1935) (25 and 26 Geo Vi and 1 Edw VIII Cl.(2)) , Cl.(2)— “Sale as contemplated by Entry 48” – Ingredients Constitution of India , Sch.VII List II Entry 54—

In order to constitute a sale as contemplated by Entry 48, it is necessary that there should be an agreement between the parties. As sale is necessarily a consensual transaction and if the parties have no volition or option to bargain, there can be no sale. Case law discussed.(Para 30) Anno : AIR Comm., Constitution of India (2nd Edn.), Sch. VII List II, Entry 54, N. 3.

(C) Constitution of India , Sch.VII List II Entry 54— Statutory or compulsory sales – Whether exigible to sales tax – Supply of cement by distributor to permit holder under W. B. Cement Control Order and procurement of paddy under A. P. Paddy Procurement (Levy) Orders – Exigible to sales tax

AIR 1963 SC 1207, OverruledAIR 1973 SC 668, Partly Overruled Bengal Finance (Sales Tax) Act (6 of 1941) , S.2(g)— West Bengal Cement Control Act (26 of 1948) , S.3(1)— West Bengal Cement Control Act (26 of 1948) , Para.1, Para.2, Para.3— Andhra Pradesh General Sales Tax Act (6 of 1957) , S.2(m)—

Per Majority : A transaction which is effected in compliance with the obligatory terms of a statute may nevertheless be a sale in the eye of law, so long as mutual assent, express or implied, is not totally excluded. AIR 1963 SC 1207, Overruled; AIR 1973 SC 668, Partly Overruled; AIR 1968 SC 478 and AIR 1968 SC 599 and AIR 1972 SC 87 and AIR 1976 SC 2478 and minority judgment in AIR 1963 SC 1207, Approved; (1976) 79 Cal WN 431 and W. P. Nos. 3005 etc. of 1969 D/- 31-3-1970 (Andh Pra), Affirmed.(Para 39 45 49)

The transaction of supply of cement by a distributor to a permit holder in terms of the provisions of the W. B. Cement Control Act and the W. B. Cement Control Order amounts to sale within the meaning of S. 2 (g) of the Bengal Finance (Sales Tax) Act, 1941 and the turnover is accordingly exigible to sales tax.(Para 53)

The limitations on the normal right of dealers and consumers to supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed by the W. B. Cement Control Order do not militate against the position that eventually, the parties must be deemed to have completed the transaction under an agreement by which one party bound itself to supply the stated quantity of goods to the other at a price not higher than the notified price and the other party consented to accept the goods on the terms and conditions mentioned in the permit or the order of allotment issued in its favour by the concerned authority.Offer and acceptance need not always be in an elementary form, nor indeed does the Law of Contract or of Sale of Goods require that consent to a contract must be express. It is common place that offere and acceptance can be spelt out from the conduct of the parties which covers not only their acts but omissions as well. Indeed, on occasions, silence can be more eloquent than eloquence itself. Just as correspondence between the parties can constitute or disclose an offer and acceptance, so can their conduct. This is because, law does not require offer and acceptance to conform to any set pattern or formula.(Para 32)

It is not obligatory on a trader to deal in cement nor on any one to acquire it,

The primary fact, therefore, is that the decision of the trader to deal in an essential commodity is volitional. Such volition carries with it the willingness to trade in the commodity strictly on the terms of the Control Orders. The consumer too, who is under no legal compulsion to acquire or possess cement, decides as a matter of his volition to obtain it on the terms of the permit or the order of allotment issued in his favour. That brings the two parties together, one of whom is willing to supply the essential commodity and the other to receive it. When the allottee presents his permit to the dealer, he signifies his willingness to obtain the commodity from the dealer on the terms stated in the permit.His conduct reflects his consent. And when, upon the presentation of the permit, the dealer acts upon it, he impliedly agrees to supply the commodity to be allottee on the terms by which he has voluntarily bound himself to trade in the commodity. His conduct too reflects his consent. Thus, though both parties are bound to comply with the legal requirements governing the transaction, they agree as between themselves to enter into the transaction on statutory terms, one agreeing to supply the commodity to the other on those terms and the other agreeing to accept it from him on the very terms. The conduct of the parties thus indicates that the transactions between them are consensual. Though the terms of the transaction are mostly predetermined by law, it cannot be said that there is no area at all in which there is no scope for the parties to bargain.(Para 33 34)

For the same reasons, transactions between the growers and procuring agents as also those between the rice-millers on one hand and the wholesalers or retailers on the other of procuring paddy under the A. P. (Procurement) Levy Orders are sales within the meaning of S. 2 (n) of the A. P. General Sales Tax Act, 1957. The turnover is accordingly exigible to sales tax or purchase tax as the case may be.(Para 53)

Per Beg, C. J.:- If, what is called a ‘sale’ is, in substance, mere obedience to a specific order, in which the so-called ‘price’ is only a compensation for the compulsory passing of property in goods to which an order relates, at an amount fixed by the authority making the order, the individual transaction may not be a ‘sale’ although the compensation is determined on some generally fixed principle and called ‘price’.In such a case the substance of the concept of a sale, as found under our law, itself disappears because the transaction is nothing more than the execution of an order. Deprivation of property for a compensation, which may even be described as ‘price’, does not amount to a sale when all that is done is to carry out an order so that the transaction is substantially a compulsory acquisition. On the other hand, a merely regulatory law, even if it circumscribes the area of free choice, does not take away the basic character or core of sale from the transaction. Scuh a law, which governs a class, may oblige sellers to deal only with parties holding licences who may buy particular or allotted quantities of goods at specified prices, but an essential element of choice is still left to the parties between whom agreements take place.The agreement despite considerable compulsive elements regulating or restricting the area of free choice, may still retain the basic character of a transaction of sale. In the former type of cases, the binding character of the transaction arises from the order directed to particular parties asking them to deliver specified goods and not from a general order or law applicable to a class. In the latter type of cases, the legal tie (vinculum juris) which binds the parties to perform their obligations remains contractual. The regulatory law merely adds other obligations, such as the one to enter into such a tie between the parties indicated there.Although the regulatory law might specify the terms, such as price, or parties, the regulation is subsidiary to the essential character of the transaction which is consensual and contractual. The basis of a contract is : “consensual ad idem”. The parties to the contract must agree upon the same thing in the same sense. Agreement on mutuality of consideration, ordinarily arising from an offer and acceptance, imparts to it enforceability in Courts of law. Mere regulation or restriction of the field of choice does not take away the contractual or essentially consensual binding core or character of the transaction. AIR 1963 SC 1207, Disting.(Para 3 4 5)

Cases referred

Oil and Natural Gas Commission vs. State of Bihar, [1977] 1 SCR 354  Para 38

Salar Jung Sugar Mills Ltd. v. State of Mysore [1972] 2 SCR 228  Para 38

New India Sugar Mills vs. C.S.T., Bihar AIR 1963 SC 1207.

Commissioner, Sales Tax, U.P. vs. Ram Bilas Ram Gopal AIR 1970 All 518.

Chittar Mal Narain Das vs. C.S.T [1971] 1 S.C.R. 671.

Indian Steel and Wire Products Ltd vs. State of Madras [1968] 1 S.C.R. 479. ,

Andhra Sugars Ltd. vs. State of Andhra Pradesh [1968] 1 S.C.R. 705.

State of Rajasthan vs. Karam Chand Thappar A.I.R. 1969 S.C. 343.

Kirkness  v. John Hudson and Co. Ltd. [1955] A.C.  696

State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. 1959 SCR 379

Ridge Nominees Ltd. v. Inland Revenue Commissioners [1962] Ch 376 para 43

Judgement

Y.V. CHANDRACHUD. J. – These appeals have been placed for hearing before a seven-Judge Bench in order to set at rest to the extent foreseeable, the controversy whether what is conveniently, though somewhat loosely, called a ‘compulsory sale’ is exigible to sales tax. When essential goods are in short supply, various types of orders are issued under the Essential Commodities Act, 1955 with a view to making the goods available to the consumer at a fair price. Such orders sometimes provide that a person in need of an essential commodity like cement, cotton, coal or iron and steel must apply to the prescribed authority for a permit for obtaining the commodity. Those wanting to engage in the business of supplying the commodity are also required to possess a dealer’s licence. The permit-holder can obtain the supply of goods, to the extent of the quantity specified in the permit, from the named dealer only and at a controlled price. The dealer who is asked to supply the stated quantity to the particular permit holder has no option but to supply the stated quantity of goods at the controlled price. The question for our consideration, not easy to decide, is whether such a transaction amounts to a sale in the language of the law.

2. We will refer to the facts of civil appeal 724 of 1976, in which a company called M/s Vishnu Agencies (Pvt.) Ltd. is the appellant. It carries on business as an agent and distributor of cement in the State of West Bengal and is a registered dealer under the Bengal Finance (Sales Tax) Act, 1941, referred to hereinafter as the Bengal Sales Tax Act. Cement being a controlled commodity, its distribution is regulated by the West Bengal Cement Control Act, 26 of 1948, referred to hereinafter as the Cement Control Act, and by the orders made under Section 3(2) of that Act. Section 3(1) of the Cement Control Act provides, inter alia, for regulation of production, supply and distribution of cement for ensuring equitable supply and distribution thereof at a fair price. By the Cement Control Order, 1948 framed under the Cement Control Act, no sale or purchase of cement can be made, except in accordance with the conditions contained in the written order issued by the Director of Consumer Goods, West Bengal or the Regional Honorary Adviser to the Government of India at Calcutta or by officers authorised by them, at prices not exceeding the notified price.

3. The appellant is a licensed stockist of cement and is permitted to stock cement in its godown, to be supplied to persons in whose favour allotment orders are issued, at the price stipulated and in accordance with the conditions of permit issued by the authorities concerned. The authorities designated under the Cement Control Order issue permits under which a specified quantity of cement is allotted to a named permit-holder, to be delivered by a named dealer at the price mentioned in the permit. A permit is generally valid for 15 days and as soon as the price of cement allotted in favour of an allottee is deposited with the dealer, he is bound to deliver to the former the specified quantity of cement at the specified price.

5. The appellant supplied cement to various allottees from time to time in pursuance of the allotment orders issued by appropriate authorities and in accordance with the terms of the licence obtained by it for dealing in cement. The appellant was assessed to sales tax by the first respondent, the Commercial Tax Officer, Sealdah Charge, in respect of these transactions. It paid the tax but discovered on perusal of the decision of this Court in [AIR 1963 SC 1207], that the transactions were not exigible to sales tax. Pleading that the payment was made under a mistake of law, it filed appeals against the orders of assessment passed by Respondent 1. It contended in appeals before the Assistant Commissioner of Commercial Taxes that by virtue of the provisions of the Cement Control Act and the Cement Control Order, no volition or bargaining power was left to it and since there was no element of mutual consent or agreement between it and the allottees, the transactions were not sales within the meaning of the Sales Tax Act. The appellant further contended that if the transactions were treated as sales, the definition of “sale” in the Sales Tax Act was ultra vires the legislative competency of the Provincial Legislature under the Government of India Act, 1935 and of the State Legislature under the Constitution. The appellate authority rejected the first contention and upheld the assessments. It did not, as it could not, go into the second contention regarding legislative competence. The appellant adopted the statutory remedies open to it but since the arrears of tax were mounting up and had already exceeded a sum of rupees eight lacs, it filed a writ petition in the Calcutta High Court praying that the various assessment orders referred to in the edition be quashed and a writ of prohibition be issued directing the sales tax authorities to refrain from making any further assessments for the purpose of sales tax on the transactions between the appellant and the allottees.

8. Since the crux of the appellant’s contention is that the measures adopted to control the supply of cement leave no consensual option to the parties to bargain, it is necessary first to notice the relevant provisions of law bearing on the matter. The West Bengal Cement Control Act, 26 of 1948, was enacted in order to “confer powers to control the production, supply and distribution of, and trade and commerce in, cement in West Bengal”. Section 3(1) of the Act empowers the Provincial Government to provide, by order in the Official Gazette, for regulating the supply and distribution of cement and trade and commerce therein. Section 3(2) provides by clauses (b) to (e) that an order made under sub-section (1) may provide for regulating or controlling the prices at which cement may be purchased or sold and for prescribing the conditions of sale thereof; regulating by licenses, permits or otherwise, the storage, transport, movement, possession, distribution, disposal, acquisition, use or consumption of cement; prohibiting the withholding from sale of cement ordinarily kept for sale; and for requiring any person holding stock of cement to sell the whole or specified part of the stock at such prices and to such persons or classes of persons or in such circumstances, as may be specified in the order. If any person contravenes an order made under Section 3, he is punishable under Section 6 with imprisonment for a term which may extend to three years or with fine or with both, and if the order so provides, any Court, trying such contravention, may direct that any property in respect of which the Court is satisfied that the order has been contravened shall be forfeited to the Government.

9. In exercise of the powers conferred by Section 3(1) read with clauses (b) to (a) of Section 3(2) of the Act an older which may conveniently be called the Cement Control Order was promulgated by the Governor on August 18, 1948. The relevant clauses of that order contain the following provisions: By paragraph 1, no person shall after the commencement of the order sell or store for sale any cement unless he holds a licence and except in accordance with the conditions specified in such licence obtained from the Director of Consumer Goods, West Bengal, or any officer authorised by him in writing in this behalf. By paragraph 2, no person shall dispose of or agree to dispose of any cement except in accordance with the conditions contained in a written order of the Director of Consumer Goods, West Bengal or the authorities specified in the paragraph. By paragraph 3, no person shall acquire or agree to acquire any cement from any person except in accordance with the conditions contained in a written order of the Director of Consumer Goods, West Bengal, or the authorities specified in the paragraph. By paragraph 4, no person shall sell cement at a “higher than notified price”. By paragraph 8, no person or stockist who has any stock of cement in his possession and to whom a written order has been issued under paragraph 2 shall ^refuse to sell the same, “at a price not exceeding the notified price”, and the seller shall deliver the cement to the buyer “within a reasonable time after the payment of price” By paragraph 8A, every stockist or every person employed by him shall, if so requested by the person acquiring cement from him under a written order issued under paragraph 3, weigh the cement in his presence or in the presence of his authorised representative at the time of delivery.

11. As regards the batch of appeals from Andhra Pradesh, the levy of tax was challenged by three sets of persons, the procuring agents, the rice-millers and the retailers with the difference that the procuring agents were assessed to purchase tax, while the others to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. By virtue of the provisions of the Andhra Pradesh Paddy Procurement (Levy) Orders, the paddy-growers can sell their paddy to licensed procuring agents appointed by the State Government only and at the prices fixed by the Government. The agriculturist has the choice to. select his own procuring agent but he cannot sell paddy to a private purchaser. The procuring agents in their turn have to supply paddy to the rice-millers at controlled prices. The millers, after converging paddy into rice, have to declare their stocks to the Civil Supplies Department. Pursuant to the orders issued by the Department, the rice-millers have to supply a requisite quantity of rice to the wholesale or retail dealers at prices fixed by the Department. Orders for such supply by the millers are passed by the authorities under the A. P. Procurement (Levy) and Restriction on Sale Order, 1957. Under this order, every miller carrying on rice-milling operations is required to sell to the agent or officer duly authorised by the Government the minimum quantities fixed by the Government at the notified price; and no miller or other person who gets his paddy milled in any rice-mill can move or otherwise dispose of the rice recovered by milling at such rice-mill except in accordance with the directions of the Collector. A breach of these provisions is liable to be punished under Section 7 of the Essential Commodities Act, 1955 and the goods are liable to be forfeited under Section 6A of that Act. The A. P. sales tax authorities levied purchase tax on the purchase of paddy by the procuring agents from the agriculturists and they levied sales tax on the transactions relating to the supply of rice by the millers to the wholesale and retail dealers and on the sales made by the retailers to their customers. The case as regards the sales tax imposed on the transactions between the retail dealers and the consumers stood on an altogether different footing, but the writ petitions filed by the procuring agents and rice-millers raised questions similar to those involved in the writ petition filed in the Calcutta High Court.

13. We may now notice the provisions of the Sales Tax Acts. Section 2(8) of the Bengal Finance (Sales Tax) Act, 6 of 1941, defines a “sale” to mean “any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge”. Section 2(1) provides that the word “turnover” used in relation to any period means “the aggregate of the sale-prices or parts of sale-prices receivable, or if a dealer so elects, actually received by the dealer ….”. By clause (h) of Section 2, “sale-price” is defined to mean the amount payable to a dealer as valuable consideration for “the sale of any goods” By Section 4(1), every dealer whose gross turnover during the year immediately preceding the commencement of the Act exceeded-the taxable quantum is liable to pay tax under the Act on all “sales” effected after the date notified by the State Government.

14. Section 2(n) of the Andhra Pradesh Central Sales Tax Act, 1957 defines a “sale” as “every transfer of the property in goods by one person to another in the course of trade or commerce, for cash, or for deferred payment or for any other valuable consideration ….” Section 5 of that Act is the charging section.

15. According to these definitions of ‘sale’ in the West Bengal and Andhra Pradesh Sales Tax Acts, transactions between the appellants on one hand and the allottees or nominees on the other are patently sales because indisputably, in one case the property in cement and in the other, property in paddy and rice was transferred for cash consideration by the appellants; and in so far as the West Bengal case is concerned, property in the goods did not pass to the transferees by way of mortgage, hypothecation, charge or pledge. But that is over-simplification. To counteract what appears on the surface plain enough, learned Counsel for the appellants have advanced a twofold contention. They contend, in the first place, that the word ‘sale’ in the Sales Tax Acts passed by the Provincial or State Legislatures must receive the same meaning as in the Sale of Goods Act, 1930; or else, the definition of ‘sale’ in these Sales Tax Acts will be beyond the legislative competence of the Provincial and State Legislatures. Secondly, the appellants contend that since under the Sale of Goods Act, there can be no sale without a contract of sale and since the parties in these matters had no volition of their own but were compelled by law to supply and receive the goods at prices fixed under the Control Orders by the prescribed authorities, the transactions between them are not sales properly so called and therefore are not exigible to sales tax.

16. For examining the validity of the first contention, it is necessary to turn to the appropriate entries in the legislative lists of the Constitution Acts, for the contention is founded on the premise that the word ‘sale’ which occurs in those entries must receive the same meaning as in the Sale of Goods Act, 1930 since the expression “sale of goods” was, at the time when the Government of India Act was enacted, a term of well-recognised legal import in the general law relating to sale of goods and in the legislative practice relating to that topic both in England and in Indian Entry 48 in the Provincial List, List II of Schedule VII to the Government of India Act, 1935 relates to: “Taxes on the sale of goods”. Entry 54 of List II, of the Seventh Schedule to the Constitution reads to say: “Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I”. We are not concerned with Entry 92A of the Union List but we may refer to it in order to complete the picture. It refers to: “Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce”.

17. The contention of the appellants that the expression “sale of goods” in Entry 48 in the Provincial List of the Act of 1935 and in Entry 54 in the State List of the Constitution must receive the same meaning as in the Sale of Goods Act is repelled on behalf of the State Governments with the argument that constitutional provisions which confer legislative powers must receive a broad and liberal construction and therefore the expression “sale of goods” in Entry 48 and its successor, Entry 54, should not be construed in the narrow sense in which that expression is used in the Sale of Goods Act, 1930 but in a broad sense. The principle that in interpreting a constituent or organic statute, that construction most beneficial to the widest possible amplitude of its powers must be adopted has been examined over the years by various Courts, including this Court, and is too firmly established to merit reconsideration. The decisions have taken the view that a Constitution must not be construed in a narrow and pedantic sense, that a broad and liberal spirit should inspire those whose duty it is to interpret it, that a Constitution of a Government is a living and organic thing which of all instruments has the greatest claim to be construed ut res magis valeat quam pereat, that the Legislature in selecting subjects of taxation is entitled to take things as it finds them in rerum natura and that it is not proper that a court should deny to such a Legislature the right of solving taxation problems unfettered by a priori legal categories which often derive from the exercise of legislative power in the same constitutional unit.

24. In order, therefore, to determine whether there was any agreement or consensuality between the parties, we must have regard to their conduct at or about the time when the goods changed hands. In the first place, it is not obligatory on a trader to deal in cement nor on any one to acquire it. The primary fact, therefore, is that the decision of the trader to deal in an essential commodity is volitional. Such volition carries with it the willingness to trade in the commodity strictly on the terms of Control Orders. The consumer too, who is under no legal compulsion to acquire or possess cement, decides as a matter of his volition to obtain it on the terms of the permit or the order of allotment issued in his favour. That brings the two parties together, one of whom is willing to supply the essential commodity and the other to receive it. When the allottee presents his permit to the dealer, he signifies his willingness to obtain the commodity from the dealer on the terms stated in the permit. His conduct reflects his consent. And when, upon the presentation of the permit, the dealer acts upon it, he impliedly agrees to supply the commodity to the allottee on the terms by which he has voluntarily bound himself to trade in the commodity. His conduct too reflects his consent. Thus, though both parties are bound to comply with the legal requirements governing the transaction, they agree as between themselves to enter into the transaction on statutory terms, one agreeing to supply the commodity to the other on those terms and the other agreeing to accept it from him on the very terms It is therefore not correct to say that the transactions between the appellant and the allottees are not consensual. They, with their free consent, agreed to enter into the transactions.

25. We are also of the opinion that though the terms of the transaction are mostly predetermined by law, it cannot be said that there is no area at all in which there is no scope for the parties to bargain. The West Bengal Cement Control Act, 1948 empowers the Government by Section 3 to regulate or control the prices at which cement may be purchased or sold. The Cement Control Order, 1948 provides by paragraph 4 that no person shall sell cement at a “higher than notified price”, leaving it open to the parties to charge and pay a price which is less than the notified price, the notified price being the maximum price which may lawfully be charged. Paragraph 8 of the Order points in the same direction by providing that no dealer who has a stock of cement in his possession shall refuse to sell the same “at a price not exceeding the notified price”, leaving it open to him to charge a lesser price, which the allottee would be only too agreeable to pay. Paragraph 8 further provides that the dealer shall deliver the cement “within a reasonable time” after the payment of price. Evidently, within the bounds of reasonableness, it would be open to the parties to fix the time of delivery. Paragraph 8A which confers on the allottee the right to ask for weighment of goods also shows that he may reject the goods on the ground that they are short in weight just as indeed, he would have the undoubted right to reject them on the ground that they are not of the requisite quality. The circumstance that in these areas, though minimal, the parties to the transactions have the freedom to bargain militates against the view that the transactions are not consensual.

39. In Oil and Natural Gas Commission vs. State of Bihar, [1977] 1 SCR 354 a three-Judge Bench speaking through Ray, C.J., held, following the judgment in Salar Jung Sugar Mills Ltd. v. State of Mysore [1972] 2 SCR 228 that the supplies of crude oil by the Oil and Natural Gas Commission to a refinery of the Indian Oil Corporation amount sales, even though the supplies were pursuant to the directions and order Central Government and the Commission had no volition in the matter. Law presumes assent of parties, it was observed, when there is transfer of goods from one party to another.

40. The resume of cases may yet bear highlighting the true principle underlying the decisions of this Court which have taken the view that a transaction which is effected in compliance with the obligatory terms of a statute may nevertheless be a sale in the eye of a law. The Indian Contract Act which was passed in 1872 contained provisions in its seventh chapter comprising Sections 76 to 123 relating to sale of goods which were repealed on the enactment of a comprehensive law of sale of goods in 1930. The Contract Act drew inspiration from the English law of contract which is almost entirely the creation of English courts and whose growth is marked by features which are peculiar to the social and economic history of England. Historically, the English law of contract is largely founded upon the action on the case for assumpsit, where the essence of the matter was the undertaking. The necessity for acceptance of the undertaking or the promise led the earlier writers on legal theories to lay particular emphasis on the consensual nature of contractual obligations.

43. It all began with the reliance in Gannon Dunkerley (State of Madras v. Gannon Dunkerley and Co. Madras) Ltd. (1959 SCR 379)) on the statement in the Eighth Edition (1950) of Benjamin on Sale that to constitute a valid sale there must be a concurrence of four elements, one of which is “mutual assent”. That statement is a reproduction of what the celebrated author had said in the second and last edition prepared by himself in 1873. The majority judgment in New India Sugar Mills vs. Commissioner of Sales tax Bihar so derives sustenance from the same passage in Benjamin’s eighth edition. But as observed by Hidayatullah J. in his dissenting judgment in that case, consent may be express or implied and offer and acceptance need not be in an elementary form (page 510). It is interesting that the General Editor of the 1974 edition of Benjamin’s Sale of Goods says in the preface that the editors decided to produce an entirely new work partly because commercial institutions, modes of transport and of payment, forms of contract, types of goods, market areas and marketing methods, and the extent of legislative and governmental regulation and intervention, had changed considerably since 1868, when the first edition of the book was published. The formulations in Benjamins second edition relating to the conditions of a valid ‘sale’ of goods, which are reproduced in the eighth edition, evidently require modification in the light of regulatory measures of social control. Hidayatullah, J., in his minority judgment referred to above struck the new path; and Bachawat J. who spoke for the Court in Andhra Sugars went a step ahead by declaring that “the contract is a contract of sale and purchase of cane, though the buyer is obliged to give his assent under compulsion of a statute” (page 716). The concept of freedom of contract, as observed by Hegde, J. in Indian Steel and Wire Productions, has undergone a great deal of change even in those countries where it was considered as one of the basic economic requirements of a democratic life (page 490). Thus, in Ridge Nominees Ltd. v. Inland Revenue Commissioners [1962] Ch 376, the Court of Appeal, while rejecting .the argument that there was no sale because the essential element of mutual assent was lacking, held that the dissent of the shareholder was overridden by an assent which the statute imposed on him, fictional though it may be, that a sale may not always require the consensual element mentioned in Benjamin on Sale, and that there may in truth be a compulsory sale of property with which the owner is compelled to part for a price against his will. Decisions in cases of ‘compulsory acquisition’, where such acquisition is patent as in Kirkness  v. John Hudson and Co. Ltd. [1955] A.C.  696 or is inferred as in Chhitter Mal fall in a separate and distinct class. The observations of Lord Reid in  Kirkness     that ‘sale’ is a nomen juris – the name of a particular consensual contract -have therefore to be understood in the context in which they were made, namely, that compulsory acquisition cannot amount to sale. In Gannon Dunkerley, Venkatarama Aiyar, J. was influenced largely by these observations and by the definition of ‘sale’ in Benjamin’s eighth edition. Gannon Dunkerley involved an altogether different point and is not an authority for the proposition that there cannot at all be a contract of sale if the parties to a transaction are obliged to comply with the terms of a statute. Since we are putting in a nutshell what we have discussed earlier, we would like to reiterate in the interest of uniformity and certainty of law that, with great deference the majority decision in New India Sugar Mills is not good law. The true legal position is as is stated in the minority judgment in that case and in Indian Steel and Wire Products, Andhra Sugars. Salar Jung Sugar Mills and Oil and Natural Gas Commission. To the extent to which Cement Distributors Pvt. Ltd. is inconsistent with these judgments, it is also, with respect, not good law.

44. The conclusion which therefore emerges is that the transactions between the appellant, M/s Vishnu Agencies (Pvt.) Ltd., and the allottees are sales within the meaning of Section 2(g) of the Bengal Finance (Sales Tax) Act, 1941. For the same reasons, transactions between the growers and procuring agents as also those between the rice-millers on one hand and the whole-sellers or retailers on the other are sales within the meaning of Section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957. The turnover is accordingly exigible to sales tax or purchase tax as the case may be. The appeals are accordingly dismissed.

Beg, C.J. –

1. I am in general agreement with my learned brother Chandrachud, J., who has discussed all the authorities to admirably and comprehensively. I, however, would like to add a few observations stating the general conclusion, as I see it, emerging from an application of general principles and accumulation of case-law on the subject of what may be called “statuary” or “compulsory” sales. Are they sales at all so as to be exigible to sales tax or purchase tax under the relevant statutory provisions ?

2. The term “sale” is defined as follows in Benjamin on Sale (Eighth Edn.) :-

“To constitute a valid sale there must be a concurrence of the following elements, namely :

(1) parties competent to contract;

(2) mutual assent;

(3) a thing, the absolute or general property in which is transferred from the seller to the buyer; and

(4) a price in money paid or promised.”

3. It is true that a considerable part of the field over which what are called “sales” take place under either regulatory orders or levy orders passed or directions given under statutory provisions is restricted and controlled by these orders and directions. If, what is called a “sale” is, in substance, mere obedience to a specific order, in which the so-called “price” is only a compensation for the compulsory passing of property in goods to which an order relates, at an amount fixed by the authority making the order, the individual transaction may not be a “sale” although the compensation is determined on some generally fixed principle and called “price”. This was, for example, the position in New India Sugar Mills vs. C.S.T., Bihar AIR 1963 SC 1207. That was a case of a delivery according to an order given by the Government which could amount to a compulsory levy by an executive order although there was no legislative “levy order” involved in that case. On the other hand, in Commissioner, Sales Tax, U.P. vs. Ram Bilas Ram Gopal AIR 1970 All 518. the order under consideration was actually called a levy order, but the case was distinguishable from New India Sugar Mills vs. C.S.T., Bihar, on facts. It was held in the case of Ram Bilas that the core of what is required for a “sale” was not destroyed by the so-called “levy” order which was legislative. It is true that passages from the judgment of Pathak, J., in the case of Ram Bilas Ram Gopal were cited and specifically disapproved by a Bench of this Court in Chittar Mal Narain Das vs. C.S.T [1971] 1 S.C.R. 671. . But, perhaps the view of this Court in Chittar Mal Narain Das goes too far in this respect. It is not really the nomenclature of the order involved, but the substance of the transaction under consideration which matters in such cases.

4. In the first type of cases mentioned above the substance of the concept of a sale, as found under out law itself disappears because the transaction in nothing more than the execution of an order. Deprivation of property for a compensation, which may even be described as “price”, does not amount to a sale when all that is done is to carry out an order so that the transaction is substantially a compulsory acquisition. On the other hand, a merely regulatory law, even of it circumscribes the area of free choice, does not take away the basic character or core of sale from the transaction. Such a law, which governs a class, may oblige sellers to deal only with parties holding licences who may buy particular or allotted quantities of goods at specified prices, but an essential element of choice is still left to the parties between whom agreements take place. The agreement, despite considerable compulsive elements regulating or restricting the area of free choice, may still retain the basic character of a transaction of sale. This was the position in Indian Steel and Wire Products Ltd vs. State of Madras [1968] 1 S.C.R. 479. , Andhra Sugars Ltd. vs. State of Andhra Pradesh [1968] 1 S.C.R. 705. and State of Rajasthan vs. Karam Chand Thappar A.I.R. 1969 S.C. 343. There might be border-line cases in which it may be difficult to draw the line.

5. In the former type of cases, the binding character of the transaction arise from the order directed to particular parties asking them to deliver specified goods and not from a general order or law application to a class. In the latter type of cases, the legal tie (vinculum juris) which binds the parties to perform their obligations remind contractual. The regulatory law mere added other obligations, such as the one enter into such a tie between the parties indicated there. Although the regulation law might specify the terms, such as price or parties, the regulation is subsidiary to the essential character of the transaction which is consensual and contractual. The basis a contract is : “consensus ad idem”. The parties to the contract must agree upon same thing in the same sense. Agreement on mutuality of consideration, ordinary arising from an offer and acceptance, imparts to it enforceability in court of field of choice does not take away the contractor or essentially consensual binding core character of the transaction.

6. I may be forgiven for citing passage from my judgment in Commissioner of Sales Tax vs. Ram Bilas Ram Gopal indicate the setting of such transactions:-

“It appears to me to be necessary to distinguish between a restriction in the area of choice of parties and the transaction itself in order to determine the true character of the transaction. Limitation of the field of choice is a necessary concomitant of a controlled or mixed economy which ours is. Absolute freedom of contract or unregulated operation of the laws of supply and demand, which an apotheosis of the laissez faire doctrine demanded, led really to a shrinking of the area of freedom in the economic sphere, producing gross inequalities in bargaining powers and recurrent crises. Therefore, a regulated or a socialistic economy seeks to regulate the play of forces operating on the economic arena so that economic freedom of all concerned, including employers and employees, is preserved and so that the interests of consumers are also not sacrificed by any exploitation of conditions in which there is scarcity of goods. I think that the regulation or restriction of the are of choice cannot be held to take away the legal character of the transactions which take place within the legally restricted field. It is too late in the day, when so much of the nation’s social and economic activities are guided and governed by control others, allotment orders, and statutory contracts, to contend that mere State regulation of the economic sphere of life results in the destruction of the nature of the transactions which take place within that sphere.”

7. In Roman Law the contract on sale was classed as a “consensual” contract. The consent could, no doubt, be expressed implied. I find that Hidayatullah, J., in his very learned dissenting judgment in New India Sugar Mills‘ case, where some Roman Law is referred to, thought that even in a case of a specific order directing delivery of goods were could be an implied consent so as to constitute a sale. I find it, with great respect, difficult to go so far as that. What could be implied, upon the facts of a particular case, must still be a consent to a proposal if the transaction is to be construed as a “sale”. Mere compliance with an order may imply an acceptance of an order but acceptance of a proposal to purchase or sell are of a juristically different genus. It is, however, not necessary for us, in this case, to accept the correctness of the minority view of Hidayatullah, J., in New India Sugar Mills’ case. The transaction before us are sales on an application of the ratio decidendi of Indian Steel and Wire Products Ltd’s case and other cases decided on similar grounds.

8. The difficulty arises from the fact that, although the ingredients of a “sale”, as defined in Benjamin’s treatise on “Sale”, may seem to be satisfied even if delivery of goods is in obedience to an order to deliver them for a consideration, fixed or to be fixed, if we stretch mutual assent to cover assent resulting from orders given yet, it is difficult to see how such a transaction would be based on a contractual tie. According to S. 4(3) of out Sale of Goods Act, a sale results only from a contract which presupposes a minimal area of freedom of choice where the ordinary mechanism of proposal and acceptance operates.

9. For the reasons indicated above, while I agree with the answer given by my learned brother Chandrachud, J., to the question before us and also practically with all the views expressed by my learned brother, yet, I hesitate to hold that the majority opinion expressed by Shah, J., in New India Sugar Mills, case is erroneous. I think the case is distinguishable. This, however, makes no difference to the common conclusion reached by us on the facts of the case before us.

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