Full Judgment Text
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PETITIONER:
COMMISSIONER OF SALES TAX, MADHYA PRADESH,INDORE
Vs.
RESPONDENT:
MADHYA PRADESH ELECTRICITY BOARD, JABALPUR
DATE OF JUDGMENT:
26/11/1968
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1970 AIR 732 1969 SCR (2) 939
1969 SCC (1) 200
ACT:
Electricity Supply Act, 1948, s. 18-Supply of Electricity
under-Supplier whether a ’dealer’ within the meaning of s.
2(d) of C.P. & Bearar Sales Tax Act 21 of 1947 and s. 2(d)
of Madhya Pradesh General Sales Tax Act 2 of 1959-
Electricity whether ’goods’-Supply of steam by Electricity
Board-Nature of transaction-Whether works contract.
HEADNOTE:
The assessee-Electricity Board constituted under the
Electricity Supply Act, 1948, supplied and distributed
electric energy within the State of Madhya Pradesh. In the
assessment years in question the Electricity Board sold,
supplied and distributed electric energy to various
consumers, It also supplied steam to Nepa Mills. The mill
was supplying water free and the Electricity Board was
making a pro-rata charge of conversion of water into steam.
The mill had also agreed to re-imburse the Board-for the
loss sustained on account of the mills not taking the
full demand of steam. In proceedings under the C.P. &
Bearar Sales Tax Act, 1947 ’and the Madhya Pradesh General
Sales Tax Act, 1959 the question for consideration, inter
alia, were (i) whether electricity was ’goodS’ within the
meaning of the two Acts and whether the Board was a ’dealer’
within the, meaning of s. 2(c) of the 1947 Act and s. 2(d)
of the 1959 Act; and (ii) whether the supply of steam
amounted to ’sale’ ’and was therefore taxable. The High
Court, in reference, held that electricity was not ’goods’,
that the Board was not a ’dealer"in electricity and that the
supply of steam was not taxable as it was not supplied With
’a profit motive. In appeal by special leave to this Court
by the Commissioner of Sales Tax,
HELD: (i) The Electricity Board carried on the business of
selling, supplying and distributing electricity which fell
within the meaning of the expression ’goods’ in the two Acts
and was therefore a ’dealer’. [945 H]
The definition of "goods" is very wide and includes all
kinds of movable property.
The term ’movable property’ when considered with reference
to ’goods’ as defined for the purposes of sales tax cannot
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be taken in a narrow sense and merely because electric
energy is not tangible or cannot be moved or touched,
like, for instance, a piece of wood or a book, it cannot
cease to be movable property when it has all the attributes
of such property. It is capable of abstraction,
consumption and use which, if done dishonestly, would
attract punishment Under s. 39 of the Indian ElectricitY
Act, 1910. It can be transmitted, transferred,
delivered, stored, possessed etc. in the same way as any
other movable property. If there can be sale and
purchase of electric energy like any other movable object,
it st be held that electric energy was intended to be
covered by the definition of ’goods’ in the two Acts. If
that had not been the case there was no necessity of
specifically exempting sale of electric energy from the
payment of sales tax by making a provision for it in the
Schedule to the two Acts. [945.E-H]
940
Kumbakonam Electric Supply Corporation Ltd. v. Joint
Commercial Tax Officer, Esplanade Division, Madras, 14
S.T.C. 600, Malerkotla Power Supply Company v. The Excise &
Taxation Officer, Sangrur & Ors. 22 S.T.C. 325, Naini Tal
Hotel. Municipal Board, A.I.R. 1946 All. 502, Erie County
Natural Gas & Fuel Co. Ltd. v. Carroll, [1911] A.C. 105,
County of Durham Electrical etc. Co. v. Inland Revenue
[1909] 2 K.B. 604, referred to.
Rash Behari v. Emperor, A.I.R. 1936 Cal. 753 distinguished.
(ii) On the facts of the present case the arrangement
relating to supply of steam in return of water supplied by
the mills on payment of actual cost was not one of sale but
was more in the nature of a workS ,contract Where the main
object of work undertaken by the payee of the price is
not the transfer of a chattel qua chattel, the contract is
one for work and labour. [946 G--H]
The Government of Andhra Pradesh v. Guntur Tobaccos
Ltd., 16 S.T.C. 240, and HaLsbury’s Laws of England, HI
Edn. Vol. 34 page 6, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1153 -to
1160 and 1161 to 1168 of 1968.
Appeals by special leave from the judgment and order, dated
November 16, 1967 of the Madhya Pradesh High Court in Misc.
Civil Cases Nos. 96 to 103 of 1967.
I. N. Shroff, for the appellant (in C.As. Nos. 115 3 to
1160 of 1968) and the respondent (in C.As. Nos. 1161 to
1168 of 1968).
S.T. Desai, B.L. Neema and Anjali Varma, for the
appellant (in C.As. Nos. 1161 to 1168 of 1968): and the
respondent C.As. Nos. 1153 to 1160 of 1958).
N.D. Karkhanis and 11. G. Ratnaparkhi, for the intervener
(in C..Pa, Nos. 1153 to 1160 of 1968).
The judgment of the Court was delivered by
Grover, J. This judgment will dispose of two ’sets of
cross appeals Nos. 1153-1160 & 1161-1168/68 which are from a
common judgment of the Madhya Pradesh High Court and have
been entertained by special leave.
The relevant assessment years for the purpose of levy of
sales tax are from April 1, 1957 to March 31, 1958. and
April 1, 1964 to March 31, 1965.. For the assessment years
prior to April 1, 1959 the enactment in force was the C.P.
and Berar Sales Tax Act, 1947 (No; XXI of 1947) and for the
subsequent two years it is the Madhya Pradesh General Sales
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Tax Act (Act No. 2 of 1959), which would be applicable.
The. material facts may be shortly stated, The assessee-
Madhya Pradesh Electricity Board-hereinafter called the
"Electricity Board?’ is a body constituted under s. 5 of the
Electricity Supply Act, 1948. Under s.
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18 of that Act it was the general duty of the Electricity
Board to promote coordinated development of the generation,
supply and distribution of electric energy within the State
of Madhya Pradesh in the most efficient and economical
manner. In the assessment years in question the Electricity
Board sold, supplied and distributed electric energy to
various consumers. It also sold coal-ash a waste product
and Supplied steam to Nepa Mills of Burhanpur. It further
supplied specification and tender forms on payment to
persons desirous of submitting tenders for the works
undertaken by the Electricity Board. It purchased articles
like Gitti, Murram, sand etc. from unregistered dealers. It
is common ground that under the provisions of Act XXI of
1947 and H of 1959 read with the’ Schedule contained therein
sale of electricity is exempt from sales tax. For the
purpose of determining the gross turnover, however, the sale
of electric energy is to be taken into account.
The Assistant Commissioner of Sales tax assessed the
Electricity Board to tax on its turnover of sale of coal-ash
and specification and tender forms and the supply of steam
to Nepa Mills. The Board was further assessed to purchase
tax on Gitti, Murram etc. purchased from unregistered
dealers. In appeal the Deputy Commissioner, Sales Tax,
upheld the assessment orders. On second appeal the Sales
Tax Tribunal which was the Board of Revenue, Madhya Pradesh,
held that the Electricity Board was not a "dealer" within
the meaning of that term as defined in the two Acts and that
the coal-ash was not produced for the purpose of sale with
the result that sales of coal-ash could not be subjected to
tax. As regards the supply of steam to Nepa Mills the
tribunal, on examining the terms of the agreement under
which the Electricity Board supplied the steam, came to the
conclusion that such supply was an isolated transaction and
that such activity which had been undertaken on no profit no
loss basis could not be assessed to sales tax. The
specification and tender forms were held not to be
marketable goods involving any profit element and for that
reason could not be taxed. As regards the purchase tax the
tribunal held that as the Electricity Board was not a dealer
in respect of the sale and supply of electric energy no
purchase tax could be imposed on goods purchased by it and
consumed "in furtherance of and in aid of the business
activity of generating, supplying and distributing
electricity."
Both the Electricity Board and the Commissioner of Sales
Tax. Madhya Pradesh, filed applications requiring the
Tribunal to refer to the High. Court certain questions of
law arising out of its common order. The tribunal drew up a
common statement of case and referred five questions of law.
On the first question the High Court ’held that the
Electricity Board could not be held to be "dealer" as
defined in s. 2(c) of Act XXI of 19.47 or s. 2(d)
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of Act H of 1959 in respect of its activity of generation,
distribution, sale and supply of electric energy. On the
second question it was held that as the Electricity Board
regularly and continuously produced coal-ash as a subsidiary
product and sold it regularly it was a "dealer" in regard to
the sale of coal-ash and the sale, transactions relating to
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this product were liable to be assessed to sales tax. The
third question was answered in favour of the Electricity
Board. It was found that stem was not being supplied to the
Nepa mills with profit motive although it fell within the
definition of "goods" given in the two Acts. As regards the
specification and tender forms the High Court was of the
view that the Electricity Board was not carrying on any
business of selling such forms and therefore no sales tax
could be levied in respect of them. The fifth question was
answered by holding that as the Electricity Board was not a
"dealer" in respect of sale and supply of electric energy it
was not entitled to purchase any taxable goods for
consumption or use for producing such energy without paying
sales tax to the selling dealer under s. 4(6) of Act XXI of
1947 and s. 7 of Act II of 1959 and therefore there. was
no liability to pay purchase tax.
Mr. Shroff, who has argued the appeals of the
Commissioner of Sales Tax, has not quite properly and
rightly pressed the matter relating to imposition of sales
tax on supply of specification and tender forms. Mr. S.T.
Desai, who has. appeared for the Electricity Board, after a
certain amount of argument, has submitted that he had
nothing much to say on the question relating to coalash
except that it should be held to be exempt from payment of
sales tax because electric energy is exempt from such tax as
stated before. As regards the fifth question relating to the
imposition of purchase tax Mr. Desai has not pressed for any
decision being given by us. Arguments which have been
addressed by both sides have therefore centered on question
nos. 1 and 3 which are as follows :-
"(1) On the facts and circumstances of
the case whether or not the Madhya Pradesh
Electricity Board is a dealer within the
meaning of section 2(c) of the C.P. & Berar
Sales Tax Act, and section 2(d) of the Madhya
Pradesh General Sales Tax Act, 1958, in
respect of its activity of generation,
distribution, sale and supply of electrical
energy ?
(2)
(3) On the facts and circumstances of
the case, whether or not steam is saleable
goods and if they are saleable goods is the
turnover representing the supply thereof
liable to be assessed to sales tax m the hands
of the assessee ?"
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it is somewhat curious that both sides are almost agreed
that the decision of the. High Court on the first question
is not correct. Since enunciation of the true position is
involved we proceed to give our opinion in the matter. The
definition of a "dealer" as given in the two Acts
substantially is that any person who carries on the business
of buying, selling, supplying or distributing the goods as a
"dealer" and "goods" are defined by s.2(d) of Act of 1947 as
meaning all kinds’ of movable property other than actionable
claims ...... and include all materials articles and
commodities whether or not to be used in the construction,
fitting out, improvement or repair of immovable property.
The definition contained in s. ˜2(g) of Act II
of 1959 is almost in similar terms except that there
are certain additions with which we are not
concerned. Reference may be made, at this stage, to
the definition of "movable property" which has not been
defined in the two Acts given in s. 2(24) of the Madhya
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Pradesh General Clauses Act. It has been defined to mean
"property of every description, except immovable property".
Section 2(18) of that Act says that "immovable property"
includes land,. benefits to arise out of land and things
attached to the earth, or permanently fastened to anything
attached to the earth."
The High Court went into a discussion from the point of
view of mechanics relating to transmission of electric
energy. It was of the view that electricity could not be
regarded as an article or matter which could be possessed or
moved or delivered. It relied on certain decisions and
referred to Entries Nos. 53 and 54 in List II of Seventh
Schedule to the Constitution and held that electricity did
not fall within the meaning of "goods" in the two Acts and
therefore the Electricity Board could not be held to be a
"dealer" in respect of its activity of generation,
distribution, sale and supply of electric energy.
Mr. I.N. Shroff has relied on certain decisions in which
the same point was involved as in the present case. namely,
whether electricity is "goods" for the purpose of imposition
of sales tax.’ In Kumbakonam Electric Supply Corporation
Ltd. v. Joint Commercial Tax Officer, Esplanade Division,
Madras(1), the Madras High Court was called upon to decide
whether electricity is "goods" for the purposes of the
Madras General Sales Tax Act, 1959 and the Central Sales Tax
Act, 1956. After referring to the definition of "goods" as
given in the Sale of Goods Act, 1930, it was observed that
under that definition goods must be property and it must be
movable. According to the learned Madras Judge any kind of
property which is movable would fall within the definition
of "goods" provided it was transmissible or transferable
from hand to hand or capable of delivery which need not
necessarily be in a tangible or a physical sense. Reference
was also
(1) 14 S.T.C. 600. L6 Sup. C I.169-9
944
made to the definition given in the General Clauses Act
which was quite wide and it was held that if electricity was
property and it was movable it would be "goods". The
learned Judge found little difference between electricity
and gas or water which would be property and could be
subjected to a particular process, bottled up and sold for
consumption. It was observed that electricity was capable
of sale as property as it was sold, purchased and consumed
everywhere. A "dealer" was defined by the Central Sales Tax
Act practically in the same way as in the Madras General
Sales Tax Act and it meant a person who carried on business
of buying and selling goods. In the opinion of the learned
Judge the concept of dealer, goods and sale comprehended all
kinds of movable property. He further relied on certain
decisions which have been cited before and which will be
presently noticed. A similar view was expressed by Tek
Chand, J. of the Punjab & Haryana High Court in Malerkotla
Power Supply Company v. The Excise & Taxation Officer,
Sangrur, & Ors.(1) It was held that electric energy fell
within the definition of "goods" in both the Punjab Sales
Tax Act, 1948 and the Central Sales Tax Act, 1956.
According to the learned Judge electric energy has the
commonly accepted attributes of movable property. It can be
stored and transmitted. It is also capable of theft. It
may not be tangible in the sense that it cannot be touched
without considerable danger of destruction or injury but it
was perceptible both as an illuminant and a fuel and also in
other energy-giving forms. Electric energy may not be
property in the sense of the term "movable property" as used
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in the Punjab & Central General Clauses Acts in contra-
distinction to "immovable property" but it must fall within
the ambit of "goods" "even if in a sense it was intangible
or invisible". As pointed out in the Madras case the
statement contained in American Jurisprudence(2) recognises
that electricity is property capable of sale and it may be
the subject of larceny. In Naini Tal Hotel v. Municipal
Board(a) it was held that for the purpose of Art. 52 of the
Indian Limitation Act electricity was property and goods.
In Erie County Natural Gas & Fuel Co. Ltd. v. Carroll(4), a
question arose as to the measure of damages for a breach of
contract to supply gas. Lord Atkinson delivering the
judgment of the Privy Council applied the same rule which is
applicable where the contract is one for sale of goods. In
other words gas Was treated to be "goods".
The High Court, in the present case, appears to have
relied on Rash Behari v. Emperor(5) in which approval was
accorded to the statement in Pollock & Mulla’s Commentary on
Sale Goods Act, 1913 that it was doubtful whether that Act
was applicable to such "goods" as gas, water ’and
electricity. The context
(1) 22 S.T.C. 325.
(2) 18 American Jurisprudence 407 (S. 2 Electy.)
(3) A.I.R. (1946) All. 502.
(4) [1911] A.C. 105.
(5) A.I,R. [1936] Cal. 753.
945
which this matter is discussed in the Calcutta case is
altogether different and distinguishable and what was being
decided there was the scope and ambit of s. 39 of the
Electricity Act, 1910, As regards the Entries in List 11 of
the Seventh Schedule to the Constitution, the relevant ones
may be produced:
"53. Taxes on the consumption or sale of electricity.
54. Taxes on the sale or purchase of goods other than
newspapers, subject to the provisions of entry 92A of List
I".
The reasoning which prevailed with the High Court was
that a well-defined distinction existed between the sale or
purchase of "goods" and consumption or sale of electricity;
otherwise there was no necessity of having Entry No. 53.
But under Entry 53 taxes can be levied not only on sale of
electricity but also on its consumption which could not
probably have been done under Entry 54. It is difficult to
derive much assistance from the aforesaid entries. What has
essentially to be seen is whether electric energy is "goods"
within the meaning of the relevant provisions of the two
Acts. The definition in terms is very wide according to
which "goods" means all kinds of movable property. Then
certain items are specifically excluded or included and
electric energy or electricity is. not one of them. The
term "movable property" when considered with reference to
"goods" as defined for the purposes of sales tax cannot be
taken in a narrow sense and merely because electric energy
is not tangible or cannot be moved or touched like, for
instance, a piece. of wood or a book it cannot cease to be
movable property when it has all the attributes of such
property. It is needless to repeat that it is capable of
abstraction, consumption and use which, if done dishonestly,
would attract punishment under s. 39 of the Indian
Electricity Act, 1910. It can be transmitted, transferred,
delivered, stored, possessed etc. in the same way as any
other movable property. Even in Banjamin on Sale, 8th Edn.,
reference has been made at page 171 to County of Durham
Electrical, etc., Co. v. Inland Revenue(1) in which electric
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energy was assumed to be "goods". If there can be sale and
purchase of electric energy like any other movable object we
see no difficulty in holding that electric energy was
intended to be covered by the definition of "goods" in the
two Acts. If that had not been the case there was no
necessity of specifically exempting sale of electric energy
from the payment of sales tax by making a provision for it
in the Schedules to the two Acts. It cannot be denied that
the Electricity Board carried on principally the business of
selling, supplying or distributing electric energy. It
would therefore clearly fall within the meaning of the
expression "dealer’’ in the two Acts.
(1) [1909] 2 K.B. 604.
946
As regards steam there has been a good deal of argument
on the question whether it is liable to be assessed to sales
tax in the hands of the Electricity Board. According to Mr.
Shroff the Electricity Board carried on the business of
selling steam to the Nepa Mills and that this has lasted for
a number of years. It has been submitted that simply
because the Electricity Board does not have any profit
motive in supplying steam it cannot escape. payment of sales
tax because the steam is nevertheless being sold as "goods".
The High Court was of the view that the water which the Nepa
Mills supplied free to the Electricity Board became the
property of the Board and in return for this free supply the
Board agreed to give steam to Nepa Mills at a rate based
solely on the coal consumed in producing steam. The mills
had also agreed to reimburse the Electricity Board for the
loss sustained on account of the mills not taking the "full
demand of steam". According. to the High Court there was no
contract for the sale of steam as such and it was only for
the labour and cost involved in its supply to the mills.
The High Court relied on the findings of the Tribunal on
this point and held that the turnover in respect of steam
was not taxable. The tribunal in its order dated June 16,
1966 referred to certain conditions of working arrangement
which was reduced to writing but which had not been properly
executed as a contract which showed that the mills was
supplying water free and the Electricity Board was making a
pro rata charge of conversion of water into steam. It seems
to us that the High Court was right in coming to the
conclusion, on the finding of the tribunal, that the real
arrangement was for supplying steam on actual cost basis
and in that sense it was more akin to a labour contract than
to sale.
Mr. Shroff has argued that the document which was relied
upon by the tribunal could not be looked at as it was
neither admissible in evidence nor had it been properly
executed as a contract between the Electricity Board and the
mills and it happened to be a mere draft of an agreement
which was proposed to be entered into. It is too late for
Mr. Shroff to take these objections because these should
have been raised before the Tribunal and the High Court.
It is stated in Halsbury’s Laws of England, III Edn.
Vol. 34, page 6 that "a contract of sale of goods" must be
distinguished from a contract for work and labour. The
distinction is often a fine one. A contract of sale is a
contract whose main object is the transfer of the property
in, and the delivery of possession of, a chattel as a
chattel to the buyer. Where the main object of work
undertaken by the payee. of the price is not the transfer of
a chattel qua chattel, the contract is one for work and
labour. It has been laid down by this Court in The
Government of Andhra Pradesh v. Guntur Tobaccos Ltd.(1)
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that in business transactions (1) 16 S.T.C. 240.
947
the works contracts are frequently not recorded in writing
setting out all the covenants and conditions thereof, and
the terms and incidents of the contracts have to be gathered
from the evidence and attendant circumstances. The question
in each case is one about the true agreement between the
parties and the terms of the agreement must be deduced from
a review of all the attendant circumstances. On the
findings of the tribunal and the High Court we are of the
opinion that the arrangement relating to supply of steam in
return for the water supplied by the mills on payment of
actual cost was not one of sale but was more in the nature
of a works contract.
In the result the answer of the High Court to the first
question is discharged and it is held that the Electricity
Board is a "dealer" within the meaning of the relevant
provisions of the two Acts in respect of its activities of
generation, distribution, sale and supply of electric
energy. The answers to the second, third and fourth
questions are affirmed. The answer given by the High Court
to the fifth question is discharged. It is unnecessary to
express any opinion on that question because Mr. Desai has
not pressed for any decision being given by us and has
accepted the liability in respect of the purchase tax as
determined by the assessing authorities for the assessment
orders in question. The appeals are allowed to the extent
indicated above. In view of all the circumstances the
parties are left to bear their own costs.
y.p. Appeals allowed in pan.
948