Full Judgment Text
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PETITIONER:
INDIAN STEEL & WIRE PRODUCTS LTD.
Vs.
RESPONDENT:
STATE OF MADRAS
DATE OF JUDGMENT:
11/09/1967
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
WANCHOO, K.N. (CJ)
BACHAWAT, R.S.
RAMASWAMI, V.
MITTER, G.K.
CITATION:
1968 AIR 478 1968 SCR (1) 479
CITATOR INFO :
RF 1968 SC 599 (6)
R 1969 SC 343 (8)
RF 1970 SC2000 (10)
RF 1972 SC 87 (26)
APR 1978 SC 449 (7,35,43,32,52)
RF 1986 SC1742 (9)
ACT:
Madras General Sates Tax Act (9 of 1939)-Iron and Steel
(Control of Production and Distribution) Order, 1941-
Supplies effected on orders of Steel Controller whether
’sales’-Tribunal’s finding that sales were for consumption
in Madras State-To be treated as conclusive.
HEADNOTE:
At the instance of the steel controller exercising powers
under the Iron and Steel (Control of Production and
Distribution) Order, 1941, the appellant supplied certain
steel products to various persons in Madras State during the
financial years 1953-54, 1954-55 and part of the financial
year 1955-56. The State of Madras assessed the turnover of
the appellant relating to those transactions to sales tax
under the Madras General Sales Tax Act, the law in force at
that time. The appellant contended before the authorities
under the Sales Tax Act as well as the High Court that the
transactions were not sales and therefore could not be
taxed. The further contention was that there was no
material to show that the deliveries were for consumption
within the State of Madras so as to become taxable within
the State. From the adverse decision of the High Court the
appellant, by special leave, came to this Court. In support
of the contention that the transactions were not sales it
was urged that they were effected under the directions of
the Iron and Steel Controller given under cl. 10B of the
Order and that being so there was no mutual assent between
the parties to the transactions.
HELD:The authority of the controller to pass the orders
in question came from cl. 5 of the order and not cl. 10B.
The orders were in respect of goods not yet manufactured
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whereas under cl. 10B directions could be given only in
respect of goods already in stock. So far as cl. 5 is
concerned admittedly it does not require the controller to
regulate or control every facet of a transaction between a
producer and the person to whom he supplies iron and steel
products. [488H: 489C-H]
In modern times the doctrine of laisser faire can have only
a limited application. That does not mean that there is no
freedom of contract. So long as mutual assent is not
excluded in any dealing, in law it is a contract. On the
facts of the present case it was not possible to accept the
contention that nothing was left to be decided’ by mutual
assent. On the other hand the controller’s directions were
confined to narrow limits and there were several matters
which the parties could decide by mutual consent. [49OB;
491B-C]
Kirkness v. John Hudson & Co. Ltd. [1955] A.C. 696; M/s.
New India Sugar Mills Ltd. v. Commissioner of Sales-tax,
Bihar, [1963] Supp. 2 S.C.R. 459; Calcutta Electric Supply
Corporation Ltd. v. Commissioner of Income-tax. West
Bengal. 19 I.T.R. 406; M/s. Cement Ltd. v. State of Orissa,
12 S.T.C. 205; State of Madras v. Gannon Dunkerley, [1959]
S.C.R. 379; North Adjai Coal Company (P) Ltd. v., Commercial
Tax Officer & Ors. 17 S.T.C. 514 and S. K. Roy v. Additional
Member, Board of Revenue, West Bengal, 18 S.T.C. 379, refer-
red to.
(ii)From the facts and circumstances the Tribunal rightly
found’ that the supplies were made to stockists in the State
of Madras for
480
consumption in that State. It may be that a small portion
of the supplies had gone out of the State. But that was not
a relevant circumstance. What had to be seen Was whether
the supplies in question were made for consumption in the
Madras State. On that question the finding of the Tribunal
was conclusive. [496B-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 1968-1970
of 1966.
Appeals by special leave from the judgment and order dated
July 16, 1962 of the Madras High Court in Tax Cases Nos.
117,118 and 119 of 1959.
S. B. Banerjee and S. N. Mukerjee, for the appellant (in all
the appeals).
K. M. Mudaliyar, Advocate-General for the State of Madras
and A. V. Rangam, for the respondent (in all the appeals).
M.C. Setalvad, B. Sen, G. S. Chatterjee and P. K. Bose,
for the Intervener (in C. A. No. 1968 of 1966).
The Judgment of the Court was delivered by
Hegde, J. These appeals by special leave arise from the
common order made by the Madras High Court in T. C. Nos. 117
to 119 (revisions Nos. 71 to 73) on its file. The Indian
Steel and Wire Products Ltd. a joint stock public limited
company is the appellant in all these appeals.
At the instance of the steel controller the appellant
supplied certain steel products to various persons in the
Madras State during the financial years 1953-54, 1954-55)
and part of 1955-56 (from April 1, 1955 to September 6,
1955). The State of Madras assessed the turnovers of the
appellant relating to those transactions to sales tax under
the Madras Gen. Sales Tax Act, 1939 (Madras Act 9 of 1939)
(to be hereinafter referred to as the Act), the law in force
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at that time. The appellant has been assessed to tax on the
basis of best judgment. The authorities under the Act have
determined appellant’s turnover during the year 1953-54 at
Rs. 3129520/- and levied a tax of Rs. 16298/4 annas. During
the financial year 1954-55, its turnover was determined at
Rs. 3759216/- . and the assessment levied is Rs. 58737-12-0.
For the broken period in the financial year 1955-56, the
appellant’s turnover was determined at Rs. 1453292/- and the
same was assessed to tax at Rs. 22707-12-0. Even according
to the appellant, its turnovers during 1953-54 was Rs.
2912533-14-0, in 1954-55, Rs. 3971493/7/- and in 1955-56,
Rs. 1725400/5/-. Therefore, there is little room for
controversy about its turnover in the relevant years. The
appellant is contesting the right of the State of Madras to
levy tax on the turnovers in question. According to the
appellant, the turnovers in question could not have been
considered as sales and consequently they could not have
been brought to tax under the Act. The appellant asserts
that deliveries in question were made under compulsion of
law and there was no agreement between the parties. They
were
481
made in pursuance of the orders of the Controller exercising
powers under the Iron & Steel (Control of Production and
Distribution) Order, 1941 (which will hereinafter be
referred to as the order), which was issued under the
Defence of India Act 1939. It was argued on behalf of the
appellant that it was the controller who determined the
persons to whom the goods were to be supplied, the price at
which they were to be supplied, the manner in which they
were. to be transported, and the mode in which the payment
of the price was to be made. In short, it was said that
every facet of those transactions were prescribed by the
controller and therefore those transactions cannot be
considered as sales. On the basis of those assertions
support was sought from the decision of the House of Lords
in Kirkness v. John Hudson & Co., Ltd.(1) the decision of
this Court in M Is. New India Sugar Mills Ltd. v. Commis-
sioner of Sales Tax. Bihar(1), the decision of the Calcutta
High Court in Calcutta Electric Supply Corporation Ltd. v.
Commissioner of Income Tax, West Bengal(1) the decision of
the Orissa High Court in Messrs. Cement Ltd. v. The State
of Orissa(1), and a few other decisions. It was further
argued that even if those transactions are considered as
sales the State before exercising its taxing power should
have had in its possession material to show that the goods
delivered by the appellant were delivered in that State for
consumption which circumstance alone can make those
transactions sales within that State; as no material was
placed on record to show that the goods in question were
delivered in that State for consumption it could not have
brought the turnovers in respect of those transactions to
tax under the Act. These contentions of the appellant have
been rejected by the authorities under the Act as well as by
the High Court. Other contentions advanced on behalf of the
appellant deserve to be summarily rejected for the reasons
to be mentioned hereinafter.
The principal question that falls for decision in these
appeals. is whether the transactions with which we are
concerned herein are sales. Sec. 2(h) of the Act defines
’sale’ thus:
" ’Sale’ with all its grammatical variations
and cognate expressions means every transfer
of the property in goods by one person to
another in the course of trade or business for
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cash or for deferred payment or other valuable
consideration, and includes also transfer of
property in goods involved in the execution of
works contract and in the, supply or
distribution of goods by a co-operative
society.. club, firm or any association to its
members for cash or for deferred payment or
other valuable consideration but does not
include a mortgage. hypothecation, charge or
pledge" (the explanations to that definition
are not relevant for our present purpo
se).
(1) [1955] A.C. 696.
(2) [1963] Suppl. 2 S.C.R. 459.
(3) 19 I.T.R. 406.
(4) 12 S.T.C. 205.
482
This wide definition undoubtedly covers those transactions.
But then the power of a State to tax sales is derived from
Entry 54 of List II of the VII Schedule in the Constitution.
That entry as it stood at the relevant time empowered the
State to tax on the sale or purchase of goods. The scope of
the expression ’sale or purchase of goods’ found in entry 48
in List II of Schedule VII of the Government of India Act
1935 which is in pari materia with the aforementioned entry
54 came up for interpretation before this Court in State of
Madras v. Gannon Dunkerley(1). In that case, the question
that fell for decision was whether the words ’sale of goods’
should be given their popular meaning or whether they should
have the meaning attached to them under the Sale of Goods
Act. This Court held that the expression ’sale of goods’
was, at the time when the Government of India Act, 1935 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 and must be interpreted as
having the same meaning as in the sale of Goods Act 1930: In
the course of the judgment, Venkatarama Aiyar, J,who ,spoke
for the Court after examining the various decisions cited at
the Bar, observed, as follows:
"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
pre-supposes 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. Thus, if merely title to the goods
passes but not as a result of any contract
between the parties, express or implied, there
is no sale. So also if the consideration for
the transfer was not money but other valuable
consideration, it may then be exchange or
barter but not sale. And if under the
contract of sale, title to the goods has not
passed, then there is an agreement to sell and
not a completed sale."
As laid down by this decision, to constitute a valid sale,
there must be concurrence of the following elements viz. (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. Therefore we have to see whether all these
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elements are found in the transactions before us. Before
doing so it is necessary to refer to the ’order’ and the
manner in which those transactions were effected.
During the World War IT iron and steel goods became scarce.
Therefore it became necessary for the Government to control
the production and distribution of those goods. In order to
do so, the
(1) [1959] S.C.R. 379.
483
government issued the ’order’ on July 26, 1941, and the same
came into force on August 1, 1941. The provisions in that
order which are material for our present purpose are set out
hereinbelow: -
"2. Definitions In this Order, unless there
is anything repugnant in the subject context:
-
(a) ’Controller’ means the person appointed as
Iron -and Steel Controller by the Central
Government, and -includes any person
exercising, upon authorisation by the Central
Government, all or any of the powers of the
Iron and Steel Controller;
(b) ’Producer’ means a person carrying on the
business of manufacturing iron or steel.
(c) ’Registered Producer’ means a producer who
is registered as such by the Controller.
(d) ’Stockholder’ means a person holding
stocks of Iron or Steel for sale who is
registered as stockholder by the Controller.
(e) ’Controlled Stockholder’ means a
stockholder appointed by the Controller to
hold stocks of iron or steel under such terms
and conditions as he may prescribe from time
to time.
(f)’Pressure Pipes’ include all Pipes and
Tubes 1/8" nominal bore and above which will
withstand or may be used for a working
pressure of 25 lbs. per square inch and above.
3. Application of Order-(I) The provisions of
this Order shall apply to all iron or steel of
the categories specified in the Second
Schedule to this Order. (2) A certificate
signed by the Comptroller or by any officer
authorised by him in this behalf, in respect
of any category of iron or steel, shall be
conclusive proof that it is an article to
which this Order is applicable.
4. Acquisition-No person shall acquire or
agree to acquire any iron or steel from a
Producer or a Stockholder except under the
authority of and in accordance with the
conditions contained or incorporate
d in a
general or special written order of the
controller.
5. Disposal-No Producer or Stockholder shall
dispose of or agree to dispose of or export or
agree to export from British India any iron or
steel, except in accordance with the
conditions contained or incorporated in a
general or special written order of the
Controller.
10B. Power to direct sale-The Controller may’
by a written Order require any person holding
stock or iron
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484
and steel, acquired by him otherwise than in accordance with
the provisions of Clause 4 to sell the whole or any part of
the stock to such person or class of persons and on such
terms and conditions as may. be specified in the Order.
10C. Power to prohibit removal-The Controller may order any
producer (including a registered producer), any stockholder
(including a controlled stockholder) or any other person not
to remove or permit the removal of any iron or steel,
whether sold or unsold, from his stockyard or from any other
part of his premises to any place outside the precincts of
such stockyard or premises, except with the written
permission of the Controller.
11 AA (3). No producer, stockholder, or other person
holding stocks of iron and steel shall without sufficient
cause, refused to sell any iron or steel which he is autho-
rised to sell under this Order.
Explanation-The possibility or expectation of obtaining a
higher price at a later date shall not be deemed to be a
sufficient cause for the purpose of this clause.
11B. Power to fix prices-(1) The Controller may from time
to time by notification in the Gazette of India fix the
maximum prices at which any iron or steel may be sold (a) by
a Producer, (b) by Stockholder including a Controlled
Stockholder and (c) by any other person or class of persons.
Such price or prices may differ for iron and steel
obtainable from different sources and may include allowances
for contribution to and payment from equalising freight, the
concession rates payable to each pro ducer or class of
producer under agreements entered into by the Controller
with the producers from time to time. and any other
disadvantages.
(2) For the purpose of applying the prices notified under
sub-clause (1) the Controller may himself classify any iron
and steel and may, if no appropriate price has been so
notified, fix such price as he considers appropriate.
(3)No producer or stockholder or other person shall sell,
or offer to sell. (and no person shall acquire) any iron or
steel at a price exceeding the maximum prices fixed under
sub-clause (1) or (2).
13. Any Court trying a contravention of this Order may,
without prejudice to any other sentence which it may pass,
direct that any Iron and Steel in respect of which the Court
is satisfied that this order has been contravened shall be
forfeited to His Majesty."
The appellant has set out in para 4 of the statement of the
case the procedure adopted for acquiring iron and/
485
or steel products under the order. This is
what is stated therein: -
"That Order was at all material times
administered principally by the Iron and Steel
Controller having his office in the city of
Calcutta in the State of West Bengal who
controlled the entire production and
distribution of the iron and/or steel
products. Any party desiring to acquire any
product has to apply to the Controller. Upon
processing such application or requisition
entirely at his option and discretion, the
Controller would pass such a requisition an to
the Appellant for manufacture and/or despatch.
The appellant has, upon receipt of the said
requisition from the Controller to prepare a
Works Order for the manufacture of the
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products concerned and to advise the
Controller; and later on completion of the
manufacture the appellant has to make the
product conform to the requisition processed
by the Controller and then deliver the
requisite quantity in the requisite shape to
the Indian State Railways siding maintained at
the appellant’s own factory site, in
Indranagar. in the suburbs of Jamshedpur, in
the State of Bihar, and to advise the
requisitionist as well as the Controller
accordingly.."
The correspondence relating to the delivery of
steel goods in pursuance of an order placed by
one K. Thiruvengadam Chetty & Co. has been
produced by the appellant evidently to show
the manner in which the transactions were
effected.
On December 20, 1952. Thiruvengadam Chetty and Co., wrote
follows to the Controller:
’From
Name-K. Thiruvengadam Chetty and Company.
Address-Iron Merchants and Tata Scob Dealers 93,
Rasappa Chetty Street. Madras-3.
Date 20th December 1952.
To
The Iron and Steel Controller,
33, Netaji Subas Road, Calcutta.
Through the Director of Controlled Commodities,
Mount Road, Madras.
Dear Sir,
Please place on our behalf and at our risk and account our
order on Registered Producers for material as per
specification given below for delivery in such period ,as
you can arrange. We confirm that this indent is placed
486
subject to the provisions of the Steel Price Schedule
regarding prices, etc., and the terms and conditions of
business (including payment) of the registered producers on
whom the order is placed by you and that delivery or
part/delivery from any such registered producer will be
accepted by us. Please direct the registered producers
concerned to send us a copy of the works order in
confirmation of having booked our Indent.
Ship to Madras Saltcotaurs.
Send R. R. to Messrs. K. Thiruvengadam Chetty and Company,
Iron Merchants, 93, Rasappa Chetty Street, Madras-3, through
your Madras Office.
Send original and duplicate invoice to Messrs. K..
Thiruvengadam Chetty and Company, 93, Rasappa Chetty Street,
Madras-3 through your Madras Office.
Date of shipment desired:
Ex-stock as early as possible.
----------------------------------------------------------------
Quantity Pieoes Section Lengths Complete description
un-tested of material indented
(1) (2) (3) (4)
-----------------------------------------------------------------
CWT. QRS. LBS.
10............468 M.S. rounnd 1/4" 18’ 13 B Category
5.............493 " 3/16" 18’ do
5.............453 " 5/16" 18’ do
---------
20 (Twenty tons only)
-----------------------------------------------------------------
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All P.T. free on rail Saltcotaurs and bundling charge
account.
Yours faithfully,
(signed)................
by Partner,
For K. Thiruvengadam Chetty and Company."
The Controller forwarded that letter to the appellant with
the following remarks: -
"The above indent is forwarded to Indian Steel and Wire
Products Limited, Tatanagar, for delivery in period 1/53 or
subsequently in accordance with any general or special
directions of the Iron and Steel Controller."
It may be noted that the Controller merely asked the
appellant to deliver to K. Thiruvengadam Chetty and company
the goods ordered "in accordance with any general or special
directions of the Iron and Steel Controller." Our attention
was not invited to any general or special order issued by
the controller excepting that
487
fixing the base price. It is clear that it was left to the
appellant to supply the goods ordered at his convenience.
On the basis of the, above communication a works order was
issued by the appellant to the mill superintendent, a copy
of which was sent to Thiruvengadam Chetty and Company. That
order reads:-
"Works Order: RS/MAD/RM/15/53 of 23rd February 1953.
Delivery: P.D.1/53.
Ship to: Saltcotaurs
Book to self. Freight: To pay.
To
The Mill Superintendent.
Please supply the following to the Shipping Department, M.S.
Rounds our usual commercial quality in bundles
in stock lengths of 12/18 feet.
TONS
1/4" diameter 10 at Rs. 486 per ton free on rail
3/16" 5 at Rs.493 Saltootaurs, plus bundling.
5/16" 5 at Rs. 453 Charge of Rs. 5 per ton.
cc: South India Iron and Hardware Merchants Association,
Armenian Street, Madras.
Notice to consignees.
Delivery must be taken within three days of the arrival of
the train at destination, a certificate obtained for any
wrongful delivery and a claim preferred against the Railway
Company forthwith under advise to us. In the case of non-
arrival of any consignment advise should be given us as soon
as a reasonable time for the journey has elapsed.
’All orders booked are subject to our terms of business and
general understanding in force at the time of booking the
orders and despatch of goods.’
’All prices mentioned in the Works Orders are subject to
revision, i.e., prices ruling at the time of despatch will
be charged.’".
The works order in question specifically says that ’all
orders booked are subject to our terms of business and
general understanding in force at the time of booking the
orders and despatch of goods’. In fact as seen from the
letter of Thiruvengadam Chetty and Co., dated August 31,
1953, the buyers were willing to change by mutual agreement
the specifications of the goods to be supplied. This is
what that letter says:
488
agreement the specifications of the goods to be supplied.
This is what that letter says:
"If 1/4" size is not ready, please despatch
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3/8" size 20 tons as requested in our previous
letter. Please treat this as very urgent."
From the material on record it is not possible to accept the
contention of Mr. S.R. Bannerjee, learned counsel for the
appellant that the dealings in question were controlled at
every stage, leaving no room of concensus. From the records
before us all that could be gathered is that the controller
fixed the base price of the ’steel products and determined
the buyers. In other respects, the parties were free to
decide their own terms by consent. As seen from the
correspondence referred to earlier, the controller allowed
the appellant to supply the goods ordered either in the
first quarter of the year 1953 or subsequently. In other
words, the appellant could supply the goods in question at
its convenience. It was open to the appellant to agree with
its customers as to the date on which the goods were to be
supplied. From the works order dated February 23, 1953, a
copy of which was sent to one of the appellant’s customers,
it is clear that all orders booked were subject to
appellant’s terms of business and general understanding in
force at the time of ’booking the orders and despatch of
goods. It was also open to the appellant to fix the time
and mode of payment of the price of the goods supplied.
Therefore it would not be correct to contend that the
transactions were completely regulated and controlled by the
controller leaving no room for mutual assent. In his
revision petition dealing with the question of transport of
the goods supplied the appellant stated that "the transport
of goods was if at all by virtue of an independent
arrangement between the petitioner and the persons to whom
the goods were supplied......... This admission clearly
shows that the supplies in question were made partly on the
basis of mutual assent.
It was Mr. Bannerjee’s contention that for finding out the
nature of the transaction we have only to look to the order
and not to the documents produced in the case. According to
him, the documents produced in this case do not fully
disclose the nature of the transactions; the transactions in
question had to be effected under the terms of the order;
the order left no room for negotiation between the supplier
and its customers and therefore we should conclude that the
transactions in question are not sales. According to Mr.
Bannerjee all supplies of iron and steel products could be
made only in accordance with the directions given by the
controller under cl. 10B of the order. That being so, he
asserted there was no room for mutual assent. We do not
think that this contention of Mr. Bannerjee is well-founded.
We are unable to agree with him that the iron and steel
products could not have been supplied to any person except
in pursuance of an order made by the controller under cl.
10B. We think that supplies by producers can be made in
pursuance of an order of the controller under cl.5. We are
not pursuaded
489
by Mr. Bannerjee’s contention that clauses 4 and 5 merely
prohibit the prospective buyer and the intending seller from
buying or selling without the sanction of the controller and
that those provisions do not confer power on the controller
to authorise a person to acquire and to permit a producer to
sell. Those provisions, in our judgment, by implication
confer power on the controller to issue the necessary
authority to the buyer and the seller. This conclusion of
ours is strengthened from the circumstance that cl.10B was
not a part of the order till 1946. That provision was
inserted in the order by notification No. 1(1)-1(530)-A
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dated May 26, 1946, It is nobody ’s case that the provisions
of the order were incapable of being implemented till that
date. The contention of Mr. Bannerjee that the controller
derives his power to authorise the buyer to buy and the
seller to sell exclusively under cl. 10B, suffers from
another infirmity. Under cl. 10B, the controller gets
power to require any person holding stock of iron and steel
acquired by him otherwise than in accordance with the
provisions of cl. 4 to sell the whole or part of the stock
to such person or class of persons and on such terms and
conditions as may be specified in the order. This clause
does not empower the controller to issue the authority
required under cl. 4. Our attention has not been invited to
any provision in the order if we exclude from consideration
cl. 4, under which the controller could have the power to
authorise the buyer to buy iron and steel products.
Therefore, it is obvious that he gets that power from cl. 4,
itself. The language employed in clauses 4 and 5 is simi-
lar. If the controller gets power to authorise a buyer to
buy iron and steel products under cl. 4, there is no reason
why he should be held to have no power under cl. 5 to
authorise a producer or stock-holder to dispose of his stock
of iron and steel products. Further, under cl. 10B, the
controller can only require any person holding stock ’of
iron and steel to sell the whole or part of his stock to
such person or class of persons and on such terms and
conditions as may be specified in the order. That clause
does not empower him to direct any manufacturer to
manufacture any steel or iron product and to dispose of the
same to any person. In other words, a direction under cl.
10B can only be given to a person holding stock of iron and
steel But under cl.5 he can authorise a producer or a
stockholder to dispose of any iron or steel whether the same
is in stock or not in accordance with the conditions
contained or incorporated in a special or general written
order issued by him. In. the instant case, as can be
gathered from the correspondence already referred to, the
order issued by the controller could be complied with only
after manufacturing the required material. Hence, the order
issued by the controller could not have been issued under
cl. 10B. In this view of the matter it is not necessary for
us to find out the true scope of cl. 10B. So far as cl.5
is concerned. admittedly, it does not require the controller
to regulate or control every facet of a transaction between
a producer and the person to whom he supplies iron and steel
products.
490
It is true that in view of the order, the area within which
there can be bargaining between a prospective buyer and an
intending seller of steel products, is greatly reduced.
Both of them have to conform to the requirements of the
order and to comply with the terms and conditions contained
in the order of the controller. Therefore they could
negotiate only in respect of matters not controlled by the
order or prescribed by the controller. It is true, in these
circumstances, the doctrine of laisser faire can have only a
limited ap. plication. That is naturally so. In certain
quarters the validity of that doctrine is, seriously
challenged. Under the existing economic compulsions-all
essential goods being in short supply-in a welfare State
like ours, social control of many of our economic activities
is inevitable. That does not mean that there is no freedom
to contract. The concept of freedom of contract has
undergone a great deal of change even in those countries
where it was considered as one of the basic economic
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requirements of a democratic life. Full freedom to contract
was never there at any time. Law invariably imposed some
restrictions on freedom to contract. But due to change in
political outlook and as a result of economic compulsions,
the freedom to contract is now being confined gradually to
narrower and narrower limits. This aspect is vividly
brought out in the ’Law of Contract’ by Cheshire and Fifoot
(6th ed.) at p. 22. Dealing with the question of freedom to
contract, the learned author observes.
"As the nineteenth century waned it became
ever clearer that private enterprise
predicated some degree of economic equality if
it was to operate without injustice. The very
freedom to contract with its corollary, the
freedom to compete, was merging into the
freedom to combine; and in the last resort
competition and combination were incompatible.
Individualism was yielding to monopoly, where
strange things might well be done in the name
of liberty. The twentieth century has seen
its progressive erosion on the one hand by
opposed theory and on the other by conflicting
practice. The background of the law, social,
political and economic, has changed. Laisser
faire as an ideal has been supplanted by
’social security’; and social security suggest
status rather than contract. The State may
thus compel persons to make contracts, as
where, by a series of Road Traffic Acts from
1930 to 1960, a motorist must insure against
third-party risks-, it may, as by the Rent
Restriction Acts, prevent one party to a con-
tract from enforcing his rights under it; or
it may empower a Tribunal either to reduce or
to increase the rent payable under a l
ease. In
many instances a statute prescribes the
contents of the contract. The Moneylenders
Act, 1927, dictates the terms of any loan
caught by its provisions; the Carriage of
Goods by Sea Act, 1924, contains six pages of
rules to be incorporated in every contract for
’the carriage of goods by sea from any port in
Great Britain or Northern
491
Ireland to any other port; the Hire Purchase
Act 1938 inserts into hire-purchase contracts
a number of terms which the parties are
forbidden to exclude; successive Landlord and
Tenants Act from 1927 to 1954 contain
provisions expressed to apply ’notwithstanding
any agreement to the contrary.".
It would be incorrect to contend that because law imposes
some restrictions on freedom to contract, there is no
contract at all. So long as mutual assent is not completely
excluded in any dealing, in law it is a contract. On the
facts of this case for the reasons already mentioned, it is
not possible to accept the contention of the ,learned
counsel for the appellant that nothing was left to be decid-
ed by mutual assent. On the other hand, we agree with the
learned Advocate General of Madras and Mr. Setalvad who
appeared for. the State of West Bengal, the intervener, that
the controller’s directions were confined to narrow limits
and there were several matters, which the parties could
decide by mutual assent.
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We shall now proceed to examine the principal decisions
relied’ upon by the learned counsel for the appellant. In
Kirkness v. John, Eudson & Co. Ltd.(1), the material facts
were these: On January 1, 1948, railway wagons owned by John
Hudson & Co., the tax payers’. then under requisition by the
Minister of Transport. were acquired, by the British
Transport Commission under s. 29 of the Transport Act, 1947.
Under s. 30 of that Act, compensation became payable by the
Commission to the tax payers. The amount paid as compen-
sation was substantially higher than the written down value
of the wagons for income tax purposes and as the tax payers
had received allowances under r. 6 of the rules applicable
to Cases I and 11 of Sch. D to the Income Tax Act 1918,
they were assessed under s. 17 of the Income Tax Act 1945 to
give effect to a balancing charge in respect of the excess
of the original cost of the wagons over the written down
value. The Court of Appeal held that the transfer of’
wagons under s. 29 of the Transport Act 1947 was not a sale
at common law, since it did not involve a mutual assent and
a price;, it was an acquisition authorised by a statute and
not a compulsory purchase. Therefore, the wagons were not
machinery or plant which had been ’sold’ within the meaning
of s. 17(1) (a) of the Act of 1945 and no, balancing charge
could be made under the sub-section. This, decision was
affirmed by the House of Lords by a majority. Speak--
in,, for the majority, Viscount Simonds observed:
"My Lords, in my opinion the company’s wagons,
were not sold, and it would be a grave misuse
of language, to say that they were sold. To
say of a man who has had his property taken
from him against his will and been
awarded
compensation in the settlement of which be has
had no voice, to say of such a man that he has
sold his’ property appears to me to be as far
from the truth as to,
(1) [1955] A.C. 696.
492
say of a man who has been deprived of his
property without compensation that he has
given ’ it away. Alike in the ordinary use of
language and in its legal concept a sale
connotes the mutual assent of two parties. So
far as the ordinary use of language is
concerned it is difficult to avoid being
dogmatic, but for my part I can only echo what
Singleton L.J. said in his admirably clear
judgment: ’What would anyone accustomed to the
use of the words ,sale’ or ’sold’ answer? It
seems to-me that everyone must say ’Hudsons
did not sell’. I am content to march in step
with everyone and say ’Hudsons did not sell’.
Nor is a different result reached by an
attempt to analyse the legal concept. When
Benjamin said in the passage quoted by
Singleton and Birkett L. JJ. from his well-
known book on Sale, 2nd ed., p. 1, that ’by
the common law a sale of personal property was
usually termed a ’bargain and sale of goods’,
he was by the use of the word ’bargain’
perhaps unconsciously emphasizing that the
consensual relation which the word ’bargain’
imports is a necessary element in the
concept’, ".
From the facts set out above it is clear that the House of
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Lords was dealing with a compulsory acquisition and not
sale. Therefore -that decision is of no assistance to the
appellant.
In Messrs. New India Sugar Mills Ltd. v. Commissioner of
Sales Tax, Bihar(1), this Court was called upon to consider
whether ,certain transactions effected under the Sugar
Control Order 1946 were sales. By a majority this Court
held that they were not sales. The facts as found by the
High Court and accepted by this Court ,are found at pp. 463
and 464 of the report. They are as follows:
"The admitted course of dealing between the
parties was that the Government of various
consuming States used to intimate to the Sugar
Controller of India from time to time their
requirement of sugar, and similarly the
factory owners used to send to the Sugar
Controller of India -statements of stock of
sugar held by them’ On a consideration of the
requisitions received from the various State
Governments and also the statements of stock
received from the various factories, the Sugar
Controller used to make allotments. The
allotment order was addressed by ’the Sugar
Controller to the factory owner, direc
ting him
to supply sugar to the State Government in
question in accordance with the despatch
instructions received from the -competent
officer of the State Government. A copy of
the :allotment order was simultaneously sent
to the State Government concerned, on receipt
of which the competent authority of the State
Government sent to the factory concerned
detailed instructions about the destination to
(1) (1963) Supp. 2 S.C.R. 459.
493
which the sugar was to be despatched as also
the quantities of sugar to be despatched to
each place. In the case of the Madras
Government it is admitted that it also laid
down the procedure of payment, and the
direction was that the draft should be sent to
the State Bank and it should be drawn on Parry
and Company or any other party which had been
appointed as stockist importer on behalf of
the Madras Government."
On the basis of those facts, the Court came to the
conclusion that there was no room for mutual assent in those
transactions. The facts of the present case are materially
different from the facts of that case. Hence the ratio of
that decision does not apply to the facts of the present
case. Whether in a given case there was mutual assent or
not is a matter to be decided on the facts of that case.
In Calcutta Electric Supply Corporation Ltd. v. Commissioner
of Income Tax, West Bengal(1). the facts were: The assessees
were an electric supply company. During the war the
government requisitioned an electricity generating plant of
the assessees under r. 83(1) of the Defence of India Rules.
The Government wanted to acquire that plant. As the
assessees were not willing to sell the plant, they required
the government to re-examine the position and to rescind the
order depriving them of the plant, but the government
refused to re-consider that decision. The amount which the
assessees received as price or compensation for the plant
exceeded the written down value of the plant by Rs.
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3,27,840/-. The taxing authorities treated the excess as
assessees’ profits under s. 10(2) (vii) of the Indian,
Income Tax Act 1922 and assessed that amount to tax. On a
reference under s. 66(1) of that Act, as to whether the
amount in question can be considered as assessees’ profit,
Harries, C. J. and Banerjee, J. held that the transaction by
which the government acquired the plant could-not be
regarded as a sale within the meaning of s. 10(2) (vii) and
therefore the sum of Rs. 3,27,840/- was not taxable as
profit under that provision. The Court further observed
that the ordinary meaning of the word ’sale’ is a
transaction entered into voluntarily between two persons
known as buyer and seller by which the buyer acquires the
property of the seller for an agreed consideration known as
’price’. The rule laid down in that decision is the same as
that laid down by the House of Lords in Kirkness v. John
Hudson & Co. Ltd.(2). In this case also the Court was
dealing with a compulsory acquisition and not sale.
In M/s. Cement Limited v. The State of Orissa(3), the Court
was dealing with transactions effected under the Cement
Control Order 1956. Therein the assessee company. a
manufacturer of cement, was required to sell cement to the
State Trading Corporation On payment of stipulated price.
Cl. 3 of the Cement Control Order provided "Every producer
shall sell (1)(a) the entire quantity of cement held in
stock by him on the date of the commencement
(1) 19 I.T.R. 406,
(2) [1955] A.C. 696.
(3) 12 S.T.C. 205.
494
of the order, and (b) the entire quantity of cement which
may be produced by him during a period of two years from the
date of commencement of this order to the Corporation and
deliver the same to such person or persons as may be
specified by the Corporation in this behalf from time to
time, (2) notwithstanding any contract to the contrary,
every producer shall dispose of cement lying in stock with
him or produced by him, in accordance with the provisions of
sub-cl. (1) and shall not dispose of any cement in
contravention thereof". Cl. 6(1) was to the effect that the
price at which a producer may sell cement shall be specified
in the schedule. The sales in this case were effected under
the aforementioned clauses 3 and 6. It is under those
circumstances that the Court came to the conclusion that the
transactions in question were not sales but were in the
nature of compulsory transfer of title. This case again is
of no assistance to the appellant.
The appellant’s learned counsel also read to us the
decisions in North Adjai Coal Company (P) Ltd. v. Commercial
Tax Officer and others(1) and S. K. Roy v. Additional
Member, Board of Revenue, West Bengal(2). On the facts of
those cases, the Court came to the conclusion that the
transactions in question were- not sales.
For the reasons already stated, we are unable to accept the
contention that the transactions with which we are concerned
in these cases are not sales. Out of the four elements
mentioned earlier, three were admittedly established,
namely, the parties were competent to contract, the property
in the goods was transferred from the seller to the buyer,
and price in money was paid. The only controversy was
whether there was mutual assent. Our finding is that there
was mutual assent in several respects. Hence, we agree with
the High Court that the transactions before us are sales.
That takes us to the next contention by the appellant i.e.,
that there was no material to conclude that the goods were
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delivered in the State of Madras for consumption. There is
no dispute that the goods in question were delivered in the
State of Madras. The dispute centres round the question
whether it is proved that they were delivered for
consumption in that State. The learned counsel for the
appellant conceded that actual consumption within the State
need not be proved. All that is required to be shown is
that they were delivered for consumption in the State. The
only question is whether there was any material to support
the conclusion of the Sales Tax Appellate Tribunal, the
final fact finding authority, that the goods were delivered
in the Madras State for consumption in that State. The High
Court rightly proceeded on the basis that "the burden is
certainly upon the State to establish facts upon which a
subject can be taxed under a financial enactment." But it
accepted the finding of the Sales Tax Appellate Tribunal
that from the facts and circumstances established it is a
reasonable inference to draw
(1) 17 S.T.C. 514.
(2) 18 S.T.C. 379.
495
that the goods were delivered for consumption in the Madras
State. This aspect was dealt with by the Tribunal in para 1
1 of its order dated April 17, 1959. On that question this
is what the Tribunal says:
"It will be an onerous task to pursue the
subsequent history of every inter-State sale
transactions to find out whether after
successive change of hands the’ goods left the
state; but it will be permissible in such
cases to consider the broad pattern of the
transaction, the surrounding circumstances and
any other relevant date to draw a reasonable
conclusion therefrom. In the cases before us,
it is admitted that the sales were in
pursuance of a scheme of internal distribution
under the control order applicable to the
whole of India. That there was necessity to
draw up such a scheme, indicates that the
goods were essential goods, that the supply
was inadequate to meet the demand, and that
unless there was control and restriction in
distribution it was likely that the goods
would pass into the black market, and would be
sold at exorbitant rates. It is permissible
inference that controlled stockists,
registered stockists and registered dealers,
who are the principal buyers from the
appellants and who could be expected to have
been given quotas in the scheme of controlled
distribution, would be people expected to meet
the local demand for the consumption of the
controlled goods. It is also well known to
people familiar with the operation of a
controlled scheme and distribution of goods
that quotas are given against proved demands,
and that it is not part of the scheme of
distribution to provide for goods sold in one
State being exported to other states inside
the Union territory because each State has got
its own quota of goods and list of controlled
stockists, registered stockists and so on.
Therefore we infer from the analysis given of
the transactions by the appellants, that the
sales to various groups of purchasers,
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registered stockists and controlled’
stockists
and so on are all intended to meet the local
demands for steel products and not for re-
export. An analysis of the amount concerned
in each of these transactions show that the
quantity of steel involved would not be large
in each individual case, a circumstance again
point to the inference that the sales were
intended to meet the requirements of the
consumers in Madras State. In the- case of
sales to local Government departments, it is
obvious that sales were intended for internal
consumption and not reexports".
Strangely enough, the High Court at the first instance
thought that this finding was unsupported by evidence.
Consequently it remanded the case back to the Tribunal for a
fresh finding on that aspect
496
after giving both the parties opportunity to adduce further
evidence oral and documentary. No fresh material was placed
before the tribunal after the case was sent back to it. But
on the basis of the material already on record, the tribunal
again came to the very conclusion that it had come earlier.
When the cases again came back to the High Court. that
finding was accepted as correct. In our opinion, the High
Court was not right in rejecting that finding at the first
instance. The finding of the tribunal is a reasonable
finding-. The inferences drawn by it are reasonable
inferences from the facts proved or admitted. It is
reasonable to assume that the supplies of iron and steel
products were being made to stockists in a State for
consumption in that State. It may be, as found in this
case, that a small portion of the supplies had gone out of
the State. But that is not a relevant circumstance. What
we have to see is whether the Supplies in question were made
for consumption in the Madras State. On that question the
finding of the Tribunal is conclusive.
The contentions of the appellant that the findings of the
tribunal about the quantum of the turnover were not based on
any evidence, or that those findings were arrived at in
violation of the principles of natural justice or that the
decision of the High Court is perverse, are wholly untenable
contentions. At the time of the hearing no reasons were
advanced in support of those contentions. Hence those
contentions do not merit any detailed examination.
In the result, these appeals fail and they are dismissed
with costs-hearing fee, one set.
Appeals dismissed.
G.C.
497