1967 (11) TMI 96 - SC - VAT and Sales Tax

The Explanation to section 2(g) of the Madras General Sales Tax Act (1 of 1959) is not ultra vires the Legislature. Whether any part of the Explanation (1) to section 2(n) is ultra vires the Legislature does not fall to be determined in this case, for, we are of the view that the transactions of the respondent-Society fell within the substantive part of the definition of the expression sale , and on that account those transactions are taxable under the Madras General Sales Tax Act (1 of 1959). The appeals must therefore be allowed, and the petitions filed by the Society dismissed. In view of the order passed by this Court on August 12, 1965, when leave was granted to appeal to this Court, the appellant will pay costs of these appeals to the respondent.

Issues Involved:
1. Whether the respondent-Society is a "dealer" under the Madras General Sales Tax Act, 1959.
2. Whether the transactions of the respondent-Society supplying refreshments to its members constitute a "sale" under the Act.
3. Whether the Explanations to section 2(g) and section 2(n) of the Act are ultra vires the State Legislature.

Issue-Wise Detailed Analysis:

1. Whether the respondent-Society is a "dealer" under the Madras General Sales Tax Act, 1959:
The Supreme Court analyzed the definition of "dealer" under section 2(g) of the Madras General Sales Tax Act, 1959, which includes "any person who carries on the business of buying, selling, supplying or distributing goods." The Court emphasized that a co-operative society like the respondent-Society, which supplies goods to its members, falls within this definition. The Court noted that the respondent-Society, despite not being profit-motivated, engages in trade by supplying refreshments to its members, thus qualifying as a "dealer."

2. Whether the transactions of the respondent-Society supplying refreshments to its members constitute a "sale" under the Act:
The Court examined the definition of "sale" under section 2(n) of the Act, which includes "every transfer of the property in goods by one person to another in the course of business for cash or for deferred payment or other valuable consideration." The Court found that the respondent-Society's transactions meet the four constituent elements of a sale: competent parties, mutual assent, transfer of property, and payment or promise of price. The Court rejected the argument that the Society acts merely as an agent for its members, holding that the Society is a separate legal entity with ownership of the refreshments until sold to members.

3. Whether the Explanations to section 2(g) and section 2(n) of the Act are ultra vires the State Legislature:
The Court addressed the High Court's ruling that the Explanations to section 2(g) and section 2(n) were ultra vires, as they extended the concept of "sale" beyond its traditional meaning. The Supreme Court disagreed, stating that the Legislature has the authority to define "dealer" and clarify that certain entities, including co-operative societies, are deemed dealers. The Court held that the Explanations merely clarify the scope of taxable entities and do not overstep legislative powers. The Court concluded that the transactions of the respondent-Society fall within the substantive definition of "sale," making them taxable under the Act.

Conclusion:
The Supreme Court allowed the appeals, holding that the respondent-Society is a "dealer" and its transactions constitute "sales" under the Madras General Sales Tax Act, 1959. The Court found the Explanations to section 2(g) and section 2(n) within legislative authority, thus reversing the High Court's decision. The petitions filed by the Society were dismissed, and the appellant was ordered to pay costs. Appeals allowed.

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