1960 (11) TMI 110 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of cement by the petitioner to the State Trading Corporation under the Cement Control Order constitutes a "sale" under the Orissa Sales Tax Act.
2. Whether the transaction between the petitioner and the Corporation is subject to sales tax under the Orissa Sales Tax Act.

Issue-wise Detailed Analysis:

1. Whether the sale of cement by the petitioner to the State Trading Corporation under the Cement Control Order constitutes a "sale" under the Orissa Sales Tax Act.

The petitioner, a limited company manufacturing cement, was assessed for sales tax by the Sales Tax Authorities for the quarter ending 30th September, 1956, on the sale of cement amounting to Rs.30,39,017-25 nP to the State Trading Corporation. The petitioner contended that there was no "sale" within the meaning of the Orissa Sales Tax Act, as the delivery of cement was mandated by the Cement Control Order, which required the firm to deliver all produced and stocked cement to the Corporation at a fixed price. The petitioner argued that this was a case of compulsory acquisition of movable property and the payment received was compensation, not a sale.

The Court examined the Cement Control Order, which mandated that producers sell their entire stock and future production of cement to the Corporation at a price fixed in the Order. The Court noted that the scheme of the Order left no discretion to the producers regarding the buyer or the price, effectively compelling them to deliver cement to the Corporation and receive the fixed price in return.

The Court referred to the Supreme Court's decision in The State of Madras v. Messrs Gannon Dunkerley & Co., which defined a "sale" as requiring an agreement between parties to transfer title to goods for money consideration, with the property actually passing in the goods as a result of the transaction. The Supreme Court emphasized that a sale necessitates an agreement to sell, supported by money consideration, and the actual transfer of property in the goods. The Court concluded that the essential element of bargaining was absent in the transaction between the petitioner and the Corporation, as the delivery of cement was mandated by law, not by a voluntary agreement.

2. Whether the transaction between the petitioner and the Corporation is subject to sales tax under the Orissa Sales Tax Act.

The Court found that the Cement Control Order effectively transferred the title of cement from the producer to the Corporation on payment of the fixed price, without any contractual negotiation. The Court rejected the Advocate-General's argument that there was an implied contract between the producer and the Corporation, noting that neither party had any discretion in the matter. The Court distinguished this case from the Andhra High Court's decision in Bangaru Rama Rao Brothers v. Tadavarthi Punayyal, where there was some contractual nexus between representative dealers and quota holders under the Cloth Control Order.

The Court concluded that the transaction between the petitioner and the Corporation was a compulsory transfer of title, not a sale, and thus not subject to sales tax under the Orissa Sales Tax Act. The Court answered the question in the negative, holding that there was no sale of cement to the Corporation and no sales tax was leviable.

Conclusion:
The Court held that the transaction between the petitioner and the State Trading Corporation, mandated by the Cement Control Order, did not constitute a "sale" under the Orissa Sales Tax Act and was not subject to sales tax. The reference was answered accordingly, with no order as to costs.