1977 (1) TMI 142 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the transactions covered by final bill No. B-12/19/Imp-E-30 dated 25th February 1964, effected by the respondents with the scheduled units were sales within the meaning of section 2(28) of the Bombay Sales Tax Act, 1959.
2. Whether the Tribunal was correct in law in not allowing the applicant to argue that the sales were protected by article 286 as sales in the course of import.

Analysis:
Issue 1: Definition of Sale under Bombay Sales Tax Act, 1959
The primary issue was whether the transactions between the respondents and the scheduled units constituted sales under section 2(28) of the Bombay Sales Tax Act, 1959. The respondents, established importers of copper, obtained an import license under strict regulatory conditions imposed by the Non-ferrous Metals Control Order, 1958, which included reporting to the Controller, selling only to permit-holders, and adhering to a maximum price limit.

The Deputy Commissioner of Sales Tax initially held that the transaction was a sale, but the Tribunal, relying on the Supreme Court's decision in New India Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, concluded otherwise, stating that the respondents had no volition in the transaction.

Statutory and Regulatory Framework
The import license and the Non-ferrous Metals Control Order, 1958, imposed several conditions, including:
- Reporting particulars of quota licenses to the Controller.
- Importing only from the USA.
- Selling only to permit-holders at prices not exceeding 3.5% over the landed cost.
- Prohibiting the consumption or disposal of imported stock without a permit.

The respondents argued that these statutory directions left no room for a contractual agreement, thus negating the element of sale.

Judicial Precedents
The court analyzed the principles laid down in Salar Jung Sugar Mills Ltd. v. State of Mysore, where the Supreme Court held that regulatory controls do not necessarily eliminate the element of mutual assent in transactions. Six propositions from this case were reiterated, emphasizing that statutory orders do not completely impinge on the freedom to contract and that such transactions can still be considered sales.

Court's Conclusion
Applying these principles, the court found that despite regulatory controls, there was an area of consensual freedom left to the parties:
- The respondents could negotiate terms of delivery, time, and payment with the purchasers.
- The price was subject to a ceiling but not fixed, allowing for negotiation within the 3.5% margin.
- The Non-ferrous Metals Control Order itself contemplated a sale and purchase, indicating a contractual relationship.

Therefore, the court concluded that the transaction constituted a sale within the meaning of the Bombay Sales Tax Act, 1959, and answered the first question in the negative.

Issue 2: Sales in the Course of Import
The respondents did not desire the court to answer the second question regarding whether the sales were protected by article 286 as sales in the course of import. Consequently, the court did not address this issue.

Judgment:
The court answered the first question in the negative, indicating that the transactions were sales under the Bombay Sales Tax Act, 1959. The second question was not addressed at the respondents' request. The respondents were ordered to pay the applicant's costs of Rs. 300.