1979 (5) TMI 142 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the agreement is a lease or licence.
2. Whether sales tax and cess tax are payable on the amount of "royalty on bamboo yield basis".
3. Whether the notification of the State Government dated 26th December, 1974, is legal and valid.

Issue-wise Detailed Analysis:

1. Whether the agreement is a lease or licence:

The Court examined the nature of the agreement between the Governor of Bihar and the petitioner to determine if it constituted a lease or a licence. The petitioner argued that the agreement was a lease, emphasizing terms like "lease," "royalty," "right to exploit bamboos," and the ability to sub-let or transfer interest. Conversely, the State contended it was a licence, highlighting that possession of land was not given, payments were based on bamboo extraction, and the agreement allowed only the cutting and removal of bamboos, not an interest in the land.

The Court referred to established principles distinguishing a lease from a licence, primarily focusing on whether the agreement created an interest in immovable property or merely permitted the use of the property. The Court concluded that the agreement did not create a lease but granted a licence. The decisive factors included the liberty and licence to enter the land for bamboo exploitation, the absence of land possession transfer, and the payment structure based on bamboo yield, which indicated a contract for the sale of goods rather than a lease.

2. Whether sales tax and cess tax are payable on the amount of "royalty on bamboo yield basis":

The Court analyzed whether the agreement constituted a contract for the sale of goods, thereby attracting sales tax. The definition of "sale" under the Bihar Sales Tax Act and the nature of the agreement were scrutinized. The Court concluded that the agreement was a contract for the sale of bamboos, as it involved the transfer of property in goods (bamboos) for a price. Consequently, sales tax was payable on the bamboo yield basis.

The Court also addressed the definition of "dealer" under the Act, noting that the requirement of carrying on the business of selling goods was removed in the current Act. This change aligned with the precedent set by the Supreme Court in the Orient Paper Mills case, where the forest department was deemed a dealer liable for sales tax. Therefore, the petitioner was legitimately required to pay sales tax and cess tax.

3. Whether the notification of the State Government dated 26th December, 1974, is legal and valid:

The petitioner challenged the legality of the State Government's notification dated 26th December, 1974, which excluded timber from exempted goods and included bamboo in the taxable schedule. The Court upheld the notification, stating that the power to exempt goods from sales tax inherently included the power to withdraw such exemptions. The relevant provisions of the Bihar and Orissa General Clauses Act supported this interpretation.

The Court also found that the State Government's authority to fix higher rates of tax for specified goods, as exercised in the notification, was explicitly authorized by section 6(2) of the Bihar Sales Tax Act. Thus, the notification was within the legal powers of the State Government.

Conclusion:

The Court dismissed the petition, holding that the agreement was a licence, not a lease, and that sales tax and cess tax were payable on the bamboo yield basis. The notification issued by the State Government was deemed legal and valid. The petitioner was ordered to pay costs of Rs. 500.