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TMI Blog1967 (9) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 General Sales Tax Act, 1939 (Madras Act 9 of 1939) (to be hereinafter referred to as the Act), the law in force at that time. The appellant has been assessed to tax on the basis of best judgment. The authorities under the Act have determined the appellant's turnover during the year 1953-54 at Rs. 31,29,520 and levied a tax of Rs. 16,298-4-0. During the financial year 1954-55, its turnover was determined at Rs. 37,59,216 and the assessment levied is Rs. 58,737-12-0. For the broken period in the financial year 1955-56, the appellant's turnover was determined at Rs. 14,53,292 and the same was assessed to tax at Rs. 22,707-12-0. Even according to the appellant, its turnovers during 1953-54 was Rs. 29,12,533-14-0, in 1954-55 Rs. 39,71,493-7-0 and in 1955-56 Rs. 17,25,400-5-0. Therefore, there is little room for controversy about its turnovers in the relevant years. The appellant is contesting the right of the State of Madras to levy tax on the turnovers in question. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l question that falls for decision in these appeals is whether the transactions with which we are concerned herein are sales. Section 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 cash or for deferred payment or other valuable consideration, and includes also transfer of property in goods involved in the execution of a 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 purpose). 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore it became necessary for the Government to control the production and distribution of those goods. In order to do so, the 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 or 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 Tub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder 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 any equalisation fund established by the Controller for equalising freight, the concession rates payable to each producer or class of producers 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." T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Pieces Section Lengths Complete description untested of material indented (1) (2) (3) (4) (5) TONS CWT. QRS. LBS. 10 ... ... ... 468 M.S. rounds 1/4' 18' 13B Category 5 ... ... ... 493 " 3/16' 18' do. 5 ... ... ... 453 " 5/16' 18' do. 20 (Twenty tons only) 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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: "If 1/4 size is not ready, please despatch 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. Banerjee, learned counsel for the appellant that the dealings in question were controlled at every stage, leaving no room for consensus. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue the necessary authority to the buyer and the seller. This conclusion of ours is strengthened from the circumstance that clause 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, 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. Banerjee that the Controller derives his power to authorise the buyer to buy and the seller to sell exclusively under clause 10B, suffers from another infirmity. Under clause 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 clause 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 clause 4. Our attention has not been invited to any provision in the Order, if we exclude from consideration clause 4, under which the Controller could have the power to authorise the buyer to buy iron and steel products. Therefore, it is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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 edition) at page 23. 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 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, then under requisition by the Minister of Transport, were acquired by the British Transport Commission under section 29 of the Transport Act, 1947. Under section 30 of that Act, compensation became payable by the Commission to the taxpayers. The amount paid as compensation was substantially higher than the written down value of the wagons for income tax purposes and as the taxpayers had received allowances under rule 6 of the rules applicable to Cases I and 11 of Schedule D to the Income Tax Act, 1918, they were assessed under section 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 section 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 section 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 Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs 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, directing 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 destinations to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Trading Corporation on payment of stipulated price. Clause 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 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-clause (1) and shall not dispose of any cement in contravention thereof." Clause 6(1) was to the effect that price at which a producer may sell cement shall be specified in the schedule. The sales in this case were effected under the afore- mentioned 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 appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange 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 circum- stances and any other relevant data 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 con- trol 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 a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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