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TMI Blog1981 (3) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... irst instance. Subsequently, the Ordinance was replaced by Amendment Act 15 of 1976. Section 98A reads as follows: "98A. Levy of forest development tax.-(1) Notwithstanding anything contained in this Act, in respect of forest produce disposed of by the State Government by sale or otherwise, there shall be levied and paid to the State Government a tax at the rate of five per cent on the amount of consideration paid therefor. (2) The said tax shall be collected along with such consideration. (3) It is hereby declared that the said tax shall be in addition to and not in lieu of any tax payable in respect of such produce under any other law in force." Rate of tax was increased from five per cent to eight per cent by an amendment made to section 98A(1) by Act 14 of 1980. (ii) The petitioners, who are forest contractors, have been called upon to pay the tax on the amount of consideration payable by them to the State Government towards the forest produce disposed of in their favour at the rate prescribed in the above section. (iii) In W.P. Nos. 16614 to 16631 of 1979, the contracts for the disposal of forest produce have been entered into by the petitioners on dates subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such amount payable after 24th December, 1975. 4.. In support of the first contention the submission made by the learned counsel is as follows: In the scheme of distribution and conferment of legislative power under the Constitution, a tax can be imposed by the State Legislature if only a specific power is conferred on it. This position is clear from the decision of the Supreme Court in M.P.V. Sundararamier Co. v. State of Andhra Pradesh [1958] 9 STC 298 at 339-340 (SC); AIR 1958 SC 468 at 493. Entry 54 of List II on which the State relies, confers the power on the State Legislature to levy tax on sale or purchase of goods. The levy under section 98A is not only on sales but also on disposal of forest produce otherwise than by sale. Disposal of forest produce made by the State in favour of the petitioners was not by sale, but it was either a licence for exploitation of forest produce or in the nature of grant of privileges which is specifically adverted to in section 26 of the Act. Therefore, section 98A is invalid for want of legislative competence. 5.. The substance of the submission made on behalf of the petitioners is that, if the disposal of forest produce contemplate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is any combination among bidders. (xiv) The continuance of the sale on the following days if it is not closed on the day when it was commenced. (xv) The obligation on the part of the buyers to inspect the produce or the area of the coupe before bidding or tendering. (xvi) The liability of the bidder in auction sales to sign the notice of the sale implying thereby their acceptance to its terms before they make their offers." The learned counsel pointed out that rule 89(i) specifically provides that a sale notification should refer to the situation and area to be leased out while subrule (iii) provides for the specification of the period of lease. Reference was also made to section 26 of the Act which confers power on the State Government to grant privileges to any individual in reserved forests and it was pointed out that in the terms of the agreement there was specific reference to the grant of privileges. There is no dispute that the agreements entered into between all the petitioners and the Government are in prescribed form and similar. Reliance was placed on para IV of the agreement to show that they were in the nature of grant of privileges and licence and not sales, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecked and stamped by a responsible Forest Officer..........No material shall be removed from the contract area unless it is covered by the transit pass.......... He should maintain a register, the pages of which shall be sealed and numbered in the respective Range Forest Officer, showing clearly the quantity and sizes of timber removed from each sub-coupe..........No extension to the contract period will be given except under very special circumstances..........He should utilise the services of the Kamgar Officials..........He should submit from time to time to the Divisional Forest Officer, the name, age and address of every person whom he may propose to employ in superintending the working of the contract..........The contractor should provide on or near the work-site adequate housing accommodation as may be approved by the Divisional Forest Officer. He should maintain a register of payment of daily wages, etc., made to the labourers and produce them for checking before the Forest and Revenue Officers..........If any of the reserved trees are damaged or broken during the course of felling, the contractor shall be liable to pay value at the market rates assessed by the Divisional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the locality in which the goods are situated, but on that account the transaction does not cease to be a sale. In particular, he invited our attention to rule 85 of the Rules framed under the Act which specifically provides for the disposal of forest produce only by sale. The said rule reads: "85. Methods of selling forest Produce.-(1) No forest produce shall be sold by any method other than the following: (i) Sale by auction or tender or tender-cum-auction. (ii) Sale at the sanctioned schedule of rates in depots. (iii) Sale by issue of licences at the sanctioned seigniorage rates: Provided that any other method may be resorted to with the previous sanction of the Government whenever the Chief Conservator of Forests considers it desirable to do so in the interest of the department. (2) The rates referred to in clause (ii) of sub-rule (1) shall be the schedule of rates sanctioned by the Chief Conservator of Forests from time to time. (3) The rates referred to in clause (iii) of sub-rule (1) shall be those specified in rule 83(4). All important sales of timber and other forest produce shall generally be held by open public auction, tender or tender-cum-auction: Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment. A combined reading of these two sections indicate that cutting of trees in reserved forests could be undertaken by any individual in terms of the permission granted by the Forest Officer and in terms of any rule made by the State Government. Rule 85 of the Rules extracted above clearly provides for the sale of forest produce. According to the said rule, the sale could be conducted either by way of auction or tender-cum-auction or by direct sale of forest produce at the rates prescribed in the schedule in depots or by sale at seigniorage rates by issue of licences. Rule 83 of the Rules prescribed the seigniorage rates to be charged for each kind of tree or other forest produce sold by way of issue of licences. All the three methods which are permitted by rule 85 are different methods of sale of forest produce and the proviso to sub-rule (1) of rule 85 however enables the department to adopt any other method of sale with the previous sanction of the Government. Rule 89 on which the learned counsel for the petitioners placed reliance to indicate that disposals of forest produce in their favour was in the nature of lease itself clearly provides that sale notification should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng cultivation, (j) use of water sources in forest area for cultivation, and (k) hunting of certain wild animals in the forests adjoining cultivation for preservation of crop and cattle; (ii) Villagers: (a) wood and bamboos for construction and repairs of houses, (b) leaves and grass for thatching, (c) grazing of cattle in open forest areas, (d) certain minor forest products for their bona fide domestic use, (e) kamara leaves during famine, and (f) privilege of way in forests; (iii) Cultivators and village inhabitants.-Grant of strips in forests adjoining cultivation and habitation in the interest of public health and protection from wild animals with the attendant privileges; (iv) Gardeners of arecanut gardens.-Grant of privileges attached to bettaland; (v) Cultivators of wet lands.-Grant of privileges attached to kunki lands; (vi) Artisans engaged in handicrafts: (a) bamboos at concessional rates, (b) woods of certain kinds useful for their craft free or at concessional rates, (c) leaves and grass for mat-making, (d) barks and fruits of certain trees for tanning purposes; (vii) Poor people whose houses have been destroyed by accidental fire, fl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 603 (SC); AIR 1977 SC 687 is on all fours applicable to the facts of these cases. In the said case, the Supreme Court laid down that one should not look into the inaccurate terms or inaccurate forms used in the agreement, but should look into the substance of the document, and if in substance the transaction amounts to sale, the provisions of the Sales Tax Act would be attracted. The relevant portions of the judgment are contained in paragraphs 19 and 23 which read: "19..... What is authorised under the deed is the 'exclusive liberty' to enter upon the leased area to fell, cut or extract bamboos and salai wood and to remove, store and utilise the same for meeting the full requirements of the paper mill. This reads more like a sale of standing timber coupled with a licence to enter and do certain things on another's land. * * * 23.. We are satisfied that despite its description, the deed confers in truth and substance a right to cut and carry timber of specified species. Till the trees are cut, they remain the property of the owner, namely, the appellant. Once the trees are severed, the property passes. 'Royalty' is a feudalistic euphemism for the 'price' of the timber. We may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction which is similar to the one concerned in these cases did not amount to sale. We are unable to agree. The two questions which were decided by the Supreme Court in the said case were: (i) Rejecting the contention that stamp duty was leviable on the agreements, the Supreme Court held that the agreement was only a licence and did not amount to lease as under that agreement only forest produce was sold and no right in immovable property, i.e., in land, had been transferred. (ii) As regards the exigibility to tax on the sales turnover of the forest produce, the Supreme Court held that the sale of the forest produce by the Government in favour of the individuals concerned in the said case, was not a sale in the course of the business and the Government of Andhra Pradesh was not a dealer and, consequently, the turnover was not exigible to tax. The Supreme Court did not hold that the transaction did not amount to sale as sought to be made out by the learned counsel for the petitioners. On the other hand the decision was that the sale was not in the course of the business and therefore it was not exigible to tax under the Andhra Pradesh Sales Tax Act, which means the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, or through licences issued for purchase of forest produce on payment of seigniorage rates fixed under rule 84 of the Rules. He admitted that as all these methods were also sales, the use of the word "sale" would have been sufficient, but, it has been used only in order to avoid any doubt which might be raised that disposal of forest produce by auction or by the issue of licence were not sales. In the alternative, he contended that even if the section were to be interpreted so as to cover disposal of forest produce otherwise than by sale, imposition of tax on such transactions is also within the legislative competence in view of entry 49 of List II which empowers the State to levy tax on land and that the word "land" includes trees standing on the land. In support of this submission, the learned counsel for the State relied on the decision of the Supreme Court in Anant Mills v. State of Gujarat AIR 1975 SC 1234 at 1250. The relevant portion of the judgment reads: "Mr. Tarkunde on behalf of the petitioner-company has urged that under entry 49 of the State List in the Seventh Schedule to the Constitution, the State Legislature is empowered to enact a law relating to taxes on la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion urged for the State that even if section 98A of the Act provides for the imposition of tax on disposal of forest produce otherwise than by sale the power to impose such tax flows from entry 49 of List II. 15.. In the result, our answer to the first question is that section 98A of the Act, which imposes tax on the purchase price of forest produce disposed of by sale by the State Government whatever be the method of sale is within the legislative competence of the State under entry 54 of List II and is constitutionally valid. We do not express any opinion on the question of the validity of the section, if it is used to levy tax on transactions other than sale. 16.. The second contention urged for the petitioners was that section 98A was invalid as it suffers from the vice of double taxation. The learned counsel argued that the tax has been levied on the sale of forest produce by the State under section 5(1) of the Sales Tax Act enacted by the State Legislature by virtue of the power given to it under entry 54 of List II and therefore there can be no second taxation on the same transaction and on the same persons and under the same entry. Reliance was placed in support of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l those cases, though on the same transaction or person, were under different entries, unlike in the present case in which the imposition of tax both under section 5(1) of the Sales Tax Act and under section 98A of the Act on the same person and on the same event is under the same entry. The contention in our opinion is devoid of any substance. 18.. The extent of power of the legislatures to make laws including the imposition of tax and restrictions or limitations on the exercise of such legislative power are to be found in the Constitution itself. There is no provision in *Here italicised. the Constitution brought to our notice which prohibits the legislatures from levying tax on the same event and on the same person more than once. Repelling an argument that the provisions contained in the Income-tax Act, levying income-tax on the income of a firm on the firm and also on partners was bad on the ground of double taxation, the Supreme Court in the case of Jain Brothers v. Union of India [1970] 77 ITR 107 at 112 (SC); AIR 1970 SC 778 at 782 held thus: "The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that effect." The observation in para 23 of the judgment of the Supreme Court only approved the above view taken by the High Court. The view taken was that unless the imposition of excise duty for a second time on goods which had already suffered excise duty was specifically intended by the relevant provisions of the statute it should not be interpreted as authorising the imposition of tax more than once on the same person or article. The above reasoning, on the other hand, indicates if the statute specifically provides for imposition of tax more than once such collection cannot be prevented. Therefore, we reject the second contention also. 19.. The third contention urged for the petitioners was that the impost under section 98A was either in the nature of fee or was in the nature of compensatory tax and there being no quid pro quo between the quantum of levy and the amount required for the purpose for which it is levied, the imposition is bad. Elaborating this contention, the learned counsel for the petitioners submitted as follows: The levy of tax under section 98A was for the specific purpose of raising of forest plantation and for such purposes as are ancillary thereto as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /or regulatory in nature when the levy is a tax and not a fee. Hence, the third contention is devoid of any substance. 20.. The fourth contention urged for the petitioners was that the levy was in the nature of excise duty and, therefore, it was not within the competence of the State Legislature to enact section 98A. The learned counsel for the petitioners argued that an excise duty was always in the nature of an indirect tax which can be passed on to consumers and as the levy under section 98A was also in the nature of indirect tax which could be passed on to the consumers, it was in the nature of excise duty, levy of which is beyond the competence of the State Legislature. Reliance was placed in this behalf on a decision under the Australian Constitution in Commonwealth v. South Australia (1926) 38 CLR 408. In that case a State Act enacted by the State of South Australia imposing a tax on the income of vendors of motor spirit was held to be not an income tax (a direct tax) but was an indirect tax which the vendor could pass on to the purchasers and therefore it was in the nature of a duty ofexcise as that term was used in the Australian Constitution and, therefore, the Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t produce by specifying the officers by designation and also the extent of their powers to effect sales by specifying the maximum amount of consideration up to which each category of officer has the power to effect sale of forest produce. The fifth contention, therefore, fails and the same is rejected. 23.. The sixth contention urged for the petitioners was that section 98A was violative of article 14 of the Constitution. The learned counsel for the petitioners argued that section 98A levies tax only on the sale of forest produce by the State Government and no such levy is imposed on the sale of forest produce effected by private individuals owning forests. This contention is also devoid of any merit. Under section 98A forest development tax is imposed on the sale of forest produce by. the State Government who owns most of the forests in the State. The State, having regard to its position under the Constitution and its obligation to the people of the State stands entirely on different footing and a class by itself, when compared to private individuals. Further the object of the tax as is descernible from section 98B of the Act is to collect resources for raising forest plantation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sale was completed prior to 24th December, 1975, and therefore no levy was permissible under section 98A of the Act on the said transaction. The stand of the State is that tax is leviable on the amount of instalments payable on or after 24th December, 1975, which is obviously on the premise that taxing event occurs, i.e., the sale to that extent takes place on the date of payment of every instalment if such instalment is payable after 24th December, 1975. The answer to the controversy depends on the facts and circumstances of each case which are as follows: W.P. No. 8579 of 1976.-The petitioner had submitted his tender for the purchase of forest produce to the Conservator of Forests, Dharwad. A communication dated 27th June, 1975, was sent to him accepting his tender. It reads: "To Shri V. D. Sawkar, Forest Contractor, Aversa (Ankola). Sir, Ref: Your tender dated 17th June, 1975. I have to inform you that your tender for the below mentioned coupe has been accepted and sanctioned by the Conservator of Forests, K.C. Dharwad, under his No. B-3/CR-6/SFC/75-76 dated 23rd June, 1975, on behalf of the Governor of Karnataka subject to the condition of the tender notice dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talments by the due dates will be subject to levy of interest at 9 per cent per annurn for the period of entire delay as per rules." The contents of the communication indicates that the offer of the petitioner for the purchase of forest produce in the concerned coupe was accepted for Rs. 4,49,789. The petitioner was required to pay the same in four equal instalments. Further, the petitioner was required to pay sales tax on the entire purchase consideration and the amount of sales tax specified was Rs. 17,991.56. The petitioner was called upon to execute an agreement within 30 days from the date of receipt of the said communication. Accordingly, the petitioner entered into an agreement with the department on 23rd July, 1975. The first condition in the agreement reads as follows: "1. The contractor shall perform the following duties and acts, that is to say,- (a) he shall pay to the Divisional Forest Officer, or should he so direct to some person duly authorised by him in writing to receive the same, the total amount due by him under this agreement as under, viz., (i) First instalment equal to th price of the coupe, viz., Rs. 1,12,448.00 (One lakh twelve thousand four hundre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al contracted for is removed by him from the coupe or not." The contents of the agreement also indicate that the contract of sale was complete though under the terms of the contract the petitioner was permitted to pay the purchase consideration in instalments. Writ Petition No. 5375 of 1976.-A communication dated 17th July, 1975 (exhibit B), was sent to the petitioner informing him that his tender for the concerned coupe at Rs. 1,60,505 was accepted. He was called upon to pay the 1/4th of the price amount as first instalment and was also called upon to pay the entire amount of sales tax payable on the sale consideration and was called upon to enter into an agreement with the Government. The conditions were all similar to those in the earlier writ petitions. No forest development tax is demanded, and it could not have been demanded, on the first instalment, as section 98A was inserted into the Act subsequently. But it is demanded on subsequent instalments. There was another tender submitted by the petitioner. The acceptance of the same was communicated by letter dated 21st July, 1975 (exhibit D). The tender was accepted for Rs. 2,55,805, the rest of the conditions being similar, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts did not in any way affect the finality of the sale. This position is also clear from subsection (1) of section 5 of the Sale of Goods Act. It reads: "A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of such offer. The contract may provide for the immediate delivery of the goods or immediate payment of the price or both, or for the delivery or payment by instalments, or that the delivery or payment or both shall be postponed." (underlining* by us) Though under the terms of the agreement the petitioners were permitted to pay the purchase price in instalments, the fact remains that there was a completed contract of sale. This is also further strengthened by the collection of sales tax on the whole of the consideration. Further though under clause (1) it is provided that the contractor has to pay the second instalment before removing the material from sub-coupe No. I and third instalment before removing the material from sub-coupe No. 11 and fourth instalment before removing the material from sub-coupe No. III, proviso to the said clause specifically provides that if the contractor committed any default in the payment of any of the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and further though the agreement was for a long period, the transaction was annual. The relevant portion of the judgment reads: "It is true that the term of lease is a long one spreading over many years but, as shown, in effect it operated every year only on two coupes, one of bamboos and another of salai wood, ear-marked and allotted by the forest department for the purpose of extraction of ripe material. For all these reasons, we are of the view that the transaction in this case was one of sale of goods." The only contention urged on behalf of the Orient Paper Mills was that the tax was not payable as there was no clause in the contract to that effect. This is clear from the following portion of the judgment at page 539: "Another argument against the demand for sales tax is that the petitioner is not required to pay any such tax under the terms of the lease deed dated 4th August, 1956." This submission was negatived by relying on section 64-A of the Sale of Goods Act. The reason for rejecting the contention was that even though there was no clause in the agreement to pay sales tax the forest department was entitled to recover the tax payable from the Orient Paper Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X
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