# CHHITTER MAL NARAIN DAS v. COMMISSIONER OF SALES TAX - **Citation:** [1971] 1 S.C.R. 671 - **Court:** Supreme Court of India - **Decided:** 1970-07-21 - **Case number:** Civil Appeals Nos. 2483 A and 2484 of 1969 - **Bench:** J.C. Shah, K. S. Hegde - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/chhitter-mal-narain-das-v-commissioner-of-sales-tax-5111 - **Pages:** 12 ## Headnote 671 U.P. Sales-tax Act 1948 S. 2(/1)-Supply of whrnt tu Regional Food Controller uncler U.P. Wheat Procurenient (Levy) Order-If lt1.1:ablc. The, asscssees who were dealers in food-grains supplied to the Regional Food Controller diverse quantities of wheat in compliance with the provisions of the U.P. Wheat Procurement (Levy) Order. 1959. The Sales-tax Otliccr levied tax under the U.P. Sales-tax Act on the aggregate ol the price of wheat supplied by the assessees, rejec.ting the assessccs' contention that the wheat supplied was not sold to the Controller. In appeal, the Assistant Commissioner (Judicial) Saleo Tax held the supply was not taxable since there was no "sale" within the U.P. Sales-tax Act. This order was confirmed by the Additional Judge (Revision) Sales-Tax. On reference, the High Court answered the question against the asscssces. Allowing the assessees' appeal by special leave, this Court. HELD : The supply, pursuant to cl. 3 of the U.P. Wheat Procurement (Levy) Order, 1959 and acceptance: thereof, does not result in a contract of sale. Clnusc 3 of the order sets up a machinery lo compulsory acquisition by the Stutc Government of stocks of wheat belonging to the Jiccn.>cd dealer" The Order contains a bald injunction to supply wheat of the specified quantity day after day, and enacts that in default of complincc thl! dealer is liable to be punished; it does not envisage any consensual ;.irrangcment. To ensure that the dealer carries out his obligation his premises are liable to be searched and his property sequestered. The order docs not require the State Government to enter into even an informal contract. . Sale of goods predicates a contract of sale bctwcon . persons competent to contract for a price paid or promised : a tr•nsaction in which un obligation to supply goods is imposed, and which does not involve an obligation to ente1r into ·a cor1tract. cannot be called a 'snle', even if the person supplying goods is declared entitled to the value of MOOd,, which is determined or determinable in the manner prescribed. Assuming that between the licensed dealer and the1 Controller. there may be some arrangement about the place and manner of delivery of wh«•t. and the payment of "controlled price," the operation of cl. 3 does not on that account become contractual. [675 H-676 DJ Con1111issfo11er of Sak~s Tax, U.P. Lucknow v. Rain Bi/a\· Rain Gopcd dealer" The Order contains a bald injunction to supply wheat of the specified quantity day after day, and enacts that in default of complincc thl! dealer is liable to be punished; it does not envisage any consensual ;.irrangcment. To ensure that the dealer carries out his obligation his premises are liable to be searched and his property sequestered. The order docs not require the State Government to enter into even an informal contract. . Sale of goods predicates a contract of sale bctwcon . persons competent to contract for a price paid or promised : a tr•nsaction in which un obligation to supply goods is imposed, and which does not involve an obligation to ente1r into ·a cor1tract. cannot be called a 'snle', even if the person supplying goods is declared entitled to the value of MOOd,, which is determined or determinable in the manner prescribed. Assuming that between the licensed dealer and the1 Controller. there may be some arrangement about the place and manner of delivery of wh«•t. and the payment of "controlled price," the operation of cl. 3 does not on that account become contractual. [675 H-676 DJ Con1111issfo11er of Sak~s Tax, U.P. Lucknow v. Rain Bi/a\· Rain Gop may be authorised by the Controller to take delivery on his behalf. To ensure that the licensed dealer carries out his obligation the Enforcement Officers may enter any premises where they have reason to believe that wheat is procured, purchased or stocked, and may make necessary enquiries, examine any books or documents and search any premises, vehicles, vessels and ait-craft and seize wheat in respect of which they have reason to believe that a contravention of the Order has been, is being, or is about to be, committed. Obligation to deliver wheat of the quantity specified arises out of the statute. The Order takes no account of the volition of the licensed dealers and until the State Government directs otherwise, of the Controller or the authorised officer. The Order imposes 'an obligation upon the licensed dealer who is defined in cl. 2(d) as m~aning a person holding a valid licence under the U;P. Food· grains Dealers Licensing Order, 1959, to deliver the quantities of wheat specified in the Order. The State Government is directed by the Order to pay for the wheat supplied at the controlled rate. The source of the obligations to deliver the specified quantities of wheat and to pay for them is not in any contract, but in the statutory order. In our judgment cl. 3 sets up a machinery for compul- ' ' 676 SUPREME COURT 'REPORTS [1971] 1 S.C.R. sory acquisition by the State Government of stocks of wheat belonging to the licensed dealers. The Order, it is true, makes no provision in respect of the place and munncr of supply of wheat and payment of the controlled price. It contains a bald injunction to supply wheat of the specified quantity day after day, and enacts that in de.fault of compliance the dealer is liable to be punished; it does not envisage any consensual arrangement. lt does not require the State Government to enter into even an informal contract. A sale predicates a contract of sale of goods between persons competent to contract for a price p~iid or promised: a transaction in which an obligation to supply goods is imposed, and which does 110t involve an obligation to enter into a contract, can11ot be called a ·sale', even if the person supplying goods is declared ¢ntitled to the value of goods, which is determined or determinable 'in the manner prescribed. Assuming that between the licensed dealer and the Controller, there may be some arrangements about the place and manner of delivery of wheat, and the payment of "controlled price .. , the operation of cl. 3 does not on that account become contractual. . The High Court relied upon the following observations in Ram Bi/as Ram Gopal's case(') : "Analysing clause 3 o( the Levy Order it is clear that a licensed dealer is obliged to sell to the State Government fifty per cent of the wheat held in stock by him at the commencement of the Order, and thereafter fifty per cent of. the wheat daily procured or purdrnsed by him beginning with the dutc of com111enccment of the Order until such time as the Stute Government otherwise directs. The price at which the wheat is sold is the nmximum price fixed in the Wheat (Uttar l'rndes.b) Price Control Order, l 959 us notified by the ·Government of India. · Delivery of the wheat has to be given by the dealer ·to the Regional Food Controller or a person authorised by him in that behalf. The dealer has no option but to sell the specified percentage of wheat to the State Government. The State Government has also no option but to purchase fifty per cent of the wheat held in stock by the dealer at the commencement of the Levy Order. As regards the wheat procured or purchased daily by the dealer thereafter, it is open to the State Government to say that from any particular date it will not purchase any or all of the specified percentage of wheat. Therefore, as regards that wheat the Levy· Order leaves it open to one of the parties. namely the State Government to decide when it will stop purchasing wheat from the dealer. That in substance is clause 3 of (1961) AIL L.J. 424 A n c D E F G H A n c D E F G H CHH!TTER MAL V. c.s.r. (Shah, J.) the Levy Order and it embodies the total sum of obligat10ns imposed on the dealer and the State Government. AH other details of_ the transaction are left open to negotiation. It leaves Jt open to the parties to negotiate in respect of the time and the mode of payment of the price, the time and mode of delivery of wheat, and other conditions of the contract.·· Clause 3 of the Order compels the licemed dealer to deliver to the Controller or his authorised agent every duy 50% of the wheat procured or purchased by him. There is no scope for negotiations there. Assuming that the Controiler may designate the place of delivery and the place of payment of price at the controlled rate, <1nd the licensed dealer acquiesces therein, or even when in respect ?f those two matters there is some comensual arrangement, in our judgment, supply of wheat oursuant to cl. 3 of the Order and acceptance thereof do not result in a contract of sale. The High Court observed that : " whatever compulsive or coercive force is used to bring about a transaction under clause 3 of the Levy Order, it must be traced to legislation. It cannot be attributed to the State Government as a party to the transaction. This, then, is clear. There is nothing in the Levy Order which can be accused of vitiating the free consent of the parties as defined under Sec. 14 of the Indian Contract Act, when entering into the contract of. sale." But these observations assume a contract of sale which the Order does not contemplate. If there be a contract, the restrictions imposed by statute mqy not vitiate the consent. But the contract cannot be assumed. We may refer to certain decisions of this Court on which reliance was placed at the Bar. In Mis. New India Sugar Mills' case(1) under the Sugar and Sugar Products Control Order. 1946. a scheme was devised for equitable distribution of sugar. T~e consuming States intimated to the Sugar Controller of India their requirements of sugar and the factory owners sent statements of stocks of sugar held by them. The Controller made allot~ents. to various States and addressed orders to the factory owners dtrectmg them to supply sugar to the States in question in accordance with the despatch instructions from th_e State Go~ernments: U_nder the allotment orders. M/s. New India Sugar M1ils Ltd., m B1har ?espatched stocks of sugar to the State of Madras. The State of Bihar treated the transaction as a. sale and levied tax thereon under the (I) [t963] Supp. 2 S.C.R. 459. , 'j/ , ·I 678 SUPREME COURT REPORTS [1971] l s.c.R. Bihar. Sales Tax Act, 1947. The tax payer contended that the supplies of. sugar, pursuant to the directions of the Controller, did not result m sales, and that no tax was exiaible on such transac- • ' 0 llons. A majority of the Court observed that despatches of sugar pursuant to the directions of the Controller were not made in pursuance of any contract of sale. There was no offer by the tax payer to the State of Madras, and no acceptance by the latter; the tax payer was under the Control Order compelled to carry out the directions of the Controller and it had no volition in the matter. Intimation by the State of its requirements of sugar to the Controller or communication of the allotment order to the assessee did not amount to an offer. ·Nor did the mere comoliance with despatch instructions issued by the Controller, which- the assessee had not the option to refuse to comply with, amount to acceptance -0f an offer or to making of an offer. A contract of sale of goods postulates a voluntary arrangement regarding goods between the contracting parties. It was held that in the cas-e before the .Court there was no such voluntary ,arrangement. In two later decisions of this Court the true character of transactions in which supplies of commodities were made pursuant to Control Orders was examined. In Indian Steel & Wire Products Ltd. v. State of Madras(') the tax-payer supplied certain steel products to various persons in the State of Madras pursuant to the directions given by the Steel Controller exercising powers under the Iron and Steel (Control of Production and Distributi,m) Order, 1941. The authorities of the State of Madras assessed the turnover of the tax-payer resulting from those transactions to sales tax under the Madras General Sales Tax Act. The tax-payer contended that the transactions of supply did not result in sales and were · on that account not exposed to sales-tax, because steel products were supplied pursuant to the directions of the Iron and Steel Controller made under cl. 1 OB of the Order there being no mutual assent between the parties to the transaction. This Court held that the supplies were made pursual)t to the directions issued under cl. 5 .>f the Order and not pursuant to the directions issued under cl. l OB of the Order. It was observed that the Orders were in resoect of 11oods not yet manufactured, whereas under cl. 1 OB directions could be 11iven only in respect of goods already in stock, and since cl. 5 did not require the Controller to regulate or control every facet of a transaction between a producer and the person to whom the tax-payer supnlied iron and steel oroducts the transactions were consensual. Clause 5 of the Order read as follows : "No producer or stock-holder shall ·dispose of or agree to dispose of or export or agree ·to export from · . British India any iron or steel. except in accordance with (1) fl96R] l S.C.R. 419. •. A B c D E F G A c D E F G H CHHITTER MAL V. C.S.T. (Shah, J.) the conditions contained or incorporated in a general or special written order of the Controller." Clause 1 OB provided : "The Controller may, by a written order 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 any part of the stock to such person or dass of persons and on such terms and conditions as may be specified in the Order." 679 Comparing the tenhs of cl. 5 with the terms of cl. 10, the Court observed that liberty of contract in large measure was reserved to the producer or stockholder and to the purchaser in the matter of disposal of iron & steel. The obligation imposed by cl. 5 was, it wa~ said, not to dispose of or agree to dispose of or export or agree to export any iron or steel except in accordance with the conditions contained or incorporated in the order of the Controller and that since there was liberty of contract between the parties but subject to restrictions, the transaction could be regarded as a sale. It wa~ observed at p. 489 : "But under clause 5 he can authorise a producer or a stockholder to dispose of any iron or steel whether the. same is in stock or not in accordance with the conditions ·Contain,ed or incorporated in a special or general written order issued by him. In the instant case. as can be gathered from the correspondence already referred to, the order issued by the Controller could be complied with only after manufacturing the required material. Hence, the order issued by the Controller could not have been issued under clause lOR." The Court then observed : ". , .... the area within which the.re can be bargaining between a prospecti've buyer and an intending seller of steel products, is greatly reduced. Both of them have to conform to the requirements of the order and to comply with the terms and conditions contained in the order of the Controller. Therefore they could negotiate only in respect of matters not controlled b'y the order or prescribed by the Controller." The Court also observed : "It would be incorrect to contend that, because law imposes some restrictions on freedom to contract, there is no contract at all. So long as mutual assem is not completely excluded in any dealing, in law it is a contrac1. On the facts of this case for the reasons already 680 SUPREME COURT REPORTS (1971] 1 S.C.R. mel'tioned, it is not possible to accept the contention of the learned counsel for the appellant that nothing was left to be decided by mutual assent." The Court in that case distinguished the case in M /s. New India Sugar Mills' case(') and expressly reserved their opinion on the question whether supplies of goods pursuant to the directions issued under cl. I OB of the Order- may be regarded as sales. The decision in Indian Steel & Wire Products Ltd.'s case(') does not justify the view that even if the liberty of contract in relation to the fundamentals of the transaction is completely excluded a transaction of supply of goods pursuant to directions issued under a Control Order may be regarded as a sale. ln Andhra Sugars Ltd. & Anr. v. Stare of A ndhra Pradesh & Ors.(") again, in the view of the Court liberty of contract between parties to transactions relating to supply of sugarcane was not ruled out. Under the Andhra Pradesh Sugarcane (Regulation of Supply and .Purchase) Act, 1961; the occupier of a sugar factory had to buy sugarcane from cane-growers in conformity. with the directions of the Cane Commissioner. Under s. 21 of the Act the State Government had power to tax purchases of sugarcane for use, consumption or sale in a sugar factory. Certain owners of sugar factories contended that "s. 21 was invalid." They contended that they were compelled by law to buy cane from the canegrowers, and since purchases made by them were not under a.~rce ments, the price paid for sugarcane could not be taxed under a statute enacted in exercise of the power in Entry 54 List II of the Seventh Schedule to the Constitution. This Court held that under 1 · Act 45 of 1961 and the rules framed thereunder, the cane-grower in the factory zone was free to make or not to make an offer of sale of cane to the. occupier of the factory: if the cane-grower made an offer, the occupier of the factory was bound to accept it. and the agreement resulting therefrom was recorded in writin!i and was signed by the parties. The consent of the occupier of the factory was f~ee as defined in s. 14 of the Indian Contract Act. The compulsion of Jaw is it was said not coercion as defined in s. 15 of the Act. The agreements were enforceable by law and were regarded as contracts ·of sale as defined in s. 4 of the Indian Sale of Goods Act. In a later decision of this Court, Stale of Ra;asthan & Anr. v. M/s. Karam Chand Thappar & Bros. Vd.,(') the assessee who had acquired monopoly rights to supply coal in Ra,iasthan and sold coal to the State of Rajasthan. The Sales Tax Officer sought to (1) [196'] Snon. 2 S.C.R. 459. (J) ' [1968) 1 S.C.R. 705. (]) [1968] l S.C.R. 479. (4) [1969] l S.C.R. 861, A ll c D E F G H A B c D E F G H CHH!TTER MAL I'. C.S.T. (Shah, J.) 681 tax the turnover from supplies of coal made to the State of Rajasthan. It was held by this Court that the colliery Control Order super-imposed upon the agreement between the parties the rate fixed by the Control Order and by reason of such super-imposition of the rate fixed by the Control Order the mutual assent of the parties and the voluntary character of the transactions were not affected. The decision of this Court in M Is. New India Sugar Mills' case(') was distinguished on the ground that there was in the case then in hand mutual assent between the parties. to the transaction of supply of coal. The decision of the House of Lords in Kirkness (lmpector r;' Taxes) v. John Hudson & Co. Ud.!') ;, ir.<'ruc1ivc. In that case liability to pay incnrn•c-::1x on the diffcrcn~e between the compensation received for requisition of certain wagons by the Minister of Transport was in issue. A majority of the House held that there was no sale of the wagons and no income-tax was payable. Viscount Simonds observed : ". . . the taxpayers' wagons were not sold. and it would be a grave misuse of language to say that they were sold. To say of a man who has had his property taken from him against his will and been awarded compensaton in the settlement of which he has had no voice, to say of such a man that he has sold his property appears to me to be as far from the truth as to say of a man who has been deprived of his property without compensation that he has given it awav. Alike in the ordinary use of language and in its legal concept, a sale connotes the mutual assent of two parties. So far as the ordinary use of language is concerned, it is difficult to avoid being dogmatic but. for my part, I can only echo what 3ingleton. L.J .. said in his admirably clear judgment-11954) 1 All E. R. at page 32) : "What would any one accustomed to the use of the words 'sale' or 'sold' answer ? It seems to me that every one must say 'the taxpayer did not sell'."" On the date of the commencement of the U.P. Wheat Procurement (Levy) Order. upon the licensed dealer was imposed a liability to deliver half the quantity of wheat on hand, and he had also to supply to the State Government 50% of the quantity of wheat procured or purchased by him everv dav beginning with the date of commencement of the Order. If he failed to carrv out the obligation he was liahle to be penalized. To ~nsure ihat he carried out his obligation his premises were liable tn be searched and (I) [1961] Supp. 2 S.C.R. 459 (2f il9~~] .-\.C. 696. 68 2 SUPREME COURT REPORTS [1971] 1 S.C.R. his property sequestered. The order ignored the volition of the dealer. We are unable to hold that there was any contract between the assessec and the State pursuant to which the goods were sold within the meaning of the U.P. Sales Tax Act. The appeals are allowed. The order passe,d by the High C.:ourt is set aside. The answer to the two (!Uestions as reframed by us will be in the negative. The appellants will be entitled to their costs in this Court and in the High Court. One hearing fee. Y.P. Appeals ailowed. A B