# M/S NEW INDIA SUGAR MILLS LTD v. COMMISSIONER OF SALES TAX, BIHAR

- **Citation:** [1963] Supp. 2 S.C.R. 459
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Bench:** J. L. K.APtra, M. Hidayatullah, Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-new-india-sugar-mills-ltd-v-commissioner-of-sales-tax-bihar-2783
- **Pages:** 56

## Headnote

Sales Taz-Sugar Control-Allotment by OontrolkrSupply of Sugar under al/olment order-If amounts to eakBihar Sales Taa; Act 1947 (Bihar 19 of 1947), s. 2 (g)-Sugar
and Sugar Product. Oonlrol Order 1946-Sak of Goods Acl, 1930
(3 of 1930), a. ~Governmem of India Acl, 1935 (26. Geo. 5
Oh. 2), Seven/Ji Schedule, !Mt II, Entry 48.
Under the Sugar and Sugar Products Control Order, 1946,
the consuming States intimated to the Sugar Controller of India
their requirements of sugar and the factory owners sent state·
ments of stocks of sugar hdd by them. The Controller made
allotments to various States and addressed
orders to the
factory owners directing them to supply sugar to the States in
question in accordance with the despatch instructions from the
State Governments. Under such allotment orders, the assesses,
a sugar factory in Bihar, despatched sugar to the State of
Madras. The State of Bihar treated these transactions as sales
and levied sales tax thereon, under the Bihar Sales Act, 194 7.
The assesses contended that the despatches of the sugar pursuant
to the directions of the Controller did not amount to sales and
that no sales tax was exigible on such transactions.
Held (per Kapur and Shah,,U, Hidayatullah,J., dissenting),
that the transactions did not amount to sales and were not liable
to sales tax. .Under Entry 48, List II of Government of India
Act, 1935, the Provincial Legislature had no power to levy
sales taxes on a transaction which was not of the nature of a
sale of goods, as understood in the Sale of Goods Act. To
constitute a sale of goods,
property in the goods must be
transferred from the seller to the buyer under a contract of sale.
A contract of ,sale between the sdler and the buyer is a pre·
requisite to a sale. Despatches of sugar under the directions of the
Controller were not the result of any such contract of sak.
There was no offer by the assesses to the State of Madras and no
acceptance by the latter; the asse= 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
1962
NawmlHr, 26.
1962
M/sNew India
Sugar Mills Ltd.
v.
Commission1r of
Sales Tax, Bi/uu
460 SUPREME COURT REPORTS [1963] SUPP.
of its requirement of sugar to the controller or communication of the allotment order to the assesses did not amount to
an offer.
Nor did the mere compliance with despatch instructions issued by the Controller, which the assessee could not
decline to carry out, amount to acceptance of an offer or to
making of an offer. A contract of sale postulates exercise of
volition on the part of the contracting parties.
State of MadMB v. Gannon
Dunkerley &: Oo., [1959]
S. C. R. 379, relied on.
The ToJa Iron &: Steel Oo. Lt,d. v. The State of Bihar,
[1958] S. C. R. 1355, explained.
Per Hidayatullah, J.-In these transactions there was a
sale of sugar for a price and sales tax was payable in respect
thereof. Though consent is necessary for a sale, it may be express or implied, and it cannot be said that unless the offer and
acceptance are in an elementary direct form there can be no
taxable sale. The controller permitted the as•esses to supply
sugar of a stated quality and quantity to the State of Madras;
thereafter the two parties agreed to "sell" and "purchase" the
sugar. So long as the parties trade under controls at fixed price
they must be deemed to have agreed to such a price; there was
an implied contract with an implied offer and an implied acceptance. The same is the position with respect to the quality and
quantity fixed by the Controller. When the State, after receiving the permit., sent instructions to the assesses to despatch sugar
and the assesses despatched it, a contract emerged and consent
must he implied on both sides though not expressed antecedently
to the permit.
State of MadrlJ8 v. Gannon Dunkerley
Oo.,
[1959]
S.C.R. 379 and The Toia Iron and Steel Oo. Ltd. v. The State of
Bihar,. [ 1958] S. C. R. 1355, explained.
CIVIL APP

## Text

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2 S.C.R.
SUPREME COURT REPORTS
459
M/S NEW INDIA SUGAR MILLS LTD.
v.
COMMISSIONER OF SALES TAX, BIHAR
(J. L. K.APtra, M. HIDAYATULLAH and
SHAH, JJ.)
Sales Taz-Sugar Control-Allotment by OontrolkrSupply of Sugar under al/olment order-If amounts to eakBihar Sales Taa; Act 1947 (Bihar 19 of 1947), s. 2 (g)-Sugar
and Sugar Product. Oonlrol Order 1946-Sak of Goods Acl, 1930
(3 of 1930), a. ~Governmem of India Acl, 1935 (26. Geo. 5
Oh. 2), Seven/Ji Schedule, !Mt II, Entry 48.
Under the Sugar and Sugar Products Control Order, 1946,
the consuming States intimated to the Sugar Controller of India
their requirements of sugar and the factory owners sent state·
ments of stocks of sugar hdd by them. The Controller made
allotments to various States and addressed
orders to the
factory owners directing them to supply sugar to the States in
question in accordance with the despatch instructions from the
State Governments. Under such allotment orders, the assesses,
a sugar factory in Bihar, despatched sugar to the State of
Madras. The State of Bihar treated these transactions as sales
and levied sales tax thereon, under the Bihar Sales Act, 194 7.
The assesses contended that the despatches of the sugar pursuant
to the directions of the Controller did not amount to sales and
that no sales tax was exigible on such transactions.
Held (per Kapur and Shah,,U, Hidayatullah,J., dissenting),
that the transactions did not amount to sales and were not liable
to sales tax. .Under Entry 48, List II of Government of India
Act, 1935, the Provincial Legislature had no power to levy
sales taxes on a transaction which was not of the nature of a
sale of goods, as understood in the Sale of Goods Act. To
constitute a sale of goods,
property in the goods must be
transferred from the seller to the buyer under a contract of sale.
A contract of ,sale between the sdler and the buyer is a pre·
requisite to a sale. Despatches of sugar under the directions of the
Controller were not the result of any such contract of sak.
There was no offer by the assesses to the State of Madras and no
acceptance by the latter; the asse= 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
1962
NawmlHr, 26.
1962
M/sNew India
Sugar Mills Ltd.
v.
Commission1r of
Sales Tax, Bi/uu
460 SUPREME COURT REPORTS [1963] SUPP.
of its requirement of sugar to the controller or communication of the allotment order to the assesses did not amount to
an offer.
Nor did the mere compliance with despatch instructions issued by the Controller, which the assessee could not
decline to carry out, amount to acceptance of an offer or to
making of an offer. A contract of sale postulates exercise of
volition on the part of the contracting parties.
State of MadMB v. Gannon
Dunkerley &: Oo., [1959]
S. C. R. 379, relied on.
The ToJa Iron &: Steel Oo. Lt,d. v. The State of Bihar,
[1958] S. C. R. 1355, explained.
Per Hidayatullah, J.-In these transactions there was a
sale of sugar for a price and sales tax was payable in respect
thereof. Though consent is necessary for a sale, it may be express or implied, and it cannot be said that unless the offer and
acceptance are in an elementary direct form there can be no
taxable sale. The controller permitted the as•esses to supply
sugar of a stated quality and quantity to the State of Madras;
thereafter the two parties agreed to "sell" and "purchase" the
sugar. So long as the parties trade under controls at fixed price
they must be deemed to have agreed to such a price; there was
an implied contract with an implied offer and an implied acceptance. The same is the position with respect to the quality and
quantity fixed by the Controller. When the State, after receiving the permit., sent instructions to the assesses to despatch sugar
and the assesses despatched it, a contract emerged and consent
must he implied on both sides though not expressed antecedently
to the permit.
State of MadrlJ8 v. Gannon Dunkerley
Oo.,
[1959]
S.C.R. 379 and The Toia Iron and Steel Oo. Ltd. v. The State of
Bihar,. [ 1958] S. C. R. 1355, explained.
CIVIL APPELLATE jURISDIOTION : Civil Ap}>f'al
No. 237 of 1961.
Appeal by special leave from the judgment and
order dated September 30, 1958, of the Patna High
Court in M.J.C. No. 5 of 1956.
B. T. Desa·i and B. P. Mahesllwari, for the
appellant.
S. P. Varma, for the respondent.
2 S.C.R.
SUPREME COURT REPORTS
461
1962. November 26. The Judgment of Kapur
and
Shah, JJ.,
was
delivered
by
Shah, J.
Hidayatullah, J., delivered a separate judgment.
SHAll,J.-M/S. New India Sugar Mills Ltd.-
hereinafter called 'the assessees'--own a factory at
Hasanpur in the State of Bihar. During the assessment period April 1, 1947, to March 31, 1948, the
assessees who were registered as dealers under the
relevant Sales Tax Acts despatched sugar valued at
R~. 6,89,482/- to the authorised agents of the State of
Madras in compliance with the directions issued by
the Controller exercising powers under the Sugar and
Sugar Products Control Order, 1946. The Sales Tax
Officer, Darbhanga rejected the plea of the assessees
that despatches of sugar to the Province of Madras
in compliance with the instructions of the Controller
were not liable to be included in the taxable turnover,
and ordered the assessees to pay sales tax on a taxable turnover of Rs.
27, 62,226/. The order of
assessment was confirmed by the Deputy Commissioner, but the Board of Revenue exercising jurisdiction in revision set aside the order, in so far as it
related to the inclusion into the taxable turnover the
value of sugar despatched to the Province of Madras.
The Board of Revenue observed that the "Controller
passed orders in exercise of statutory powers, which,
as a result of mere compliance, could not create a
contract in law," and there was no evidence justifying the view that there could "possibly be any contract between the assessees and some dealers in Madras
or between the assessees" and the Sugar Controller.
The Board of Revenue under the direction of the
High Court of Judicature at Patna submitted under
s. 25(3) of the Bihar Sales Tax Act, 1947, the following question for the opinion of the High Court :
"Whether in the facts and circumstances of the
case, the disposal of sugar to the Province of
Madras is liable to be taxed."
1962
M/1 Ntw lnd/4
Sutar MU/s Ltd,
v.
Commis.tiotrn' of
Salts T~. Bihar
Shah, J,
1962
M/1N1W India
Su1ar Milli Ltd.
v.
Comm is siDlllr of
Sales TtJx, Bihar
Shah, J.
462 SUPREME COURT REPORTS [1963] SUPP.
The High Court answered the question in the affirmative observing that the sugar despatched by the
assessees to different Provinces including the Province
of Madras under orders of the Controller was liable
to be taxed under the provisions of the Bihar Sales
Tax Act, 194 7. With special leave the assessees have
appealed to this Court against the judgment of the
High Court.
The only question ansmg in the appeal is
whether there was a sale by the assessees of sugar
despatched by them to the Provincial Government
of Madras in compliance with the directioru issued by
the Controller in exercise of authority under the Sugar
and Sugar Products Control Order, promulgated on
February 18, 1946, by the Central Government under
powers conferred by sub-rule (2) of r. 81 of the
Defence of India Rules. The material clauses of the
Order concerning sugar are these. By cl 3 of the
Order producers of sugar were prohibited from
dis?05ing of or agreeing to dispose of or making
delivery of any sugar !xcept to or through a recognised dealer or persons specially authorised in that
behalf by the Controller to acquire sugar on behalf
of the Central Government or of a Provincial Govern·
ment or of an Indian State. Clause 5 enjoined upon
every producer or dealer duty to comply with such
directions regarding production, sales, stocks or dis·
tribution of sugar as may from time to time be issued
by the Controller.
By cl. 6 the Controller was
authorised to fix the price at which sugar may be
sold or delivered, and upon fixation of the price all
persons were prohibited from selling or purchasing or
agreeing to sell or purchase sugar at a price higher
than the fixed price.
By sub-clause (1) of cl. 7 the
Controller was authorised, inter alia, to allot quotas
of sugar for any specified province, or area or
market and to issue directions to any producer or
dealer to supply sugar to such provinces, areas or
markets or such persons or organisations, in such
2 s.c.R. SUPREME COURT REPORTS
463
quantities, of such types or grades, at su :h time, at
such prices and in such manner as may be specified by
the Controller, an I sub-clause (2) provided that every
producer shall, notwithstanding any existing agreement with any other person, give priority to, and
comply with directions issued to him under subclause (I). Clause 11 provided that against a person
contravening the provisions of the Order without
prejudice to any other punishment to which he may
be liable, an order of forfeiture of any stocks of sugar
in respect of which the Court trying the offence was
satisfied that the offence was committed may be
passed. By sub-rule ( 4) of Rule 81 of the Defence
of llidia Rules, 1939, contravention of orders made
under the Rule was liable to be punished with
imprisonment for a term which may extend to three
years or with fine or with both.
The course of dealings between the assessees
and the State of Madras to which sugar was, under
the directions of the Controller, supplied by the
assessees is stated by the High Court as follows :-
"The admitted course of dealing between the
parties was that the Government of various
consuming States used to intimate to the Sugar
Controller of India from time to' time their
requirement of sugar, and similarly the factory
owners 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 u~ed 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
1962
M/1 NIW I•'"'
Supt MiU. Lid.
v.
Commission1r of
_Salis I ox, Bilwr
Shull, J.
1962
M /s N1w Intli•
Suga1 Mills Ltd.
v.
Commissioner of
Salis Tax, Bihar
Shah, J.
464 SUPREME COURT REPORTS [1963] SUPP.
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 proce·
dure 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."
The assessees contend that sugar despatched pursuant
to the directions of the Controller was not soU by
them to the Government of Madras, and sales-tax
was therefore not exigible in respect of those dispatches under the relevant Sales Tax Acts of the
province of Bihar.
The assessment period in respect
of which the dispute is raised is one year-April 1,
1947, to March 31, 1948-for the first three months
the relevant law imposing liability to pay tax was
Bihar Act 6 of 1944 and from July 1, 1947, to March
31, 1948, liability to pay tax had to be determined
under Bihar Act 19 of 194 7. It is common ground that
the scheme of the two . Acts for levy of tax was
similar and the definition of
"sale"
on which
primarily the dispute centred under the two Acts was
identical. We will therefore refer in dealing with
this appeal as if the liability arose under Act XIX
of 1947. The expression "sale" as defined under
s. 2(g) of the Bihar Sales Tax Act, at the material
time stood as follows :-
"Sale means, with all its grammatical variations and cognate expressions, any transfer of
property in goods for cash or deferred payment
....
•
2 s.c.k.
SUPREME COURT REPOR1'S ;tu5
or
other valuable
consideration,
including a transfor of property in goods involved
in the execution of contract J,ut docs not include a mortgage, hypothccatiou,
charge or
pledge :
l'rovid.cd that a .. tra11sfer of goods on hire
purchase or other instalment system of payment
shall, notwithstanding ·the fact that the seller
retains a title to any goods as security for payment of the price, be deemed to be a sale :
l'rovided . further that
notwithstanding
anything to the contrary in the Indian Sale of
Goods Act, .I fJ30 (III of 1930), the sale of any
goods which arc actually in Bihar at the time
when, in respect thereof, the contract of sale
as defined in section 4 of that Act is made,
shall, wherever the said contract of sale is
made, be deemed for the purpose of this Act
to have been made in Bihar."
Apparently in the first paragraph of the definition a
transaction
(other than a transaction expressly
specified) in which there is a transfer of property
in goods for valuable consideration, was includccl as
a sale within the meaning of the Act. By' the first
proviso transfer of goods on hire purchase or other
instalment system of payment arc to be deemed sales.
The second proviso (which has since been repealed)
dealt with the 8itu.s of the sale and was not in truth
a part of the cldinition of sale. What constituted a
sale, the second proviso did not purport to say : it
merely fixed for the purpose of the Bihar Sales Tax
Act the pl;Kc of sale, in the circttnistauccs mcutiouctl
therein.
Tax is leviablc under the Hihar Sales Tax Act
on the gross turnover
(exceeding a prescribed
minimum) on sales "which have taken place in
M/s. Ntw lnii•
Sut•' Mill1 lttl.
v.
Commissioner •J
S11l1s Tax, Bi/tar
.\Jwl1, J.
1962
Af/1 J{1w lniia
Su1or Mills Lid.
v.
Commissi11n1r of
Sales i"'ax, Billar
Slwh, J.
466 SUPREME COURT REPORTS [1963} SUPP.
Bihar". Counsel for the assessees says that the
value of sugar despatched in compliance with the
directions of the Controller is not liable to be included in the taxable turnover, for there was 110 sale
uf sugar, despatched by the asscssees, and that in
auy cvcut the sale did nut. take place in Bihar. In
elaburatiug his submission counsel says : Unucr the
Government of India Act, l!J35 the Provincial
Legislature had power to legislate for levy of tax on
"sale of goods" under Entry 48 of List 11 of the
Seventh Schedule; that the expression "sale of goods"
in the Entry was used not in the popular but in the
naITow and technical sense in which it is used in the
Indian Sale of Goods Act, l 930; that power uudcr
the entry could be exercised for taxing only those
transactions in which by mutual assent between
parties competent to contract property in goods was
transferred absolutely from one person to another,
in consideration of price paid or promised, and the
transactions in which there was no mutual assent as
a result of negotiations express or implied arc not
sales within the meaning of the Sale of Goods Act
and therefore not sales within the meaning of the
Bihar Sales Tax Act. Counsel alternatively submits
that even if the despatches resulted in sales, as the
sales did not take place in Bihar, the same were not
liable to be taxed under the Bihar Sales Tax Act.
In popular parlance 'sale' means transfer of
property from one person to another in consideration
of price paid or promised or other valuable consideration. But that is not the meaning of 'sale' in
the Sale of Goods Act, 1930. Section 4 of the Sale of
Goods Act provides by its first sub-section that a
contract of sale of goods is a contract where the
seller agrees to transfer the property in goods to the
lmycr for a price.
"Price'' by cl. ( l 0) of s. 2 means
the money cousiucratiou for
sale
goutls,
auu
"where uuder a contract of sale property in the
goods is transferred from the seller to the buyer,
2 S.C.R.
SUPREME COURT REPORTS.
467
the contract is called a sale, but where the transfer
of the property in the goods is to take place at-a
future time or subject to some condition thereafter
to be fulk<l, the contract is called an agreement to
sell" (sub-section (3) s. 4). It is manifest that under
the Sales ofGoods Act a transaction is called sale
only where for money consideration property in goods
is transferred under a contract of sale.
Section 4 of
the Sale of Goods Act was borrowed almost verbatim
from s. 1 of the English Sale of Goods Act 56 & 57
Viet. c. 71.
As observed by Benjamin in the 8th
Edn. of his work on 'sale', "to constitute a valid sale
there must be a concurrence of the following elements
viz. (1) Parties competent to contract; (2) mutual
assent; (3) a thing, the absolute or general property
in which is transferred from the seller to the buyer;
and ( 4) a price in money paid or promised".
The Provincial Legislature by Entry 43 List
II of the Seventh Schedule of the Government of
India Act, 19:l5 was invested with power to legislate
in respect of "Taxes on sale of goods". The expression "sale of g09ds" was not defined in the
Government of India Act, but it is now settled
law that the expression has to be understood in the
sense in which it is used in the Sale of Goods Act,
1930. In the State of Jlfadras v. Gannon Dunkerley
& Co. (') this Court in considering whether s. 2 (i)
Explanation I (i) of the Madras General Sales
Tax Act IX of W39 as amended by the Madras
General Sales Tax Amendment Act XXV of 19.J-7
was intra vires the Provincial Legislature, has decided
that the expression 'sale of goods' in Entry 48, List
II, is used not in the popular but in the restricted
sense of the Sale uf Goods Act, rn:;o.
The· μrimary
question which fell tu be determined in that case
was whether in a "building contract which was one,
entire and indivisible" there was sale of goods of the
building materials used in the execution, liable to
be taxed under the Madras General Sall'~ Tax Act
(I) (19591 s.c.a. 579,
1962
M/1 x,,. l•ii•
Su111r MiU1 Ltd.
v.
CmmiJsl"'" •}
S.lts T.x, Bih•r
Shah, J.
/962
M /s .New lridia
Sugar Mills Ltd.
v.
Commi.t1ion1r of
Salts Tax, Bi/Jar
SM.Ir, J.
468 SUPREl\lE COURT REPORTS [1963] SUPP.
which by s. 2 (c) defined 'goods' as meaning all
kinds of movable property (except certain kinds
which arc not material in this case) and included
all materials, commodities and articles including
those to be used in the construction, fitting out,
improvement or repair of immovable property, and
by s. 2 (h) defined the expression 'sale' as meaning
every transfer of property in goods by one person to
another in the course of trade or business for cash
or for deferred payment or other valuable con·
sideration and includes also a transfer of property
in good' involvec1 in the execution of a works contract. Power of the Provincial Legislature of :Madras
to legislate in respect of a levy of tax on the value
of goods used in the execution of a works contract
was challenged by a firm of building contractors,
and this Court held that the power under Entry
48, List II, Seventh Schedule, did not include power
to legislate for levying tax on the value of goods
used "in the course of a building contract which
was one, entire and indivisible". The Court held
that the expression "sale of goods" in Entry 48 List
II was used not in the popular sense but in the
strictly limited sense in which it was defined' in the
Sale of Goods Act and that the Madras Provincial
Legislature had
no power to legislate· under the
power derived under Entry 48 in List II for taxing
transactions other than those of sales strictly so called
under the Sale of Goods Act.
It was observed "the
expression 'sale of goods' in Entry 48 is a nomen
juri8, its essential ingredients being an agreement
to sell movables for a price and property passing
therein pursuant to that agreement.
In a building
contract which is, as in the present case, one, entire
and indivisible and that is its norm, there is no sale
of goods, and it is not within the competence of the
Provincial ],egislature under Entry 48 to impose a
tax 011 the supply of the materials used i11 such
a contract treating it as a sale." In
(Jannan
Dunkerley & Company's case (') the Court was
(I) (1959) S.C.R, 5711,
2 S.C.R.
SUPREJ\fE COURT REPORTS
46!:1
1952
concerned to adjudicate upon the validity of the
provisions enacted in , acts of Provincial Legislatures
imposing'liability to pay sales tax-on the value of
goods used in the execution. of building contracts,
and the-judgment of the Court proceeded on the
ground that power conferred by Entry 48 List II
was restricted to enacting legislation imposing tax .
liability in respect of sale of goods as understood in
~\Ifs New India
Sugar A!ills Ltd.
'
v.'
Commhsiontr of
Salts Tax, Bihar
the Sale of Goods Act, 1930, and that the Provincial
Legislature under the Government of India Act,
· 1 !:135 had no power to tax a transaction which was not
.. a sale of goods, as understood in the Sale of Goods Act.
The ratio decidendi of that decision must govern this
case. According to s. 4 of the Sale of· Goods-- Act to ·
constitute a sale of goods, property in goods must, be
transferred from the seller to the buyer. under ·_a
contract of sale. ·A contract of sale between the
parties is therefore a pre-requisite to a sale. . The
transactions of despatches of sugar by the assessees
pursuant to the directions of the Controller were not
the result of any such contract of sale. It is common
ground that the Province of !\ladras intimated its
requirements of sugar to the Controller, and _the
Controller called upon the manufacturing units to
supply the whole or part of the requirement to the
Province. In calling upon the manufacturing units
to supply sugar, the
Contr~ller did not act as an ,. ..
agent of the State to purchase goods : he acted in
exercise of his statutory
authority. There was
manifestly no offer to purchase sugar by the Pro_vin_ce, and no
acceptance of any offer by the .
manufacturer. The manufacturer was
under the
control Order left no volition : he could not decline
to carry out ·the order; if he did so he was liable
to be punished for breach of the order and his goods
were -liable -to be forfeited.
The Government· of
the
Province
and
the manufacturer had no
opportunity to negotiate, and sugar was despatched
pursuant to the direction of the Controller and not
in. acceptance of any offer by the G9vern.menh
'
'
'
Shah,. J.
1962
M/s N111 lnii•
Sutar Mills Lli.
v.
Cntmilsio11,1r 1/
S•ln Ta:'<. Bihar
470 SUPREME COURT REPORTS [1963] SUPP.
The High Court observed "as soon as an
application for allotment is made, there is an
implication of an offer to purchase the quantity of
sugar at the price fixed by the Controller from the
producer to whom the allotI!lent order is to be made
by the Controller. It is also clear that if the allotment order is communicated by the Controller to
the assessee and the latter appropriates the sugar
in accordance with the allotment order and in accordance with the despatch instructions of the competent
officer appointed by the Madras Government, there is
in the eye of law an acceptance of the offer by the
assessee and a contract is immediately brought into
existence between the parties". We arc with respl'ct
unable to hold that this view is correct.
The
Provincial Government of Madras gave intimation
of its requirements of sugar to the Controller and
applied for allotment of sugar : thereby the Government was not making any offer to purchase sugar.
Evidently the offer could not be. made to the Controller because the Controller was not a manufacturer
of sugar or his agent.
The communication of the
allotment order to the assessces was again not of any
offer made by the State which it was open to the
asscssccs lo accept or decline.
Mere compliance
with the dispatch instructions issued by the Controller,
which in law the asscssecs could not decline to carry
out, did not amount to acceptance of an offer.
A
contract of sale
postulate~ exercise of volition on
the part or the contracting parties and there was in
complyi11g with the orders passed by the Controller
no such exercise of volition by the assessees.
By the
Indian Omtract Act 9 of 1872 a proposal or an
offer is defined as signification by one person to
another of his willingness to do or to abstain from
doing anything, with a view to obtaining the assent
of that other to such act or abstinence. ·when the
person to whom the proposal is mudc or signified
assents thereto, the proposal is said to be accepted.
The person making the proposal is called the
2 s.c.R.
SUPREME COURT REPORTS
471
promisor and the person accepting the proposal is
called the promisee, and every promise or every
set of promises, forming the consideration for each
other is an agreement.
These provisions of the
Contract Act are by s. 2 ( 15) of the Sale of
Goods Act, incorporated therein. There was on the
part of the Province of Madras no signification to
the assessees of their willingness to do or to abstain
from doing anything, with a view to obtaining the
assent of the assessees · to such aci or abstinence, and
the Controller did not invite any signification of
assent of the asscssees to the intimation received by
them.
He did not negotiate a sale of sugar : he in
exercise of his statutory authority, ordered the assessces to supply sugar to the Government of Madras.
W c are unable to hold that from the intimation of
order of the Controller, and compliance therewith
by the asscssccs .any sale of goods resulted in favour
of the State of Madras .
. Mr. Varma appearing for the State of Bihar
contended that even if there was no offer and no
acceptance when intimation was sent by the Government of i\fadr~s to the Controller, and the Controller
directed the asscssccs to deliver specified quantities
of sugar, still by the conduct of the assessees in
despatching sugar to Madras in pursuance of the
directions of the Controller and acceptance of price
by them, a contract of sale resulted. But the action
on the part of the assessct·s in dcspatd1ing the goods
was not voluntary : they were compelled to; send
the goods.
They could not be deemed by despatching sugar to have made any offer to supply goods and
in the absence of any offer, no contract resulted by
the acceptance of goods by the Provincial Government. To infer a contract from the compulsory
delivery of sugar and acceptance thereof would be
to ignore the true position of the parties, and the
circumstances
in
which goods
were delivered.
Mr. Varma
contended that in any event the
1962
M/1 N1w lniia
su1ar Mills Lto.
v.
Commissiontr of
Salu Tax, Bihar
Shah, J.
JS62
M/s Ntw lnii•
Su1., Mills Ltd.
v.
Commissiontr 1{
~alts Tax, Riha1
Sh•h, J.
472 SUPREME COURT REPORTS[l963] SUPP.
Legislature had by the definition included in the
expression 'sale of goods' all i.ransfers of property in
_ goods for consideration and the
transaction~ which
are sought to be taxed by the State of Bihar fell
within
that definition. Counsel submitted that a
literal meaning should be given to the words of the
Act without any pre·disposi1ion
as to what the
expression 'sale' means under the Sale of Goods Act.
But if the Bihar Legislature had under the Government of India Act, 1935 no _power to legislate in
respect of taxation of transactions other than those
of sale of goods as understood in the Sale of Goods
Act, a transaction to be liable to pay salcs·tax, had
to conform to the requirements of the Sale of Goods
Act,
l!l:JO. _ Attributing a literal meaning to the
words
used would
amount to imputing to the
Legislature an intention deliberately to transgress
the rrstrictions imposed by the Constitution Act upon
the Provincial Legislative authority.
It is a recognised
rule of interpretation of statutes that the expressions
used therein should ordinarily be understood in a
sense in which they best harmoni~c with the object
of the statute, and which effectuate the object of the
Legislature. If an expression is susceptible of a
narrow or technical meaning, as well as a popular
meaning, the Court would be justified in assuming
that the Legislature used the expression in the sense
which would carry out its object and reject that
which renders the exercise of its power invalid. If
the narrow and technical concept of sale is discarded
and it uc assumed that the Legislature sought to use
the expression sale in a wider sense as including
transactions in which property was transferred for
consideration from one person to another without
any previous contract of sale, it would be attributing
to the Legislature an intention to enact legis.lation
beyond its competence.
In interpreting a statute
the Court caqnot ignore its aim and object. It is
manifest that the Bihar L!':gislaturc intended to erect
machinery within the frame-work of the Art for
2 S.C.R.
SUPREME COURT REPORTS
473
levying sales tax on transactions of sale and the
power of the Legislature being restricted to imposing
tax on sales in the limited sense, it could not be
presumed to have deliberately legislated outside its
competence.
In the definition of the expression 'sale'
in s. 2 (g} of the Bihar Sales Tax Act it must be
regarded as implicit that the tramaction was to have
all the elements which constitute a sale within the
meaning of the Sale
of Goods Act. Use of the
expression "including a transfer of proper! y in goods
involved in the execution of the contract" in the fir~t
paragraph of the definition also does not justify the
inference that the transfers of property in goods nuder
the earlier part of the definition were not to be the
result of a contract of sale. If any such intention was
attributed to the Legislature. the legislation may, for
the reasons already stated, be heyond the competence
of the Legislature.
The non-obstantP- clause in the
second proviso is in truth in the nature of an explanation to the charging section : it mere! y fixes the
sit-us of sale. Ir there is no sale the second proviso
will have no application.
Mr. Varma finally contended that in the Tata
Iron & Steel Co. Ltd. v. The State of Bihar (') by
implication it was decided that the definition of 'sale'
in s. 2(g-) of the Bihar Sales Tax Act included transactions in which good' were supplied in compliance
v ith directions which left no volition to the manufacturers.
But this arg-umrnt is not borne out by
what was actuallv decided in that case.
Th·~ Tata
Iron & Steel Coinpany Ltd ... which carried on the
business of manufacturing iron and steel in its factory
at Jamshfdpur in Bihar was assessed to sales tax
under the Bihar Sales Tax Act, 1947. The company
sent its goods from its factory to different Provinces
and Indian Statc3 by rai I, the railway receipts being
obtained hY the company in its own name as consignor and consignee.
The Branch Offices of the
l'omnanv or its Rankers at the destination handed
'
'
(I) f!G'iBJ S.C1.K. 1S5j,
1962
Alfs JV1n• lndita
Sutor Mills Lttl.
••
CmnmiuiMllT of
Salts Ta. Bihar
Soah, J.
1962
At /1 N110 India
Sugcr Mill• Ltd,
v.
CommWion1r of
Sala Ta, Bihar
SMJr, J,
474 SUPREME COURT REPORTS[l963] SUPP.
over the railway receipts to the purchasers against
payment of the price. The Sales Tax Officer of the
State of Bihar included in the gross turnover of the
Company the value of goods manufactured in Bihar
but delivered and consumed outside the State of
Bihar in the manner already stated. The contention
of the company that the goods delivered were not
liable to be included in the taxable turnover was
negatived by the taxing authorities and the High
Court of Patna. The matter was then carried in
appeal to this Court, and it was held that the provisions of s. 4(1) read withs. 2.(gl proviso 2 of the
Bihar Sales Tax Act was within the legislative com·
petence of the Province of Bihar. It was pointed
out that the second proviso to the definition of sale
in s. 2(g) of the Act did not extend the meaning of
sale so as to include therein a contract of sale: what
it actually did was to lay down certain circumstances
in which a sale, although completed elsewhere, was
to be deemed to have taken place in Bihar. Those
circumstances did not constitute a sale, but only
located the sit·u.9 of such sale. The Court in that
case was not called upon to consider whether a
transaction to be a sale must be preceded by a con·
tract of sak : the Court was merely considering the
1;ires of the second proviso to s. 2(g) of the Bihar
Sales Tax Act. Das, C. ]., in delivering the judgment
of the majority of the Court observed "the basis of
liability under s. 4( 1) rcmaineu as before, namely, to
pay tax on 'sale'. The fact of the goods being in
Bihar at the time of the contract of sale or the production or manufacture of goods in Bihar did not by
itself comtitute a 'sale' and did not by itself attract
the tax.
The taxable event still remained the 'sale'
resulting in the transfer of ownership in the thing sold
from the seller to the buyer. No tax liability actually
accrued until there was a concluded sale in the sense
of transfer of title. It was only when the property
passed and the 'sale' took place that the liability for
paying t4e sales tax under the l!l4 7 Act arose. There
2 S.C.R. SUPREME COURT REPORTS
475
was no enlargement of the meaning of 'sale' but the
proviso only raised a fiction on the strength of the
facts mentioned therein and deemed the 'sale' to have
taken place in Bihar. Those facts did not by them·
selves constitute a 'sale' but those facts were used for
locating the situs of the sale in Bihar. It follows,
therefore, that the provisions of s. 4( 1) read with
s. 2(g), second proviso, . were well within the legislative competency of the Legislature of the Province
of Bihar". In Tata Iron d: 8teel Comp1my Ltd's
case (1) the question as to the true content of the
expression 'sale' in the Bihar Sales Tax Act did not
fall to be determined, and the principle of the case
can have no application in deciding the present case.
It would he fruitless to, enter upon a dctailccl
discussion of the two decisions of the House of Lords
cited at the Har : 1'he Oonnnissianer of Inlllnd
llevenue v. Nen· C'n8tle Bre?l'eries Ltd.(') and Kirkness
(Inspector of 'J'a:res) v. .John H'ltdscm & Company
Ltd. ('). It may he sufficient to observe that in the first
of thfSC cases goods belonging to the assessee were
taken over by order of the Admiralty, acting under
the relevant regulations, and in compliance with the
order of a Compensation Court, the assessce was paid
an amount exceeding £5000/- being the difference
between the amount originally paid and the amount
settled as due under the ord<T of the Compensation
Court.
Tbe House of Lords ht'ld that the transac·
tion undl'r which the Admiralty took over the goods
was a sale in the business, and although no doubt it
affectl'd the circulating capital of the assessee it was
none the less proper to be brought into the profit and
loss account arisiug from the assessee's trade for the
purpose of computation of 1iability to pay Excess
Profits duty. In Kir!.·ne,ss (ln.s1lector of 'l'ax1s) v.
John trudson's c11se (') it was held by the House of
Lords that the vesting of~ company's railway wagons·
in the Tramport Commission under s. 29 of the
Transport Act, HJ47, with compensation fixed in
m 119ss1 s.c.a. 1351.
c21 (19271 12 T.c. 927.
(3) (1955] A.O. 696.
. .
1962
M/J Ntw India
Suiar Mills Ltd.
v.
Commissioner of
Sales Tax, Bihar
Shah, J,
196'2
M/s N1w India
S11tar Mills ltd.
v.
Commis1ian1r of
Salis Tax, Bihar
Shah, J.
476 SUPREME COlJRT REPORTS [l!J63]SUPP.
the form of transport stock under the relevant sections
of that Act did not constitute a sale for the purpose
of s. 17 of the Income-tax Act, 1945 so as to render
the company liable to a balancing charge under that
section. The cases turned upon the meaning of
'sale' for the purposes of the Excess Profits Tax
legislation and the Income-tax Act, 1945 (8 & !J
Geo. 6, c. 32) and observations made therein have
little relevance in determining the limits of the
legislative power of the Provincial legislature under
the Government of India Act, 1935, and the interpretation of statutes enacted in exercise of that
power.
The second contention raised by counsel for
the assessees requires no elaborate mnsideration. If
it be assumed that the intimation of the requirement
by the State of Madras to the Controller amounted
to an offer, delivery of sugar by the assessce pursuant
to such an order would constitute a sale within the .
meaning of s. 2(g) of the Bihar Sales Tax: Act, by
the second proviso which has ·been held intra vires
by this Court in Ta.ta Iron & Steel Cornpany Ltd.'s
case (1) the assessees would be liable to pay sales tax,
for it is not in dispute that at the time when the
orders were received from the Controller the goods
were within the State of Bihar and the condition
prescribed by s. 2(g) second· proviso for locating the
situs ~f the sale is fulfilled.
But the intimation by the Province of Madras
of its requirements did not amount to an offer, and
the supply of goods pursuant thereto could not
amount to a sale; consequently liability to pay sales
tax under the Bihar Sales Tax Act on the amounts
received by the assessees from the Government of
l\fadras for sugar supplied did not arise.
HrnAYA'ruJ,LAII, J.-1 regret my inability to
agree
that Grmnon Dunkerley's case (') can be
(I) (19~J S,C,I!,, 1155.
(2) (19511] S.Cl,R1 3791
2 S.C.R.
SUPRE:ME COURT REPORTS
477
extended to cover the facts here. I would confirm
the dcci~.ion of the High Court aml dismiss these
appeals for the reasons I proceed to give.
These
reasons arc applicable to all the appeals in today's
group.
This case is concerned with the levy of sales tax
under the Bihar Sales Tax Act 1944 (VI of 1944) for
a period of three monthi-April 1,
1947, to
June 30, 1!)47, and another of the nine months
following,
under the Bihar Sales Tax Act, 1947
(XIX of 1947). The assessee companies in all these
appeals run sugar mills and are admittedly dealers
under these Acts and the commodity on the sale of
which tax was sought to be levied was sugar. The
disputed tax relates to supplies of sugar made by the
assessee companies under the orders of the Sugar
Controller of India to certain Provincial Governments
in the relevant periods. There is only one conten·
tion of the assessee companies in these appeals and
it is that in the circumstances of the case there was
no 'sale' of sugar, regard being had to the decision
of this Court in Gannon 1>1tnkerley' 8 case (1) and
the amounts received from the Provincial Govern·
ments should not be included in the taxable turnover.
I have already mentioned that the assessment
period in this case is one whole year-April I, 1947 to
l\1arch 31, 1948, and that it is divided into two p.arts
of three
months and nine months respectively
governed by the Acts.
There w:as however no
difference in the mode of dealing in this case in the
two periods. In the other cases the assessment periods
were different but there was no other difference.
The transactions were stereotyped being under the
Sugar and Sugar Products Order, I !Hfl, which was
passed by the Government of India on February 18,
194,6, in the exercise of powers conferred by
sub.rule (2) of Rule 81 of the Defence of India
Rules. The mode, which has been accepted by the
111 (1959) s.c.R. s1s.
1962
M/s N<W f•di•
S111u Mills Ltd,
v.
ClfJIJ11issi1111r of
S•le1 Tu, B ltar
-i
Hii•J•tullllA. J.
•
',·
1962
M/1 Ntw India 1
Sutar }.fills. Ltd~ ·
v.
Commissiann of
Sales Ta~J Bihar.
IIiJayatu/lah. J.
·., '
\
'
478: SUPREME COURT REPORTS [i!J63] SUPP .
•
•
<
'
partie8; as correctly summarised was as follows :-
, ,·
'
"Th~ ·admitted cours~ of dealing.