# STA TE OF MADHYA PRADESH & ORS v. ORIENT PAPER MILLS LTD

- **Citation:** [1977] 2 S.C.R. 149
- **Court:** Supreme Court of India
- **Decided:** 1976-11-23
- **Bench:** H. R. Khanna, Y: R. Krishna Iyer
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sta-te-of-madhya-pradesh-ors-v-orient-paper-mills-ltd-7017
- **Pages:** 11

## Headnote

B
Madhya Pradesh General Sales Tax Act, 1958-Lease of
forest areaTimber extracted from leased area-If liable to sales-tax.
Under· s. 2{g) of the Madhya Pradesh General Sales Tax Act the term
'goods' means a:ll kinds of movable property and includes all growing crops,
trees, plants and things attached to, or forming part of the land which are
agreed to be se\'ered before sale or under the contract ot sale. Under cl. (n)
C
'Sale' means any transfer of property in goods for cash or deferred payment.
Clause ( o) defines 'sale price' as the amount payable by a dealer as valnable
consideration for the sale of goods and under cl. (t) 'turnover' means the aggregate of the amount of sale price received and receivable by a dealer.
The respondent Mills entered into a lease with the Forest Department of
the State for the cutting of bamboo and sa,lai wood from the leased forest area
in the State.
The lease deed provided that the lessee shall pay a· minimum
royalty every year whether there was cutting of timber or not, the lessee could
D
construct roads, railways etc. for the purposes of business; should pay the.price
fixed for the wood removed from the leased area; should keep a-n account of all
wood cut and removed and that the rights and privileges of the lessees shall
extend only to bamboos and salai wood within the leased area.
The appellant (Forest Department) which was a, registered dealer under
Sales Tax Act demanded from the re-spondent, (also a registered ucaler) sales
tax i:-i respect of timber ·extracted from the leased area.
When the respondent
repudiated the Department's claim it pa:id the tax and preceeded to recover
E·
the tax under the revenue recovery
proceedings under s. 82 of the
Indian
Foresls Act.
Aliowing the respondwt's writ petition under Art. 226 of the Constitution
the High Court held that the State Government and its Forest Departments
were not a 'dealer' within the meaning of the sales tax law and as such were
11ot entitled to recover the amount from the respondent.
Thereupon the definition of the dealer under the Act wac; altered to undo the effect of the High
F
Court's decision.
In appeal to this Court the appellant contended that though apparently the
transaction was a lease, in reality the lease was no more than a simple sale
of st&:lding timber, coupled with a iicence to enter and do certain things on
another's land and the transaction in essence was a sale of goods within the
meaning of the Act.
Allowing the appeal to this Court.
HELD : Going by the definition of 'sale of goods' unde~ s.2(7) of the
Sale of Goods Act and s. 2(g) of the Sales Tax Act standing timber is 'movable
property' if under tile contract it is to be severed.
But the severence must take
place when the timber still vests in the contracting party. [158DJ
G
In the instant case there was sale of bamboo and salai wood under the contract and, in the contemplation of the parties they were lb be cut and severed'
pursuant to the contract itself.
H
Raja Ba/wdur Kamakshya Narain Singh (1943) 11 I.T.R. 513; Badri Prasad
fl969j 2 S.C.R, 380 held inopolicable ..
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[1977] 2 S.C.R.
.
1. (a) Despite its description, the deed conferred in truth and substance a ·
right. to cut and carry timber of specified species. Till the tress were cut, they
remamed the property. o_f the appellant.
Once the trees were severed, the property passed.
Royalty 1s a euphemism for the price of the timber. [157DJ
(b) !"rom the terms of the lease it was clear thr.-t for a pric~ fixed, bamboo
and salai wood were perm,1tted to be removed by the respondent from the forest
of the _appellant.
Pos_sess1on of the land qua land was not given and there was
a prov1s1on that the nghts of the lessess shall· extend onlv to bamboos and sufai
wood wit~in the leased area. and nothing therein shall In any way be deemed
to authonse the lessees to mterfere with the working of the forest area of
other contractors of the forest lands. ll 57 A-Bl
(2) The amen

## Text

STA TE OF MADHYA PRADESH & ORS.
v.
ORIENT PAPER MILLS LTD:
November 23, 1976
149
A
[H. R. KHANNA AND Y: R. KRISHNA IYER, JJ.]
B
Madhya Pradesh General Sales Tax Act, 1958-Lease of
forest areaTimber extracted from leased area-If liable to sales-tax.
Under· s. 2{g) of the Madhya Pradesh General Sales Tax Act the term
'goods' means a:ll kinds of movable property and includes all growing crops,
trees, plants and things attached to, or forming part of the land which are
agreed to be se\'ered before sale or under the contract ot sale. Under cl. (n)
C
'Sale' means any transfer of property in goods for cash or deferred payment.
Clause ( o) defines 'sale price' as the amount payable by a dealer as valnable
consideration for the sale of goods and under cl. (t) 'turnover' means the aggregate of the amount of sale price received and receivable by a dealer.
The respondent Mills entered into a lease with the Forest Department of
the State for the cutting of bamboo and sa,lai wood from the leased forest area
in the State.
The lease deed provided that the lessee shall pay a· minimum
royalty every year whether there was cutting of timber or not, the lessee could
D
construct roads, railways etc. for the purposes of business; should pay the.price
fixed for the wood removed from the leased area; should keep a-n account of all
wood cut and removed and that the rights and privileges of the lessees shall
extend only to bamboos and salai wood within the leased area.
The appellant (Forest Department) which was a, registered dealer under
Sales Tax Act demanded from the re-spondent, (also a registered ucaler) sales
tax i:-i respect of timber ·extracted from the leased area.
When the respondent
repudiated the Department's claim it pa:id the tax and preceeded to recover
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the tax under the revenue recovery
proceedings under s. 82 of the
Indian
Foresls Act.
Aliowing the respondwt's writ petition under Art. 226 of the Constitution
the High Court held that the State Government and its Forest Departments
were not a 'dealer' within the meaning of the sales tax law and as such were
11ot entitled to recover the amount from the respondent.
Thereupon the definition of the dealer under the Act wac; altered to undo the effect of the High
F
Court's decision.
In appeal to this Court the appellant contended that though apparently the
transaction was a lease, in reality the lease was no more than a simple sale
of st&:lding timber, coupled with a iicence to enter and do certain things on
another's land and the transaction in essence was a sale of goods within the
meaning of the Act.
Allowing the appeal to this Court.
HELD : Going by the definition of 'sale of goods' unde~ s.2(7) of the
Sale of Goods Act and s. 2(g) of the Sales Tax Act standing timber is 'movable
property' if under tile contract it is to be severed.
But the severence must take
place when the timber still vests in the contracting party. [158DJ
G
In the instant case there was sale of bamboo and salai wood under the contract and, in the contemplation of the parties they were lb be cut and severed'
pursuant to the contract itself.
H
Raja Ba/wdur Kamakshya Narain Singh (1943) 11 I.T.R. 513; Badri Prasad
fl969j 2 S.C.R, 380 held inopolicable ..
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SUPREME COURT REPORTS
[1977] 2 S.C.R.
.
1. (a) Despite its description, the deed conferred in truth and substance a ·
right. to cut and carry timber of specified species. Till the tress were cut, they
remamed the property. o_f the appellant.
Once the trees were severed, the property passed.
Royalty 1s a euphemism for the price of the timber. [157DJ
(b) !"rom the terms of the lease it was clear thr.-t for a pric~ fixed, bamboo
and salai wood were perm,1tted to be removed by the respondent from the forest
of the _appellant.
Pos_sess1on of the land qua land was not given and there was
a prov1s1on that the nghts of the lessess shall· extend onlv to bamboos and sufai
wood wit~in the leased area. and nothing therein shall In any way be deemed
to authonse the lessees to mterfere with the working of the forest area of
other contractors of the forest lands. ll 57 A-Bl
(2) The amending bill, whereby the liability wa~ being de nova fastened,
was enacted into law after the judgment of the High Court. Read with s. 82 of
the Indian Forests Act, the amount was being recovered as if it were land
revenue.
This process deprived the respondent of his right to challenge the
qualification of the tax.
The respondent should be enabled to prove his case
that the sum claimed was much higher than could be legitimately recovered.
[159B]
[The case was remanded for consideration of the quantum of tax that the
Forest Department was legally liable to pay as a dealer, to the Sales Tax Department.
Once the tax is settled the payment by the respondent will follow.]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 49 oti 1972.
A'ppeal from the Judgment and Order dated 24th December, 1970
of the Madhya Pra~esh High Court in Misc. Petition No. 474/68.
Ram Panjwani, H. S. Parihar and/. N. Shroff for the Appellants.
B ... Sen, (Mrs.) Leila Seth, T. M. Sen, Praveen Kumar and 0. P.
Khanan for Respondent.
The Judgment of the Court was delivered byKRISHNA IYER, J. The State of Madhya Pradesh, blessed with
abundant forest wealth, whose exploitation, for reasons best known
to that government, was left in part to the private sector, viz., the
respondent, Orient Paper Mills, which is the appellant in this appeal
by certificate..
The subject matter of this litigation, however, is the
competency to collect sales tax from the respondent for the bamboo
and salai. wood extracted by it, under a transaction relating to some
government forests in Vindhya Pradesh which, on 'states reorganisation' in 1956, became part of Madhya Pradesh. The transaction itself
was dressed up as a lease-deed executed by the then State of Vindhya
Pradesh on August 4, 1956 in favour of Orient Paper Mills, the
respondent herein.
At that time no sales tax could be levied under
the law from the forest department of the appellant State or the respondent mills.
However, on April 1, 1959 the M. P. General Sales
Tax Act, 1958, (hereinafter referred to acronymically. as M.P.G.S.T.
Act) came into force.
On the footing that the Forest Department
was a dealer it got itself registered as such, under the sales tax law,
on November 3, 1962. The respondent, of course,
is a regist_ercd
·dealer under the same law.
Subsequently, the Chief Conservator of
Forests, representing the appellant, demanded of the respondent that
it pay sales-tax on the timber extracted under the 'lease deed', whereupon the claim was repudiated by the respondent.
In consequence,
MADHYA PRADESH v. ORIENT PAPER MILLS (Krishna Iyer, !.) 151
the appellant proceeded to levy the sum representing the sales-tax on
the value of the timber cut and removed as per the terms of the ·
contract, resorting to revenue recovery proceedings authorised by
Sec. 82 of the Indian Forest Act. Thereupon the respondent moved
the High Court for the issuance of a writ under Art. 226 of
~he
Constitution of India against the State to forbear
from
collectmg
sales tax illegally. Holding that the State Government and its Forest
Department were not dealers within the sense of the sales tax
law,
the writ petition was allowed, notwithstanding the adverse
findings
against the petition-r~spondent 'On some other vital points.
The State has challenged this finding in the appeal before us. The
validity of the attempted exaction is the gut issue in these proceedings,
although the centre of gravity' on this forensic stage has shifted from
the question of the forest department being a dealer to whether the
transaction styled 'lease' does at all involve sale of goods. From 'no
dealer, no sales tax' to 'no sale no sales tax' is the shift in the epicentre
of the argument caused by an amendment to the sales tax statute
legislated after and on account of the very judgment under appeal.
Suffice it to say for the present, no sale, no sales tax is a legal truism.
It may be mentioned right here that the respondent before us is
not directly liable to pay sales'tax, even assuming that the 'lease deed'
involves sale of goods.
The forest .department of government is
admittedly a registered dealer for the relevant period, and it is claimed
. by the appellant State that it was liable qua dealer to pay tax on
sales of -timber, and by virtue of s. 64-A of the Sale of Goods Act
such sums, which became leviable only after the agreement was entered
into in 1956, could be recovered from the purchaser-respondent. It
is virtually admitted in this appeal, as stated earlier, that both parties
are registered dealers under the relevant sales tax Act.
Nor is it in
dispute that if the appellant forest depar•ment were liable to pay sales
tax for the sales of timber which were alleged to have taken place,
the respondent, in turn, would be liable to make good that sum in
view of the plain provision in s. 64A of tfie Sale of Goods Act. But
to attract that provision there has to be sale of goods.
Was there
any sale of wood under the lease deed ? That is the core of the legal
quarrel agitated before us.
We may straight proceed to consider the questions
canvassed
before the High Court since both sides have had 'to challenge one or
other of the findings.
We may borrow the formulation of the four
points set out in the judgment of the High Court.
"(i) The transaction is not a sale of goods and no sales tax is
payable in respect of bamboos and salai wood extracted
thereunder by the petitioner.
(ii) No saies tax is payable under the terms of the lease deed
dated August 4, 1956 and, therefore, such tax cannot be
recovered.
.
(iii) Neither the S:ate Go;;ernment nor the Fores~ Department
of that Government 1s or could be a dealer and for this
reason also no sales tax is payable or recoverable.
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SUPREME COURT REPORTS
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(iv) The sales tax, even if payable, is not recoverable as arrears
of land revenue, particularly when the revenue recovery
certificate was issued by the Divisional Forest Officer.."
The time is set true for stating the decisive statutory
chaages
which occurred after the High Court ruled against the State, calculated
to undo the disability discovered· by that pronouncement. This development deserves attention as the sole point on which the State lost
in the High Court, viz. that the Forest Department is not doing
business, ceases to have relevance today on account of the amendment to the Madhya Pradesh General Sales Tax Act by the MPGST
(Amendment and Validation) Act 13 of 1971.
The definition of
'dealer' and other related proviSions were touched up and redefined
in such manner that the finding on point No. 3 formulated by the High
Court was effectively nullified.
Indeed, the legisl'ation is a sequel to
the decision and has squarely undone the impediment in the way of
the State collecting sales tax from the respondent.
So long as that
law holds good the State's claim cannot be bowled out.
Of course,
Sri B. ·Sen, for the respondent, desired to challenge the vires of the
Amending Act but the Presidential Proclamation during the Emergency, suspending the operation of Art. 14, handcuffs· the respondent
from seeking to strike down this legislation.
When the Presidential
Proclamation, sterilising Art. 14, lapses then it may be time enough
to assail this law. So far as tHis appeal is concerned, Art. 14 is under
eclipse and the ground of challenge unavailable.
The amendatory
provisions must therefore be held imp1'egnable, on this score, and we
proceed on that footing.
Its post-Emergency validity will be decided,
i[ attacked, at that time, since we leave that aspect untouched.
To
abbreviate the discussion, thanks to Act 13 of 1971, the Forest Department of the State shall be deemed to be dealer. If it is a dealer,
the levy of sales-tax from it is legal and the controversy on this score
is silenced.
·
The meat of the matter is the judicial determination of the ·true
character of the transaction of 'lease' from the angle of the MPGST
Act and the Sale of Goods Act whose combined operation is pressed
into service for making the tax exigible from the Forest Department
and, in turn, from the respondent mills.
It is the part of judicial
prudence to decide an issue arising under a specific statute by confiI1ing the focus to that statutory compass as far as possible.
Diffusion
into wider jurisprudential areas is fraught with unwitting conflict
or
confus;on. We, therefore, warn ourselves against venturing into
the
general Jaw of real property except for minimal illumination thrown
by rulings cited.
In a large sense, there are no absolutes in legal propositions and human problems and so, in the jural cosmos of relativity,
our observations here may not be good currency beyond the factuallegal boundaries of sales-tax situations under a spec'lfic statute.
The major plea to bomb the tax demand having been shot down
by retroactive legislative missiles, the respondent has sought a manouvrc
to victory by reliance on the contention covered by formulation no. 1
set out at the beginning.
Point 2 hinges on the result of point no. 1
and deserves no separate disrnssion.
MADHYA PRADESH v. ORIENT PAPER MILLS (Krishna Iyer,!.) 153
The High Court's holding on these twin points is in favour of the
respondent on the basic submission of non-exigibility of tax on the
score that the transactions in question are not sales at all and
the
payments not price of goods at all but mere royalty under a lease.
A short legal survey will take us to an easy solution of this issue.
Section 64A of the Sak of Goods Act enables the seller, under certain
circumstances, to recover, as sale price, any sales tax which
the
vendor has had to pay. So, if in the present case, the Forest Department of the State is liable to pay sales tax on the bamboo and salai
wood cut and removed by the respondent, the claim to recover it from
the buyer is good under the said s.64A.
The next logical series of
questions are whether the Forest Department is liable to sales tax on
the timber covered by demise ? Can the timber so extracted. and the
royalty paid at the .rates stipulated be called goods and sale
price
respectively under Sec. 2(o) of the MPGST Act? Can the levies
made by the Forest Department become it-s turnover of sales under
Sec. 2(t) ? Does removal of timber by the lessee constitute sale of
goods under s. 2(n) of the MPGST Act or s. 64A of
the Sale
of Goods Act ?
The i&!!ition point which sets in motion the chain reaction is
the
character of the transaction whereby bamboo etc. are cut and removed
and money paid, measured by the weight of the timber extracted. . If
it is a sale the tax is leviable from the Forest Department and the
amount, in turn, recoverable from the lessee-and vice versa.
We must set out parts of the 'lease deed' so that its basic structure
and essential nature may be decoded.
Is it really a lease of forest
or is it .a sale of certain timber with ancilliary licences ? ·No doubt,
the deed styles itself a lease.
But it is argued that a soi disant lease
may well be a mere contract of sale of goods.
Theoretically, this is
perfectly possible in law, as in literature :
'What's in a name? that
which we" call a rose/By any other name would smell as sweet' !
. But what is there in the document to detract from the prima fade
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validity of the label ? Here the clarity of the reasoning lies in
the
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correct approach to the question-which is not so much whether the
contract is one of lease but whether it works out a sale of goods under
the two concerned statutes.
Sales tax is payable by a dealer. The Forest Department, by force
of the statutory amendment, is admittedly a dealer.
Such tax is computed on the turnover as defined in s. 2(t) of the MPGST Act, which
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reads:
"2. In this Act, unless there is anything repugnant in the
subject or context,-
x
x
x
x
( t) 'turnover' used in relation to any period means the
aggregate of the amount of sale prices received and receivable by a dealer in respect of any sale or supply or distribuH
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SUPREME COURT REPORTS
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tion of goods made during that period, whether or not the
whole or any portion of such turnover is liable to tax but
after deducting the amount, if any refunded by the dealer to
a purchaser, in respect of any goods purchased and returned
by the purchaser within the prescribed period."
The essential ingredients of turnover are thus 'sale of goods'
and
'sale prices'.
The latter concept has received definitional expression
in s.2(o) and the former in s.2(n). They may be read here:
" ( o )° 'sale price' means the amount payable to a dealer
as valuable consideration for the sale of any goods, less any
sum allowed as cash discount according to· ordinp.ry trade
practice but including any sum charged for anything done by
the dealer in respect of the goods at the time or before delivery thereof other than the cost of freight or delivery or the
cost of installation when such cost is separately charged and
the expression 'purchase price' shall be construed accordingly.
(n) 'Sale' with all its grammatical variations and cognate expressions means any transfer of property in goods for
cash or deferred payment or for other valuable consideration
and includes a transfer of property in goods involved in the
supply or distribution of goods by a society or club or any
association to its members, but does not include a mortgage,
hypothecation charge or pledge, and the word
'purchase'
shall be construed accordingly;"
For all these words to apply, the pivotal factor is 'goods' which
is
defined in substantially similar manner in both the Sale of Goods Act
and in s. 2(g) of the MPGST Act which latter reads :
"2 (gl "goods" means all kinds of movable property other
than actionable claims, newspapers, stocks, shares, securities
or Government stamps and includes all materials, articles and
commodities whether or not to be used in the construction,
fitting out, improvement or repair of movable or immovable
property; and also includes all growing crops, grass,
trees,
plants and things attached to, or forming part of the land
which are agreed to be severed before sale or under tlw contract or sale;"
The key expressions which unlock the mystique of turnover-cumsale of goods are the last inclusive limb of the clause 'also includes ....
trees which are agreed to be severed under the contract of sale'. The
crunch issue thus is whether the self-styled lease deed is in substance
a contract of sale of timber.
The true import of the document may be gathered from its terms,
not from rulings on other documents.
There is a serious limitation
on the service of case law in this area.
It depends firstly on
the
actual issue in each case and the angle of vision adopted and secondly
on the clauses, purposes and surrounding circumstances of each tran-
MADHYA PRADESH v. ORIENT PAPER MILLS (Krishna Iyer, J.) 15 5
saction.
While, therefore, we may cite some rulings later we bear
in mind the limits of their use.
Shri Sen rightly stressed the importance of the deliberate description of the deed as a lease.
He drew our attention, with emphasis, to
·annual payments of royalty, not price.
Royalty has a slight fedual
flavour with a tell-tale demise relish, if we may say so, while price is a
mercantile concept smacking of commercial relations.
By the deed, the forest lands of the lessor are 'hereby demised'.
There are frequent,.references to the 'leased area'. The period of the
lease is stated to be a long 20 years, later substituted by 30 years.
There is also reference to discharge of lease, royalties, compensation
and other monies, suggestive of a demise rather than of a sale. The
provision for payment of a minimum royalty runs in thesei terms :
,
. "Provided that the minimum royalty payable by the
lessees fo the State Government during the first year of this
lease shall not be less than 1.5 lakhs of rupees and for the
next and sub.sequent years, shall, during the term of this
demise, be not less than two lakhs of rupees per annum."
Whether there is cutting of timber or not, Shri
Sen argues,
the
minimum royalty has to be paid, thus showing that the provision for
payment is sometimes de-linked from the exploitation of the forest or
the value of the timber cut.
Considerable reliance was placed for taking the document out of the
category of mere sale of goods, on clause 5 of the Deed,
which
reads :
"The lessees shall with the previous permission in writing
of the State Government be at liberty to make dams, cross
streams, cut canals, make water-comse irrigation works, construct roads, railways and tramways and do any other works
useful or necessary for the purposes of the business connected
with these presents in or upon the leased area provided that
they are in accordance with the plan approved by the State
Government and also with the like approval to widen or
deepen any existing creeks or channels of waterways for the
purposes of the said business and all timbers required far
the above purposes shall. be allowed half royalty rates in the
case of timbers of reserved species and free in case of timbers of unreserved species by the State Government."
There is also provi§ion for renewal of the lease deed which savours,
again, of a transaction of real property since renewals cannot obtain
for sales.
·
·
The face value of these features tends to fix the transacdon as a
lease but, lift the veil and feel the reality behind, Shri Shroff urged us, ·
only to discover that the lease is no more than a simple sale of goods,
viz., of bamboo and salai wood.
He dismissed tags and labels as of
the least consequence when the heart ·of the matter turned on the
crucial terms of the document which were, in his submission, loudly
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[1977] 2 S.C.R.
obtrusive of the 'sale-of-goods' character of the
transaction.
Of
course, if in essence there is a sale of goods covered by the deed, we
have. to locate the taxing event which occurs when the title to
the
goods· is transferred.
The description of the document as a lease
'deed', the reference to royalty, the right to construction of buildings
etc., cannot hamper a contrary conclusion if there are luminous characterstics of a 'sale of goods', in what is but a lease deed in name. From
this angle Shri Shroff has highlighted certa_in principal provisions in
the deed.
There is no doubt, he says, that if one scans the document
closely, one finds that possession of the land is not given; which means
that parties have slurred over the demise part of it notwithstanding the
dubious expressions used.
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 Milt This reads niore
like a sale of standing timber coupled with a licence to enter and do
certain things on another's land.
Counsel also emphasised that an insightful understanding of cl.
2 (g) of the deed would bring out the price fixed for the goods sold
viz., 'a fiat rate of Rs. 6/- per ton on air dry bamboo and Rs. 2/- per
ton on air dry salai-wood .... actually extracted and removed from
. the leased area on the weighment at the weighbridge of the said Paper
Mill a1i·d in case of export at the weighbridge or weighbridges to be
installed at suitable places by the lessees, in which case the royalty
shall be Rs. 7 /8/0 (rupees seven and eight annas) and Rs. 2/8/0
(rupees two and annas eight) per ton of air dry bamboo and salai wood
respectively. In this context supportive strength was sought to be
drawn from cl. 2(h) which reads :
"(h) The lessees shall keep an account of all bamboos
and salai wood cut and removed in the manner as
may
mutually be settled and such account shall be open to inspection by the Forest Officer authorised in this behalf by the
Divisional Officer concerned."
·
Shri Shroff went to the extent of saying that the real nature of the
transaction was disclosed in the deed itself in clause 2(k) :
"(k) The lessees in conducting their operation on the
leased area shall not in any way interfere with the surface of
land save and in so far as may be necessary in connection with
and for the purposes of this li<;ence."
Clause 4 bears on its bosom, in his submission, the imprint of
a
contract for sale of goods and it may be read :
"4. "Without "prejudice to the provisions of this lease,
the rights, liberties and privileges of the lessees hereinbefore
mentioned shall extend only to bamboos and salai wood within the leased area and nothing herein shall in any way be
deemed to authorise the lessees to interfere with the working
. of the forest areas within the leased area or the rights, liberties, priv11eges of other contractors of the said forest lands."
MADHYA PRADESH v. ORIENT PAPER MILLS (Krishna Iyer, J.) 157
We are considerably impressed with this analysis.
The upshot of
A
the whole transactiQ.n is that, for a price fixed, bamboos and salai wood
are permitted to be removed from the forest of the appellant by the
respondent.
For the exercise of the right under this contract, certain
necessary licences are conceded. It is made perfectly plain that the
possession of the land qua land is not given, and there is a fool-~roof
provision that the rights of the 'lessees' shall extend only to bamooos
and salai woods within the leased area and nothing herein shall in
B
any way be deemed to authorise the lessees to interfere with the working of the forest area .... of other contractors of the said forest lands.
Can there be a lease without exclusive possession of the lands ? Can
there be a lease to A of lands when the only right is to cut certain
species of timber above a certain height and accor?U:g to. stipulated
conditions ? Can there be a lease of lands where s1m1lar nght to cut
·timber from the same land co-exist in other contractors ? There are
C
mtire circumstances than these, but we need not be exhaustive, especially when we agree with the conclusion reached by the High Court.
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.
The
'Royalty' is a feudalistic euphemism for the 'price' of the timber. We
D
may also observe that the question before us is not so'much as to what
nomenclature would aptly describe the deed but as to whether the deed
results in sale of trees after they are cut. The answer to that question,
as would appear from the above, has to be in the affirmative.
Now to a brief reference to two out of several cases cited at the
~
E
Sri Sen . relied heavily upon Raja. Bahadur Kamakshya Narain
Singh('). That was a case under the Income-Tax law.
The assessee there received large payments by way of royalty under various
mining leases. The leases purported to be for 999 years and related
to the coal-mining rights set out in the Schedule to the lease.
The
lessees were to pay a sum by way of salami or premium and an annual
sum as royalty computed at a certain rate per ton on the amount of
F
coal raised and coke manufactured. It was contended on behalf of
the assessee that the sums received as salami and royalty did not
constitute 'income' but were capital receipts, representing the price of
the minerals removed. There was also a provision for minimum royalty
which was pressed into service by the party.
The Judicial Committee
held that the royalty payable under the lease was not the price of
the actual coal extracted but represented compensation which
the
G
lessees paid to the lessor for that species of occupation which the contract allowed and it was therefore 'income' from other sources' within
the· meaning of the relevant lnconie-tax Act.
We must point that the
legal setting in which a question is considered colours the ratio of the
case.
The Judicial Committee was considering an issue arising under
the Income Tax Act and, interpreting the clauses of a deed with particular terms, to asc~rtain whether the· payments made thereunder fell
H
within the meaning of 'income' understood in its broadest connotation
[1943) 11 .T.R. 513.
A
B
c
D
E
F
G
H
15 8
SUPREME COURT REPORTS
[1977] 2 S.C.R.
in England and in India.
Construing, as we do, a special statute and
a differently worded deed and the signification of the words used therein, we are unable to draw any legitimate instructional inferences from
a, decision contextually different, concerned with a different branch of
law; and dealing with different issues although with seeming resemblances in superficial respects.
Another decision which, perhaps, has some helpful reasoning, is
by this Court in Badri Prasad(').
We need not discuss the details
of that case except to point out that it has been recognised, in lhat
ruling, that trees which are to be severed before sale or under
the
contract of sale are 'goods' for the purposes of the Sales of Goods Act.
On the facts of that case, property in the cut timber could pass to the
plaintiff under the contract at the earliest when the trees were felled
but before that happened the trees had vested in the state under an
agrarian reform measure.
The crutches of case law are not alwayis
necessary μi Court.
While direct light on the legal situation present before us is
not
available from Badri Prasad, or Kamakshya Narain Singh, (supra)
there is not the slightest doubt that going by the definition of 'sale of
goods' under s. 2(7) of the Sale of Goods Act and of s.2(g) of lhe
MPGST Act, standing timber is 'movable property' if under the contract of sale they are to be severed. But the severance must take place
when the timber still vests in the contracting par'ty.
Ultimately, the case before us has to be decided on the facts and
the law which form the backdrop to the decision.
We have already
held that the crucial fact to be found before we can designate
the
transaction as 'sale of goods' is to scan and see whether the 'lease deed'
really deals with sale of timber .. We are clear that there is sale of
bamboo and salai wood under the contract and, in the contemplation
of the parties they are to be cut and severed, pursuant to the contract
itself. It follows that the finding of the High Court on this point is
correct.
The appeal deserves to be allowed on account of the statutory
amendment.
The Madhya Pradesh Legislature had taken great cam
and responded with prompt attention to deal with a situation where
considerable revenue would be lost to it on account of inadequate expression of its intendment in the MPGST Act. A diligent and considered amendment has fulfilled the legislative purpose.
Had the State
lost the appeal before us on another point, that is as to whether royalty
was 'price for sale of goods',-the whole amendatory effort would
have been an exercise in futility or a legislative brutum fulmen.
ln
view of our finding that there is a 'sale of goods' under the contract, ~he
State is entitled to succeed.
•
Counsel for . the respondent, when we briefly indicated our mind,
and even otherwise by way of abundant caution, rightly urged that his
client had a good case for reduction of the quantum orf tax even if
sales tax was payable by the Forest Department which could be shift-
(1) [1969] 2 S.C.R. 380.
MADHYA PRADESH v. ORIENT PAPER MILLS (Krishna Iyer,!.)
159
ed to the respondent by virtue of s.64A of the Sale of Goods Act. He ·
prayed for an opportunity to establish that he was being called upon
to foot a larger bill than was legally tenable.
We regard this a reasonable request and, indeed, Shri Shroff, for the State, has very nghtly
agreed with this prayer of the respondent.
For one thing1 the amending Bill whereby the- liability was being de novo fastened was enacted
into law after the judgment of the High O;mrt.
Read with s.82 of
the Indian Forests Act, the amount was being recovered as if it were
land revenue.
This process deprived the respondent of his right to
challenge the quantification of the tax. It is farr-and the State agrees .
to be fair-that the respon4ent should be enabled to prove his case
that the sum claimed was much higher than, could be legitimately recovered.
Shri B. Sen brought to our notice that the rate of tax on
sales . to a registered dealer, if the commodity was to be consumed
within the State, in view of Section 8 of Madhya Pradesh General
Sales Tax Act for manufacturing purposes was less than the general
rates.
The appellant, on the other hand was
seeking to recover
at the higher rate.
Moreover, even the lesser rate .varied over the
years from 1 % to 2 % and on to 3 % . Thus the arithmetics of the
case had also to be gone into before the actual sum due from
the
Forest Department to the Sales Tax Department was fixed.
More
could not be exacted from the respondent.
These reasons persuade us to allow the appeal and remand the
case for consideration of the quantum of tax that the State, in
the
Forest Department, was legally liable to pay as a dealer, to the Sales
Tax Department.
Shri Shroff took up a point that when the Forest Department made
A
B
c
D
a demand on the respondent and required him to furnish a declaration
E
necessary to reduce the rate of tax, the latter ignored the request. This,
according to him, had an impact on the eventual liability. We do not
propose to investigate this aspect at the present stage but leave it to
be raised by the State before the High Court.
In this view; we allow the appeal and remand the case for disposal
after recording a finding on the limited issue/issues above indicated.
We may mention that although the High Court has not properly adjudicated upon the recoverability of the Sales Tax as and by way
of
arrears of land revenue, it is not necessary to go into the matter afresh
especially because once the tax amount is settled, the payment by the
respondent will follow.
However, we are not upsetting the finding of
the- High Court in this behalf in the present case.
F
The appeal is allowed and remanded, to be disposed of in the
G
light of the directions given above.
Parties will
bear their
costs
throughout.
P.B.R.
Appeal allowed.