# Tht Salu Ta." Offictr, Pllibhit v. Missrs. Budh Prakash Jai Pralcruh. V enlcatm-ama

- **Citation:** [1955] 1 S.C.R. 243
- **Court:** Supreme Court of India
- **Decided:** 1952-02-28
- **Case number:** Civil Appeal No. 23 of 1954
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tht-salu-ta-offictr-pllibhit-v-missrs-budh-prakash-jai-pralcruh-v-enlcatm-ama-382
- **Pages:** 7

## Headnote

-
-
$.C.R.
SUPREME COURT REPORTS
THE SALES TAX OFFIC_ER, PILIBHIT
v.
243
MESSRS. BUDH PRAKASH JAI PRAKASH.
[MEHR
CHAND
MAHAJAN C.J., MuKHERJEA,
VIVIAN
>
BosE, BHAGWATI and VENKATARAMA AYYAR, JJ]
Government
of India Act, 1935, Schedule VII, List II, entry
'f
No. 48-Sale of goods-Meaning of-U. P. Sales Tax Act (XV of
i.
1948), s. 2(h )-Explanation III to s. 2(h) and s. 3B-Ultra vires
Provincial Legislature.
Held, that there is a well-defined and well-established
distinction between a .sale and an agreement to sell.
The words "Taxes on the sale of goods" in entry No. 48, List
Ii, Schedule VII of the Government of
India
Act, 1935, confer
pbwer
on
the Provincial Legislature to impose a tax only when
there has been
a completed sale and
not when there is only an
J
agreement to sell.
\
Accordingly section 2(h) of the Uttar Pradesh Sales Tax Act,
XV of 1948, enlarging the definition of "sale" so as to include forward contracts must, to that extent, be declared ultra vires.
_ For the same reason Explanation III to
section 2 ( h)
which
provides that forward
contracts
"shall be
deemed
to have been
completed on the date
originally
agreed
upon for delivery" and
section 3B of the Act must also be held to be ultra vires.
Colley v. Overseas Exporters ((1921] 3 K. B. 302 at 309, 310
.....;..
referred to.
CrvrL
APPELLATE
JuRrsmcTION :
Civil
Appeal
No. 23 of 1954.
Appeal under article 133(1) of the Constitution of
India from the Judgment and Decree dated the
28th
February, 1952, of the High Court of Judicature at
Allahabad in Writ Application No. 7297 of 1951.
C. P. Lal for the appellant.
N. C. Chatterjee (Radhey Lal Aggarwal., with him)
for the respondent.
1954. May 3. The Judgment of the Court was
<lelivered by
~:
VENKATARAMA AYYAR J.-This is
an appeal by the
Sales Tax Officer, Pilibhit, against the judgment of
the High Court of Allahabad granting firstly, a writ of
certiorari
q,uashing
certain
assessment
orders
made
;igainst the respondent, and secondly, a writ of pro:-
hibition in respect
of
certain · other - proceedings
for
r954
May3:
1954
Tht Salu Ta."
Offictr, Pllibhit
v.
Missrs. Budh
Prakash
Jai Pralcruh.
V enlcatm-ama
Ayyar J.
244
SUPREME COURT REPORTS
(19551
assessment of tax under the provisions of the Uttar
Pradesh Sales Tax Act (Act XV of 1948)~ The respondent is a firm doing business in forward contracts.
and was
assessed in respect of such contracts to a tax
of Rs.
1,082-8-0 for
the year 1948-49 by an order
dated 27th February, 1950,
Exhibit A, and
to a tax
of Rs. 7,369 for the year 1949-1950 by an order dated
23rd May, 1950, Exhibit B. For the period, 1st April.
1950, . to 31st January,
1951,
the respondent paid a
sum of Rs. 845-4-0 as tax. Assessment proceedings
were also started by the appellant in respect of certain
forward contracts relating to gur and peas. The respondent challenged the legality of these proceedings
and of the assessment orders on the ground that the:
Act in so far as it imposed a tax on forward contracts
was ultra vires the powers of the Provincial Legislature •.
The learned Judges agreed with this contention, and
7
issued a writ of certiorari quashing the orders of assessment, Exhibits A and B, and a writ of prohibition in
respect of the proceedings for assessment of tax on·
forward contracts in gur and peas. The matter now
comes before us in appeal under a certificate
of the
High Court under article 133(1) of the Constitution.
Under the Government of India Act, 1935, the Provincial Legislature derived its power to impose a tax
on the sale of goods under entry 48 in List II of the
Seventh
Schedule,
and the Uttar Pradesh Sales
Tax
Act, XV of 1948, was enacted in exercise of this power.
Section Z(h) of the Act defines "sale" as follows :
"Sale"
means
within its
grammatical
vanat1ons
\.
and cognate expressions, any
transfer
of property
in
goods for cash or deferred payment or other valuable
consideration and includes forward contracts but does not
include a mortgage, hypothecation, charge or pledge."
-~.
It is

## Text

-
-
$.C.R.
SUPREME COURT REPORTS
THE SALES TAX OFFIC_ER, PILIBHIT
v.
243
MESSRS. BUDH PRAKASH JAI PRAKASH.
[MEHR
CHAND
MAHAJAN C.J., MuKHERJEA,
VIVIAN
>
BosE, BHAGWATI and VENKATARAMA AYYAR, JJ]
Government
of India Act, 1935, Schedule VII, List II, entry
'f
No. 48-Sale of goods-Meaning of-U. P. Sales Tax Act (XV of
i.
1948), s. 2(h )-Explanation III to s. 2(h) and s. 3B-Ultra vires
Provincial Legislature.
Held, that there is a well-defined and well-established
distinction between a .sale and an agreement to sell.
The words "Taxes on the sale of goods" in entry No. 48, List
Ii, Schedule VII of the Government of
India
Act, 1935, confer
pbwer
on
the Provincial Legislature to impose a tax only when
there has been
a completed sale and
not when there is only an
J
agreement to sell.
\
Accordingly section 2(h) of the Uttar Pradesh Sales Tax Act,
XV of 1948, enlarging the definition of "sale" so as to include forward contracts must, to that extent, be declared ultra vires.
_ For the same reason Explanation III to
section 2 ( h)
which
provides that forward
contracts
"shall be
deemed
to have been
completed on the date
originally
agreed
upon for delivery" and
section 3B of the Act must also be held to be ultra vires.
Colley v. Overseas Exporters ((1921] 3 K. B. 302 at 309, 310
.....;..
referred to.
CrvrL
APPELLATE
JuRrsmcTION :
Civil
Appeal
No. 23 of 1954.
Appeal under article 133(1) of the Constitution of
India from the Judgment and Decree dated the
28th
February, 1952, of the High Court of Judicature at
Allahabad in Writ Application No. 7297 of 1951.
C. P. Lal for the appellant.
N. C. Chatterjee (Radhey Lal Aggarwal., with him)
for the respondent.
1954. May 3. The Judgment of the Court was
<lelivered by
~:
VENKATARAMA AYYAR J.-This is
an appeal by the
Sales Tax Officer, Pilibhit, against the judgment of
the High Court of Allahabad granting firstly, a writ of
certiorari
q,uashing
certain
assessment
orders
made
;igainst the respondent, and secondly, a writ of pro:-
hibition in respect
of
certain · other - proceedings
for
r954
May3:
1954
Tht Salu Ta."
Offictr, Pllibhit
v.
Missrs. Budh
Prakash
Jai Pralcruh.
V enlcatm-ama
Ayyar J.
244
SUPREME COURT REPORTS
(19551
assessment of tax under the provisions of the Uttar
Pradesh Sales Tax Act (Act XV of 1948)~ The respondent is a firm doing business in forward contracts.
and was
assessed in respect of such contracts to a tax
of Rs.
1,082-8-0 for
the year 1948-49 by an order
dated 27th February, 1950,
Exhibit A, and
to a tax
of Rs. 7,369 for the year 1949-1950 by an order dated
23rd May, 1950, Exhibit B. For the period, 1st April.
1950, . to 31st January,
1951,
the respondent paid a
sum of Rs. 845-4-0 as tax. Assessment proceedings
were also started by the appellant in respect of certain
forward contracts relating to gur and peas. The respondent challenged the legality of these proceedings
and of the assessment orders on the ground that the:
Act in so far as it imposed a tax on forward contracts
was ultra vires the powers of the Provincial Legislature •.
The learned Judges agreed with this contention, and
7
issued a writ of certiorari quashing the orders of assessment, Exhibits A and B, and a writ of prohibition in
respect of the proceedings for assessment of tax on·
forward contracts in gur and peas. The matter now
comes before us in appeal under a certificate
of the
High Court under article 133(1) of the Constitution.
Under the Government of India Act, 1935, the Provincial Legislature derived its power to impose a tax
on the sale of goods under entry 48 in List II of the
Seventh
Schedule,
and the Uttar Pradesh Sales
Tax
Act, XV of 1948, was enacted in exercise of this power.
Section Z(h) of the Act defines "sale" as follows :
"Sale"
means
within its
grammatical
vanat1ons
\.
and cognate expressions, any
transfer
of property
in
goods for cash or deferred payment or other valuable
consideration and includes forward contracts but does not
include a mortgage, hypothecation, charge or pledge."
-~.
It is the extended definition of sale as including
forward contracts in this section that is relied on as
conferring authority on the appellant to make the
orders in Exhibits A and B. The point for decision in A
this appeal is whether the power to impose a tax on
the sale of goods under entry 48 includes a power ta ·
impose a tax on forward contracts.
f
)
-- '
S.C.ll.
SUPREME. COURT REPORTS
245
Under the statute law of India which is based on
English law on the subject, a sale of goods and an
agreement for the sale of goods are treated as two
distinct and separate matters. Section 4 of the Indian
Sale of Goods Act (Act III of 1930), runs as follows:
(1) "A contract of sale of goods
IS
a contract
whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price. There may be
a contract of sale between one part-owner and another.
(2) A contract of sale may be absolute or conditional.
(3) Where under a contract of sale the property
in the goods is transferred from the seller to the buyer,
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
fulfilled, the contract is called an agreement to sell.
( 4) An agreement to sell becomes a sale when the
time elapses or the conditions are fulfilled subject to
which the property in the goods
IS to be transferred."
It will be noticed that though the section groups
both sales and agreements to sell under the single
generic name of "contracts of sale", following in this
respect the scheme of the English Sale of Goods Act,.
1893, it treats them as separate categories, the vital
point of distinction between them being that
whereas
in a sale there is a transfer of property in the goods
from the seller to the buyer, there is none in an agreement to sell. When the contract is to sell future goods,
and under section 6(3) of the Sale of Goods Act even
if "the· seller purports to effect a present sale of future
goods, the contract operates as an agreement to sell
the goods'', there can be no transfer of title to the
goods until they actually come into existence ; and
even then, the conditions laid down in section 23 of
the Act should be satisfied before the property m the
goods can pass. That was also the law under the
repealed provisions in Chapter VII of the Indian Contract Act, 1872. Section 77 of the Contract Act defined
"sale" as follows :
"Sale" is the exchange of property fot a price. It
involves the transfer of the ownership of the thing sold
from the seller to the buyer."
1954
The Sales Tax:
Officer, Pilihhit
v.
Messrs. Bulik
Prakash
Jai Prakash.
r-~
Venkatarama
Ayyar J.
1954
_The~.Sale Tax
.Officer, Pilibhit
.. v.
.Messrs. Budh
-
Prakash
. :Jai Prakash.
.;v tnkatarama
Ayyar J.
'246
..
SUPREME·COURT REPORTS
,[1955]
Section 79 enacted that,
"Where there is a contract for the sale of a thing
which has yet to be ascertained, made or finished, the
ownership of the thing is not transferred to the buyer,
until it is ascertained, made or finished."
The corresponding provisions of the English Act are
'sections 1, 16 and rule 5 of
section 18. Section 1 is
·as follows :
(1) "A contract of
sale
of
goods is a contract
'wherebv the seller transfers or agrees to transfer the
_property in goods to the buyer fqr a money consideration, called the price. There may be a contract of sale
.between one part-owner and another.
(2) A contract of sale may be absolute or condi-
.tional.
(3) Where
under a contract of sale the property
·in the goods
is transferred from the seller to the buyer
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
.fulfilled the contract is called an agreement to sell.
(4) An agreement to sell becomes a sale when the
time elapses or the conditions are fulfilled subject to
which the property in the goods is to be transferred."
Section 16 enacts that,
"Where there is
a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods arc
ascertained.''
Section 18, rule 5, provides for the passing of property is future goods after they are ascertained.
The distinction between a sale and an agreement to
sell under section 1 of the English Act is thus stated
·by Benjamin on Sale, Eighth Edition, 1950 :
"In order to constitute a sale there must be-
( 1) An agreement to sell, by which alone the property does not pass ; and
(2) an actual sale, by which the property passes.
It will be observed that the definition of a contract
-of sale above cited
includes a mere agreement to sell
'as well as an actual sale."
.•.
-
-
S.C.R.
SUPREME COURT REPORTS
247.
· · This distinction between· sales and agreements to sell
based upon the passing of the property in the goods is
of great importance in determining the rights of parties
under a contract. The position is thus stated in
Halsbury's Laws
of · England,
Volume 29, page
15,
paragraph 13 :
"An agreement to sell, or, as it is often stated, an
executory contract of sale, is a contract pure and simple, whereas a sale, or, as it is called for distinction, an
executed .contract of sale, is a contract plus a conveyc
ance. Thus, by an agreement to sell a mere 7us in
personam is created, by a sale a jus in rem is transferred. Where
goods have been sold, and the buyer
makes default in payment, the seller may sue for the
contract price, but where an agreement to buy is broken,
usually the seller's only remedy
1s
an action for
unliquidated damages.
Similarly, if an agreement to sell
be broken by the seller, the buyer has only a personal
remedy against the seller. The goods are the property
of the seller and he can dispose of them. They may
be taken in execution for his debts, and if he becomes
bankrupt they
pass
to his
trustee m
bankruptcy.
But if there has been a sale, and the seller breaks his
engagement to deliver the goods, the buyer has not
only a personal remedy against the seller, but also the
usual proprietary remedies in respect of the goods themselves,
such as the actions for conversion and detinue.
Again, if there be an agreement for sale and the goods
perish, the loss as a rule falls on the seller, while if
there has been a sale the loss as a rule falls upon the
buyer."
Thus, there having existed at the time of the enactment of the Government of India Act, 1935. a welldefined :ind well-established distinction . between a sale
and an agreement to sell it would be proper to inteipret the expression
sale of goods" in entry 48 in the
sense in which it was used m legislation both m
England
and India
and to hold
that it
authorises
the imposition of a tax only when there is a complet~
sale involving transfer of ·title.
This conclusion is further strengthened, when regard
is had to the nature of the levy. Section 3 of the Act
1954
The Soles Tax
Officer, Pilibhit
v.
Messrs. Budh
Prakash-,
Jai Prakash;
Venkatarama
Ayyar J,
1954
TbeSa/es Tax
·Ojjicer, Ptlibhit
v.
Messrs. Budh
Prakash.
Jai Prakash.
.Venkatarama
Ayyar J . .
248
SUPREME COURT REPORTS
[1955]
provides for a tax being imposed at three pies in the
rupee on the turnover of the
assessee, and "turnover"
is defined in section 2 ( i) as "the aggregate of the pre>-
ceeds of sale by a dealer'', and . that would consist· of
the price and any charges paid at the time of the delivery of the goods,
as provided in Explanation I. The
substance of the matter is that the sales tax is a levy
on the price of the goods, and the reason of the thing
requires that such a levv should not be made, unless
the stage has been reached when the seller can recover
the pnce under the contract. It
1s
well-settled that
an action for price 1s maintainable only when there is
a sale
involving transfer of the property in the goods
to the purchaser.
Where
there is only an agreement
to sell, then the remedy of the seller
1s to sue for
damages for breach of
contract and not for the price
of the goods. The law was thus stated m Colley v.
Overseas Exporte..s(') :
"In former
days an action for
the price of goods
would only lie upon one or other of two counts. First,
upon the indebitatus count for goods sold and delivered, which was pleaded as follows : 'Money payable by
the defendant to the plaintiff for goods sold and delivered
by the plaintiff to the defendants': Bullen and
Leake, Precedents
of Pleading, 3rd ed., p. 38. This
count would not lie before delivery: Boulter v. Arnott(').
The count was applicable when
upon
sale of goods
the property has passed and the goods had been delivered to the purchaser and the price was payable at
the time
of the
action brought.
Secondly, upon
the
indebitatus count for goods bargained and sold, which
. was pleaded as follows : 'Money payable by the defendcant to the plaintiff for goods bargained and sold by the
plaintiff to the defendant' : Bullen and Leake, p. 39.
This count was applicable where upon a sale of goods
the property had passed to the purchaser and the contract had been completed in all respects except delivery,
and . the delivery was not a part of the consideration
for the price or a condition precedent to ·its payment.
If the property had not passed the count
would not
lie : Atkinson v. Be/1(3).
In my view the law as to the
(1) !1921] 3 K.B. 302 at 309, 310.
(3) (1828) 8 B. & C. 27).
(2) 1833) I c,. & M. 333·
•
•
. '>-
-
:S;C.R.
SUPREME COURT REPORTS
249
circumstances under
price of goods has
Goods Act, 1893."
which an action will lie for the
not been changed by the
Sale of
That is also the law in this country under section 55
-of the Sale of Goods Act. The only . exception to this
rule is when, under an agreement between the parties,
the price is payable on a day certain irrespective of
delivery, and that is not material
for the purpose
of
the present discussion.
The position therefore is that a liability to be assessed to sales tax can arise only if there is
a completed
sale under which price is paid or is payable and not
when there is only an agreement to sell, which can
only result in a claim for damages. It would be contrary to all principles to hold that damages for breach
of contract are liable to be assessed
to sales tax on the
ground that they are in the same position as sale price.
The power conferred under entry 48 to impose a tax on
the sale of goods can therefore be exercised only when
there is a sale un<ler which there is a transfer of property in the goods, and not when there is a mere agreement to sell.
The State Legislature cannot, by enlarging the definition
of
"sale" as
including
forward
contracts, arrogate to itself a power which is not conferred upon it by the Constitution Act, and the definition of "sale" in section 2(h) of Act XV of 1948 must,
to that extent, be declared ultra vires. For the same
reason, Explanation III to section 2(h) which provides
that forward contracts "shaH be deemed to have
been
completed on the date originally agreed upon for
.delivery'', and section 3-B which enacts that,
"Notwithstanding anything
contained
in
section
3, the turnover of any dealer in respect of transactions
of forward contracts, in waich goods are not actually
delivered, shall be taxed at a rate not exceeding rupees
two per unit
as inay be prescribed." must also be
held to be ultra vires.
In the result, the decision of the High Court must be
affirmed and this appeal dismissed with costs.
Appeal dismissed.
1954
TheSaks Tax
Officer, Pilibhit
v.
Messrs. Budh
Prakash
Jai Prakash.
Venkatarama
AY.Jlar ].