PETITIONER: THE SALES TAX OFFICER, PILIBHIT Vs. RESPONDENT: MESSRS. BUDH PRAKASH JAI PRAKASH. DATE OF JUDGMENT: 03/05/1954 BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA MAHAJAN, MEHAR CHAND (CJ) MUKHERJEA, B.K. BOSE, VIVIAN BHAGWATI, NATWARLAL H. CITATION: 1954 AIR 459 1955 SCR 1133 CITATOR INFO : R 1955 SC 661 (88,131,147) D 1958 SC 452 (9) R 1958 SC 560 (14,21) F 1958 SC 764 (5,6,8) E 1959 SC 135 (4,27) RF 1961 SC1065 (4) RF 1961 SC1534 (11) R 1962 SC1037 (10) F 1963 SC1207 (43,50) R 1965 SC1082 (9,14,16) RF 1967 SC1895 (247) RF 1970 SC 898 (46) R 1976 SC1016 (9) E 1978 SC 449 (29,42,52) D 1985 SC1293 (43) RF 1986 SC1556 (4,23,29) RF 1990 SC 313 (23) ACT: Government of India Act, 1935, Schedule VII, List II, entry No. 48-Sale of goods-Meaning of---U. P. Sales Tax Act (Xv Of 1948), s. 2(h)-Explanation III to s. 2(h) and s. 3B--Ultra vires Provincial Legislature. HEADNOTE: 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 power on the Provincial Legislature to impose a tax only when there has been a completed sale and not when there is only an agreement to sell. Accordingly section 2(b) 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. JUDGMENT:
CIVIL APPELATE JURISDICTION: 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 delivered 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 quashing
certain assessment orders made against the respondent, and
secondly, a writ of prohibition in respect of certain other
proceedings for
244
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 1948-1949 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 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 Pro-
vincial Legislature derived its power to impose a tax on the
sale of goods under entry 48 in List 11 of the Seventh
Schedule, and the Uttar Pradesh Sales Tax Act, XV of 1948,
was enacted in exercise of this power. Section 2(h) of the
Act defines “sale” as follows :
“Sale” means within its grammatical variations 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 this appeal is
whether the power to impose a tax on the sale of goods under
entry 48 includes a power to impose a tax on forward
contracts.
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 in 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 for a price. It involves
the transfer of the ownership of the thing sold from the
seller to the buyer.”
246
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 I is 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 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 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.”
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 are 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.”
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 conveyance.
Thus, by an agreement to sell a mere jus 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
is 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 in 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 them selves, 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 and well-
established distinction between a sale and an agreement to
sell it would be proper to interpret the expression sale of
goods” in entry 48 in the sense in which it was used in
legislation both in England and India and to hold that it
authorises the imposition of a tax only when there is a
completed sale involving transfer of title.
This conclusion is further strengthened, when regard is hood
to the nature of the levy, Section 3 of the, Act
248
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 proceeds 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 levy should not
be made, unless the stage has been reached when the seller
can recover the price under the contract. It is well-
settled that an action for price is 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 is to sue for damages
for breach of contract and not for the price of the goods.
The law was thus stated in Colley v. Overseas Exporters(1):
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(2). The count was applicable when upon a
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 defendant 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. Bell(3). In my view the law as to the
(1) [1921] 3 K. B. 302 at 309 310,
(2) (1833) 1 Cr, & M. 333.
(3) (1828) 8 B & C. 277,
249
circumstances under which an action will lie for the price
of goods has not been changed by the Sale of Goods Act,
1893.”
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 under 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 “shall 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 which goods are not actually delivered, shall
be taxed at a rate not exceeding rupees two per unit as may
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,
32
250