-A

B

c

D

•

-..

STATE OF ORISSA & OTHERS

v •

THE TITAGHUR PAPER MILLS COMPANY LTD.

&ANR.

March I, 1985

(V.D. TULZAPURKAR, AMARENDRA NATH SEN AND

I • - -

D.P. MADON, JJ.]

Ori.1sa Sale~ Tax Act 1947-Sec!ions 38 and 5 (!)-Scope of-Notifications

levying purchase tax on hainboos agreed to be served and standing trees agreed to

be sevred-Whether ultra vires the Act-Whether create new class of goods no(

known to /aw-U'hether atnount lo tax on itnmovable property-And not on

goods-notifications issued

in supersession of all previous notifications on

the

subject-Whether wipe out all tax liability accruing under previous .notifications.

"Timber" 'and "logs"-Whether mean the same thing.

Ba1nboo contract-Nature of-Whether an ea},·enienl.

E lnterpretation-Natu1·e and 1n1.11i•1g ;Jj .1 docunient-·Whether can be

F

G

detcrn1ined by th.e end·result-Court-1/ co11J,J go inrO policy 1natters.

Constitution

of India-Article

141-Co11/lirti11g views of the Supretnc Court

nn same point-View of larger Bench to be ft/lowed in pr<'ference to view of

smaller Bench.

Scctio:1 3B of the Orissa Sales Tax Act 1947 empowers the State Govern·

ment to declare from time to time any goods or class of goods to be liable to tax

on turnov~r of purchases. The proviso provides that no ta.'!; shall be payable

on the sales ?f such g)Jds or class of g.Jods declared under this section. Section

5(1) prior to its amendrnent by the Orissa Sales Tax (Amendtnent) Ordinance,

1977 provides that the tax payable by a d~aler under the Orissa Act should be

levied on his taxable turnover at such rate not ex:ceeding thirteen percent and

subj~ct to such conditions as the State Government might from time to time by

notific:ttion specify.

On May 23, 1977 the State Government issued two notifications. Notifica·

tion No. SRO 372/77 was made under section 3B amending the earlier notifica·

tion dated April 23, 1976. This notification made standing trees and bamboos

H agreed to be severed Jiabli; to tax on the turnover of purchase with effect from

'

~··

ORISSA v. TITAGHUR .PAPEI!. MILLS 27

June 1, 1977. Notification SRO No. 373/77 issued under the first proviso ... to. A

sec,ion 5(1) of the Orissa Act amende~ with effect fron1.June 1, 1977 the second.

of the two notificatioo.s of April 23, 1976 and direc.ted that. th~ tax payable by,

a dealer under the Orissa Act on account of purchase of bamboos agreed to be,

severed and standing trees agreed to be severed wOuid be at the rate'o~ 10~,-.·

On December 29, 1977 the Orissa Sales Tax (Am~ndm~nt) ()rdlriance,

1977 was promulgated amending the Orissa Act ·with effeCt from Ja,rtuarY, 1978.:

With

effect from the

sar'ne date two notifications SRO .~o-900{77 ,and SRb Nq:.~

901/77 were issued; the first notification which was issued under the provision·s

of section 3B ana in supersession of all previous· notificUtions on 'the subject: -

declared that the goods mentioned in ColumO. (2) ·of th~ sch_edule to the·n.~tifi~

cation were liable to be taxCd on the turnover' of Pu'rchase with ~ffec~ frO~ ~

January 1, 1978. Entries 2 and 17 in the schedule of this notification spc9ified

"bamb:-os agreed to be severed" and "standing trees agreed tO be severed" ,

respectively. Notification No. 901/77 issued under section 5 (1) wls in super­

ses~ion of all previous notifications in that regard. The State GOvcrnm~nt, by

this notification, directed

that with

effect fronl January 1, 19?8 the tax pay'ab!e

by a dealer under the Orissa Act on account of purchase of goods specified in

column (2) of the schedule to the notification would be at the rate sPeciti'ed ·

against it in colu1nn (3) thereof. The rate of purchase tax for bamboos agreed·;

to be severed and standing trees agreed to "be severed was prescribed at 10%.

The Ordinance ~as repealed and replaced by Orissa Sales Tax ·(AmendmeOt)

Act of 1978.

A large: number of writ petitions were filed before the High Cou_rt impugn~

ing the notifica1ions dated May 23, 1977 and December 29, · 1977. One. grotip

of petitioners consisled of those who had entered into agreements with the

State for the felling, cutting, obtaining and re1noving bamboos from forest areas

for the manufacture of paper· (blmboo contracts), and thci other' group -consisted

of those who had entered into agreements for the purchase of 'standiOg trees

(Timber Co'ntracts). -·

The bamboo conlracts were a grant of exclusive right and licence to fell, -

cut and remove bamboos from the forest. Under the terms of auction the

respondent was bound to pay a minimum royalty irrespective of the qUantity of

bamboos cut and removed. The Governor· of the State was ·calICd ·the "grantof~· ! ·.

·of the licence. The bamboo contracts were in respect of different areas for: ·

"periods ranging from 11to14 years with an option to renew the agree'ments for· t

further periods. '

The respondent in-CA No. 219/82 contended before· the High CoUtf that ,

the subject matter of the .Bamboo· contract was not a sale or poi-chase of ioods ·

but was a lease of immovable property or in any event was a creation of an inte·

rest in i-omovable property by Way of-grant profit a jJrendre which amou~tcd to

an cas~ment under the Indian Basements Act 1882 and that for that reason· the

royalty payable under the bamboo contracts could not be made exigib!e·to either·

sales tax or purchase tax and that the impugned provisions Or the n-otfric~tions

were ultra vire-s t-he Act. It was also contended that the bamboo contract was

1

:

•·

c

D

E

F

stiPREJ.IE COuRt REPORT~

(19S5] ~ S.C.k

A

~ works

contract and for this reason also the transaction was not exigible to

sales tax or purchase tax, and since the two notifications of December 29, 1977

were expressed to. be made in supersession of all earlier notifications on the

s~bject, the liability to sales tax under the said notifications of May 23, 1977 was

"'Ped out.

B

In Civil Appeal No. 220/82 the bids of the respondent firm at auctions

Reid by the Government in respect of trees standing in forest areas were accept­

ed aod on confirmation of the ·bids by the competent authority it antered into

aareements with the Government for felling and removing such trees. The

f~5pondent, in turn,, sold the trees felled by it in the form of Jog5 to others. At

th.e relevant time the respondent was successful at five auction sales and on

ratification

or the

bids entered into five separate agreements (timber contracts)

for fellina and removing the trees standing in the forest areas.

D

After the issue of the notifications of May 23, 1977 the respondent filed

a writ petiti'?n in the High Court against the State and the Sales Tax and Forest

Authorities contending

(l) that the levy of purchase

tax on standing timber

agreed to be severed was beyond the legislative competence

of the

Stat~ Legis­

lature and (2) the notifications imposed a tax both at the point of sale and at

the point of purchase and for this reason were invalid and ultra vires the Act.

It. was also contended that timber contracts were works contracts and the

amounts payable under them were

not exigible either to purchase tax or sales tat.

E

G

H

The High Court a11ow~d all the ·writ petitions and quashed the impugned

notifications.

In

appeal to the Supreme Court the State contended that the subject

matter

of the impugned provisions is

"goods" within the n1eaning of the tenn in

the Sale£of Goods Acfaod the Orissa Act, and that what was made exigible to

tax under the impugned provisions notifications, was a completed purchase of

ll<>ods.

HELD : (I) Notification SRO Nos. 372/77 and 373/77 dated May 23,

1977, (2) entries Nos. 2 and 17 in the schedule to notification No. 900/77 and

(3) entries Nos. 2

and 17 in the schedule to notification No.

901/77 dated

December 29,

1971

levying purchase tax at the rate of ten per cent on the pur­

chase

of bamboos

agreed to be severed and standing trees agreed to be severed,

are

not ultra

vires either Entry 54 List II of the Seventh Schedule to the

Constitution

of India or the

Orissa Sales Tax Act 1947 but are constitutional

aml >ah<l. [145D·F]

(a) The Legislative competence to enact the Orissa Act, which was a

pre-constitution enactment, was derived from section 100 (3) of the Government

of India Act, 1935 read with Entry 48 in List II in the Seventh Schedule to that

Act. While Entry

48 spoke of

"taxes on the sale of goods" Entry 54 of List

II of the Seventh Schedule of the Constitution speaks of "taxes on the sale or

'

'

0Ri~SA v. TITAGHUR PAPER MiLLS 29

purchase of goods." The addition of the word "purchase" in Entry 54 permits A

the State Legislature t.o levy a purchase tax and does not confine its taxing

power merely to levying sales.tax. [62F ·;HJ '

(b) A cantena of decisions of this Court had held that the expression

.. sale of goods" had been used in the Goverqment of India Act; 193~ in the

same sense in which it is used in the Sale of Goods Act, 1930 and that it

authorised the imposition of a tax only when there was a completed sale

involving transfer of title to the goods. While construing Entry 54 in List II

of the Seventh Schedule to th,: c0n5titution interpretation was adopted and

any attempt by th~ State Leghlature to give that expression an artificial

meaning or an enlarged meaning or to bring within its scope what would not

be comprehended within that expression would be unconstitutional and

ultra

vires.

[631' ; 64G-H ; 63G)

State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1959] SCR

379; The Sales Tax Officer, Pilibhit v. Messrs Budh Prakash Jai Prakash [1955]

I SCR 243, 247.

Bhopal Sug~r Industries Ltd., M.P. & A11r. 11. D P. Dube, Sales Tax Officer,

Bhopal Region, Bhopal & Anr., AIR 1964 SC 1037; KL. Johar & Co, v. Deputy

Co1nmercial Tax Officer [1965] 2 SCR 112; Joi11t Co1nnierciOl -Tax Officer,

Harbour Div. II Madras v. Young Men's Indian Associall'on (Reg.) Madras &

Anr. [1970] 3 SCR 680; State of Maharashtra .& Anr. v. Champa/al Kishanlal

Mohta

[1971) 1

SCR 46, followed.

(c) Although a State is free to impose a tax at one or more points in a

series

of sales or purchases in respect of the same goods, the Orissa

Act has adopted a single point

levy by enacting the proviso' to section

3 B under which no tax

is payable on the sale of goods or class of

goods declared -under that section to be liable to tax on the turnover

o( purchases. The proviso to section 8 states that "the same goods

shall not be taxed

at more than one point in the same series of sales

or

, purchases by successive dealers." Therefore, where in a series of

sales or purchases tax

is levied at a particular point neither sales tax

nor purchase

tax_ can be levied at !!Ilother point in th;same series. (65C-EJ.

(d) Since any attempt on the part of the State to impose by legislation

tax on sales or purchases in respect of what would not

be

"sale" or a

"sale of goods" under the Sale of Goods Act, 1930 is unconstitutional,

any attempt

by it to do so in. the exercise of its power of making

subordinate legislation, would be equally unconstitutional. Similarly,

where any rule

or notification travels beyond the ambit of the parent

Act,

it would be ultra vires the Act. Equally, sales tax authorities

purporting to act under the Act or under any rule made or notifica.

tion issued thereunder cannot travel beyond the scope

of such Act,

rule or

notification." Thus, the sales 'ta11: authoritie~ under the Orissa Act cannot assess·

to sales tax or purchase tax, a transaction which is not a sale or purchase of

B

c

D

E

F

G

H

B

c

D

E

F

G

u-

SUPREME COURT RE~PORTS [1985] :i s.c.R.

goods or assess to sales tax any goods or class of goods which are liable to

purchase tax

or

a~sess to tax, whether sales tax or purchase tax, goods at

another point in the same series o.f sales or purchases of those goods by

successive dealers who are liable to be taxed

at a different point in that series.

[65G-H; 56A-C]

(2)

Thfre is no substance in the argun1ent of the respondent that by the

impugned provisions a new class

of goods, not known to law, had been created.

The definition

of the expression

"goods"' in both the Sale of Goods Act and the

Orissa Act which is almost in identical terms, includes "things attached to or

forming part of the land which are agreed to be severed before sale or under the

contract of sale." [66E ; G-H]

(a) An examination of the definitions of movable property and inunov~

able property given in the General Clauses Act, Registration Act and Transfer

of Property Act, show that things attached to the earth are "immovable

property." The term "attached to earth" means "rooted in the earth as in the

case of trees and shrubs." Thus, while tre::s rooted in the earth arc irnmovable

property as being things attached to the earth,by reason of the definition of the

term "imovable property" in variolls statutes namely-the General Clauses Act

and the Orissa General Clau.;;cs Act and the RegistratiJn Act read with

the definition

of the expression

"attached to the earth" given in the

Transfer

of Property Act, standing timber is ''movable

property" by

reason

of its

exclusion from the definition of "immovable property" in

the Transfer of Property Act and the Registration Act and by being expressly

included within the meaning of th~ tern1 "movable property" given in the

Registration Act. [67E ; 68F ; 68G-H ; 69A]

(b)

Theiterm

"standing timber .. · ha'i been judicially recognised as "a

tr(.!e which h in a state fit for the purposes of being used as wood for

buildings, houses, bridges, windows, "whether on the tree or cut and seasoned'',

thal is, a tre~ m~ant to be converted into timber so shortly that it could already

be looked upon as timber for all practical purposes even though it is still stand·

ing. Thus, trees which are ready to

be

felled would be standing timber and

therefore "movable property." While trees"(including bamboos) rooted in the

earth being things attached to the earth are immovable property and

if they are "standing timber", are 1novable property, trees (including bamboos}

rooted in the earth which are -agreed to be severed before sale or under the

contract

of

sale are not only movable property but also goods. [o9D-E ; 70B·C]

Smt. Shantabal ·v. State of Bombay & Ors. [1959] SCR, 265, 275-6,

followed.

(c) The distinction which existed in English Jaw between /ructus naturales

(natural growth of soil regarded as part of the soil until severance) and fructus

industriales

(which are

chattels considered as representing the Jabour and

expense

of the occupier and thing independent of the land) does not exist in

.Indian law. In a case of

this nature the only question that falls for conside·

ration in Indian law is whether a transaction relates to "goods" or "movable

1)

_-{

ORISSA V. TITACHUR PAPER MILLS 31

PL'Operty". If it is sa1e of immovable property, a document of the kind A

specified in section 17 of the Registration Act is required_ to be compulsorily

registered but a document relating to sale

of goods or of movable property is

not required to be registered. Secondly under Entry 54 of List II of the Seventh

Schedule the

State cannot levy a tax on the sale or purchase of any property

other than goods. [71C-D]

3. The respondent's contention that the impugned provisions levied a

purcha~e tax on immovable property and not on goods and that the State

Government has t'ravelle_d beyond its taxing power has no merit. [71F]

(a) The High Court erred in holding that the impugned provisions

amounted to levying a tax on an agreement to sell and not on actual sale or

purchase, th1t staading tr~es being unascerrained goods continued to be the

property

of the State Government until felled and therefore the title to such tree~ or b1mboo3 is transferred in favour of the Forest Contractor only when

the trees

or bamboos were felled and severed in accordance with the terms of

the contract. There is a fallacy in the reasoning of the High Court in that the tligh Court read merely th:! descriptio1 of th(! goo.ds given in the impugned

provision~ by itself and n1t in conjunction with their governing words.

[71G·H ; 72A-B]

(b) Tax levied under section 3B is not on goods declared under that

section but on the turnover of purchases of such .goods. A reading of the

notification, issued under sections

38.and 5(1)

~s a whole makes it clear that

the taxable ev.!nt is not an agreement to sever standing trees or bamboos but

the purchase

of bamboos or standing trees agreed to be severed. [72C-DJ

(c) The use of the terms

"agreed" in-the description of goods showed

that there mnst be an agreement between the buyer and the seller and under

this agreement standing trees as also bamboos mu5t be agreed to be severed.

According to the definition

of

·'goods" such severance may be either before sale

or under the contract of sale, The Sale of Goods Act makes a distinction

between sale and agreement to sell and provides that where there is a transfer

from the buyer to the seller

of property in

the goods which nre the ·subject

matter

of the agreement to sell, the contract of

sale is a sale' but when the

transfer

of property in the goods is to take

place at a future time or subject to

some condition thereafter to

be

fulfilled it is an agreement to sell which becomes

a sale when the time elapses

or such conditions are

fulfiled. In the first case the

coptract is "executed contract" while in the second it is "executory."

[72E ; 7JC-DJ-

B

c

D

E

F

(d) A conspectus of the relevant sections o, the Sale of Goods Act shows

that a purchase would be con:iplete when the goods (in the case standing trees

or bamboos) are specific goods. If these factors exist, then unless a different

intention appears either from the terms

of the contract or can be inferred from

the conduct

of the parties and other circumstances of

ihe case, the property in

such goods would pa<;s from the seller to the buyer when the contract is made

an<.l it is immaterial whether the time of payment of the price or the time of ff

A

B

c

D

E

E

G

. ff

32 SUPREME COURT REPORTS [1985] 3 S.C.R.

taking their delivery (of standing trees agreed to be severed or bamboos agreed

to be severed or both)

is postponed. If, however, there is an unconditional

contract for the

sale of unascertained goods then unless a different intention

appear!, the property in them would be transferred to the buyer when the goods

are ascertained and

it would be

immaterial whether the time of payment of the

price

or the time of taking delivery of standing trees agreed to be severed or

bamboos agreed to be severed or both is postponed. In either

event,·the sale

and purchase would be completed before severance. Therefore for the impugned

provisions to apply the severance of the standing trees or bamboos must not

be before

sale but under the contract of sale, that

is, after the sale _thereof is

completed. The absence in the impugned provisions of the words "be_fore sale

or under the contract of sale" thus made no di~erence. The subject matter of

the impugned provisions was ·goods and the -tax levied thereunder was on the

completed 'purchase of goods. 76F-H ; 77 A-CJ

4. The High Court has confused the question of interpretation of the

impugned provisions with the interpretation

of Timber Contracts and Bamboo

Contracts. The question

of the validity of the impugned provisions had nothing

to do with

the legality of any action taken thereunder to make exigible to

tax a

particular transaction. If a notification

is

invalid, all action taken under it

would

be invalid also. Where on the other hand, a notification is valid, an

action purported to

be taken

thereunaer contrary to the terms of that notifica~

tion would be bad in law without affecting in any manner the validity of the

notification. Were the interpretation placed by the High Court on the Bamboo

contracts and the Timber Contracts correct, the transactions covered bY them

would not

be liable to be

ta,.ed under the impugned provisions and any attempt

or action

by the

State to do so w )uld be illegal but the validity of the impugned

provisions would not

be affected thereby. There is no merit in the challenge

to the validity

of the impugned provisions on the ground of their unconstitu·

tiona!ity. [77D ;

F-H ; 78A)

5, (a) The High Court also erred in its view that bamboos and trees

agreed

to be severed were the same as bamboos and timber after

they were

felled and that since bamboos and trees were liable to tax at the sale point,

taxation of the same goods at the purchase point amounted to double taxation

a~d that this was contrary to the provisions of the Orisaa Act. [78CJ

(b) Not only does the Orissa Act· expressly forbid double taxation but

it aJ<;o forbids the levying of tax at more than one point in the same series of

sales or purchases by successive dealers. This is evident from the provisos to

tions

3B and 8.

Under the proviso to section 3B no tax is payable sales

s~c oods or class of goods declared under that section to be liable to tax on

~egturnover of purchases. Under the proviso to section 8 the same goods are

not to

be taxed at more than one point in

the same series of sales or purchases

by successive dealers. [78E~F]

(c) The two notifications of De~ember 29, 1977 were issued as a result

of the Orissa Sales Tax (Amendment) Ordinance 1977 which later became lbe

··~

'

ORJSSA v. TITAGHUR PAPER MiLLS 33

Orissa Sales Tax (~mendment) Act, 1978, while the two notifications of A"

May 23, 1977 were issued prior to the amendment. [79A]

(d) Prior to January I, 1978 under section 5(1) tax was payable by a

dealer on his taxable turnover o"f sales as also purchases at a certain fixed per­

centage. This rate applied both to sales tax and purchase tax. But the pur·

chase tax was payable only on the turnover of purchases of goods declared·

under section 38. In respect of goods not so declared a dealer was liable to

pay only sales tax. Under the proviso to this section, if goods were declared to

be liable to purchase tax, no tax was payable on sales of such goods. Under

section

5(1) the State Government was required to issue a notification

only

when it wanted to fix a rate of tax hia:her or lower than that specified in this·

section. If no .such notification.was is'3ued then the tax payable, be it sales tax

or purchase tax. was to be at the rate mentioned in section S(l). Wher~. how·

ever, any goods were declared under section 3B to be liable to tax-on the

turnover

of purchases, the notification prescribing a higher or lower rate of

sales tax issued under the first proviso to section 5(1) would thereupon

·ceases to

be observative

by reason of the operation of the proviso to section 3B and it

was not necessary to repeal expressly

that notification. It was also not necessary

for the

State Government to issue a notification fixing the rate of purchase tax

unless

it wanted to fix a rate higher or Jower than that specified in section 5(.1).

Where no such

notific1tion was issued, the rate of purchase tax would be the

on.e which was mentioned in section 5(1). [79C-H]

(e) After January 1, 1978 no rate of tax was specified in the Orissa Act.

Under section 5(1) the State Government is given powef to notify from time to

time the rate

of tax-sales tax or purchase tax by issuing notifications. The

notification dated December

29, 1977 issued under section 5(1) does not contain

any entry

in respect of

ba1nboos or timber or in respect of bamboos agreed to

be severed or standing trees agreed to be severed. If they were liable to sales

-tax, they would fall under the residuary entry

No.

101 and b~ liable to sales tax

at the rate of Seven percent. If any goods feeling under the residuary entry or

any Other entry in that notification are declared under section 3B to be liable to

tax on the turnover of purchases, the residuary entry Or that particular entry

would automatically cease

to operate in respect of those goods by reason of the

proviso to section

3B without there being aoy necessity to delete

that particular

entry or to amend the residuary entry by excluding those goods thereform. It

would be necessary for the State Government to issue a notification sPecifying

the ra"te of purchase tax on those goods because unlike what the position was

prior to January 1, 1978, on and after that date toe new sub~section 5(1) does

not specify any rate

of tax but leaves it to the

State Government to notify it

from time to time. The High Court was in error in holding

that the impugned

provisions were

ultra vires the

Orissa Act as they amounted to "double

taxation." [80A-E]

6. (a) There was

rro substance in the contention that the two notifications

of December

29, 1977 having been made in supcrsession of all previous notific­

ations issued

on the subject their effect was to wipe out all tax liability which fJCcrued under the earlier notifications of May 23, 1977. (800-HJ

B

c

D

E

F

G

H

A

B

c

D

E

F

34

SUPREME COURT REPORTS [1985] 3 S.C.R.

(b) The word "supersession" in the notifications of December. 29, 1977

was used in the same sense as the words "repeal a!ld raplacement" and, there­

fore, d_oes not have the effect of wiping out the tax liability under the previous

notifications. AU that was done by using the words "in supersession of all

previous notifications" in the Notifications of December 29, 1977, was to repeal

and replace the· previous notifications and not to. wipe out any liability incurred

under the previous notifications. [146C-D]

(c) Both sections 3B and 5(1) in

express terms conferred power upon the

State Government to issue notificaiions from time to time. . Under these provi­

sions the State Government can issue a notification and repeal and replace it

by another not.ification. [SIC]

(d) The issuance of the notifications became necessary by reason of the

change brought'about

in the scheme of taxation in 1977. With effect from Jtinuary 1. 1978 unless a notification was issued specifying the rate of tax no

dealer would be liable to pay any tax under the O~issa Act. Under the amen,ded

section if the. State Government wanted to tax any goods or class of goods at a

higher or lower rate it issued notifications specifications specifying such rate.

Since no rate of tax was specified in the new section but was left to the State

Government to fix it, it was necessary to issue a notification .consolidating all

previous notifications on the subject in respect

of

goods liable to purchase tax

which the State Government did. [82E; 83A ; C; DJ

7. (a) Timber contracts were not works contracts but were agreements to

sell standing timber. [146D]

(b) Timber contracts were not transsactions of sale or purchase of stanO·

ing trees agreed to be severed. They were mc1ely agreements to sell such trees.

The property

in the trees passed to the respondent firm only in the trees which

were

felled, that is, in timber, after all the conditions of the contract had been

complied with and after such timber was exa1nined and checl-.ed and removed

from the contract area. The impugned provisions, therefore, did not apply to

the transactions covered

by the Timber Contracts. [98

A-B]

(c) A conspectus of the terms of the Sale Notice, the Special Condilions

of Contract, the General Conditions of Contracr and the various statuto1 y

provisions shows that the heading "sale notice of timber" as also the use of

the words "timber and other forest products will be sold by public auction"

are not determinative of the matter. The other terms and conditions of the

contract make it clear that the Timber Contracts were not unconditional con·

G tracts for the sale of goods in a deliverable state and the property in the trees

specified in Schedule I of the Contract did not pas<; to the respondent firm when

each

of the contracts was made. The signing of the Timber Contracts did not

result in a concluded contract

because: each contract was conditiona·I upon the

State Government ratifying the acceptance of the bid, the ratification order did

not

becon1e an unconditional contract for the

sale of specific goods in a deliver~

able state for the respondent firm had no right to sever the trees and take them

H away before complying with the other conditions of the contract, namely, furni·

~··.

ORISSA V. TITAGHUR PAPER MiLLS 35

shing a Coupe Declaration Certificate within the prescribed time, registering the A

property mark or trade mark, making the security deposit and so on. Tois

apart, the respondent firm was not at liberty to fell trees of his choice nor was

he entitled to remove the felled trees

by any route which it liked but only by

specified routes.

[95F-H; 96B-C; 97A-B]

(d) Although under rule

40 of the Orissa Forest Contract Rules 1966,

Rules stipulates that the respondent, fi~m was not entitled to any compensation

for loss ~ustained by reason of fire, tempe!lt, disease, natural calamity or any

wrongful act

of a third party this

·only showed that after a Timber Contract

was concluded the risk passed to the respondent firm. Under 1ection 26 of the

.Sale of Goods Act when the property is transferred to the buyer, the goods are

nt the buyer's risk whether delivery had been made

or

~not; but this section is

qualified

by the phrase

uunless otherwise agreed." The limber Contr&cts in

this case were subject to contract to the contrary. This is made clear

by rule

44 which states that

"al! forest produce removed from a contract area in

accordance with these rules shall be at the absolute disposal

of

the forest

contractor." [97E-H]

8. (a) On the question whether the words ~'timber" and "logs"

mean the samething in commercial ipartance the no material had been

produced by the partie!. Where a term has not been statutorily defined or

judicially interpreted and there is insufficient material on record as to the mean­

ing

of the words

1 the Court must seek to ascertain

its meaning in common

par la ·1ce with such aid as is available to it. the court may take the aid of

dictionaries In such cases to ascertain its meaning in common parlance. In

doing so, the Court must bear in mind that a word is used in different senses

according to its context and a dictionary gives. all the meanings

of a word and

the Court would have to select the particular meaning which would

be relevant

to the

dontext in which it has to interpret that word. [104E; lOSB~C; 146G~HJ

'

(b) The Orissa Act does not define the term ''timber" or "Jogs.'' The

statutory definition

of

"timber" given in the Orissa Forest Act, 1972 is that

timber includes "trees fallen or felled and all wood cut up or sawn." T.he

Madras Forest Act, 1882 and the Indian Forest Act 1927,the two Acts in force

in the State

of

Orissa prior to the enactment of the Orissa Forest Act, 1972

too have not given any exhaustive definition of the term ''timber." But what is

apparent from these definilioni is that the word "timber" is not confined merely

to felled trees in the forests. In subsequent Act like the Orissa Forest Produce

(Control

of Trade) Act, 1981 the concept that timber is not merely felled

trees

has been emphasised. Therefore 1 a conspectus of the meanings given to the term

"timber" in statutes, different dictionaries and as judicially interpreted by this

Court as well as by some High Courts shows that it means "building material,

generally wood, used for building

of houses, ships etc. and the word is applied

to wood

of growing trees capable of being used for structural purposes. Hence,

collectively

to the tre,es

themselves." A log according to the dictionaries means a

bulky mass

of wood now usually an unhewn portion of a felled tree or a length cut off for firewood. These lo¥s will be nothing more than wood cut up or

B

c

D

E

F

G

ff

A

B

c

D

.

E

F

G

H

36 SUPREME COURT REPORTS (1985] 3 s.C.R·

sawn and would be timber. Similarly, a beam is timber sawn in a particular

way. So too ratters would be timber logs put to a particular use. In ordinary

parlaiice a plauk would be flattened and smoothed timber.

[105C; F; l06C; 107A-D; Fl

Mohanlal Vishram v. Commissioner of Sales Tax, Madhya Pradesh,

Indore [1969] 24 STC JO] ; G. Ramaswamy and others v. The State of Andhra

Pradesh and others [1973] 32 STC 309, approved and

Krupasindhu

Sahu &

Sons v. State of Orissa [1975] 35 STC 270,

overruled.

9. (a) Sales of dressed or sized logs having been assessed to sales tax, sales

to .the respondent Firm of timber by the State Government fro,11 which logs were

made by the respondent firm cannot be made liable to sales tax as it would

amount to levying tax at two points in the same series of sales by successive

dealers, assuming

that the retrospectively substituted definition of

"dealer" in

clause (c)

of section 2

of the Orissa Sales Tax Act, 1947 is valid. [147B-C]

(b) Sales of logs by the respondent firm during "the period June 1, 1977

and December 31. 1977 would be liable to tax at the rate of ten percent. Assum­

ing that the sales had been assessed to tax at the rate of six percent as contended

by reason

of the period of limitation prescribed by section 12(8) of the Orissa

Act, the

respOndent-firms assessment for the relevant period cannot be re-opened

to reassess such sales

at ten per cent.

[1470-E]

JO. (a) The Bamboo Contract is not a lease of the contract area to the

respondent company in CA

219/82. Nor is it a grant of an easement to the

respondent

Company, as it was not a grant of any right for the beneficial equip­

ment of any Of the respondent company. In ·addition to the right of entry there

are other important rights flowing from the contract.

It is a grant of a profit

a prendre

which in Indjan law is a benefit to arise out of land and thus creates

an interest

is immovable property. A profit a prendre is a benefit arising out of

land and in view of section 3(26) of the General

Clauses Act, it is "immovable

property" within. the meaning of the Transfer of Property Act. [147F-H]

(b) T.here are countervailing factors which go to show that a Bamboo

contract

is hot a contract of sale of goods. It is a grant of exclusive right and

licence

to

fell, cut, obtain and remove ban1boos. The person giving the grant

the Governor

of the

State, is referred to as "granter"; the consideration payable

is "royalty" which is not a term used in legal parlance for the price of goods

sold.

It is not an agreement to sell bamboos standing in

th~: contract area with

the accessary licence

to enter upon such

area for the purpose of felling and

removing bamboos

nor is it for a particular felling se.ason

only. It is an agree­

ment for a period ranging from fourteen, thirteen and eleven years with the

option

to renew the contract for further terms of

twelves years. The payment

of royalty has no relation to the actual quantity of bamboos cut and removed,

The respondent company was bound to pay a minimum royalty and the royalty

paid was always-in excess of the royalty due on the bamboos cut in the contract

areas. The Bamboo contract conferred

uron the respondent-company a

j

1---

"'

-->-.::-

·-

"

.....

ORiSSA v. TITAGHUR PAPER MiLLS

. benefit to arise out of land, na~ely, the right to cut and remove bamboos whiCh

would grow from the soil coupled with several ancillary rights and Was. thus a

grant

of a profit a prendre. Being a profit a prendre or a benefit

to· arise out

of land any attempt on the part of the State Government to tax the amounts

payable under the Bamboo Contract would not ~nly be ultra vires the Orissa Act

but also unconstitutional as being beyond the State's taxio~ power under Entry

54 in List II in the Seventh Schedule to the Constitution of.India.

[119C; E; 120B-D; 121<;)-H]

11. The decision of Firm Chhotabhai Jethahhai Patel & Co. v. The State

of Madhya Pradesh [1963] SCR 476 on which the appellant relied is not good

law and hlls been overruled by decisions of larger Benches of this Court. (State

of Madhya Pradesh v. Yakinuddin [1963] 3 SCR 13) [148Al

Mis Mohan/al flargovind of Jubbulpore v. CommiS.rioner pf Income Tqx

C.P. & Berar Nagpur L.R. [1949] 76 !,A. 235; !LR 1949 Nagpur 892; AIR

1449 PC 311 · Ananda Behra and another v. The ~State of Orissa and another

[1955] 2 SCR• 919 and Smt. Shantabai v. State of Bombay, & Orissa [1959] SCR

265, 275-6 referred to; and

c

' i

Board of Revenue Etc. v. A.M. Ansari Etc.[1916] 3 SCR 661, held D

inapplicable.

12. (a) The case of State of M.P. v. Orient Paper Mills Ltd. [1977] 2

SCR 1219 on which the appellant relied is not good 1aw as that decision was

given

per incurium and had laid down principles of

interpretatiOn Which arc

wrong in law. The basic and salient features

of the agreement before the Court

in

Orient Paper Mills' Case were the same as in the case of Mahadeo v. State

of Bonibay and the Court was not justified in not adverting to that case arid the

other cases referred to on the ground that these cases dealt with the general Jaw

of real property. [142 H ; 143A] ·

(b} The enunciation of law made by the Court in·the Orient· Paper Mills

case that a document should be so construed as t0 bring it within the ambit of

a particular statute relevant for the purpose of the dispute before the court and

that in order to do so, the Court could ]ook at only such of the ·clius'es of the

do, ument as also to just one or more ~of the consequences flowing from he

document

which would fit in with the interpretation which the court

want"d

to.put on the document to make that. stalute applicable, is fraught with. consider­

able danger and mischief as it may expose documents to the personal .Prcdilic ..

tions and philosophies of individual judges depending upon wheiher aCco~ciin'g

to them it would be desirable that documents of the type.they have to construe

should be ma, e subject to a particular statute or not. [t39E-G]. . ,

. .. J /

(c) Secondly, in observing that the St.:>te Government, for reasons best

known to

it had

"left the exploitation of the forest resources ·in part to the

private sector" the court h d overlooked that it wa; a matter of policy for the

State to decide whether such tran~actions should be entered ·into or not, whether

the transactio11s entered iiltO by th'! State was for the industrial developmen'f-df

E

·-

F

•

G

A

B

c

D

E

F

G

. suPl!.BMB "ciouu REPORTS [1985] 3 s.c.tl. .

the State' and whether the transaction ensured employment for the people of the

area and so on.

(d) Thirdly, the n ture and meaning of a document cannot be deter­

mined by its end-result or one of the consequences which flow from it. In look­

in merely at the end-result of the agreem:~nt the court overlooked a firmly esta­

blished principle that both the agreement and the sale must relate to the same

subject matter and therefore, there cannot

be an agreement relating to one

kind of property and a sale

as r<gards another. [141C-D]

(e) .In coming to the conclusion that the term ''royalty" used in the

document before it was merely a '·feudalistic cuphimism" for the ''price of

timber", the court ov rlooked the fact that the amount of royalty payable by

the respondent was consideration for all the rights conferred upon it under the

contract though it waS to be calculated according to the quantity of bamboos

felled. [141H ; 142AJ

13. Where there are two or more conflicting views of this court on the

sa1ne point the proper course for the High Court or even for s1naller Benches of

this court is to find out and follow the views expressed by larger Beaches of this

court in preference to those expressed by smaller benches. This practice has

crystallise.d into a rule of law declared by this Court. [142E .. F]

U.O.I. v. K.S. Subramanian [1977] I SCR 87, 92, followed.

14. A works contract is a compendious term to describe conveniently a

contract for the performance

of work or services in which the supply of

mate­

rials or some other goods is incidenlal. lo the instant case, the timber Contracts

being agreements relating to .movable ;property and the Bamboos Contracts

being a grant

of an interest in immovable property, cannot be

works contracts.

The payee

of the

price, namely, the Government bas not undertaken to do any

\VOrk or labour. It was the contractor who had to enter upon the land to fell

the trees and remove them. So is the case of Bamboo Contracts.

[144H ; 145A]

Con1n1issio11er of Sa/el Tax, M.P. v. Purshotta1n Preniji [1970] 26 STC 38,

41 S.C., referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 219-

220

of 1982.

From the Judgment and

Order datedJl9.9.1979 of the High

Court of Orissa in D.J C. Nos. 811 & 1048/77.

Anil B. Divan and R. K. Mehta for the Appellants.

S.,T. Desai, S.R. Banerjee and Vinoo. Bhagat, B.R. Aggarwal,

II Miss Vijaylakshmi Menon Vinod Bob de for the Respondents.

' )

-~

'

6RiSSA v. TiTAGHUR PAPER MILLS (Madon, J.) :\9

Th·e Judgment of the Court was delivered by A

MADON J. These two Appeals by Special Leave g.ranted

by this Court are against the judgment and order of the Orissa

High Court allowing 209 writ petitions under Article 226 of the

Constitution

of India filed before it. B

Genesis of the 'Appeals.

On May 23, 1977, the Government of Orissa in the Finance

Department issued

two Notifications under the Orissa

Sales Tax Act

1947 (Orissa Act XIV.of 1947). We will hereinafter for the sake

of brevity refer to this Act

as

"the Orissa Act". These Notifications •

were Notification S.R.O. 372/77 and Notification S.R, 0 No. 373/

77. Notification S.R.O. No. 372/77 was made in exercise of the

powres conferred

by section .3-B of the Orissa Act and Notification S.R.O. No. 373/77 was made in exercise of the powers conferred by

the first proviso to sub-section (I) of section 5 of the Orissa Act. We

will refer to these Notifications in detail in the course of this judg­

ment but for the present suffice it to say that notification S.R.O. No.

372/77 amended notification

no. 20209-CTA-J 4/76-F dated April 23,

1976, and made bamboos agreed to be severed and standing trees

agreed to be severed liable to tax on the turnover

of purchase with

effect from June I,

1977, while Noification

S.R.O. No 373/77 amen­

ded with effect from June l, 1977, Notification :itii. 20212-CTA

-14/76-F dated April 23, 1979, and directed that the tax pa}­

able by a dealer under the Orissa Act on account of the purchase of

bamboos agreed to be severed and standing trees agreed to~be severed

would be at the rate of teu per cent. After the promulgation on

December

29, 1977, of the Orissa

Sales Tax (Amendment) Ordinance

1977 (Orissa Ordinance No, 10 of 1977 ), which amended the Orissa

Act, two other notifications were Issued on December 29, 1977,

by the Government of Orissa in the'Finance Department, ·namely

Notification No. 67178-C.T.A. l 35/77 (Pt.) F(S.R.O. No 900/77) and

Notification No. 67181-C.T.A. 135/77-F (S.R.O. No. 901/77). The

first Notification

was expressed to be made in exercise of the

pqwers

conferred by section 3-B of the Orissa Act and in supersession of

all previous notifications issued on that subject. By the said notifi­

cation the State Governmer,t declared that the goods set out in the

Schedule to the saicj Notification were liable to be taxed on the turn­

over of purchase with effect from January L 1978. Entries Nos. 2

c

E

F

G

H

A

B

0

D

E

F

G

-H

SU~REMll COURT REPORTS [1985] 3 s.c.a.

and 17 in the Schedule to the said Notification specified bomboos

agreed to

be severed and standing trees agreed to be severed

respec­

tively. The second Notifcation was expressed to be made in exercise

of the powers conferred by sub-section (I) of section 5 of the Orissa

Act and in supersession of all previous notifications in that regard.

By the said notification the State Government directed that with

effect from January

1, 1978, the tax payable by a dealer under the Orissa Act on account of the purchase of goods specified in

column (2)

of the Schedule to the said Notification would be at the

rate specified against it in column (3) thereof. In the said

Schedule the rate

of purchase tax for bamboos agreed to be severed

and standing trees agreed

to be severed was

Prescribed as ten per

cent. The relevant entries in the Schedule in that behalf are Ent­

ries Nos. 2 and 17. The Orissa Tax (Amendment) Ordinance,

1977, was repealed and placed by the Orissa Sale's Tax (Amend­

me·nt) Act, 1978 (Orissa Act No. 4 of 1978).

As many as 209 writ petitions under Article 226 of the Consti­

tution of India were filed in the High court of Orissa challenging

the validity

of the aforesaid two Notifications dated May 23, 1977,

and the said Entries Nos. 9 and

17 in each of the said two

notifica­

tions dated December 29, 1977 (hereinafter colleclively referred to

as "the impugned provisions"). The petitioners before the High

Court fell into two categories. The first category consisted

of those

·who has

entere! into agreements with the State of Orissa for the pur­

pose of felling, cutting obtaining and removing bamboos from forest

areas "for the purpose of converting the bamboo into paper pulp

or for purposes connected with the manufacture of paper or in any

conneetion incidental therewith". This agreement will be hereinafter

referred to as "the Bamboo Contract". The other group consisted

of those who had entered into agreements for the purchase of stand­

ing trees. We will hereinafter refer to this agreement as "The

Timber Contract". All the Bamboo Contracts before the High

Court were in the same terms except with respect to the contract

area, the period

of the agreement and the amount of royalty

paya­

ble; and the same was the case with the Timber contracts. By a

common judgment delivered on September

19, 1979, reported as

The Titaghur

Paper Mills Company Ltd. and another v. Stale oj

Orissa and other (and other cases)

1

,

the High Court allowed all the

(!)

(1980) 45 S.T.C. 170.

J

ORiSSA v. TITAGHUR PAPER MiLLS (Madon, I.) 4i

said writ petitions and qauashed the impugned provisions. The A

High Court made no order as to the costs

of these petitions.

Each

of the present two Appeals has been filed by the State of

Orissa, the Commissioner of Sales Tax Orissa, and the Sales Tax

Olli·

cer concerned in the matter, challenging the correctnesslof the said

judgment

of the High Court. The Respondents in Civil Appeal No.

219 of 1982 are the Titaghur Paper Mills Company Limited (herein­

after referred to

as 'the Respondent

Company") and one Kanak

Ghose, a shareholder and director

of the Respondent Company. The

Respondents in Civil Appeal No.

220 of 1982 are Maogalji Mulji

Khara, a partner

of the firm of Messrs M.M. Khara, and the said

firm. The Chief Conservator of Forests, Orissa, the Divsional Forest

Officer, Rairkhol Division. and the Divisional Forest Officer, Deo­

garh Division have also been

joined as pro Jonna Respondents to

the said Appeal.

Facts of C. A. No. 219 of 1985

The Resspondent Company is a public limited company. Its

registered office

is situated at Calcutta in the state of

West Bengal.

The Respondent Company carries on

inter alia the business of

manufacturing paper. For this purpose it owned at the relevant

B

c

D

time three paper

mills-one at Titaghur in the State of

West Bengal, E

the second

at Kankinara

also· in the State of west Bengal and

the third at P. O. Choudwar, Cuttack District, in the State of

Orissa. For the purpose of obtaining raw materials for its business

of manufacturing paper, the Respondent Company entered into a

Bamboo Contract dated January 20, 1974, with the State of Orissa.

This agreement

was effective for a period of fourteen years from F

Octber

1, 1966, in respect of Bonai Main Areas of Bonai Division;

for a period

of thirteen years of with effect from October 1, 1967,

in respect

of Kusumdih P. S. of Bonai Division; and for a period of

eleven years with effect from October 1, 1969, in respect of Gurun-

dia Rusinath P.

S. of Bonai Division, with

an option to the Respon·

dent Company to renew the agreement for a further period of G

twelve years from October

l,

1980. For the present it is not neces-

sary to refer to the other terms and conditions

of this Bamboo

Contract.

After the said two Notification dated May

23,

1977, were

issued, the Sales Tax Officer, Dhenkanal Circle, Angul, Ward A ''ff

(the Third Appellant in Civil Appeal No. 219 of 1982) issused to

A

B

c

D

E

F

G

H

42 SUPREME COURT REPORTS (1985] ~ s.c.k.

the manager of the Respondent Company's mill at P. O. Choudwar

a notice dated August 18,

1977, under Rules 22 and 28(2) of the

Orissa

Sales Tax Rules, 1947, stating that though the Respondent

Company's gross turnover during the year immediately preceding

June

1, 1977, had exceeded

Rs.25,000; it had without sufficient cause

failed

to apply for

registration as a dealer under section 9 of the

Orissa Act and calling upon him to submit within one month a

return in Form IV of the forms appended to the said Rules, show­

ing the particulars of "turnover for the quarter ending 76-77 &

6/77". By the said notice the said manager was required to attend

in person or

by agent at the

Sales Tax Office at Angul on October

30, 1977, and to produce or cause to be produced the accounts and

documents specified in the said notice and to show cause

why in

addition to the amount of tax that might be assessed a

pcn:ilty not

exceeding one and half times that amount should not

be imposed

under section 12(5)

of

the Orissa Act that is, for carrying on busi­

ness without being registered as a dealer. By its letter dated August

25, 1977, the Respondent Company asked for time to seek legal

advice. Thereafter

by its letter dated

September 27, 1977 addressed

to the said Sales Tax Officer, the Respondent Company contended

that the said notice

was invalid and called upon him to cancel the

said notice. A copy of the said letter

was also sent to the Co

mis­

sion er of Sales Tax, Orissa, who is Second Appellant in Civil Appeal

No.

219 of 1982 as also to the Chief Secretary to the Government

of the

State of Orissa. As no reply was received to the said letter,

the Respondent company and the said Kanak Ghosh filed writ

petition in the High Court

of Orissa, being

O.J .C No. 811 of 1977,

challenging the validity

of the said two Notifications dated May 23,

1977, and the said notice. While the said writ petition was part-heard.

the said two Notifications were replaced

by the said two Notifications

dated December

29, 1977. Accordingly, the Respondent Company

applied for amendment

of the said writ petition. It also filed along

with Kanak Ghosh another writ petition, being O.J.C. No.

740 of.

1978, challenging the validity not only of the said two Notifications

dated May 23, 1977, but also

of Entries Nos. 2 and 17 of the said

two Notifications dated December 29, 1977, and the said notice

dated August

18 1977, on the same grounds as those in the earlier

writ petition.

The principal contentions raised in the said writ petitions were

that the subject-matter

of the Bamboo Contract was not a sale or

ORiSSA-v. TiTAGllUR PAPER MiLLS (Madon, j,) 43

purchase of goods but was lease of immovable property or in any event

was the creation

of an interest in immovable property by way of grant

of

profit a prendre which according to the Respondent Company

amounted in Indian law

to an easement under the Indian Easements

Act,

1882 (Act

V of 1882), and that for the said reason the amounts

of royalty payable under the Bamboo Contract could not be made

exigible to either sales tax or purchase tax in the exercise

of the

legislative competence of the

State, and, therefore, the impugned

provisions were unc0nstitutional and

ultra

vires the Orissa Act. It

was further contended that the Bamboo Contract was a works

contract and for the said reason also the transaction covered

by it

was not exigible to sales tax or purchase tax.

It was also contended

that as the said Notifications dated December 29, 1977, were

expressed to be made in supersession

of all earlier notifications on

the subject, the liability, if any, under the said Notifications dated

May 23,

1977, was wiped out. The said writ petitions prayed for

quashing thejimpugned provisions and for writ

of mandamus against

the respondents to

ihe said petitions, namely, the State of Orissa,

the Commissioner

of

Sales Tax, Orissa, and the said Sales Tax

Offieer, restraining them from giving any effect or taking any

further steps or proceedings vgainst the Respondent Company on

the asis

of the impugned provisions or the said notice.

In addition to the said

t~o writ petitions filed by the Respon­

dent Company and the said Kanak Ghosh, three other writ Peti­

tions were also filed by other parties who had entered into Bamboo

Contracts with the State of Orissa in which similar contentions

were raised

and reliefs claimed. The record is not clear whether

any assessment order was made against the Respondent Company

in pursuance of the said notice

or whether further proceedings in

pursuance

of the said notice were stayed by the High Court by an

interim order. As mentioned earlier, by the said common judgment

delivered

by' the High Court, the said writ petitions were allowed.

As a natural corollary

of the High Court, quashing the impugned

provisions it ought to have also quashed)he said

notice'. dated August

18, 1977, and the assessment order, if any, made in pursuance

thereof. The High Court, however,

.did not do so, perhaps because

as

it heard and decided all the said 209 wrii petitions together it

did not ascertain the facts of each individual petition or the exact

consequenthl reliefs to be given to the petitioner therein.

A

B

c

D

E

F

G

H

44 SUPREME COURT REPORTS (!985) 3 s.C.Il.

A Facts of C. A. No. 220 of 1982

Messrs. M.M. Khara, Second Respondent to Civil Appeal No.

220 of 1982 (hereinafter referred to as "the Respond1:nt Firm"), is

a partnership firm of which the first Respondent to the said Appeal,

B Mangalgi Mulji Khara,

is a partner. The Respondent Firm carried

on business

at

P.O. sambalpur in the District of Sambalpur in the

State of Orissa and was registered as a dealer both under the Orissa

Act and the Central Sales Tax Act, 1956 (Act LXXlV of 1956), with

the Sales Tax Officer, Sambalpur I Circle. The business of the

C Respondent Firm so far as concerns this Appeal consisted

of

bidding at auction held by the Government of

Orissa in respect of

trees standing in forest areas and if it was the highest bidder, enter­

ing into an agreement with the Government for felling and removing

such trees and in its turn selling the trees felled

by it in the shape

of logs to other. The procedure followed by the

State of Orissa in

D giving forest areas

was to publish notices of proposed auction sales

of timber and other forest products in particular forest areas. After

the auctions were held, ratification orders would be issued

by the

State Government to the forest contractors who were the highest

bidders

as also

an agreement would be entered into between the

State of Orissa through its Governor and the forest contractor in

E respect

of the forest produce govered by the agreement.

During the relevant period, the Respondent Firm

was

success­

ful at five auction sales held by the State of Orissa. Its bids were

ratified by the State Government. The Respondent Firm also

. entered into

five separate agreements (hereinafter referred to as

F

"Timber Contractors") for felling and removing trees standing in

such forest areas. Three

of the said five Timber Contracts were for

the period October

31, 1977, to January 31, 1979, the fourth was

for the period October l, 1977 to December 31, 1978, and the fifth

was for the period October

28, 1977 to July 31, 1979 .

. G After the said Notifications dated May 23, 1977 were issued,

the Respondent Firm along with its said partner Mangalji Mulji

Khara filed a writ petition in the

Orissa High Court, being O.J.C.

No. 1048 of 1977, against the State of Orissa, Commissioner of

Commercial Taxes, Orissa, Sales Tax Officer, Sambalpur Circle,

Divisional Forest Officer, Roirkhol Division, and Divisional Forest

H Officer, Deogarth Division. Two main grounds were taken in the

x

ORiSSA v. TITAGHUR.PAPER MILLS (Madon, J.) 45

said writ petition, namely, (I) the levy of a purchase tax on stand·

ing timber agreed to be severed was beyond the legislative compe­

tence ofthe State Legislature and (2) the said Notifications imposed

a tax both at the point

of sale and point of purchase and were,

therefore, invalid and

ultra vires the

Orissa Act. It was also conten­

ded that the power conferred upon the State Government under

section 3. B

of the

Orissa Act to declare any goods or class of goods

to be liable to tax .on the turnover of purchase as also the power

conferred upon the State Governament to specify the rate of tax

subject to the conditions that it should not exceed thirteen per

cent amounted to excessive delegation

of legislative power to the

State Government and that too without prescribing any guidelines

in respect thereof.

It w

is further contended that the Timber Cont·

racts were works contracts and the amounts payable under them

were, therefore, not exigible either to purchase tax

or sales tax. The

reliefs sought in the said writ petition were for quashing the said

two Notifications dated May 23, 1977.

While the said writ petition was pending, the

Sales Tax

Officer, Sambalpur I Circle, by his assessment order dated

November 28, 1978, assessed the Re,pondent Firm to tax under the

Orissa Act for the period April I, 1977, to March 31, 1978. He held

that the Respondent Firm had paid royalty to the Forest Depart·

ment in the agreggate sum of Rs .. 11,52,175 on which purchase tax

at the rate

of ten per cent was payable by it. It was further stated in

the said assessment order that the Resoondent Firm had not shown

this amount in its gross turnover. Accordingly, the

Sales Tex Officer

enhanced the gross turnover to include this amount. The amount

of purchase tax assessed on the Respondent Firm amounted tq

Rs. 1,16,217.SOp. Thereupon, the Respondent Firm and its partner

amended the said writ petition No. O.J.C. 1048 of 1977 and

challenged the validity

of the said assessment order.and prayed

for quashing the same.

On an application made by the Respondent

Firm and its said partner,

by an interim order the High Court

stayed the recovery

of

the amount of purchase tax pending the

hearing and final disposal

of the said writ petition.

A part from the

Re•pondent Firm, 203 other forest contractors

who had entered into similar agreements with the State Govern­

ment also filed writ petitions in the High Court challenging the

validity

of the

impu!;lned provisions. By its judgment under appeal,

. . .

A

B

c

D

E

F

G

"

A

B

c

D

E

F

G

H

46 SUPREME COURT REPORTS [1985] 3 S.C.R.

the High Court allowed the said petition filed by the Respon­

dent Firm. As in the case of the writ petition filed by the Respon­

dent Company and very probably for th.c same reason, the High

Court did not pass any order quashing the sard assessment order

consequent upon it holding that the impugned provisions were

ultra vires the Act.

Judgment of the High Court

All the

said 209 writ petitions were heard by a Division Bench

of the Orissa High Court consisting of S.K.Ray, C.J., and N.K. Das,

J. The main judgment was delivered by Das. J., while Ray, C.J.,

delivered a short, concurring judgment. Das, J. rejected the

contention

that the effect of the word 'supersession' used in the

Notifications dated December

29, 1977, was to wipe out the

liability under the earlier Notifications dated May 23, 1977.

He

held that the Notifications dated May

23,1977, remained in force

until the Notifications dated December 29, 1977, came into opera­

tion. So far as the other points raised before the High Court were

concerned, Das,

J., summarized the conclusions reached by the

court in paragraphs

19 and

20 of J1is judgment as follows:

"19. For the reasons stated above, we hold as follows:

(I) That the bamboos an J trees agreed to be severed are

nothing but bamboos and timber after those are felled.

When admittedly timber and bamboos are liable for

taxation at the sale point, taxation

of those goods at

the

purd,ase point amounts to double taxation and, as

such, the notifications arc ultra J1ires the provisions of

the the Act.

(2) The impugned notifications amount to taxation on

agreements

of sale, but not on sale and purchase of

goods; and

(3) In the case of bamboo exploitation contracts, the

impugned notifications amount also to impost

of tax on

profit-a-prendre and, as such, are against the provisions

of the Orissa

Sales Tax Act.

"20. In view of the aforesaid findings, we do not

consider

it necessary to

go into the other questions raised

'

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.)

by the petitioners, namely, whether it is a works contract

and whether the notifications amount to excessive delega­

tion or whether there has been-business of purchase by the

petitioners

or whether there has been restriction on trade

and

bussines"

47

In his concnrring judgment Ray, C. J., agreed with Das, J. and

further held that in the series

of sales in question the first

sale, that

is the taxable event, started from the Division Forest Officer and

that the Divisional Forest Officer was the taxable person who had

sold taxable goods, namely, timber, and that

as what was sold by

the Divisional Forest

Officer was purchased by the petitioners

before the High Court the identity

of goods sold and purchased

was the same, and that where such a sale was taxed, the purchase

thereof was excluded from the' levy

of tax by virtue of sections 3-B

and 8 of the

Orissa Act and consequently the levy of purchase tax

by the impugned provisions was bad in law;

In view of its above findings, the High Court allowed all the

writ petitions and quashed

the impugned provisions. The

High­

Court made no order as to the costs of the writ petitions.

We will set out the submissions advanced at the Bar at the

hearing of these Appeals when

we deal with the various points

which fall to be decided by us. In order, however, to test the

correctness

of the judgment

,pf the High Court as also of the rival

contentions

of the parties, it is necessary to sec first the relevant

provisions

of the Constitution of]nclia as also of the

Orissa Act

and

of the various notifications issued thereunder.

Constitutional

provisions

The Orissa Act received the assent of the Governor-General

of India on April 26, 1947, and was published in the Orissa Gazette

on May 14, 1947 .. Under section !(13) of the Orissa Act, section 1

was to come into force at once and the rest of the Orissa Act on

such date as the Provincial Government may by notification in the

Orissa Gazette appoint. The rest of the Orissa Act was brought

into force on August I,

1947. The

Orissa Act is thus a pre-Consti­

tution Act. At the date when it was enacted as also when it came

into force, the constitutional law

of India

w&s the Government of

A

B

c

D

E

F

G

A.

B

c

D

E

F

G

48

SUPREME COURT REPORTS [1985] 3 S.C.R.

India Act, 1935, prior to its amendment by the Indian Independence

Act, 194.7. Under section 100(3) of the Government of India Act

1935, the Legisalature of a Province alone -had the power to make

laws for a province or any part thereof in respect any of the matters

enumerated in List II in the Seventh Schedule to that Act, namely

the Provincial Legislatvc List. Entry 48 in the provincial Legisla­

tive List provided for "Taxes on the sale of goods and on advertise­

ments". Thus, under the Government of India Act, 1935, Sales tax

was

an exclusively provincial subject and the legislative competence

of the

Orissa Provincial Legislature to enact the Orissa Act was

derived from section 100(3) of the Government of India Act, I935,

read with Entry 48 in the Provincial Legislative List. Under the

Constitution of India as originally enacted, the legislative topic

"Taxes on the sale or purchase of newspapers and on advertise­

ments published therein" was excluively a Union subject in respect

of which under Article 245(1) read with Article 246(1) parliament

alone could

make laws for the whole or any part of the territory

of India, this topic being the subject-matter of Entry 92 in List

I in

the Seventh Schedule to the Constitution (namely, the Union List),

while "Taxes on the sale or purchase of goods other than news­

papers" and "Taxes on advertisements other than advertisements

published in newspapers" were exclusively State subjects in respect

of which under Article 245(1) read with Article 246(3) of the

Constitution of India, the Legislature of a State alone could make

laws' for such State or any part thereof, these topics being the

subject-matter of Enlries.54 and55 in List II in the Seventh sd1edule

to the Constitution, namely, the State List' By the constitution

(Sixth Amendment ) Act, 1956, a' new Entry, namely Entry 92A,

was inserted in the Unioo List and Entry 54 in the State List was

substituted

by a new Entry. Entry 92A in the Union List reads as

follows:

"92A. Taxes on .the sale or purchase of goods other

than newspapers, where such sale or purchase takes place

in

the course of inter-State

tcade or commerce."

The amended Entry 54 in List II reads as follows:

"54. Taxes on the sale or purchase of goods other

than newspapers, subject to the provisions of Entry_.92A of

H List!.''

'

OIUSSA v. T!TAGl!UR PAPER MiLLS (Madon, J.) 49

We are not concerned in these Appeals with the amendment A .

made in Entry

55 in the

State List by the Constitution (Forty-_

second Amendment) Act,

1976. We are not concerned with Entry.·

92-B inserted in the

Union List or with the extended meaning giveri

to the expression "tax on the sale or purdhase of goods" by the

new clause (29A) inserted in Article 366 of the Constitution wheteby B

that expression inter a/ia includes a tax on the transfer of property

in goods (whether as goods or in some other form) involved in the

execution

of a works contract, by the Constitution (Forty-sixth

Amendment) Act,

1982. We are equally not concerned in

these

Appeals with the restrictions imposed by Article 286 of the c.

Constitution on a State's power to levy a tax on certain classes of

sales and purchases of goods.

The Orlssa Act

In keeping with the legislative history of fiscal measures in D

general, the Orissa Act has been amended . several times. Thus, by

the middle of July 1981 it had been amended twenty-eight times.

It is needless to refer to all the provisions of the Orissa Act or of

the various amendments made therein except such of them as are

relevant for the purpose of these Appeals.

-d. E

The Orissa Act when enacted levied a tax only on the sales

of goods taking place

in the province of Orissa. By the Orissa Sales tax (Amendment) Act, 1958 (Orissa Act No.28 of 1958),

a purchase tax

was for the first time introduced in the

State of Orissa ·

with

effect from December

I, 1958.

The tax under the Orissa Act Is levied not on goods but on

sales and purchases of goods or rather on the turnover

of sales and

turnover

of purchases of goods of a dealer.

Under section 4(2) of

the Orissa Act, a dealer becomes liable to pay tax on sales and

purchases. with effect from the month immediately following a

period not exceeding twelve months during which his gross turnover

exceed the limit specified in that sub-section which during the rel~­

vant period was Rs. 25,000. Under section 4(3) a dealer who has

become liable to pay tax under the Orlssa Act continues to be so

liable until the expiry of three consecutive years during each

of

which his gross turnover has failed to exceed the prescribed liniit and· such further period after the date of the said. expiry as may be

F

G

so SUPREME COURT REPORTS [1985] 3 S.C.R.

A prescribed by the Orissa Sales Tax Rules and his liability to pay tax

. ceases only on the expiry ·Of the further period so prescribed. A

special liability

is created by section 4-A on a casual dealer as

defined in clause (bb) of section 2. We are not concerned in these Appeals with any question relating to a casual dealer.

B

c

D

E

F

G

ff

·Section 2 is the definition section. ·Clause (c) of that section "t--

defines the term "dealer". The definition as it stood during the

relevant period and at the date when the judgment

of the High

Court

was deliverd (omitting what is not relevant) read as follows:

"(c)'Dealer' means any person who carries on the

business

of purchasing or selling or supplying goods

in

Orissa, whether for commission, remuneration or

otherwise and includes a Department of the Government

which carries on such business and any

firm ......

Explanation-The manager or agent of a dealer who

resides outside

Orissa and who carries on the business of

purchasing or selling or supplying goods in Orissa shall,

in respect

of such business, be deemed to be a dealer for the

purposes

of this

Act".

ff was on the basis of the above Explanation to section 2(c)

that the notice impugned in Civil Appeal No. 219 of 1982 was

issued to the manager of the Respondent Company and he was

sought to be made liable to purchase tax under the said Notifica­

tions dated May 23, 1977.

Under the aforesaid definition of the term "dealer" before a

person can be a dealer, he must be

carrying on the business of

pur­

chasing or selling or supplying goods. There was no definition of

the word "business" in the Orissa Act and the Orissa High Court

had interpreted it

as connoting an activity carried on with the

object

of making profit. By the

Orissa Sales Tax (Amendment) Act

1974 (Orissa Act No. 18 of 1974), a definition of "business" was for

he first time inserted as clause (b) in section 2, the original clause

(b) which dafined the term "contract" having been omitted by the

Orissa Sales Tax (Amendment) Act, 1959. after the decision of this

Court in

The State:oJ Madras v. Gannon

Dunker!ty & Co. (Madras)

--4-

ORISSA v. TITAGHUR PAPER MiLLS (Madon, J.) 51

Ltd.' The effect of this definition of the term "business" was to do

away with the requirement of profit motive. As a consequence of

the decision of the Orlssa High Court in Straw Products Ltmlttd v.

State of Ortssa and others', the above definition of the term "dealer"

in clause (c) was substituted with retrospective effect by the Orissa

Sales Tax (Amendment) Ordinance, 1979 (Orissa Ordinance No. 11

of 1979), which was replaced by the Orissa Sales Tax (Amendment)

Act,

1979 (Orissa Act No. 24 of 1979). In the.

Straw Product's

Case the petitioner company had entered into two agreements with

the State of Orissa. From the facts set out in the judgment of the

High Court in that case it would appear that these two agreements

were similar to the Bamboo Agreement before us. The Divisional

Forest Officer, Balliguda Division, called upon the petitioner com­

pany to reimburse to him the amount of sales tax to which he had

been assessed, stating that he

was a registered dealer and had been

assessed to tax

on the sale of all standing trees ·including bamboos.

The petitioner company thereupon

filed two writ petitions in the

Orissa High

Court challenging this demand. The contention that

the transactions covered

by the said two agreements were not sales

of goods and, therefore, not exigible to sales tax does not appear to

have been raised

In those writ petitions. The High Court held that the

State of Orissa and not the Divisional Forest Officer could be the

dealer

qua the transactions covered by the said agreements

1.n case

they were exigible to sales tax and that the liability under the Orissa

Act being a statutory one, it was not open to the State in the dis­

charge of its administrative business or at its volition to name an

employee under it

as the person to pay sales tax under the Orissa Act, and. therefore, the Divisional Forest Officer could not have

been assessed to sales tax on the transactions in question. The

High Court further held that though the requirement of profit

motive did not exist any more

as an ingredient of the term

"busi­

ness" as defined by the said claus.e (b) of section 2, whether a

person carried on business in a particular commodity depended

upon the volume, frequency, continuity and regularity of. transac­

tions of purchase and sales in a class of goods, and as these ingre­

dients were not satisfied in the cases before it, the transactions were

not exigible to sales tax. The judgment in that case

was delivered

on May 3, 1977. The

State as also the Commissioner of Sales Tax,

(!) [1949] S.C.R. 379.

(2) (1978) 42 S.T.C. 302·(1977) I C.W.R. 455,

A

B

c

D

E

F

G

H

A

B

c

D

"

E

F

G

52 SUPREME COURT REPORTS (1985) 3 S.C.R.

Orissa, h_ave come in appeal by Special Leave in this Court against

the.said j!!dgment and these appeals are still pending, being Civil

Appeals Nos.

1237-1238 of 1979

State of Orissa and others v. Straw

Products Limited arid others and Civil Appeals Nos. 1420-1421 of

979 Gommissioner of Sales Tax, Orissa and anothu v. Straw Pro­

dt!CI Limited and others. However, to get over the judgment of the

High Court, the State Government issued the two impugned Noti·

fications dated May 23, 1977, which were replaced along with

others by the said

two Notifications dated December 29, 1977.

Further, the Governor of

Orissa promulgated the Orissa Sales Tax

(Amendment and Validation) Ordinance,

1979 (Orissa Ordinance 'No. 11 of 1979), substit1.1ting with retrospective effect from th.e date

of the Orissa Act the definition of "dealer" given in clause (c) of

section 2. The said Ordinance was repealed and replaced by the

Orissa Sales Tax (Amendment and Validation) Act, 1979 (Orissa

Act No. 24 of 1979). This amending and validating Act came into

force with effect from July

19, 1979, being the date

of the promul­

gation of the said Ordinance. Section 3 of the said amending Act

validated assessments or re-assessments,

levy or collection of any

tax or

imp<;>sition of any penalty made or purporting tq have been

made under the Orissa Act before July 19, 1979, as if all such acts

had been done under the Orissa Act as so amended, notwith·

standing anything contained in any judgment, decree or order of

any court or other authority to the contrary. The substituted·

definition of "dealer", omitting the portion thereof not relevant for

our purpose, reads

as follows :

. .

"(c) 'Dealer' means any person who carries on the

business of purchasing, selling, supplying or distributing

goods, directly or otherwise, whether for cash or for defer­

red payment. or for commission, remuneration or other

valuable consideration and

includes-

: (i} ... a company, ... firm or association which carries on such business;

x x x x

Explanation I-... and every local branch of a firm

registered outside the State or of a company the principal

office or headquarters whereof

is outside the

State, shall be

deemed to be a dealer for the purposes of this Act.

011.iSSA v. TiTAGHU11. PAPEl1. MILLS (Madon, J.) 53·

Explanation II-The Central Government or .a. State.

Government or any of their employees acting· in official

. capacity

on behalf of such Government, who, whether or

not

in the course of business, purchases, sells, supplies or

distributes goods, directly or otherwise for

cash or for

deferred payinent or for commission, remuneration or for

other valuable consideration, shall, except in relation to

any sale, supply or distribution

of surplus, unserviceable or

old stores or materials or waste products, or ob_solete or

discarded machinery or parts or accessories thereof, be

deemed to be a dealer

for the purposes of this Act.

·

What is pertinent to note about the new definition of "dealer"

is that in the case, of the Central Government, a State Government

or any of their employees acting in official capacity on behalf of

such Government, it is not necessary that the purchase, sale, supply

or distribution

of goods should be in the course of business, while

in all other cases for a person to be a dealer he must be carryin'g on

the business

of purchasing, selling, supplying or distributing goods.

Writ petitions challenging the validity of this amending and

vali­

dating Ordinance and Act have been filed in this Court under

Article

32 of the Constitution of India and are still pending. These writ petitions are Writ Petition Nos. 958 .of 1979 Orient Paper Mills

and another

v. Siate of

Orissa and others and Writ Petition No. 966

of 1979 Straw Products Limited and another v. State ·of Orissa and

others.

We are concerned in these Appeals only wiih purchases and

·

sales of goods and not with their supply or distribution. The terms

"sale" and "purchase" are defined in clause (g) of section 2. Clause

(g), omitting the Explanation which

is not relevant for our purpose,

·

reads as follows :

"(g) 'Sale' means, with all its grammatical variations

. and cognate expressions, any transfer of property in goods

for cash or deferred payment or other valuable considera­

tion, but does not include a mortgage, hypothecation,

charge or pledge and the words ','buy" and "purchase"

shall be construed accordingly;

x

A

:•

B

c

D

E

F

G

54 SUPREME COURT RBPOll.TS [1985] ~ s.c.ll.

A The expressions "goods''. "purchase price" and "sale price"

B

c

D

E

are defined in clause (d), (ee) and

(h) of secrion 2 as follows :

·" (d) 'Goods' means all kinds of movable property other

than .actionable claims, stocks, shares or securities and in­

cludes all growing crops, grass and things attached to or

forming part

of the land which are agreed before sale or

under the contract

of sale to be severed; " (ee) 'Purchase Price' means the amount payable by a

person

as valuble consideration for the purchase or supply

of any goods less any sum allowed by the seller as cash

discount according to ordinary trade practice, but it shall

include any sum charged towards anything done

by the

seller

in respect of the goods at the time of or before

deli­

very of such goods other than the cost of freight or delivery

or the ·cost of installation when such cost is separately

charged;

"(h) 'Sale Price' means the amount payable to a dealer

as consideration for the sale or supply of any goods, less any

sum allowed

as cash discount according to ordinary trade

practice, but including any sum charged for anything done

by the dealer in respect of the goods at the time of, or

be­

fore delivery thereof''.

As the liability of a dealer to pay tax under the Orissa Act

depends upon his gross turnover exceeding the limit prescribed

by

section 4(2), it is necessary to see the definition of the expression "gross turnover", "Gross turnover" is defined by clause (dd) of

F section 2 as follows :

G

H

"(dd) 'Gross Turnover' means the total of 'turnover of

sales' and 'turnover of purchases".

The expression ''turnover

of

sales" and "turnover of purcha­

ses" are defined in clauses (i) and (j) of section 2 as follows :

"(i) 'Turnover of sales' means the aggregate of the

amounts

of sale prices and tax, if any, received and

receiv­

able by a dealer in respect of sale or supply of goods other

-l

_/

OR!SSA v. TITAGHtlR PAPER MILLS (Madon, J.) SS

than those declared under section 3-B effected or made A

during a given period;

x x

"(j) 'Turnover of purchases' means the aggregate of the

amounts

of purchase prices paid and payable by a dealer

in respect of tbe purchase or supply of goods or classes of

goods. declared under section 3-B; ·

So far as is material for our purpose, section 5(1) provides

for the rates at wbicb the tax under the Orissa Act is payable.

Sub-section

(I) of section 5 and the first proviso thereto as !bey

stood prior to tbe

Orissa Sales Tax (Amendment) Ordinance, !977,

read

as follows :

"5. Rate of Tax:-

(I) The tax payable by a dealer tind.er ibis Act shall be

levied at tbe rate

of six per cent on bis taxable turnover;

Provided that the State Government may, from time

to time, by notification and subject to such conditions

as

they may impose, fix a higher rate of tax not exceeding

thirteen per cent or any

lower. tax payable

under this Act

on account of the sale or purchase of any goods or class

of

goods specified in such notification;

The

words

"at the rate of six per cent" in the main sub­

section (I) were substituted for the words "at the rate of five per

cent" and the words "not exceeding thirteen per cent" were. substi­

tuted for the words "not exceeding ten per cent" in the first proviso

thereto

by the

Orissa Sales T~x (Amendment) Act, 1967 (Orissa

Act No.

7 of 1976), with effect from May 1,.1976.

Amongst the amendments made ·by the

Orissa Sales Tax·

(Amendment) Ordinance, 1977, which were re-enacted by the

Orissa Sales Tax (Amendment) Act, 1978, was the substitution of

sub-section (!) of section 5 and the first proviso thereto by a new

sub-section(!). Thus, with effect from January 1,1978 sub-section

(!) reads as follows :

B

c.

D

E

11

G.

H.

56 SUPREMB COURT REPOl s [1985] 3 S.C.R.

A "5. Rate of Tax

B

c

E

F

(I) The tax payable by a dealer under this Act shall be

levied on his taxable turnover at such rate, not exceeding

thirteen percent, and subject

to such conditions' as the State

Government may, from time to time,

by notification,

specify;

K x x x

The other proviso to the said sub-section (I} are not relevant

for our purpose. Sub-section (2) (A) of section

5 defines the

expression

"taxable turnover" as meaning that part of a dealer's

gross rurnover during any period which ·remains after deducting .

therefrom the turnover of sales and purchases specified in that snb­

section.

Section

3-B confers upon the State Government the power to

declare

what' goods or classes of goods would be liable to tax on the

turnover

of purchases. Section 3-B reads as follows :

"3-B. Goods liable to purchase tax-

The State Government may, from time to time, by

notification, declare any goods or class of goods to be liable

to tax on turnover

of purchases:

Provided that no tax shall

be payable on the sales of

such goods or class of goods de.dared under this

section."

This section was inserted in the Orissa Act with effect from

December

1,

1!158, by the Orissa Sales Tax (Amendment) Act, 1958.

As the tax under the Orissa • Act is intended to be a single·

point levy, section 8 confers upon the State Government the power

to prescribe points at which goods

may be taxed or exempted,

G Section 8 provides as follows :

H

·•s. Power of the State Government to prescribe points

at

which goods may be taxed or exempted

Notwithstanding anything to the contrary, in this Act,

the State Government may prescribe the points

in the series

~·

ORISSA. v. TITA.G!IUR PA.PER MILLS (Madon, J;) 51

of sales ·or purchases by successive dealers at which any A

goods or classes or descriptions of goods

may be taxed or

exempted from taxation and in doing

so may direct that

sales to or purchases by a person other than a registered

dealer shall

be exempted from taxation:

·Provided that the same goods shall

not be taxed at

more than one point

in the same series of sales or

pur­

chases by successive dealers.

Explanation-Where

in a series of sales, tax is

prescribed to be

fovied at the first point, such point, in

respect of goods despatched from outside the State of Orissa

shall mean and shall always be deemed to have meant the

first of such

sales effected by a dealer liable

under the Act

after the goods are actually taken delivery of

by him inside

the

State of Orissa."

B

c

Rules 93-A to 93-G of the Orissa Sales Tax Rules, 1947 D

. .

prescribe the goods on which tax is payable at the first point in a

series

of sales. The goods so prescribed have no relevance

to these

Appeals.

Notifications under the Act

In exercise of the powers conferred by section 3-B of the

E

Orissa Act the State Government from time to time issued notifica­

tions declaring what goods or classes of goods were liable to tax on

the turnover of purchases:

As a result of the amendments made in

the rates specified

in sub-section (1) of section 5 and the first

proviso to that sub-section

by the

Orissa Sales Tax, (Amendment) F

Act

1976, with effect from May 1,1976, all these notifications were

superseded and a fresh list of goods declared under section

3-B

b)'

Notification No. 20209C.T.A.L.-14/76-F, dated April 23,1976.

All the notifications issued from time to time under the first proviso G

to sub-section (l) of section 5 specifying the rates of purchase tax on

goods declared under section

3-B were al so superseded and new

rates

of purchase tax in respect of the goods declared in the said

new list were specified with effect from May 1.1976, by Notification

No. 20212-C.T.A.-14/76-F, dated April 23,1976. But is these

two Notifications which were amended by the impugned .Notifica-H

58 SuPREMB COURT REPORTS [i98SJ 3 s.c.Jl..

A tions dated May 23, 1977. The said two impugned Notifications

are as follows:

B

c

D

E

F

G

H

"Notification S.R .. O.No. 372/77 dated the !23rd May 1977-

In exercise of the powers conferred by section 3-B

of the Orissa Sales Tax Act, 1947 (Orissa Act 14 of 1947),

the State Government do hereby declare that standing trees

and bamboos agreed to be severed shall

be liable to tax on

turnover

of purchase with effect from the first day of June,

1977 and direct that the following amendment shall be

made in the notification of Government of Orissa, Finance

Department No.

20209-CTA-14/76-F., dated 23rd

April

1976.

AMENDMENT

In the schedule to the said notification after serial

numbers

2 and 16, the following aew serial and entry shall

be inserted .under appropriate heading,

namely:-

Serial No.

(1)

2-A

16-A

Description of goods

(2)

Bamboos agreed to be severed.

Standing trees agreed to be

Severed.

"Notification S.R.O. No; 373/77 dated the 23rd May 1977-

In exercise of the powers conferred by the first proviso to

sub-section

(I) of section 5 of the Orissa Sales Tax

Act,

1947 (Orissa Act 14 of 1947), the State Government do

hereby direct that the following amendment shall

be made

in the notification of the Government

of Orissa, Finance

Department No.

20212-CTA-14/76-F., dated the 23rd

April

1976 and that the said amendment shall take effect

from the first day of June,

1977•

AMENDMENT

In the schedule to the said notification after serial

.

;,,-.

,

..

6RiSSA v. TlTAGHUR PAPER MILLS (Madon, i.) 59

numbers 2 and 16, the following new serial and entry shall A

be .inserted under appropriate heading, namely:

Serial No.

(1)

16-A

2-A

Description

of goods

(2)

Bamboos agreed. to be

severed

Standing trees agreed

to be severed

Rate

of Tax

(3) .

Ten per cent

Ten per

cent."

B

c

~· The above two Notifications were struck down by the High

Court by its judgment under appeal.

The State Government had also issued from time to time

Notifications in exercise of the powers conferred· by the first

proviso to sub-section (I) of section 5 prescribing a rate of tax

different from the rate specified in section

5(1) so far as sales of

certain goods were concerned. As a result of the amendments

made by the

Orissa Sales Tax (Amendment) Act, 1976, all these

notifications were superseded and

new rates specified with effect

from May

l, 1976, by Notification No. 20215-C-T.A.-14176 F.

dated April

23, 1976. By Notification No. S.R.A. 374/77 dated

May 23, 1977, made in exercise of

the· powers conferred by the

first proviso to sub-section

(I) of section 5, the

Stat~ Government

directed that with effect from June

1, 1977, the said Notification

No.

20215-C.T.A. -14/76-F. dated April 23, 1976, should

inter a/ia be amended by inserting a new entry therein as Entry No.

86-A,

By this entry the rate of sales tax on timber was enhanced

to ten per . cent, In view

of the amendment made in sub-section

(I) of section 5 by the Orissa Sales Tax (Amendment) Ordinance,

1977 (replaced by the Orissa Sales Tax (Amendment) Act, i 978),

the State Government issued three Notifications,

(I) declaring the

goods liable to purchase tax,

(2) specifying the rates of purchase

•

tax on such goods; and (3) specifying the rates of sales tax. The

relevant portions of the notification declaring the goods liable to

purchase tax read as follows :

D

E

F

G

"Notification No. 67178-C.T.A. 135/77 (Pt. )-F dated H

the 29th December

1977.

A

B

0

D

E

F

G

H

60 SUPREME COURT REPORTS tl985] 3 s.c.k.

S.R.O.No.900/77 -In exercise of powers conferred by

section 3-B of the Orissa Sales Tax Act, 1947 (Orissa Act 14

of l 947), and in supersession of all previous notifications

issued on the subject, the State Government do hereby

declare

that the goods mentioned in column (2) of the

schedule given below shall be liable to tax on turnover

of

purchase, with effect from the first day of January,

1978.

SCHEDULE

Serial No. Description of goods

(!) (2)

x x x x

2. Bamboos agreed to be severed

x x x x

17. Standing trees agreod to be severed

x x x x ..

The rel event portions of the Notification specifying the,

rates of purchase tax read as follows:

Notification

No.67181-C.T.A. 135/77-F. dated the 29th

December

1977

-

S.R.O. NO. 901/77-In exercise of the powers

conferred by sub-section

(!) of section 5 of the

Orissa

Sales Tax Act, 1947(0rissa Act 14 of 1947), as amended by

the Orissa Sales Tax (Amendment) Ordinance, 1977 (Orissa

Ordinance No. 10 of 1977) and in supersession of all

previous notifications in this regard, State Government do

hereby direct that with effect from th~ first day of January,

1978 the tax payable by a dealer under the said Act on

account

of the purchase of the goods specified in column

(2)

of the

sc~edule given below, shall be at the rate specified

against each in column

(3) thereof;

/

~it··

ORiSSA v. TITAGHUR PAPER MILLS (Madon, J.) 61

SCHEDUJ,E

Serial No. Description of goods Rate of Tax

(!) (2) (3)

x x x x

2. Bamboos agreed to be Ten per cent

severed

x x x x

17. Standing trees agreed to Ten per cent

be served

K x x x:

The relevant portions of the Notification specifying

the rates

of sales tax read as

follows_ :

A

B

c

"Notification No. 67184-C.T.A.-135/77-F., dated the D

29th December

1977.

S.R.0. No. 902/77 -Jn exercise of the powers conferred

by sub,,section (I) of section 5 of the Orissa Sales Tax Act,

1947 (Orissa Act 14 of 1947), as amended by the Orissa

Sales Tax (Amendment) Ordinance, 1977 (Orissa

Ordinance, No. JO of 1977) and in supersession of all

previous Notifications on the subject, the State Govern­

ment do hereby direct that with effect from the first day

of January. 1978, the rate of tax payable by a dealer

under the said.Act on account

of the sale of goods specified

in column

(2) of the Schedule given below shall be at the

rate specified against each in column

(3) thereof.

SCHEDULE

SI.No. Description of goods Rate of Tax

(1) (2) (3)

x x x x

.I 101 All other articles Seven percent" .

Enteries Nos. 2 and 17 in the schedule to each of the said

•

E

F

G

·H

62 SUPREME COURT REPORTS (1985] 3 S.C.R.

A Notifications Nos. 67178-C.T.A.-135/77 (Pt.)-F and 67181-C.T.A

135/77-F

were also struck down by the High Court by its judgment

nnder appeal.

The ambit of the.Orissa State's taxing power-

B The validity of the impugned provisions is challenged on two

grounds :

(1). they levy a tax on what is not a sale or purchase of

goods and are, therefore, nnconstitutional, and

(2) assuming the

subject-matter of the impugned provisions is a

sak or purchase of

goods, tbey levy a tax on the same goods both at the sale· point

and purchase-point and are therefore,

ultra vires the

Orissa Act.

C In order to test the correctness

of these challenges, it is necessary

to bear in mind the ambit

of the

Orissa State's power to levy a tax

on the 'sale or purchase of goods. This power is subject to a two· fold

restriction-one Contitutional ; and the other, statutory. The Con­

stitutional restriction on the legislative comptence of the Orissa State

in this behalf is shared by it in common with all other States,

D

while the statutory restriction is self-imposed and flows from the

provisions of the Orissa Act.

We have already set out earlier the relevant provisions of the

Government

of

India Act., 1935, the Constitution of India and the

Orissa Act. To recapitulate, the Orissa Act is a pre-Constitution

Act and the legislative competence of the Orissa Provincial

E Legislature to enact ihe Orissa Act was derived from section 100(3)

of the Government of India Act, 1935, read with Entry 48 in List

II in the Seventh Schedule to that Act. After the coming into force

of the Constitution of India the power of the Orissa State Legis­

lature to enact law imposing a tax on the sale or purchase of goods

(other than newspapers)

is to be found in Articles 245(1) and

F 246(3) of the Constitiution of India read with Entry

54 of the

Constitution

of India. Thus, Entry 54 in the

State List in the

Constitution

of India is, with certain modifications, the successor

G entry to Entry

48 in the

Provincial Legislative List in the Govern­

ment of India Act, 1935.

While Entry 48 spoke of "taxes on the sale of goods", Entry 54

speakes of "taxes on the sale or purchase of goods". The addition

of. the word "purchase" permits the State Legislature to levy a

ff purchase tax and does not confine its taxing power merely to levying

OR!SS, v. TIT,\GHUR PAPER MILLS (Madon, J.) 63

a sales tax. Sale and purchase are merely two ways of looking at A·

the same transaction. Looked at from the point of view of the seller

a transaction

is a sale, while looked at from the point of view of the

buyer the same transacation

is a purchase.

Entry

48 in List II of the

Seventh Schedule of the Govern­

ment of India Act, 1935, came up for interpretation by this Court in

The Sales Tax officer, Pilibhit v. Messrs Budh Prakash Jai Prakash'.·

This Court held in that case that there having existed at that time of

the enactment

of the Government of India Act, 1935, a

well­

defined and well-establised distinction between a sale and an agree­

ment 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 authorized the

impo­

sition of a tax only when there was a completed sale involving

transfer

of title. In that case the

Uttar Pradesh Sales Tax Act, 1948,

had been amended

so as to include forward con tracts in the

definition of 'sale' and to provide that forward contracts should

be

deemed to have been completed on the date originally agreed upon'

for delivery. These. aroend.ments were held

by this Court to be

ultra vires.

In State of Madras v. Gannon Dunkerly .& Co., (Madras) Ltd.,

'another Constitution Bench of this Court held that at the time

when.

the Government of India Act, 1935, was enacted. the expression.

"sale of goods" was a term of well-recognized import in the general

law relating to sale of goods and the legislative practice relating to

that topic and, thetefore, that expression roust be interpreted when

used in the said Entry

48 as having the same meaning

as in the sale

of goods Act, 1930. The Court further held that any attempt, there­

fore, to give to the expressions-i"sale", ''goods" or usale of goods"

an artificial meaning or an enlarged meaning or to bring within

their scope what would not

be comprehended within it would be

ultra

>ires and uncostitutional. The court further observed (at page

413-4):

" both under the common law and the statute law

relating to sale

of goods in England and

i~ India; to

constitute a transaction of sale there should· be an agree-.

ment, express or implied, relating to goods to be completed

(I) [1955) I S.C,R. 243, 246.

.B

c

D

E

F

G

A

B

c

D

E

F

G

H

64

SUPREME COU.RT REPORTS [1985] 3 s.c.11.

by passing of title in those goods. It is of the essence

of this coneept

that both the agreement and the sale

should relate to the same subject-matter. Where the

goods delivered under the contract are not the goods

contracted for, the purchaser has got a right to reject

them, or to accept them and claim damages for breach

of warranty.

Under the law,· therefore, there cannot be

an agreement relating to one kind

of property and a

sale

as regards another. We are accordingly of opinion

that on the true interpretation of the expression 'sale

of goods' there must be an agreement between

thi: parties

for the sale of the very goods

in which eventually property passes."

In that case the definition of term "sale" in the Madras Gene­

ral Sales Tax Act, 1939, was enlarged by an amendment so as to

include "a transfer of property in goods involved in the exection of

a works contract" and the definition of "turnover" was expanped

to include within it the amount payable for carrying out a works

contract

less such portion as may be prescribed. A

new definition

of "works contract" inserted in the said amendments ircluded

within its meaning

inter alia the construction, fitting but,

improve­

ment or repair of any building, road, bridge or other immovable

property. The Court held these amendments to

be void and beyond

the legislative competence

of the Madras

Provincial Legislature on

the ground that

in the case of a building contract, which was one

and indivisible, the agreement between the parties

was that the

contractor should construct the building according to the

specifica­

tion contained in the agreement and in consideration therefore

·receive payment as provided therein, and that in such an agreement

there

was neither a contract to sell the materials used in the

construction nor any property passed

in such materials as movables.

The same interp relation

as was placed on Entry 48 in the

Provincial Legislative List in State of Madras v. Gannon Dunkerley

& Co. (Madras) Ltd. was adopted by this Court while construing

Entry

54 in the

State List and attempts by the State Legislatures

to enlarge the .meaning of· the expressions 'sale', 'sale of goods' or

'goods' have been held to

be beyond their legislative competence :

11cc, for instance, Bhopal Sugar Industries Ltd. M.P. and another v.

D.P. Dube, Sales Tax Officer, Bhopal Region, Bnopal and another'

(!) A.LR. 1964 SC 1037.

OR!SSA v. TiTAGHUR PAPBR·MlLLS (Madon, J.) 6S

K.L. Johar and Company v. Deputy Commucia/ Tax Officer' Joint A

Commercial Tax Officer. Harbour Div ll. Madras v. Young Men'J

Indian A.ssaciation (Reg.) Madras and others;' and State of Maha•

rashtra and another v. Champa/a/ Kishanla/ Mohta.•

In Addition to the above Constitutional limitations on the

Orissa State's power to tax sales or purchases of goods, there are

other restrictions imposed.

by sections 3-B and 8 of ths Orissa Act.

A

State is free when there is_ a series of sales in respect of the

same goods to _ tax each one of such sales

or purchases in that

series or to

levy the tax at one or more points in such series of

sales or purchases. Legislation

of all States in this sespect is

not uniform. Some States have adopted a single-point ·levy,

others, a two-point levy ; and yet others, a multi-point levy. The

State of Orissa has adopted a single-p<Jint levy. It has don'e this

by enacting the proviso to section 3-B and the proviso to section

8. Under the proviso to section 3-B no tax is payable on the

sales of goods or class of goods declared under that section to be liable

to tax on the turnover of purchases. The proviso to section 8

states that "the &ame goods shall not be taxed at more than one

point in the same series of &ales or purchases by successive

dealers". Where, therefore, In a series of sales by successive

dealers sales tax or purchase tax is levied at a particular point,

neither sales tax nor purchase tax can be levied at another point in

the same series ;and similarly where goods have been made liable

to purchas tax, no sales tax can be levied in respect

of the same

transaction or any other transaction

of

sale of the same goods.

As any attempt on the part of the State to impose by legis­

lation sales tax or purchase tax in respect of what would not be

a sale or a sale of goods or goods under the Sale of Goods Act,

1930, is unconstitutional, any attempt by it to do so in the exer­

cise of its power of making subordinate legislation, either by way

of a rule or notification, would be equally unconstitutional'; and

so would such an act on the part of the authorities under a ·sales

Tax Act purporting to be done in the exercise of powers conferred

(I) [1965] 2 S.C.R. 112.

(2) [1970] 3 S.C.R. 680.

(3) [1971] l S.C.R. 46.

B

c

D

E

F

G

ff·

A

B

c

D

E.

F

G

H

'l

66 SUPREME COURT REPons [1985] 3 S.C.R.

by that Act or a~y rule. m1de or notification issued thereunder.

Similarly, where any ruk or notification travels beyond the ambit

of the parent Act, it would be ultra vires the Act. Equally, sales

tax authorities purporting to act under an act or under any rule

made or notification issued thereunder cannot travel beyond

the

scope of such Act, rule or notification. Thus, the sales tax

authorities under the Orissa Act cannot assess to sales tax

or

purchase tax a transcation which is not a sale or purchase of.goods

or assess to sales tax any goods or class of goods which are liable

to purchase tax

or assess to tax, whether sales tax or purchase

tax, goods at another point in the same series

~f sales or pur­

chase of those goods by successive dealers when those goods are

liable to be taxed at a different point in that series.

Subject-matter of the impugned provisions

What now falls to be determined is the subject-matter of

the impugned provisions. Relying upon the definition of the

term

"goods"·. in the Sale of Goods Act, 1930, and in the Orissa

Act, it

was submitted on behalf of the Appellant

State that the

subject-matter

of the impugned provisions is goods and that

what

fs made exigible to tax under the impugned provisions is a

completed purchase

of goods.

011 behalf of the contesting

Respondents it

was submitted that by impugned provisions a

new

class of goods not known to law sought to be created and made

exigible to purchase tax and that this attempt on the

part of the State Government was unconstitutional as being beyond its legis­

lative·· competence. The High Court held that the impugned

provisions amounted to a tax on an agreement

of sale and not on

a sale

or purchase of goods.

It further held that in the case of

Bamboo Contracts, the impugned provisions also amounted to

lcvy.ing a tax on a

profit a prendre.

The term

"goods" is defined in clause (7) of section 2 of

the Sale of Goods Act as follows:

"(7) 'goods' mean every kind of movable property

other than actionable claims and money ; and includes

stock and shares, growing crops, grass and things attached

to

or forming part of the land which are agreed to be

served before sale

or under the contract of sale

;"

-

. ,_

ORISSA v. TITAGHUR PAPER MILLS (Madon, I.) 67

We have already reproduced earlier the definition of "goods" A

given in clause (d) of section 2 of thelOrissa Act. However for

the purposes

of ready reference and comparison, we are

repro·

ducing the same here again. That definition is as 'follows I

"(d) 'Goods' means all kinds of movable property

other than actionable claims, stocks, shares or securities

and includes all growing crops, grass and things attached

to or forming part of the land which are agreed before

sale or under the contract

of sale to be severed

"

What is pertinent to note, however, is that under both the

definitions the term "goods" mean all kinds of movable property

(except the classes of movable property specifically excluded) and

includes growing crops, grass and

things attached to

·or forming

part af the land which are agreed to be sei•ered before sale or under

the contract

of

sale. The Transfer of Property Act, 1882 (Act IV

of 1882), does not give any definition of the term "movable

property", but ·clauses (36) of section 3 of the General Clauses

Act,

1897 (Act X of 1897), clause (27) of the

Orissa General Clauses

Act,

1937

(Orissa Act I of 1937), and clause (9) of sectjon 2

of the Registration Act, 1908 (Act XVI) of (1908) do. Clause

(36)

of section 3 of the

Genernl Clauses Act provides as follows :

"(36) 'movable property, shall mean property of

B

c

D

every description, except immovable property." E

The definition

in the

Orissa General Clauses Act is in iden­

tical terms. The definition in the Registration Act is as follows :

'

"(9) 'moveable property' includes· standing timber,

growing crops and grass, fruit upon and juice in trees,

and property of every other description, except immovable F

property."

The Transfer of Property Act does not give any exhaustive

definition of "immovable property." The only definition given G

therein is in section 3 which states :

"immoveable property' does not include standing timber,

growing crops, or grass."

This is 'strictly speaking not a definition of the term "immo­

vable property" for it does not tell us what immovable property is

b11t merely tells us what it does not include. We must, therefore, ff

A

B

68 SUPREME COUl\T REPOl\TS

(1985] 3 S.C.R.

turn to other Acts where that term is defined. Clause (26) of sec­

tion. 3 of the General Clauses Act defines "immovable property"

as follows :

"(26) 'immovable property' shall include land, benefit

to · arise out of land, and things attached to the earth,

or permanently fastened to any thing attached to the

earth."

The definition of "immovable property" in clause (21) of

section 2 of the Orissa General Clauses Act is in the same terms .

.C A more elaborate definition is given in clause (6) of section 2 of the'

·) Registration Acfwhich states :

.. "( 6) 'immovable property' includes land, buildings,

hereditary allowances, rights to ways, lights, ferries,

fisheries or any other benefit to arise out of land, and things

attached to the earth or permanently fastened to anything

D which

is attached to the earth, but not standing timber,

growing crops nor

grass."

E

F

What is pertinent to note about these definitions is that things

attached to the earth are immovable property. The expression

"attached to the earth" is defined in section 3 of the Transfer of

Property Act as follows :

" 'attached to the earth, means·-

(a) rooted in the earth, as in the case of trees and shrubs ;

(b) imbedded in the earth,

as in the case of walls or

build·

. ings .; or

(c) attached to what is so imbedded for the permanent

beneficial enjoyment

of that to which it is attached."

G Thus, while trees rooted in the earth are immovable property

as being things attached to the earth by reason

of the definition

of the term

"immovable property" given in the General Clauses

Act, the Orissa General Clauses Act and the Registration Act,

read with the definition of the expression "attached to the earth"

given in the Transfer of Property Act, standing timber is movable

ll property by reason of its bein$ exclucdecl fro!D the definition of

-.

l

i>iuSSA v. TirAGHUR PAPER MiLLS (Madon, i.) 69

"immovable property" in tbe Transfer of Property Act.and tbe

Registration Act and

by being expressly included within the

mean­

ing of the term "movable property" given in the Registration Act.

The distinction between a tree and standing timber has been poin­

ted out by Vivian Bose, J., in his separate but con curing judgment

in the case

of Shrimati Shantabai v. State of Bombay and others

1

as

follows :

"Now, what is the difference between standing timber

and a tree

? It is clear that ihere must be a

distinc'

tion because the Transfer of Property Act draws one in the

definitions

of 'immovable property and 'attached to the

earth' ; and it seems to

me

that'the distinction must lie in

the difference between a tree and timber.

It is to be

noted

that the exclusion is only of 'standing timber' and not of

'timber trees.'

"Timber is well enough known to be-wood suitable for

building houses, bridges, ships, etc., whether

on the tree

A.

B

c

or cut and seasoned.' (Webster's Collegiate Dictionary). D

Therefore, 'standing timber' must be a tree that

is in a

state

fit for these purposes and, further, a tree that is meant

to be converted into timber

so shortly that it can already

be looked upon as timber for all practical purposes even

though it is still standing. If not, it is still a tree because,

unlike timber, it will continue to draw sustenance from

the soil. E

"Now, of course, a tree will continue to draw sus­

tenance from the soil so long as it continues to stand and

live ; and that physical fact of life cannot

be altered by

giving it another name and calling it 'standing timber' But

the amount

of nourishment it takes, if it is felled at a

reasonably

early date, is so negligible that it can be ignored

for all practical purposes and though, theoretically,

there

is no distinction between one class of tree

a)ld another, if

the, drawing of nourishment from the soil

is the basis of the rule, as I hold it to be, the law is groun­

ded, not "so much on logical abstractions as on sound and

practical commonsense.

It grew empirically from instance

to instance and decision to decision until a recognisable

(I) [1959] S.C.R. 265, 27S-6.

F

H

70 SUPllEMll COURT llEPOllTS [1985] 3 s.c.a.

A and workable pattern emerged ; and here, this is the shape

it has taken."

B

0

D

E

(I

G

H

Thus, trees which are ready to be felled would be standing

timber and, therefore, movable property. What

is, however,

material for our purpose

is that while trees (including bamboos)

rooted

in the earth being things attached to the earth are

immov·

able property and if they are standing timber are movable property

trees (including bamboos) rooted in the earth which are agreed to

be severed before sale or under the contract

of sale are not only

movable property but also goods.

In this connection it may be mentioned that in English law

there exists (or rather existed) a difference between

fructus natwriles

and fructus industriales. Fructus natura/es are natural growth of the

soil, such

as; grass. timber and fruit on trees, which were regarded

at common law

as part of the soil. Fructus industriales are fruits or

crops produc.ed

"in the year, by the labour of the year" in sowing

and reaping, planting, and gathering

e.g. corn and potatoes.

Fruc­

tus industriales are traditionally chattels being considered the

"representative" of the labour and expense of the occupier and

thing independent of the land

in which they are growing and were

not treated

as an interest in land. Fructus naturales are regarded

until severance

as part of the soil and an agreement conferring any

right or interest in them upon a buyer before severance

was a

contract

or sale of an interest in land and were, therefore, governed

by section 4 of the

Statute of Frauds of 1677 (29 Car. n c. 3). If

they were severed before sale, section 17 of that Statute applied

(see Benjamin's Sale of Goods, Second Edition, para 90, p. 62)

This distinction was, therefore, important in England for the

purposes

of the formalities required under the

Statute of Frauds.

· Under the definition of 'goods' given in section 62 (1) of the old

English Sale of Goods Act of 1893, "goods" included inter alia all

industrial growing crops and things attached to or forming part of

the land which were agreed to be severed before sale

or under the

contract

of s.ale. The formalities required for a con tract for the

sale·

of goods of the value of

£10 and upwards by section 17 of the

Statute of Frauds were re-enacted in section 4 of the Sale of Goods

Act,

1893. This section was repealed by the Law Reform

(Enforcement

of Contracts) Act, 1954. The definition of 'goods' in

section

61 (1) of the new

Sale of Goods Act, 1979, is the same as in

'

'-"""==

---

. I

-.

ORISSA v. TITAGHUR PAPER MILLS (Madon, j.) 11

the earlier Sale of Goods Act. Thus, the position now in English

law is that crops and other produce whether fructus naturales or

fructus industria/es (except in the case of a sale without severance on

a landlord, incoming tenant

or purchaser of ·the land)·

will· always

be "goods" for the purposes of a contract of sale since the agree:

ment between the parties must be that they shall be severed either

"before sale" or "under the contract of sale" (see Benjamin's Sale

of Goods, Second Edition, para 91, p.63).

As pointed out in Mahadeo v. The State of Bombay' the distinc­

tion which prevailed in English law between fructus natura/es and

fruc111, industria/es does not exist in Indian law, and the only ques-

B

tion which would fall to be considered in India is whether a trail-C

saction concerns .. "goods" or "'movable property" or "immovable

property'" The importance of this question is twofold : (I) in the

case

of immovable property, a document of the kind specified

in·

section 17 of the Registration Act requires to be compulsorily

registered and if

it is not so registered, the consequences mentioned

in sections in sections

49 and

50 of that Act follow, while a docu-.

ment relating to goods

or movable property is not required to be

registered; and (2) by reason

of the interpretation placed on Entry

54 in List II in the Seventh Schedule to

·the Constitution of India ·

by this Court a State cannot levy a tax op. the sale or purchase· of

any property other than "goods" .

The subm.ission

of the Respondent

that, the impugned provisfons

levied a purchase tax on immovable property and not on goods '.and

hence travelled beyond the taxing power of the State Government

under the said Entry

54 was based upon the omission in the

impu­

gned provisions of the words "before sale or under the contract of

sale." It was urged that ·unless these words qualified the phrase

''agreed to be severed", standing trees and bamboos would not be

"goods" within the meaning of the definition of that term in tlie

Sale of goods Act and the Orissa Act. The High Court held that

the impugned provisions amounted to levying a tax on an agree;

ment of sale and not on actual sale or purchase. According to the

High Court, on tax can be imposed unless the taxable event (name­

ly, the transfer of property in the goods from the seller to the

buyer) takes place ; and .standing trees (including bamboos) b~ing

(1) (1959) Supp. 2 S.C,R. 339, 349.

'.

D

J.

E

F

G

A

B

c

D

E

F

G

72 stiPROO cduar REPORTS [19~5] 3 s.c.a.

unascertained goods, under the forest contracts entered into by the

State Government, they continue to be the property of the State

Government untill felled and, therefore, the title to such trees or

bamboos

is transferred in favour of the forest contractor only when the

trees or bamoos are felled and severed after complying with the

con­

ditions of the forest contract. We find that there is a fallacy under­

lying the above submissions of the Respondents and in the reasoning

of the High Court, the fallacy being to read merely the description

of the goods given in the impugned provisions by itself and not in

conjuctions with the governing

words of the said provision. These

impugned provisions declare that standing trees agreed to

be severed

and bamboos agreed to be severed shall

be liable to tax on the

turnover

or purchases. The tax that is levied under section 3-B

is not on goods declared under that sectioµ but on the turnover of

purchases

or such goods. It one reads the Notifications issued

under section

3-B and S (1) as a whole. it is clear that the taxable

event

is not an agreement to sever

st•nding trees or bamboos but

the purchase of bamboos or standing trees agreed to be severed.

Does the absence

of the words

"before sale or under the con­

tract of sale" make any difference to this position ? The answer in

our opinion must be in the negative. The very use of the word

"agreed" in the description of goods shows that there is to be an

agreement between the buyer and the seller and under this agree

..

ment standing trees must be agreed to be severed and so)

also bam­

boos. According to the definition of "goods" such severance may be

either before sale or under the. contract of sale. At the first blush,

therefore, it would appear that the goods which form the subject·

matter of the impugned provisions are either bamboos and standing

trees agreed

to be severed before sale or bamboos and standing

trees agreed tobe severed under the contract

of sale. The question is

"Which one is it ?". The answer to this question depends upon the

distinction in law between an agreement to sell and sale. Section 4

of the Sale of Goods Act, 1930, deals with a sale and an agreement

to sell and it provides

as follows :

"4. Sale and agreement to sell.

(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 ff' of sale between one part-owner and another.

~--/

ORiSIA v. TITAGHUR PAPER MILLS (Madon, i.)

(2) A contract of sale may be absolute or conditional.

(3) Where unJ,r a contract of sale the property in

the goods is transferre.d 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."

Thus, where

th~re is a transfer from the buyer to the seller of

property

in the goods which are the subject-matter of the agreem_ent

to _sell, the contract of sale, is a sale but when the transfer of

property in the goods is to take place at a

future time or subject

to some condition thereafter to

be fulfilled, it is an agreement to

sell which

becomes a sale when the time elapses or such condi­

tions are fulfilled. In the first case the contract is executed, w hilc

in the second case it is executory.

The distinction between an agreement to sell and sale and

the legal consequenc.es flowing from each have been succinctly

stated in Benjamin's Sale of Goods, paras 25-26 at page 23, as

follows :

"Agreement to sel/ ...... An Agreement to sell is simply

a contract, and

as such cannot give rise to any rights in the

buyer which are based on ownership or possession, but

only to claims for breach of contract. In the normal case _at least, so long as the property in the goods remains in the

seller, they are his to deal •with as he chooses (except that

he

may be in breach of

hi; contract with the buyer); they

are liable to seizure in distress

or

~xecution as his property;

and they pass to the trustee in the event

of his bankruptcy.

Sale. The Sale of Goods Act 1979 defines a sale in

the following passages: first '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'; and secondly, 'an

A

B

c

D

E

F

G

agreement to sell becomes a sale when the

time elapses or H.

A

B

c

D

E

F'

G'

H'

74 SUPREME couar REPORTS [1985] 3 s.c.R.

the conditions are fulfilled subject to which the property in

the goods

is to be transferred'. It is therefore possible for

a sale within the statutory meaning to come about in one

of two ways: either by a contract whi.ch

itself operates to

transfer the goods from the ownership of the seller to that

of the buyer, the property passing when the contract is

made; or by a contract which is initially only an agreement

to sell, but

is later performed or executed by the transfer

of

the property. In either case it is clear that the sale

involves not only a contract, but also a conveyance

of the

property in the goods, and so it may confer on the buyer

the right to bring a claim in tort for wrongful interference

with the goods as well

as rights in

contract."

, The test, therefore, is the transfer of the property in the

goods from the seller

to the buyer. In order to dctermil)c

whether for the impugned

provision> to apply standing trees or

bamboos are to be severed before sale or under the contract of

sale, what is required to be ascertained, therefore, is the point of

time when the property in the goods is transferred from the

seller to the buyer. Under section 18 of the Sale of Goods Act,

where there is a contract for the sale

of unascertained

goods, no property

in the goods transferred to the buyer

unless and until the goods are ascertained.

Under section 19,

where there

is a contract for the sale of specific or ascertained

goods the property in them

is transferred to the buyer at such time

as the parties to the contract intend it to

be transferred and for

the purpose

of ascertaining the intention of the parties regard is

to be had to the terms of the contract, the conduct of the parties

and circumstances of the case. Further; unless a different intention

appears, the rules contained in sections

20 to 24 are rules for

ascertaining the intention

of the parties as to the time at which the

property in the goods

is to pass to' the buyer. Sections

20 to 23

provide as follows :

"20. Specific goods in a deliverable state.

Where there is an unconditional contract for the sale

of specific goods in a deliverable state, the property in the

goods passes to the buyer

when the contract is made, and

it

is immaterial whether the time of payment of the price

or the time of delivery of the goods; or both, is

postponed."

ORISSA v. :riTAGHUR PAPER MILLS (Madon, J.)

"21. Specific goods to be put into a deliverable state.

Where there is a contract for the sale of specific goods

and the seller

is bound to do something to the goods. for

the purpose of putting them into a deliverable state, the

property does not pass until such thing

is done and the

buyer has notice

thereof."

"22. Specific goods zn a deliverable state, when the

seller has

to do anything thereto in order to ascertain

price.

Where there is a contract for the sale of specific

goods

in a deliverable state, but the seller is bound to

weigh, measure, test or do

s·ome other act . or thing with

reference to the goods for the purpose of ascertaining the

price, the property does not pass until such act or thing

is

done and the buyer has notice

thereof."

"23. Sale of unasccrtained goods and appropriation.

(I) Where there is a contract for the sale of

unascertained or future goods

by description and goods of

that description .and in a deliverable state are

uncondition·

ally appropriated to the contract, either by the seller with

.the assent of the buyer or by the buyer with the assent of

the seller, the property in the goods thereupon passes to

the buyer. Such assent may be expressed or implied, and

may be given either before or after the appropriation

is

made.

(2) Delirery to the Carrier.

Where, in pursuance of the contract, the seller

deli­

vers the goods to the buyer or to a carrier or other bailee·

(whether named by the buyer or not) for the purpose of

transmission to the buyer, and does not reserve the right of

disposal, he is deemed to have unconditionally appropria­

ted the goods to the contract."

We are not concerned with section 24 which provides when

property in

the goods passes to the buyer where goods are delivered

A

B

c

E

F

G

SUPREME COuRT REPORtS [1985] ? s.c.Il,

A to the buyer on approval or "on sale or return" or other similar

terms. The terms "deliverable state" and "specific goods" are

defined in clauses

(3) and (14) of section 2 of the

Sale of Goods Act

as follows :

B

c

D

E

F

.G

,H

"( 3) goods are said to be in a 'deliverable state' when

they are in such state that the buyer would under the con­

tract be bound to take delivery

of

them;"

"(14) 'specific goods' means goods identified and agreed

upon

at the time a contract of sale is

made."

Under the Orissa Act also "sale" is defined as meaning

"transfer of property in goods" and the word "purchase" is to be

construed accordingly. The language

of the impugned provisions,

especially the governing words thereof, makes it clear that what

is

made exigible to tax is not an executory contract of sale but an

executed contract

of sale or in other words, not an executory

con­

tract of purchase but a completed contract of purchase. Bearing in

mind the statutory provisions referred to above, it

is further clear

that such purchase would be complete when the standing trees

or

bamboos are specific goods,

·that is, when they are identified and

agreed upon

at the time the contract of sale is made, and the

con­

tract is unconditional and further such standing trees or bamboos

are in a deliverable state, that is, nothing remains to

be done except

for the buyer to enter upon the land of the seller and to fell and

remove the trees

or bamboos, as the case may be, without any let

or hindrance. If these factors exist, then unless a different

inten­

tion appears either from the terms of the contract or can be infer­

red.from the conduct

of the parties and other circumstances of the

case, the property in such standing trees and bamboos would pass

from seller to the buyer when the contract

is made and it

is im­

material whether the time of payment of the price or the time of

taking delivery of standing trees agreed to be severed or bamboos

agreed to

be severed or both is postponed. If, however, there is an

unconditional contract for the sale

of standing trees or bamboos

which are unascertained, then unless a different intention appears,

the property in them would be transferred to the buyer when the

standing trees and bamboos are ascertained and it would be

equally

immaterial whether the time of payment of the price or the time of

taking delivery of standing trees agreed to be severed or bamboos

agreed to be severed or both

is postponed. In either event, the

sale and purchase would be completed before severance as under

1

'

I.

-'·~.

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.) 77

the impugned provisions there has to be a completed purchase of

standing trees or bamboos agreed to be severed for the impugned

provisions to apply. The severance obviously cannot be before

sale because in

that case the property would. only pass and the sale

completed after severance and the impugned provisions

would have

no application. Therefore, for the impugned provisions to apply

the severance of the standing trees or bamboos must not be before

sale but under the contract

of sale, that is, after the sale thereof is

'completed. The absence in the impugned provisions of the words "before sale or under the contract. of sale" thus makes 'no differ­

ence. The subject-matter of the impugned provisions is goods and

the tax that

is levied thereunder is on the completed purchase of

goods.

The fallacy underlying the reasoning

of the High Court is

that it has confused the question of the interpretation of the

impug­

ned provisions with the iqterpretation of Timber Contracts and the

Bamboo Contract. On the interpretation it placed upon the

Timber Contracts it came to the conclusion that the property in the

standing trees passed only after severance and after complying

with the conditions

of that contract and, therefore, the impugned

provisions purported to

levy a purchase tax on an agreement to

sell.

In the case of bamboos agreed to be severed, the High Court

on an interpretation of the Bamboo Contract held that it was a

grant

of a profit a prendre and from that it further held that the

· impugned provisions were bad in law because they amounted to a

levy of purchase tax on a profit a prendre. This approach adopted

by the High Court

was erroneous in law. The question of the.

vali­

dity of the impugned provisions had nothing to do with the legality

ofany action taken thereunder to ·make exigible to tax a particular

transaction.

If a notification is invalid, all actions taken under it

would be invalid also. The converse, however, is not true. Where

a notification

is valid, an action purported to be taken thereunder

contrary to the terms

of that notification or going beyond the

scope

of that notification would be bad in law without affecting

in any maimer the validity

of the notification. Were the

interpretation placed

by the High Court on the Bamboo

Con­

tract and the Timber Contracts correct, the transactions covered

by them would not be liable to be taxed under ,the impugned provi­

sions and any attempt or action by the State to do so would be

illegal but the validity of the impugned provisions would not be

A

B

c

D

E

F

G

ff

78 SUPREME COURT REPORTS [1985] 3 S.C.R.

A affected thereby. The challenge to the validity of the impugned

provi>ions on the ground of their unconstitutionality must, therefore,

fail.

B

c

D

E

F

G

Double taxation

Another ground on which the High Court invalidated the

impugned provisions was that bamboos agreed to be severed and

trees agreed to

be severed were the same as bamboos and .timber

after they are felled and as bamboos and timber were liable to tax

at the sale-point, the taxation of the same goods at the

purchase­

point amounted to double taxation and was contrary to the provi­

sions of the Orissa Act. The general rule of construction is that a

taxing >tatute will not be so construed as to result in taxing the

same person twice in respect

of the same income or transaction.

There

is, however, nothing to prohibit the legislature from so

enac­

ting it. If what the High Court held were correct, it would not be

double taxation in the strict sense

of the term because the same

person

is not being taxed twice in respect of the same transaction

but the

same transaction is being taxed twice though in different

hands, tint is, the seller in a tra111action of sale is being subjected

to sales tax and the purchaser in the s1mc transaction is being sub­

jected to purcluse tax. Not oaly d0es the Orissa Act expressly

forbid this but

it also forbids the levying of tax at more than one

point

in the

same sedes of sales or purchases by successive dealers.

The provisions in this behalf arc to be found in the proviso

lo

section 3-B and the proviso to section 8.

Under the proviso to

section 3-B, no tax is to be payable on the sales of goods or class

of goods declared under that section to be liable to tax on the turn

over of purchases. Under the proviso to section 8, the same goods

are

not to be taxed at more than one point in the same series of

sales or purchases by successive dealers. According

fo the High

Court, under the Orissa Act all goods are liable to sales tax unless

exempted from tax by the State Government under section 6, and,

therefore,

if particular goods are liable to sales tax, no purchase

tax

is leviable in respect of the same goods unless the

State Govern,

men! issues three notifications, namely, (I) a notification under

section 3-B declaring the goods to be taxable at the purchase point:

(2) a notification under section 5 prescribing the rate

of purchase

tax,

and (3) a notification deleting the goods from the list of goods

taxable

at the sale point. The High Court has illustrated this by

setting

out what was done when fish was made liable to

purchas~

tax instead of sales tax,

~f

ORISSA v. TITAGHUR PAPER MI.LLS (Madon, J.) 79

We find that the High Court has misunderstood the scheme

of taxation under the Orissa Act. As the Notifications dated

December 29, 1977, were issued

as a result of the amendments

made

by the Orissa Sales Tax (Amendment) Ordinance, 197.7, replaced by

.the Orissa Sales Tax (Amendment) Act, 1978, while the Notificatioris

dated May 23, 1977, were issued prior to these amendments, it is

· necessary to consider the scheme of taxation under the Orissa Act

both prior to and after January

1, 1978, being the· date on which

the relevant provisions of.the said Ordinance came into force.

Prior to January 1, 1978, under section 5 (!)·the tax payable

by a dealer under the Orissa Act on his taxable turnover was at the

rate specified in that sub-section. At the relevant ti

me the rate was

six .per cent. The rate specified in

section 5 (1) was for both sales

tax and. purchase tax.

As under the Orissa Act a dealer

js liable to

pay tax on his turnover

of sales as also on his turnover of

purc]Jases

and as purchase tax is payable only on the turnover of purchases of

those declared under section 3-B, in respect of the goods not so.

declared a dealer would be liable to pay sales tax. Under the pro­

viso to section 3-B, when any goods are declared to be liable to

tax on

the turnover of purchases, no tax is payable on the sales of

such goods.

Prior to January l, 1978, a notification was to be

issued

by the

State Government under the first proviso to section 5

(1) only when it wanted to fix a r>te of tax higher or lower than that

specified in section 5(1).

If no such notification was issued, then

the tax which

was payable, whether it was sales tax

.or purchase tax,

was to be

at the rate mentioned in section 5 (1). The illustration

given

by the High Court was in respect of goods for which under the

first proviso to section

5(1) the

State Government had notified a

rate

of tax different from that mentioned in section

5(1). Where,

however, any goods were declared under section 3-B to be liable to

tax on the turnover

of purchases, the notification prescribing a

high,

er or lower rate of sales tax issued under the first proviso to section

5(1) would there upon cease to be operative by reason

of the

opera,

tion of the proviso to section 3-B and it was not necessary to repeal

expressly that notification.

It was also not necessary for the

State

Government to issue a notification fixing the rate of purchase tax

unless it wanted .to

fix a rate higher or lower than that specified

i~

section 5 (!). Where no such notification was issued, the rate

of. purchase tax would be the one which was mentioned in

section 5(1),

A

B.

c

D.

E

F

G

lJ

A

B

c

D

E

F

G

H

80 SUPREME COURT REPORTS (1985] 3 •.C.R

After January 1, 1978,"the scheme of taxation is that no.rate

of tax is specified in the Orissa Act but under section 5(1) the State

Government is given the power to notify from time to time the rate

of tax, whether sales tax or purchase tax, by issuing notifications.

The notifications issued under section 5 (I) fixing the rate of sales

tax, namely, Notification No. 67184-C.T.A.-135/77-F dated Decem·

ber 29, 1977, does not contain any entry in respect of bamboos or

timber or in respect of bamboos agreed to be severed or standing

trees agreed to be severed.

If they were liable to sales tax, they

would fall under the residuary entry No.

101 and be liable to sales

tax at the rate

of seven per cent. If, however, any goods falling

under the residuary entry or any other entry in

that notification arc

declared under section 3-B to be liable to tax on the turnover of

purchases, the residuary entry or that particular entry would

auto·

matically cease to operate in respect of those goods by reason of the

proviso to section 3-B without there being any necessity to delete that

particular entry or to amend th~ residuary entry by excluding those

goods therefrom. It would, however, be necessary for the State

Government to issue a notification specifying the rate of purchase

tax

on those goods because unlike what the position was prior to

January

1,

1978, on and after that date the new sub section 5(1) does

not specify any rate

of tax but leaves it to the

State Government

to notify

it from time to time.

The High Court was, therefore, in error in holding that the

impugned provisions were invalid and

ultra 1•ires the Orissa Act as

they amounted to "double taxation".

Effect of "Supersession"

Yet another contention raised by the contesting Respondents

with respect

to the impugned provisions was that the two

Notifica­

tions dated December 29, 1977, having been made in "supersession"

of all previous Notifications issued on the subject, the effect wits to

wipe out all tax liability which had accrued under the Notifications

dated May 23, 1977. The High Court held that to hold that

the

liability was so wiped out would amount to giving a retrospective

effect

to the Notifications dated December 29, 1977, and as the

Legislature had

not conferred upon the

State Government the power

to issue notifications having retrospective effect, to so hold woulq

be to render the said Notification void. The High Court re:forred

to a number of decisions on the question of the power to make

subordinate le$islation havin$ retrospective effect.

'

L

~r

ORISSA v. TiTAGHUR PAPER MILLS (Madon, J.) 81

We find it unnecessary for the purpose of deciding this point

to refer

to any of the authorities cited by the High Court. Both.

the Notifications dated December

29, 1977, are in express terms

made with effect from January

1, 1978. They do not at all puport

to have any retrospective effect and, therefore, they conld not affect

the operation

of the earlier Notifications dated May 23, 1977, until

they came into force on. January

1, 1978. Further, both section

3. Band section 5(1) in express terms confer power upon the

State

Government to issue notifications "from time to time". Section 3-B

provides that "the State may, from time to time by notifications,

declare ... "goods liable to purchase tax. Prior to Jannary l, 1978,

the proviso. to sub-section (I) of section 5 provided that "The State

Government may, from ti11w to time by notification ... fix a higher

rate not exceeding thirteen per cent or any lower rate of tax ... "

Section 5 (1) as amended with effect from January, 1978, provides

that "The tax shall be levied ... at such rate, not exceeding thirteen

per cent ...

as the

State Government may, from time to time by notifi­

cation, specify." Thus, the power of the State Government to issue no­

tifica lion under these two sections is to be exercised by it "from time

to time" and, therefore, the State Government can under section

5(1) issue a notification and repeal and replace it

by another

noti­

fication enhancing or lowering the rate of tax and similarly it can

issue a notification under section 3-B declaring particular goods or

class

of goods to be

liable to tax on the turnover of purchases and

subsequently

by another notification repeal that notification with

the result that the particular goods or class

of goods will from the

date

of such repeal be again liable to pay tax on the turnover of

sales. In the Notifications dated December 29, 1977, the word

"supersession" is used in the same sense ,as the word "repeal" or

rather the words "repeal and replacement". The Shorter Oxford

English Dictionary, Third Edition,

at page

2084, defines the word .

'supersession' as meaning "The action of superseding or condition

of being superseded." Some of the meanings given to the word

'supersede' on the sam: p1go in that Dictionary which are relevant

for our purpose are "to put a stop to; to render superfluous or un­

necessary; to make of no effect; to annul; to take the place of (some­

thing set aside or abandoned); to succeed to the place occupied by; ·

to supply the place

of a

thing". Webster's Third New International

Dictionary

at page

2296 defines the word "supersession" .s "the

state of being ~superseded; removal and replacement". Thus,

by usin(l in •. \he Notjficatio11s <;fated l)ecemb;r 2'J, 1977,

A

c

E

F_

'G

A

B

c

D

E

F

G

ll

82 SUPREME COURT REP OR TS (l985] 3 S.C.R.

the expression 'in snersssion of all previous notification'

all

that was done was to repeal and replace the previous

notifications

by new notifications. By repealing and replacing the

previous notifications by

other notifications, the result was not to

wipe out any liability accrued under the previous notifications.

If

this contention of the Respondents were to be accepted, the result

would be startling.

It would mean, for example, that when a

noti~

fication has been issued under section 5 ( l) prescribing a rate of tax,

and that notification is later superseded

by another notification

further enhancing the rate

of

tax, all tax liability under the earlier

notification

is wiped out and no tax can be collected by the State

Government in respect

of any transactions effected during the period

when the earlier notification

wa·s in force.

The two Notifications dated December

29, 1977, impugned by

the Respondents were not the only notifications which

were issued

on that date. There was another notification issued on that date,

namely, Notification No. 67184-C.T.A.-135/77-F, directing that with

effect from January

I, 1978, the rate of tax payable by a dealer

under the Orissa Act on account of the sale of goods specified in

column (2) of the Schedule to the said Notifications would be at

the rate specified against each in column

(3) thereof. The issuance

of these three Notifications became necessary by reason of the

change brought about in the scheme

of taxation by the

Orissa Sales

Tax (Amendment) Ordinance, 1977. Prior to

that Ordinance, the

rate

of tax was as specified in sub-section

(I) of section 5 with power

conferred up~n the State G~vernment by the first proviso to that

sub-section

to fix by notification issued from time to time a higher

rate

of tax not exceeding the limit mentioned in the said proviso

or to fix from time to time a lower rate of tax on account of the sale

or purchase of any goods or class

of goods specified in such

notifica­

tion. Thus, if no notification was issued by the State Government

enhancing or lowering the rate

of tax, the tax, whether sales tax or

purchase tax, payable by a dealer would be at the rate

specified in

sub-section (I) of section 5 which at the relevant time was six per

cent. In pursuance

of the power conferred by the said proviso, the

State Government had from time to time issued notifications

enhancing and in some cases lowering the rate

of tax payable on

account

of either sale or purchase of goods. The new section 5(1)

did not specify any rate of tax but what was done was to confer

upon the State Government the pow't by notific1tion to specify

J

)

_)._

oRiSSA v. 'l'ITAGHUR PAPER MILLS (Madon, J.) 83

from time to time the rate of tax subject to a maximum of thirteen

per cent. Therefore, with effect from January 1, 1978, unless a

notification

was issued specifying the rate of tax, no dealer would

be liable to pay any tax under the Orissa Act.

It was for this rea­

son that the Notification No. 67184-C.T.A-135/77-F dated Decem­

ber 29, 1977, was issued specifying the rates of sales tax with effect

from January

l, 1978. As under section

3-B the State Government

had to declare the goods

or class of goods which were liable to tax

on the turnover

of purchases, the

State Government had issued from

time to time notifications declaring such goods

or class of goods.

The purchase

of such goods or class of goods were liable to purchase

tax

at the rate specified in the old section 5(1). Where, however,

the

State Government wanted that the turnover of purchase of

particular goods or class of goods should be taxed at a higher or

lower rate, it issued notifications specifying such rate. As no rate

of tax was specified in the new section 5(1) but it was left to the

Government to specify the rate of tax by notification both in respect

of sales tax and purchase tax, from the date the amending Ordinance·

of 1977 came into force, namely from January I, 1978, it was

necessary to Issue a notification consolidating all previous notifica­

tions on the subject in respect of goods liable to purchase tax

which the State Government did by the impugned Notification No.

67178-C.T.A.-135/77-(Pt.)-F. dated December 29, 1977, declaring

what goods would be liable to tax on the turnover

of purchases with

effect from January 1,

1978. Unless, however, the rate of purchase

tax

in respect of these goods was specified"under the

new section 5(1)

the goods though declared to be liable to tax on the turnover of

purchase would not be exigible to any tax at all, it, therefore,

became necessary for the State Government to issue Notification

No. 67181-C.T.A.-135/77-F. dated ~December 29, 1977; specifying

the rates

of purchase tax with effect from January l, 1978.

Exigibility to tax-Preliminary Contenion-

The question which now remains to be considered is as regards

the exigibi!ity to purchase tax

of the amounts payable under the

Bamboo Contract and the Timber Contracts. Before

we address

ourselves to this question, it

is necessary to

dispo>e of a preliminary

contention raised by the Appellant with respect to this part of the

case.

It was submitted that the question whether a particular

contract

is a sale or purchase of goods is a question of fact or a

question

of interpretation of documents and one to be decided by

A

II

c

D

E

F

G

A

B

c

D

'·

E

G

8.4 SUPREME-COURT REPOR1S (1985] 3 S.C.R,

the assessing authorities and, therefore, if this Court holds that the

impugned provisions are valid (as we· have now done), it should

not go into the question of the exigibility to purchase tax of the

_transactions in question. This plea

was not raised at any stage

_before the High Court but has been raised for the first time in the

Petitions for Special Leave to Appeal,

•-,md that too only with

respect to the Bamboo Contract though during the course

of hearing

before us, it was raised with respect to the Timber Contracts also.

Before the High Court the matter

proceeded on the basis that the

question of validity

of the impugned provisions and of the exigibiiity

to purchase tax

of the transactions covered by the Bamboo Contract

and the Timber Contracts were inextricably linked together as if

the impugned provisions were issued only in order to levy a

purchase tax on the transactions covered by these Contracts. The

Appellant can, therefore, hardly raise such a plea for the first time

before this Court..

It is true

that normally it is for assessing

authorities to ascertvin the facts and to interpret the documents

in question,

if there be any, and to decide whether a particular

transaction

is exigible to tax. Here, however, the facts are not in

dispute and the determinations

of this question involves only an

interpretation

of the documents. The major part of the hearing

before the High Court was .taken up with the nature

of the

transac­

tions covered by these Contracts. W c Jrnve also heard the parties

at length on the merits of this questi'on. Even though the judgment

of the High Court with respect to the validity of the impugned

provisions has been held by us to

be erroneous in law, it may well

be said that the High Court's finding on the true nature

of the

Bamboo Contract and the Timber Contracts remains unaffected.

If we refuse to decide this question and leave it to the assessing

authol'ities to do so, they may

well feel themselves bound by the

High Court's findings on this point or on the other hand, they may

consider that the whole judgment

of

the High Court has been

reversed, particularly in

view of the fact that in their_ writ petitions

the Respondent company

ha( challenged the notice issued to it to

file a return and the Respondent Firm had challenged the assess­

ment order made against it and, therefore, feel free to determine

the question afresh.

Jn either event the matter would ultimately

come back for decision

to this Court and that too after the lapse

of several years-a. consequence not to be contemplated with

equanimity

by this Court. We, therefore, reject this preliminary

contention raised

by the Appellant.

l

__ j

ORISS, v. TIT.\GHUR PAPER MILLS (Madon, J.) SS

Timber Contracts

We will first take up the Timber Contracts. The High

Court held that standing trees were unascertained goods and

continued

to be the property of the

State Government until felled

and, therefore, the title to them

was transferred to the forest

contractor only when the trees were felled or severed by hini after

complying with all the conditions

of the forest contract and as

the impugned provisions applied only to standing trees, that

is, to

trees before their severance, purchase tax

was not attracted and any

attempt to

levy purchase tax on the amounts payable under the

Timber Contracts would amount to taxing an agreement

of sale

of goods and not a completed sale or purchase

of goods. The·

High Court further held that. the trees

so severed in which the

property passed to the forest contractor were liable to sales . tax

by.

reason of the retrospectively amended definition of the term "dealer"

in clause (c) of section 2 of the Orissa Act and they could not;·

therefore, be again made liable to purchase tax. The High Court

also rejected the contention of the Appellant State that .timber

and dressed or sized Jogs were different commercial commodities

and that sales tax could, therefore, be levied on both. According ·

to the High Court they were the same commodity and, therefore, .

they could not be made liable to sales tax at two points in the.'

same series of sales. The High Court did not decide the question:

whether the Timber Contracts were works contracts. This point.

was, however, urged before us "on behalf of the Respondent firm.

We will deal with this point separately but for the present suffice

it to

say that according to us none of the Timber Contracts is a

works contract.

On behalf of the Appellant State it was submitted that the

Timber Contracts read with the sale notice advertising the auction ,

in respect of the standing trees showed that the standing trees

which were the subject mattter

of the Timber Contracts were goods

identified and agreed upon at the time when the contract

of sale

was made and were thus specific goods and that, therefore, there

was an unconditional contract for the sale

, of specific goods · in a

deliverable state and the property

in the said

trees passed to the

forest contractor, namely, the Respondent Firm, when the contract

was made, and the fact that the time of delivery as also

payment,

·of price was postponed was irrelevant. It was the Appellant's

c

E

F ,

G ;·;

A

B

c

D

E

F

G

H

SUPREME COURT REPORTS [1985) 3 s.c.li..

submission that for the reason set out above the amounts payable

under the Timber Contract were e~igible to purchase tax. It was

further submitted that in any event the property in the standing

trees passed when the forest contractor

was permitted to get into

the area

as delineated under Rule 12 of the

Orfasa Forest Contract

Rule,

1966 (hereinafter referred to as

"The Forest Contract

Rules"), to enable the contractor to fell the trees. The same.

submissions as found favour with the High Court were advanced

before

us on behalf of the Respondent Firm.

While setting out the facts

of Civil Appeal No.

220 of 1982,

we have outlined the procedure followed by the State of Orissa in

entering into forest contracts. The notice of public auction with ·

which we are concerned was published in the Orissa Gazette and

was headed "Sale Notice of Timber and Other Forest Products .... "

This Sale Notice related to different forest produce and was in three

parts. ·Part I gave "the list of timber and other forest products"

for the session 1977-78 which would be "sold by public auction'''

and the places and dates where such auction sales were to be held.

Clause 2 of Part I of the Sale Notice stated that· the sale lots were

subject to the Special Conditions of Sale as published in Part II of

the Sale Notice, the General Conditions of Sale as published in

Part III of the Sale Notice so far as they may be applicable and the

conditions mentioned in the sanctioned form of agreement. Clause

3 stated

that the successful bidders shall be bound by the Orissa

Forest Act.

1972, the Forest

Contract Rules, the Orissa Timber and

other Forest Produce Transit Rules, and all other relevant rules

in force or which might hereinafter come into force and

promulgated under the Orissa Forest Act, 1972.

Under condition I of the Special Conditions of Sale set out

in Part II of the Sale Notico, the contract period of timber coupes

was to commence from the date of the ratification of sale by the

competent authority and

was to include the number of working

months mentioned

in the sale notice

a·gainst each lot. Condition

2 stated the time and manner of "payment of purchase price" in

full or

by instalments.

Under condition 8, the intending bidders

were asked to inspect the coupes and lots before bidding in the auc­

tion and their act of bidding was to be deemed as sufficient proof

of their having inspected the coupes the coupes and satisfied them­

selves about the correctness of the quality and quantity of the

-' -

__ /

_)._ -

--../

-·

Ol!.issA v. TITAGHiiR PAPER MILLS (Madon, J.) si

produce and ·the area of the contract. Condition 9 provided that

no extension of time for working any coupe beyond the contract

period

as published in the

Sale Notice and declared in the auction

hall would

be allowed except under very exceptional circumstances. Under condition 14, the prescriptions contained in the working

plan, working schedule and their amendments or the executive in·

structions of the higher authority and local rules were to be binding

on the contractors

as regards felling of trees in coupes.

Under con­

dition 21, the purchaser was to pay the sales tax as per the Orissa

Act over and above the bid amount. In the event of his delay in

payment of sales tax, the ~ame was to be adjusted from the earnest

money deposit or the security deposit, as the case niay be, and the

purchaser

was bound to replenish the same forthwith. Condition

· 22 provided that the contractor was to pay sales tax on the amount

of each instalment as per the Sales Tax Rules along with the instal­

ment of consideration money and non-payment of sales tax or non­

subniission of appropriate declaration under the Sales Tax Rules

was to amount to incomplete payment of instalm,ent and thereupon

Rule 9-A of the Forest Contract Rules

was to be applicable.

Under condition 1 of the General Conditions of Sale Pub­

lished in Part III of the Sale Notice, the bid was to be accepted by

the Divisional Forest Officer subject to the approval of the com­

petent authority and the right to take contract fQ( exploiting

forest produce in the lots advertised in Part I

of the

Sale Notice

was to be granted when the competent authority approved' the

bid. Under condition 4, intending bidders were to deposit as

earnest money a sum of Rs. 200 . In the case of unsuccessful

bidders this amount

was to be refunded immediately after the

auction

was held and in the case of successful bidders the amount

·was to be adjusted towards the security deposit.

Under con·

dition 1 O, a bidder whose bid was conditionally of finally accepted

by the. Divisional Forest Officer was to make the security deposit

in cash. On payment of the security deposit, the bidder was to

sign the necessary agreement but the signing

of such agreement

was not to confer any right on the bidder unless the sale was

ratified

by the competent authority and the ratification order was

communicated to him. No sale of any lot was to be considered

valid or complete unless these conditions had been complied

with and

in the event of failure to do so, the Divisional Forest

Officer was to

be at liberty to quasb the sale and forfeit the

A

B

c

E

F

G

H

A

B

c

E

G:

H

88 SUPREME COURT REPORTS [1985] 3 s.c.R.

earnest money or the security deposit, as the case may be, and

resell the lot and recover from tbe successful bidder

who had

failed to comply with the conditions the shortfall

on such resale.

Condition

12 provided for the payment of purchase price in full

or by instalments.

Under condition 15 orders of ratification of

sale by the competent authority were to

be communicated to the

successful bidder

by the Divisional Forest Officer specifying

ther.::in the dates of the payment of instalments in accordance with

condition

12 and the period of the contract.

Under condition 16,

the contractor was not to commence the work in the contract area

before the payment

of the first instalment or the full

considera­

tion money if it was payable in one instalment and before furnish-

-ing the coupe declaration certificate or intimatiou about starting

work,

as the case may be, as required by Rule 12 of the Forest

Contract Rules.

Under condition 18, an agreement was to be

executed by the competent authority o·n behalf of the Government

and a copy thereof

was to be delivered to the contractor as soon

as may be.

' On its bids being accepted the Respondent Firm entered

into

five Timber Contracts in the forms prescribed in the

Sche­

dule to the Forest Contract Rules. The main heading of each

of these Timber Contracts is 'Forest Contract--Agreement Form'

and the long,heading states that it is "An agreement for the sale

and purchase

of forest

produce". Under clause 1, the forest

produce "sold and purchased under" the Timber Contract was

to be as specified in Schedule I thereof and the forest area in

which it was situated

was indicated in Schedule V thereof and was

to be referred to as the contract area. Schedule I in eacb of the

Timber Contracts mentioned that the forest produce

"sold and

purchase.d Under" the Timber Contract consisted of a certain

number

of sound and unsound trees marked and numbered

serially on the blazes, one at the base of the trees and the other

about 4-1/2',from the ground level,

· witb the hammer mark of

facsimile shown in the Sale Notice. Clause 2 stated that the

quantity

of the forest produce

"sold and purchased under" the

Timber Contract

was all the said forest produce which then

existed or might come into existence in the contract area which

the forest contractor might remove from the

s:.id area during the

period of the contract and

it was further provided that the said

forest produce

was to be extracted by the forest contractor ollly

J

'--

-"-

ORISSA v. TIT/\GHUR PAPER MILLS (Madon, J.) 89

during the aforesaid period. That part of clause 2 which. spoke of A

forest produce which might come into existence

in the contract

area

was obviously inapplicable to the Respondent Firms's case

inasmuch

·as the Timber Contracts were in respect of a certain

number

of existing trees. This provision was there because the

Timber Contract

was in .the form which is the prescribed form of

contract

in respect of all forest produce and under Rule 33 of the

Forest Contract Rules all forest contracts are required to

be made

in this form. Clause 4 started that the routes by which the said

forest produce

was to be removed from the contract area and the

depots at which it

was to be presented for examination were to be

those specified in Schedule

Ill. Under

dause 5, it was agreed

that the Timber Contract

was to be subject to the Forest

Con­

tract Rules and conditions laid down in the Sale Notice except to

the extent that the said Rules· and conditions were deemed to be

modified to the extent prescribed

in Schedule

JV. Under Schedule

4

·to the contract, the Forest Contract Rules were deemed to be

modified by the Special. Conditions in the

Sale Notice. By clause

6 the forest contractor bound himself to perform all acts. and

duties required and to abstain from performing any act forbidden

by or under the

Orissa Forest Act, 1972, and the Forest Contract

Rules and by the Timber Contract. Schedule

II set out

the.

number and amounts of inslalments and the dates of payment of

the instalments.

The bids given by the Respondent Firm were ratified in due

course by the Government of Orissa and the fact of such ratification .

was communicated to the Respondent Firm by the Divisional

.Forest Officer. Each of these ratification letters specified the

number and amounts of the instalments payable

by the Respondent

Firm and the dates when eacb instalment

was payable. Each of

these ratification letters required the Respondent Firm to take

delivery of the particular coupe within one and half months from

the date of issue of the ratification order and to get the Respondent

·

Firm' s property hammer mark registered in the office of the

Divisional Forest Officer on payment of the appropriate registration

fee. Each of these letters required the Respondent Firm not to

commence work

in the contract area before the payment of the first

instalment and before furnishing the Coupe Declaration Certificate

·

or intimating in writing that.it inte11ded to commence work from a

particular date, as the case may be, as required under Rule

12 of

-B

c

E

F-

G

H

A

B

c

D

E

F

G

H

90 SUPREME COURT REPORTS tt985] 3 S.C.R.

the Forest Contract Rules. By the said letters the Respondent

Firm was also required to submit monthly returns

of removal of

forest produce from the contract area to the concerned Range Officer. A copy of each of these letters was forwarded to the

concerned Range Officer with a direction that he should give

delivery

of the coupe to the Respondent Firm within one and a half

months from the date of the ratification order and allow the

Respondent firm to commence work in the contract area after it

had furnished the Coupe Declaration Certificate

and made payment

of the first instalment

As the Orissa Forest Contract Act, 1972 (Orissa Act 14 of

J 972), and the Forest Contract Rules formed part of the agreement

between the

State of Orissa and the Respondent Firm, it may be

convenient

at the stage to look at the relevant provisions thereof.

Clause (g)

of section 2 of the

Orissa Forest Contract Act defines

"forest produce"' as including inter alia timber, whether found in

or brought from a forest or not, and trees wh~n found in or brought

from a forest. Clause (n) defines "timber" as including "trees

fallen or felled and all wood cut-up or sawn". Clause (o) of

section 2 of the Act defines "trees" as including bamboos. Section

36 of •ihe Orissa Forest Act confers powers upon the State

Government to make rules inter u/ia for the cutting, sawing, conver­

sion and removal of trees and timber, and the collection,

manufacture

and removal of forest produce, from protected forests. Under section 37, any infringement of a rule made under section

36 is an offence punishable with imprisonment for a term which

may extend to one year

or with fine which may extend to Rs.

2000

or both. Under section 45(1) the control of all rivers and

their banks as regards the floating of timber as well as the control

of all timber and other forest produce in transit by land or water

is vested in the State Government and the State Government is

conferred the power to make rules to regulate the transit and

possession of all timber and other forest produce, including rules

prescribing the routes

by which alone timber or other forest produce

may be imported, exported

or moved into, from or within the

State, and to providC for punishment of imprisonment which may

extend to one year or fine which may extend to Rs. 1,000 or both

for any breach

of such rules.

Under rule .2 of the Forest Contract Rules, all contracts whereby

--

ORiSSA v. TltAGHUR PAPER MILLS (Madon, J.) 91

the Government sells forest produce to a purchaser are, subject to

the Forest Contract Rules

in so far as they are applicable, and the

Forest Contract Rules are deemed to be binding on every forest

contractor. The Forest Officer executing a forest contract is,

however, given the power to vary the rules

by express provision in

such contract. A

"forest contract' is defined in clause (1) of

Rule 3 as.meaning '·a contract whereby Government agrees to sell

and purchaser agrees to buy forest produce" and a 'forest contractor'

is defined in clause (2) of Rule 3 as meaning "the person who

purchases produce under a forest contract". Under Rule 6, a forest

contract

is to carry with it an accessory licence entitling the

forest contractor and his servants and agents to

go upon the land

specified in the contract and to

do all acts necessary for the proper

extraction

of the forest produce purchases under the contract.

Uuder Rule

6. where a period is specified iu the forest contract for

the extraction

of the forest produce purchased under the-contract,

time

is deemed to be of the essence of such contract and

upon the

completion

of the specified period the contractor's right under the '

contract is to cease and any forest produce not removed across

the boundaries

of the contract area is to become the absolute

property

of the Government. The Conservator of Forests or the

Divisional Forest Officer, as the case may be, is, however,

given the

right, for special reasons, to grant an extension

of time on such

terms as may be decided for a total period (inclusive

of the original

contract period)

not exceeding the period for which he is empowered

to sanction contracts on payment

of a monthly extension fee of

one per cent of the amount of the contract. Under Rule 9, the

Divisional Forest Officer

or the Range Officer, as the case may be,

is given the power to stop extraction of the forest produce where

the consideration payable to the Government under a forest

con·

tract is payable by instalments and, at any time before the last

instalment

is paid, he considers that the value of the forest produce

removed by the contractor exceeds the amount

of instalments

already paid. Further removal is

to be permitted only after the

contractor has paid such further sum as in the opinion

of the

Divisional Forest Officer or the Range Officer is sufficient to cover

such excess. Under Rule 9-A, it

is open to tlie

Divisional· Forest

Officer

or the Range Officer of the concerned

. range to stop

extraction

.if the contractor fails to pay any instalment due from

him within the grace period

of ten days beyond the date fixed for

payments

of the instalment. It is equally open to these officers

A

B

c

D

E

F

G

H.

A

B

c

D

E

F

G

H

92

SUPREME COURT REPORTS [1985] 3 .s.c.a

to stop work in the contract area if the · contractor fails

to pay two instalments due from him. Under Rule 12,

before commencing any work in the contract

area the forest

contractor

is to sign and submit to the Divisional Forest Officer or

the concerned Range Officer a written declaration to the effect that

he or his authorized agent or both have been shown the boundaries

and limits

of the lot covered by the contract by the Range Officer or

by a subordinate deputed by him for the purpose and that the area

shown on the ground agrees with the area delineated on the map

annexed

to the forest contract and until such a declaration has been

given, the Divisional Forest

Officer or the Range Officer may

refuse to allow any work

to commence and the contractor is not

to be entitled

to any compensation for any loss that might be

sustained by him by reason

of any delay in commencing the work

owing

to such refusal. Rule 12 further provides that if such

declaration

is not furnished within one and a half months from the

date

of issue of the ratification order, the Divisional Forest Officer

is to cancel the contract, forfeit the security deposit, resell the

contract

at the risk of the contractor and

recover the shortfall from

him. Condonation

of delay in furnishing such intimation or

declaration is expressly prohibited.

Under Rule 13, a forest

contractor

is not to remove any forest produce from the contract

area unless it is accompanied by a permit signed by the contractor

or his authorized agent.

Such permits are to be obtained on

payment from tile Range Officer. Further, the Divisional Forest

Officer

or the Range Officer, as the case may be, has the power to

withdraw a permit book, if in his opinion, such permit book has

been misused for unlawful gain.

In the event of such withdrawal

the forest contractor is not entitled to any compensation for any

loss

that might be sustained by him for any stoppage of his work in

or extraction from the contract

area, Under Rule 14, the method

employed by the forest contractor for extraction

of forest produce

along forest roads

is to be subject to the approval of the Divisional

Forest Officer and the forest contractor is not to cart any produce

over forest roads between such periods as the Divisional

Forest

Officer might appoint without the previous permission in

writinl( of

the Divisional Forest Officer. Further, the Divisional Forest

Officer is given the discretion to close forest roads for extraction

of forest produce on any rainy days and for three days thereafter

during the rest

of the year. He may also close roads temporarily

for nrgent

or special repairs should this in his opinion become

L

\_

·-

1.

ORJSSA v. TJTAGHUR PAPER MILLS (Madon, J.) 93

necessary. Further, the forest contractor is prohibited from

extracting forest produce

by dragging

along forest roads. Under Rule

15, except with the special permission of the Divisional Forest

Officer, a forest contractor

is not to remove any forest produ.ce

from

-the contract area after sunset or before sunrise. Under Rule

16, a forest contractor is not to remove any forest produce· except

by routes specifieCI by rules made under the Orissa Forest Act or ·by

the forest contract and is to take all forest produce removed by

him to such depots or places as . may be similarly prescribed for

check and examination. Under Rule 19, the forest contractor

is to keep and submit accounts

of the amount of the various

kinds

of forest produce removed by him from the contract area

in

such, form as the Divisional Forest Officer. may prescribe or

approve, and such accounts .are to be open to inspection

at any

time by the Divisional Forest Officer

or by any subordinate

duly

authorized by him. Rule 20 prescribes the mode of felling

standing trees. The Divisional Forest Officer has the power to

stop further felling until these provisions are complied with.

Under Rule

21, the Divisional Forest Officer is to divide the

contract area into such number

of sections as he may think fit and

has the power to regulate and confine the operations

of the forest

contractor within these sections in accordance with the provisions

set out in the said

Rule. Under the said Rule, the work is to be

allowed progressively from section to section. When the forest

contractor begins his operations under the contract, he

is to be

allowed to carry out cutting operations in sections Nos. I and 2

only. As soon as he begins cutting operation in section No. 3

he is deemed to have surreµdered all his rights to standing trees

in section No.

I. When he begins cutting operations in section

No. 4 he

is deemed to have surrendered all his

rights to the

standing trees in section No. 2 and so on, throughout the

contract area. Under Rule 22, the forest contractor unless

otherwise directed to do

so in writing by the Divisional Forest

Officer,

is to register his property

mark or trade mark in the

Office

of Divisional Forest Officer an.d get it registered by paying

the registration fee

in respect thereof. No timber is to be

con­

veyed from the contract area without the impress. of the forest

contractor's registered property or trade mark, and the

Divisional Forest Officer and his subordinates have the right to

mark any piece of timber with the Government ha1nmer mark

pef9re it is rem9ved fro!ll the stump-side beyond the limits of such

A

B

c

D

E

F

G

JL

A

B

c

D

E

F

G

94 SuPREME COURT REPORTS [1985] 3 S.C.R.

checking station as the Divisional Forest Officer may appoint

in writing. Under Rule 34, if the forest contractor makes

default in the payment

of the consideration for his contract or

any instalment thereof or does not pay the compensation assessed

under any

of the Forest Contract Rules, the contract is liable to

be terminated by the

a11thority competent to do so. The

termination

is to be notified to the forest contractor and the

contract

is deemed to

have been terminated unless the contractor

pays within one month from the date of receipt

of the notice of

termination all arrears due to the Government together with interest

assessable under Rule 42 and renewal fee not exceeding one

per

cent of the arrears due and if he fails to do so, all his rights under

the contract including all necessary licences are to cease

and all the forest produce remaining within the contract area

or at the depots and bearing the contractor's registered

property or trade mark and the Government hammer mark

are

to become the absolute property of 1 he Government.

Further, the Government becomes entitled to keep

~11 sums

already paid

by the contractor and to recover as arrears of land

revenue any compensation which may be assessed and to resell the

contract together with produce

at the depots and other produce

which has become the property

of the Government and to recover

the shortfall

as

arrears of land revenue and to forfoit the security

deposit

of the contractor. Under Rule 35, if the forest contractor

commits any breach

of conditions of the contract other than those

mentioned in Rule 34(1), the contract

is liable to be terminated

and thereupon all the contractor's rights under the contract

includ­

ing all accessory licences are to cease and all the forest produce

remaining within the contract area or at the depots

is to become

the absolute property

of the Government. Under Rule 36, 'if in

the opinion of the

State Government it is considered necessary to

supply any kind

of forest produce from any contract area to the

people in

case of flood, famine, cyclone and other calamities and if

the contractor does not supply the materials at the rate fixed by the

Government, such contract can be terminated

by the Government

in writing

by a written notice to the contractor and from the date

of such termination, the contractor is to forfeit all his rights in the

coupes. Under Rule

40, a forest contractor is not to be entitled to

any compensation for any loss that may be sustained by reason

of

fire, tempest, disease, pest,

flood, drought or other noturrtl calamity

or by reason of any wronsful act committcJ by any third party or

)

·

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.) 95

by reason of the unsoundness or breakage of any forest produce

purchased

by him or for any loss sustained by him through any

operation undertaken in the interest

of fire conservancy. He is

equally not entitled to claim any reduction or refund of the sums

payable or paid

by him under his contract on the ground that the

roads provided

by the Forest Department or any other department

are insufficient 'or in bad order or remain closed under any special

order

or that the quantity of produce falls short of any quantity

specified in the schedule annexed to the contract

or in the sale

notice

or that the area of the contract area differs in any way from

that indicated in the schedule attached to the contract. Under Rule

44, all forest produce removed from a contract area in accordance

with the Forest Contract Rules

is to be at the absolute disposal of

the forest contractor.

B~aring in mind the terim and conditions of the Timber Con­

tracts-not only those expressly ·set out therein but also those incor­

porated therein by reference, namely, the terms of the Sale Notice,

the Special Conditions of Contract, the General Conditions of

Contract and the various statutory provisions-we have now to

determine wheth.er the property in the trees which were the subject.

matter

of the

Timbor Contracts passed to the Respondent Firm

while the trees wore still standing or after they were severed. In

the first case the impugned provisions would apply and the amounts

payable under the Timber Contracts would become exigible to pur­

chase tax, while in the second case the impugned provisions would

not apply and no purchase tax would be payable. The above cons­

pectus of these terms and conditions shows that the heading of the

Sale Notice, namely, "Sale Notice of Timber" as also the use of

the words "timber and other forest products··· Will be sold by public

~uction" are not determinative of the matter. Though clause 1 of

the Timber Contracts speaks of "the forest produce sold and pur­

chased", the other terms and conditions of the contract make it

clear that the Timoer Contracts were not unconditional contracts

for the sale

of goods in a deliverable state and the property in the

trees specified in

Schedule 1 of the Contract, therefore, did not pass

to the Respondent Firm when each

of the Contracts was made. As

mentioned earlier

the Timber Contracts are in the prescribed form

for all forest produce annexed to the Forest Contract Rules and the

provisions

of the

Orissa Forest Act and the Forest Contract Rules

are expressly made applicable thereto. Clause (I) of Rule 3 of the

A

B

c

D

'E

F

G

ff·

A

B

c

D

E

F

G

ff

96 SUPREME COURT REPORTS (1985) 3 S.C.R.

Forest Contract Rules deflnes a "forest contract" as meaning "a

contract whereby Government agrees to sell and purchaser agrees

to buy forest produce." That this is also such an agreement is

borne out

by the long heading of the Timber

Contracts which. des·

cribes these contracts as "an agreement for the sale and purchase

of forest produce." In fact, the signing of the Timber Contracts

did not result in a concluded contract because each contract was

conditional upon the State Government ratifying the acceptance

of

the bid given by the Respondent Firm. Even after the ratification

order

was issued by the Government, it did not become an uncon-.

ditional contract for the sale

of

specific goods in a deliverable state

for the Respondent Firm had no right to severe the trees and take

them away before it had complied with the other conditions

of the

contract set out above. To recapitulate the most important

amongst them, under Rule

12 of the Forest

Contract Rules the

Respondent Firm had to furnish a Coupe Declaration Certificate

within one and half months of the issue of the ratification order. If

it did not do so, the contract would stand cancelled. It had also

under Rule

22 of the Forest

Contract Rules. to register within the

same period its property mark or trade mark with

the Divisional

Forest

Officer. Further, the Respondent Firm could.not commence

any work unless it had given the required security deposit and

before paying the first instalment as under the Timber Contracts in

the present Appeals the amounts were payable

by instalments. That

the property in the trees did not pass to the Respondent Firm while

the trees were standing

is also shown by the fact that the Divisional

Fo. est Officer or the conc1:rncd Range Officer had the power to

stop further removal

of the felled trees until the Respondent Firm

had paid the amount required to make up the excess

of the value

of the felled trees removed over the amount of the instalments

already paid

by it and under Rule

9·A it was further open to the

Divisional Forest Officer or the concerned Range Officer to stop

further work if there

was a default in payment of any instalment or

in payment of any two instalments and the contract could also be

terminated under Rule

33 for such default. Further work or

removal could not be stopped

or the contract terminated if the

property

in the trees had passed to the Respondent Firm because in

such event the only remedy open to the seller would be to sue for

the balance

of the price. It is also pertinent that under Rule 33

the contract could also be terminated and the Respondent Firm

would forfeit its

ri~ht to all ftirther trees to be severed by it if it

-'

ORiSSA v. TITAGHUR PAPER MILLS (Madon J.). 97

committed a breach of any of the other conditions of the contract. A

The mode of felling the trees

was also not of the choice of the

Res­

pondent Firm but was one prescribed by Rule 20. Even after

felling the trees the Respondent Firm

was not entitled to remove

the felled trees

by any route which it liked but only by routes

which were prescribed and that too only if covered

by a permit B

signed by the Respondent Firm or its duly authorized agent from a

permit book obtained from the Range Officer. Further, under Rule

16, after felling the trees the Respondent Firm had to remove them

to the prescribed depots or places for check and examination and

it

was only after the trees felled by it were checked and examined C

to ascertain that they were

felled in the manner prescribed in Rule

20 and were the trees which were the subject matter of the con-

tract that it could take them out

of the contract area. Unless the

Respondent Firm felled and removed all the trees which

were the

subject-matter

of the c

~ntract within the period of the contract, on

the expiry of such period it would lose

all rights to the trees not so D

removed.

It is true that under Rule

40 if the trees were destroyed by

reason of fire, tempest, disease, pest, flood, drought or other natural

calamity or by reason of any wrongful act committed

by any third

party or by reason

of the unsoundness or breakage of any trees

which were the subject-matter of the contract, the Respondent Firm

was not entitled to any compensation for any loss sustained by it.

This would show that after a Timber Contract

was concluded, the

risk passed to the Respondent Firm. Under section

26 of the Sale

of Goods Act, the goods remain at the seller's risk until the

pro­

perty in the goods is transferred to the buyer and when the property

is transferred to the buyer, the goods are at the buyer's risk whe­

ther delivery has ·been made or not. Section 26 is, however,

qualified

by the phrase

"Unless otherwise agreed." Thus, this

section

is subject to a contract

to the contrary and what

we have stated above is sufficient to show that the Timber

Contracts were subject to a contract to the contrary and

under them the dsk passed to the Respondent Firm before the

property passed to it. This

is made ahundantly clear by Rule 44

which states that

"All forest produce removed from a contract area

in accordance with these rules shall be at the absolute disposal of

the forest contractor."

E

F

G

It is, therefore, clear that the

Timber (on tracts were not ff

A_

B

c

D

E

F

G

98 SUPREME COURT REPORTS (1985] 3 S.C.R.

transactions of sale or purchase of standing trees agreed to be

severed. They were merely agreements to sell such trees.

As po in.

ted out above, each

stage of the felling and removal operations was

governed

by the Forest Contract Rules and was under the control

and supervision

of the Forest Officers. The property passed to the

Respondent Firm only in the trees which were felled,

that is, in

timber, after all the conditions

of the contract bad been complied

with and after such timber

was examined and checked and removed

from the

Rcontract area. The impugned provisions, therefore, did

not apply to

th'e transactions covered by the Timber Contracts.

It will be useful in the context

of the conclusion which we

have reached to refer to the decision of this Court in Badri Prasad

v. Slate of Madhya Pradesh & Anr. fhe 'question in that case was

whether there was a contract of sale of standing timber and whe­

ther under the contract the property had passed to the appellant or

whether the property had passed after the trees had been felled and

hence the right

of the appellant's transferor had vested in the State Government before the trees were felled by reason of the

provisions

of the Madhya Pradesh Abolition of

Proprietary Rights

(Estates, Mabals, Alienated Lands) Act, 1950 (M.P. Act No. I of

1951). The Court held that under the terms of the contract the trees

had to be felled before they be

co me the property of the appellant.

The Court observed (at pages

390· l) :

"It will be noticed that under cl. 1 of the contract the

plaintiff was entitled to cut teak trees

of more than 12

inches girth. It had to be ascertained which trees fell

within that description. Till this

was ascertained, they

were

not 'ascertained goods' within s. 19 of the

Sale of

Goods Act. Clause 5 of the contract contemplated that

stumps

of trees, after cutting, had to be 3 inches high. In

other words, the contract

was not to sell the whole of the

trees. In these circumstances property in the cut timber

would only pass tq the plaintiff under the contract

at the

earliest when the trees are felled. But before

that

happe­

ned the trees had vested in the State."

It is pertinent to note that conditions 16 to 18 of the Special

Conditions of Sale which form part of the Timber Contracts also

H (I) (196912 S,C.R. 380.

\_.

'

_)

•

OlUSSA v. TiTAGHUR PAPER MILLS (Madon, J.) 99

prescribe the girth of the trees which are to be felled and the height A

above the ground level at which they are to be felled,

Timber a11d Logs.

On our above finding that the transactions under the Timber

Contracts are sales

of timber and not sales of standing trees agreed

to be severed the tax which would be attracted would be sales tax

and not purchase tax under the impugned provisions. This would,

however, be so

if the Divisional Forest

Officer were a dealer.

Under the terms of the Timber Contracts the Respondent Firm is

liable to reimburse

the Divisional Forest

Officer the amount of sales

tax he would which be liable to pay. The question.whether'the Division a

Forest Officer is a dealer within the meaning of that term as defined

in clause (c)

of section 2 prior to its being substituted with retros­

pective effect by the

Orissa Sales Tax (Amendment and Validation)

Act, 1979, which repealed and replaced the Ordinance with the same

title,

is pending before this Court in Civil Appeals Nos. 1237-1238

of 1979 and 1420-142l of 1979. Whatever be the position under the

old definition, after the substitution

of that definition with

retros­

pective effect by the said Amendment and Vali:lation Act, the

Divi3ional Forest Oflbor would be a dealer. The validity of this

amendment is, however, also under challenge

in this Court in Writ Petitions Nos. 958 of 1979 and 966of1979. W' therefore, express

no opinion on eithJr of tho>e questions. It w1s, however, submitted

on beh~lf of the Respondent Firm that assuming these challenges fail,

it would be called

upon to reimburse the Divisional Forest

Officer

According to the Respondent Firm, the Divisional Forest Officer.

would not be entitled

to do so because it bad made sized and dressed

logs from the timber which it

had

purchased under the Timber

Contracts and had sold such logs and paid sales tax on· these sales

and, therefore,

to tax the sales of timber to them would be to levy

the tax at an earlier point in the same series of sales which is not

permissible by reason of the prohibition contained in the proviso to

section

8. According to them, timber and

sized or dressed logs are

one and the same commercial commoaity. This contention was

upheld by the High Court. Though the High Court had

so decided in

order to consider whether the same transaction could be taxed

both

at the sale-point as also at the purchase-point, it none the less

becomes necessary for us to determine this question in

or to

prevent needless litigation

in the future.

B

c

D

E

F

G

Though under section 8 the

State Goveniment ])as the power to H

A

B

c

D

E

F

G

100 SUPREME COURT REPORfS [l 985] 3 S.C.\.

prescribe the points in the series of sales or purchases by successive

dealers

at which any goods or class or description of goods may be

taxed, it has not done so either in the case

of timber or logs, though

in the case

of some of other goods, as pointed out earlier, the

State

Government has made rules prescribing that the tax would be levied

at the first point of sale. Thus, if the contention of the the Respon­

dent Firm were correct, as tax has already been levied at one point

in the same series of sales, it would not

be now open to the

State

Governmept to say that by reason of the substituted definition of the

term "dealer", sales tax could also be levied at another point.

We will first see how different High Courts have dealt with

this question.

Tn

Saw Bros. aiid Co. v. The Stale of West Benga/1

al learned Single Judge of the Calcutta High Court held that

planks sawed out oflogs are different things from logs and timber in

its nascent state.

No reasons are given in that Judgment for reaching

this conclusion,

In Bachha Tewari and another v. Divisional Forest Officer, West

Midnapore Division, and others'

the same learned Judge held that the

the chopping

of timber into firewood was a manufacturing process.

and, therefore, the imposition

of a tax on timber and on firewood

manufactured from

that timber did not amount to double taxation

The question in both those cases was whether sawing

of planks and

chopping

of timber into firewood amounted to manufacture so as to

make the assessee liable to pay sales

ta' on the manufactured goods.

This

is a different question from that to which we

have to address

ourselves.

We may, however, point out that even where the question

is whether a certain process has resulted in a manufacture, the

resultant product must be a different commercial commodity and

merely because certain articles are known

by different names it

does not mean that they are different commercial commodities if in

fact they are

n,erely different forms of the same commodity. Thus,

in

Tungabhadra Industries Ltd. Kumool v.

Commercial Tax Officer,

Kurnoo/3, hydrogenated groundnut oil, commonly called 'Vanaspati'

was held by this Court to be groundnut oil within the meaning

of

Rules 5

(I) (k) and 18 (2) of the Madras General Sales Tax (Turn-

(I) [1963] 14 S.T.C. 878.

(2) [1963] 14 S.T.C. 1067.

H (3) \19601 11 S.T.C. 827; (1961) 2 S.C R. 14.

.J

.

,

-'

-.)

•

ORISSA, v. TITAGHUR PAPERS MILLS (Madon, J.) JOi

over and Assessement) Rules, 1939. The Court further held that

the processing

of groundnut oil to render it more acceptable to the

customer

by improving its quality would not render the oil a

com­

modity other than groundnut oil. Similarly, in the State of Gujarat

v. Sakanvala Bros.(

1

) this Court held that 'patassa', 'harda' and

'alchidana' were ~ugar in different forms and fell within the defini­

tion of sugar in Entry 47 of Schedule A to tha Bombay Sales Tax

Act, 1959.

A decision · more relevant to our purpose than the two

Calcutta decisions

is a decision of a Division Bench of the Madhya

Pradesh High Court in

Mohan/al Vishram

v.-Commissioner of

Sales Tax Madhya Pradesh, Indore('). In that case the Madhya

Pradesh High Court held that by felling standing timber trees,

cutting them and converting some

of them into 'ballis', a dealer

did not alter their character as timber or used them for

manufuc·

ture of other goods within the meaning of section 8(1) of the

Madhya Pradesh Sales Tax Act, 1958. Another decision equally

relevant for our purpose

is that of a Division Bench of the Andhra

Pradesh High Court in

G. Ramaswamy and others v. The

State of

A11dhra Pradesh and others(') in which the question was very much

the same

as the one which we have to decide. The assessees in

that case purchased nascent

timbor, that is, logs of wood, and had

swan or cut them into planks, rafters, cut sizes, etc., and sold

them for the purpose

of construction of buildings and the like.

Under section 5(2)(a) of the Andhra Pradesh General Sales Tax

Act, 1957, read with Item 63 in the First Schedule to that Act,

a dealer

in timber was liable to pay sales tax at the rate of three

pies in a rupee

at the point of first sale. The assessees were,

however, sought to be taxed under section 5(1)

of that Act on their

sales of, planks, rafters, out sizes, etc. treating them as general

goods. The contention

of assessees was that these goods were

timber which

was taxable at the first point of sa.le and the first

point

of sale was when the Forest Department sold the standing

timber trees to them and, therefore, the planks, rafters, cut sizes,

etc., sold

by them could not again be made liable to sales tax

--.;-· (I) [1967] 19 S. T.C.24 (S.C.)

(2) [1969]

24

S,T.C. IOI.

(3) [1973] 32 S.T.C. 309.

A•

B

c

D

E

F

G

H

A

B

c

D

E

F

G

H

\02 SUPREME COURT REPORTS t1985] 3 5.C.il

treating those goods as different commercial commodities. The

Division Bench held that in dealing with matters relating to the

general public, statutes are presumed to

use words in their

popu­

lar rather than their narrowly legal or technical sense, and that

as the provision levying a tax on timber was directed to deal with

a matter affecting people generally, as timber is in common use

the word "timber" would have the same meaning attached to it

as in the common and ordinary use of language. The Division

Bench further held that although dictionaries are not to

be taken

as authoritative exponents of the meanings of words used in a

statute, it

was a well-known rule of courts of law that words should

be taken

to be used in the ordinary sense and courts are,

there­

fore, sent for instruction to the dictionaries in the absence of any

legislative or judicial guidance. The Division Bench then refer­

red to the meaning given to the word "timber" in different dic­

tionaries. The Division Bench also considered the meaning in

commercial parlance

of the term

"timber". In that case the

the assessees

in their affidavits had asserted that timber in

the commercial field also meant planks, cut sizes, etc. There

was no convincing denial by the Government of that

asser­

tion. The Division Bench then, turned to the "Rules for grad­

ation of cut sizes of timber" prepared and issued in October,

1960, by the Indian Standards Institution which showed the

word "timber" was freely used for kinds of standanl cut sizes

for building purposes. The Division Bench also looked at

Indian Airlines Quotation No. 406 of April 26, 1972, in which

the words used were "timber teak-wood" setting out the particular

sizes thereaft.er. The Division Bench also referred to the other

documentry evidence produced in that case and held that the

documents and affidavits before it clearly made out that even the

cut sizes of timber were commonly known

as timber in

commer­

cial field and that, therefore, both in the popular sense and in the

c.om1nercial sense, the word "timber" had the san1e meaning. The

Division Beach also laid emphasis on the interpretation given to

the term "timber" by the sales tax Administration. For all these

reasons tbe Division Bench beld that merely because plan

ks,

rafters, cut sizes, etc., were sawn or cut from logs of wood, they

did not alter their character and still continued to be

raw

mater­

ials which by themselves and in the same form could not be di­

rectly put to use for construction purposes and the Jogs of wood

purchased by the assessees were merely cut or sawn to sizes

'

•

'(

_)

•

ORiSSA v. TiTAGHUR PAPER MILLS (Madon, i.) 103

for the sake of convenience and to make them acceptable to the A

customers and that by reason of this process they did not lose

their character as timber.

We will n

iw turn to the decisions of the Orissa High Court on

this point. In State of Orissa v. Rajani Timber traders(') a Division

Bench

of that High Court held that timber logs and sized timber

were different commodities in the commercial sense though

sized timbers were brought out only from timber logs

by a

parti­

cular process. The Division Bench further observed that the

person who had a need

of timber logs would not be satisfied had

sized timber been offered

to him and similarly a person requiring

sized timber woulJ not be satisfied

if timber logs were supplied.

In Krupasindhu

Sahu & Sons v. State of Orissa(

2

)

another Division

Bench

of the same High Court

hdd that the dictum in the Rajani

Timber Traders' case

was too widely stated and it did not

indi­

cate the meaning of the word "timber" as used in common parlance

in commercial circles and

it also did not purport to specify the

meaning of the expression

"sized timber" as used in that judg­

ment. The Division Bench further held that timber in common

parlance in Orissa took within its ambit only long and big sized

logs

of wood ordinarily used in house construction as beams

and pillars and that when timber

was converted into planks,

raf­

ters. and other wood products like tables and chairs or cut into

various small sizes so as to be unfit for use as beams and

pillars and similar such

uses they could not be termed as timber

in common parlance though they may retain their essential

character

as wood because the essential characteristic of timber

as a commercial commodity

was lost after such conversion. The

judgment

in that case does not indicate any basis for holding that

the word

"timber" had in common parlance in Orissa the mean­

ing which according to the Division Bench it bore. It is 'also

curious

to note that one learned Judge was common to both the

Division Benches though in each case the judgment was

deli­

vered by the other learned judge.

Having seen how the different High Courts have dealt with

this question,

we will now ascertain the true position for our-

(1) (1974] 34

S.T.C. 374.

(2) [1975] 35 S.T.C. 270.

B

c

D

E

F

G

H

A

B

c

D

E

F

G

H

•

104 SUPREME COURT REPORTS [ 1985] 3 s.C.R.

selves. In Ganesh Trading Co., Karna/ v. State of Haryana and ano­

ther(') Hedge, J., speaking for this Count, said : ''This Court has

firmly ruled that in finding

out the true meaning of the entries

in a

Sales Tax Act, what is relevant is not the dictionary mean­

ing, but how those entries are understood in common parlance,

specially in commercial circles'.'. Applying this principle, the

Court held that although rice was produced out

of paddy, paddy

did not continue to be paddy after dehusking and that when

paddy

was dehusked and rice produced, there was a change in

the identity

of the goods and, therefore, rice and paddy were

two different things in ordinary parlance. A careful reading

of the judgment in that case shows that there was no evidence

before the court to show how

"paddy" and "rice" were under­

stood in commercial circles or what these words meant in com­

mercial or trade parla.nce and th at what the Court did was to

refer to various authorities dealing not with rice or paddy but

with other goods and the meaning

in ordinary parlance of the

words

"paddy" and ''rice" in order to ascertain the meaning of

these words in the sense stated by it above.

So far as the case before us is concerned, there is material

on the record to show what the words "timber" and "logs"

mean in commercial or trade parlance nor do the pleadings of

the parties filed in the Orissa High Court throw any light oa the

matter. The averment

of the Respondent Firm in this behalf is

to be found in paragraph 13 of its writ petition in the High

Court and all that

is stated therein is that under the impugned

provisions it would be required to pay purchase tax on

"timber

agreed to be servered" and after savering the timber while effecting

sales

of timber would be liable to pay sales tax on such sales. In

the counter affidavit of the Law Officer in the office of the

Commissioner

of Commercial Taxes,

Orissa, filed on behalf of the

Commissioner

of Commercial Taxes and the

Sales Tax Officer,

Sambalpur Circle, while replying to the said paragraph

13 all that

is stated

is that timber commercially does not remain the same

after being cut, sized and shaped, and, therefore, there was no legal

obstruction to tax an altogether different commercial commodity

at sale-point.

(I) [19731 32 S.T .C. 623, 625 (S.C.)

'y

•

__ /

~·

--.,(.

-

Oil.ISSA v. TITAGHUR PAPER MILLS (Madon, J.) 105

In view of this state of the record we must seek to ascertain A

the meaning

of these two terms in common parlance with such

aid as

is available to the Court. It is now well settled that the

dictionary meaning of a word cannot be looked.at where that word

has

been. statutorily defined or judicially interpreted but where

there

is no such definition or interpretation, the court may take the

aid

of dictionaries to ascertain the meaning of a word in common

parlance. In doing

so the cpurt must bear in mind that a word is

used in different senses according to its context and a dictionary

gives all the meanings of a word and the court, thetefore have to

seloct the particular meaning

which would be relevant to the con-

text

in which it has to interpret that word. The

Orissa Act does

not define the term ''timber" or "logs". Orissa is, however, a

State which is rich in natural wealth and mostly all, if not all,

forests in the State of Orissa are protected or reserved forests.

and come within the purview of the Orissa Forest Act, 1972,

which 'was

an Act

passed to consolidate and amend _the laws

relating to the protection and management of forests

in the State

of

Orissa. The real object behind the issue of impugned provi­

sions was to levy purchase tax on standing trees agreed to be

severed and bamboos agreed to be servered in view of the judg-

ment of the Orissa High Court in Straw Products Ltd, v. State of

Orissa in which it was held that a Divisional Forest Officer was

not a dealer and, therefore, not liable to pay sales tax and hence

could not call upon forest contractors to reimburse him in respect

thereof. In

view of this background, it would be relevant for our

purpose to look at the statutory definition

of the term

"timber".

given in the Orissa Forest Act, 1972 .. That term is defined in

clause (n) of section 2 of that Act, which reads

as follows.

"(n) 'timber' includes trees fallen or felled and all

wood cut-up or sawn."

Prior to the enactment of tbe Orissa Forest Act, 1972, there

were two Forest Acts in force in the State of Orissa, namely,

the Madras Forest Act, 1882 (Madras Act V of 1882), and the

Indian Forest Act,

1927 (Act

XVI of 1927). The Madras Forest

Act applied to the districts of Koraput and Ganjam and part

of Phulbani District, namely, Baliguda and G. Udaygiri Taluks.

The Indian Forest Act applied to the rest

of the

State. Both

these Acts were repealed in their application to the State of

ll

c

D

E

F

G

H

A

B

c

D

E

G

H

i06 SUPltEME COURT REPORTS (1985] 3 S.C.R.

Orissa by the Orissa Forest Act but as prior to the enactment

of the Orissa Forest Act, these were the two Acts which provided

for the protection and management

of forests in the

S.tate of Orissa,

we may also refer to the definition of the word "timber" given

in those Acts. Section 2 of the Madras Forest Act defines"timber"

as including trees when they have fallen or have been fallen,

and all wood, whether cut up

or fashioned or hollowed out for

any purpose

or

not". Clause (6) of section 2 of the Indian

Forest Act defines "timber" in identical terms. Though none

of these definitions is an exhaustive one· since each of them uses

the word "includes" .and not "means", there is a large and

substantial measure if identity in these definitions and it will be

apparent from these definitions that the word "timber" is not

· confined merely to felled trees in forestry in the State of Orissa.

In this connection, it would

not be out of place to see how this

word has been defined in subsequent legislation. In August

1981

trade in certain forest produce in Orissa was made a

State

monopoly and the Orissa Forest Produce (Control of Trade) Act,

1981 (Orissa Act No. 22 of 1981), was passed to achieve that

purpose. The list

of forest produce set out in the definition of

that term given in clause (c) of section 2 of that Act includes

timber

of any spcies specified in clause (j) of that section. Clause

(j) of section 2 defines

"timber " as meaning "marketable wood,

round, s1wn or fashioned, straight piece of and above two metres

in length, standing

or felled (excluding fuel) of the following

categories,

namely:-". The portion of the definition omitted

above lists the different species

of timber. The definition of

"timber

given in the Orissa Forest Produce (Control of Trade) Act is an

exhaustive defi'1ition inasmuch as the object of that Act was to

create a State monopoly of trade in specified forest produce and

therefore such forest produce had to be particularized. What

is, however, pertinent

is that even in subsequent legislation the

cardinal concept that timber

is not merely felled trees has been

. '

underlined and emphasized.

Ou turning to various dictionaries, we find that the dictionary

meaning largely coincides with the statutory meaning

of the word "timber''. While discussing the question of the subject-matter of

the impugned provisions we have set out the definition of the word

"timber" contained in the Webster Collegiate Dictionary occur­

ring in the passage from the judgment of Vivian Bose, J, in

_ _)

, '

•

ORISSA v. TITAGUUR PAPER MILLS (Madon, J.) 107

Shrimati Sliantabai v State of Bombay. The relevant meanings of

the term "timber" given in the Shorter Oxford Dictionary,

Third. Edition, are "building material generally; wood used for

the building

of houses, ships, etc., or for the use of the carpenter,

joiner,

or other artisan''. This definition also states that the word

is

"applied to the wood of growing trees capable of being used for

structural purposes; hence collectively to the trees themselves".

Amongst the meanings given in the Concise Oxford Dictionary,

Sixth Edition, are "wood prepared for building, carpentry, etc;.

trees suitable for this; woods, forests, piece of wood, beam". One of

the meanings of the word "timber" given in Webester's Third New

International Dictionary, is "wood used for or suitable for building

(as a house or boat) for carpentry er joinery". A "Jog" according

to the Shorter Oxford English Dictionary means "a bulky mass of

wood; now csually an unhewn portion of a felled tree, or a length

cut off for firewood" and according to the Concise Oxford Dictio­

nary it means "unhewn piece of felled tree, or similar rough mass

of wood especially cnt for firewood". Thus, logs will' be nothing

more than wood cut up

or sawn and would be timber.

A question which remains

is whether beams, rafters and

planks would also be logs or timber. The Shorters

Oxford English

Dictionary defines "beam" inter CJ/ia as "a large piece of squared

timber, long in proportion to its breadth and thickness and

the Concise Oxford Dictionary defines it as a '·long piece of

squared timber supported at both ends, used in houses, ships, etc."

and according to Webester's Third New International Dictionary,.it

means "a long piece of heavy often squared timber suitable for use

in house construction." A beam

is thus timber sawn in a particular

way.

"Rafter" as shown by the Shorter Oxford English Dictio­

nary is nothing but "one of the beams which give shape and form

to a roof, and bear the outer covering

of slates, tiles, thatch,

etc."

Tim Concise Oxford Dictionary and Webster's New International

Dictionary define "refter" in very much the same way; the first

defines it as "one of the sloping beams forming framework of a

roof" and the seconds as "one of the often sloping beams that sup­

port a roof:" Rafter wou1d also, therefore, be timber or Jog put to

a particular use. A ''plank" is defined in Shorter Oxford English

Dictionary as "a long fiat piece of smoothed timber, thicker than a

board, specially a length

of timber sawn to a thickness of from two

to six inches, a width

of nine inches or more, and eight feet or

A

B

c

D

E

F

G

H

108 SUPRBMB COURT RBPOR1'S [1985] 3 s.c.li..

A upwards in length." According to the Concise Oxford Dictionary

it is a "long wide piece of timber, a few inches thick" and accord­

ing to Webster's Third New International Dictionary, it is "a heavy

thick board

that in technical specifications usually has a thickness

of 2 to 4 inches and a width of at least 8

inches." The exact th(ck·

B

c

D

E

F

G

H

ness and width of a plank may be of importance in technical

specifi­

cations but in ordinary parlance planks would be flattened and

smoothed timber. Such flatness and smoothness can only be achie·

ved by using a saw and other implements required for that purpose.

The same would be the case when timber

is rounded or shaped.

The statutory definitions

of timber extracted above read along with

the meaning

of the word

"timber" given in different dictionaries

would show that the conclusion reached by the Madhya Pradesh

High Court in Mohan/al Visliram v. Commissioner of Sales Tax,

Madhya Pradesh, Indore, and by the Andhra Pradesh High Court

in

G.

RamaswA,my and others v. The State of Andhra Pradesh and

others

is more germane to our purpose than the two Orissa cases

neither

of which has referred to the statutory definition of the word

"timber" in the relevant statutes. The observations of the Orissa

High Court

in the case of Krupasindhu Sahu & Sons v. State of

Orissa that timber in common

µarlance in Orissa takes within its

ambit only long and big sized logs of wood ordinarily used in

house construction

as beam; and pillars but not when timber is

converted into

planks, rafters and other wood products like tables

and chairs cannot, therefore, be said to

be correct so far as planks

and rafters are concerned.

In our opinion, planks and rafters would

also be timber.

The result

is that sales of dressed or sized Jogs by the

Respond·

ent Firm having already been assessed to sales tax, the sales to the

First Respondent Firm of timber by the State Government from

which logs were made by the Respondent Firm cannot be made

liable to sales tax as it would amount to levying tax

at two points

in the same series

of sales by successive dealers assuming without

deciding

that the retrospectively substituted definition of

"dealer"

in clause (c) of section 2 of Orissa Sales Tax Act, 1947, is

valid.

Yet another aspect

of this question now arises for our

consi·

deration. During the period from June I, 1977, to December 31,

1977, by reason

of Notification No.

S.R.O. 374/77 dated May 23,

y

-~)

-"'-

_/

ORISSA v. TI.TAGHUR PAPER MILLS (Madon, J.) 109

1977 the rate

of sales tax on timber was fixed at ten per cent by the

'

State Government. Since it was the contention of the State Govern-

ment that logs are commercially a different commodity. the tax

could not have been assessed on the sales

of logs by the Respondent

Firm during this period at the rate

of ten per cent but would have

been assessed

at the general rate of six per cent specified in section

5(1)

of the

Orissa Act. If such was the case, on the findings given

by us above, the Respondent Firm would be liable to pay sales tax

not at the rate of six per cent but at the rate of ten per cent and it

might be argued

that the Respondent Firm has

b~en under-assessed

or part of its turnover of sales of logs has escaped assessment. The

assessment order made on the Respondent Firm referred to earlier

includes both the amount

of purchase tax and sales tax but this is

not a composite assessment order but a severable one because the turn

over

of sales as also the turnover of purchases have been shown

sepa­

rately and the amount of sales tax and purchase tax have equally been

shown separately. Thus, though as a result

of our holding that the

amounts

pa id by the Respondent Firm under the Timber Contracts

are not exigible to purchase tax, the assessment order would require to

be modified and corrected, such modification and correction would

not affect the rest of the assessment order. The question then is

"Whether the sales tax authorities can reopen the assessment of the

Respondent Firm

so far as the turnover of sales of logs is concern­ed?" Under sub-section (8) of section 12 of the Orissa Act, the

Commissioner

of

Sales Tax or those sales tax authorities to whom

such power

is delegated

hav.e the power to reopen an assessment .

but under section 12(8) the .exercise of this power is subject to a

period

of

limitation, namely, thirty six months from the expiry of

the year to which that period for which the assessment is to be

reopened relates. Since three years have long since expired from the

year to which the period in question relates, it would not now be

open to the sales tax authorities assuming it was a case for re-open­

ing jJie assessment, to reopen the Respondent Firm's assessment and

tax the turnover of sales of dressed or sized logs at the rate often

per cent instead of six per cent. This question, of course, would not

arise for any period on

or after January I, 1978, on which date the

substituted sub-section

(I) of section 5 ca'rne into force, as under the

notification issued under the substituted sub-section

(!), no separate

rate

of tax is specified either for timber or logs or any of the other

goods which

we have been considering above and all of them would

fall for the purpose

of payment of sales tax under the residuary

A

B

c

D

E

.F

G

110 SUPREME COURT REPORTS [1 985] 3 S.C.R.

A EntryNo. IOI of the Notification No. 67184-C.T.A. 135/77/F dated

December 29, 1977, and would be liable to sales tax at the rate of

seven per cent and there would thus be no under-assessment or

escapement of assessment.

B

c

D

E

F

G

H

Bamboo Contr:J ct

We will now ascertain the nature of the Bamboo Contract.

Unlike the Timber Contracts, the Bamboo Contract is not in a pre­

scribed statutory form but it appears from the judgment of the High

Court

that all the Bamboo Contracts before it contained identical

terms and conditions except

with respect to the contract area, the

period

of the contract and

th' amJuut of royalty. The parties io the

Bamboo Contract were the Governor of the State of Orissa referred

to in the said Contract as "the Grantor" and the Respondent Com­

pany. The Bamboo Contract is headed "Agreement of Bamboo

Are1s in Bonai Forest Division to the Titaghur Paper Mills Com­

p.my Limited." The second 1nd the third recitals of the Bamboo

Contract arc as follows :

·"AND WHERAER the Company is desirous of obtain­

ing grant from the Grant or of exclusive right and licence to

fell, cut, obtain and remove bamboos from all felling series

of Bamboos Working Circle in the Bonai Forest Division in

the State of Orissa for the purpose of converting the bam­

boos into paper pulp or for purposes connected with

the nianufactnrc of paper or in any connection incidental.

therewith.

AND WHEREAS the Grantor has agreed to grant the

said licence to the Company subject

to the restrictions,

terms and conditions hereinafter appearing."

Clause I ofthc Bamboo Contract is headed

"Area over which

the grant operates". Sub-clause (a) of clause I sets out the dates of

commencement of the Bamboo Contract in respect of different

contract areas. Under Sub-clause (bl of clause I, the forest produce

"sold and purchased" is stated to be as specified in Schedule I and

to be situated

i.n the areas ini:licated in Schedule V.

Under the said

sub-clause, the grantor understood to render

at all times to the

Respondent Company

all possible facilities to enable it to extract

and obtain its requirements

of

banihoos upto the limit imposed by

•

ORISSA l'. 1!TAGHUR PAPER MILLS (Madon, J.) 111

the Bamboo Contract. Under clause II, the quantity of forest

produce "sold and purchased" is stated to be "all the said forest

produce which now exist

or may come into existence in the cantract

area which the Company may fell, cut, obtain

and remove from the

said area in accordance with the time-table given in Schedule V

during the period ...

" and then the periods in respect of different

areas, already mentioned while reciting the facts

of Civil Appeal

No. 219 of 1982, have been set out. Clause III provides that the

Bamboo Contract can be terminated in accordance with the provi­

sions in that behalf contained in the Forest Contract Rules subject

to the right of the Respondent Company to appeal to the

State

Government in which case the Respondent Company could with the

previous permission of the State Government, on such conditions as

the Government might think

fit to impose, be entitled

'"to carry on

its business in terms

of the

agreement" until the final decision by

the Government. Under clause IV, the Respondent Company is

given an option to renew the Bamboo Contract for a further term of

twelve years. Under clause V, the Respondent Company was to

perform all acts and duties and to refrain from doing any act

forbidden by the Orissa Forest Act, 1972, and to give a sum of

Rs. 58, 190 as security for the due performance and observance by it

of the terms of the Bamboo Contract, which sum was to be return­

ed to it on the expiry

of six months after the termination or expiry

of the Bamboo Contract. The Granter was to be entitled to for­

feit the said deposit and to appropriate the whole or

part thereof

in the event of the

Respon1ent Comp.my committing a breach of

the terms of the Bamboo Contract such as would entitle the Gran­

ter to terminace the Bamboo Contract. Clause VI provided that

"this licence shall be subject to the Orissa Forest Contract Rules as

modified from time to time" subject to the amendments thereto set

out in the said clause which are

not material for our purpose.

Clause

Vlll stated that

"the forest produce sold and purchased

under this Agreement consists of all Salia and Daba bamboos

subject to the cutting rules

in the annual coupe of the felling

series"

Clauses IX to Xlll deal with the payment of royalty. What is

pertinent (o note about these clauses is that under clause XI fl, the

Respondent Company was

to pay an annual minimum royalty in

the sums mentioned therein and was not to be entitled to the

refui1d

of the whole or any part of such minimum royalty should it fail to

cut

the minimum quantity-of b11nboos in any year except on the

ground that the yield

of the area fell below the quantity required to

A

B

c

D

E

F

G

ff

A

B

c

D

E

F

G

H

112 SUPREME COURT REPORTS [1985] 3 s.c.R.

make up the minimum royalty payable for the year owing to gre­

garious or sporadic flowering of bamboos in the contract areas or

from any cause whatsoever not being due to the negligence on the

part of the Respondent Company or failure on its part to extract

the minimum number

of bamboos. The amount of royalty was to

be calculated on all bamboos which

the Respondent Company

would cut from

the contract area, whether such bamboos were

r,i:moved or not, to be ascertained as provided in clauses XI and

XII. Under clause XI, for ascertaining the quantity of the bamboos

so cut, the Respondent Company was to remove the bamboos

through such river ghats, railway, motor and other transport depots

as may be agreed upo i between the parties from time to time and

under clause XII, the royalty was to be paid in advance in such

manner that it would always be in excess of the royalty actually

due. Under clause XIV, for the purpose of checking the felling and

keeping an account of all bamboos to be cut by the Respondent

Company, the Forest Department had the right to employ such staff

as it might deem necessary and

was to have

free access to the con­

tract area and to the books and other records of the Respondent

Company. Further,

the Respondent Company was to submit

to the Divisional Forest Officer a yearly account

of bamboos

cut and removed from the contract area and under clause

XV the

company was

to issue to the carter of each cart or the driver of

each truck on its leaving the forest a machine numbered pass of a

pattern to be approved by the Chief Conservator

of Forests, Orissa.

Such pass

was to state the number of bamboos which each cart or

truck would carry. Clause XVI prescribed the

rputes by which the

bamboos were to be removed

as

also the depots at which they were

to be presented for examination, Under clause XVll,[at every naka

the checking staff was to· check each cart or truck with

the pass

referred to in clause

XV before such cart or truck left the depot.

Clause XVIII gave to the Respondent Company, subject to such

restrictions

as might be

imposed from time to time by the Divisional

Forest Officer, Bonai Division, the right during the continuance

of

the Bamboo Contract to use any lands, roads or streams outside

the licensed areas which belonged to or were under

the control of

the Gran tor for the purposes of having free ingrees to or egrees from

the contract areas and also to such lands, roads or streams within

the contract areas.

Under clause XIX, the Respondent Company

was bound to meet the local demands

of b1mboos in which event

the

royalty on such bamboos was not to be paid by the Respondent

•

r

,

ORISSA v. TITAGHUR PAPER MILLS (Madon, J,) 113

Company but was to be paid by the local people. Under clause XX,

subject to obtaining prior written consent

of the Grantor, the

Respondent Company was to be at liberty to make dams across

streams, cut

canais, m::ike water courses, irrigation works, roads,

bridges, buildings, tramways and any other work useful or necessary

"for the purpose of th.: said business" in or upon the licensed areas

and also with the like consent to widen or deepen existing streams,

· channels or waterways "for the purpose of the said business" and all

timber and other forest produce required for this purpose was to be

paid for

by the Respondent Company at current schedule of. rates.

All such dams, canals, irrigation works, roads, bridges, building

and other works which were not removed

by the Respondent

Com­

pany within six months from the expiry of or ·earlier termination of

the contract were to become the property of the Grantor. Clause

XXI prohibited the Respondent Company from interferring with

the surface

of the land except in so far as it might be necessary for

immediate purpose

of

"carrying on the necessary operations in

connection with the said business". Clause XXII expressly reserved

and excepted to the

Grantor in regard to the contract area granted fo the Respondent Company (I) the possession and beneficial owner­

ship in the soil and all mines and minerals upon, in or under the

contract area and the right to make .such nse

of the soil, to erect

such buildings

or structures and install such

plant upon it and sub­

ject it to such operations for the purpose of ext!'1lction of minerals

or otherwise as the Qrantor might deem proper, (2) the surface of

the licensed areas and all grazing, cultivating and other surface

. . .

nghts other than those expressly granted to the Respondent Com-

pany

by the Bamboo Contract, (3) the right to all trees other than

trees made over to the Respondent Company and the natural

pro­

ducts of the soil other than bamboos, (4) the right of the Grantor to

destroy bamboos

in any portion of the contract areas for

silvicul­

tural purposes Including the raising of plantations subject in each

case to the minimum area limit

of

500 acres per annum and further

subject to giving in place of such area equal facilities for bamboos

extraction in other convenient areas, and (5) the right

to extract

bamboos from any portion in the contract areas for departmental

works in Bonai Forest Division subject to a limit of

5,000 bamboos

yearly. Clause XXIII prescribed cutting rules for bamboos. Clause

XXIV conferred upon the Respondent Company the right to extract

fuel from areas allotted for that 'purpose

in order to meet the fuel

requirements

of domestic

consumption in the houses and offices of

A

B

0

D

E

F

G

H

A

B

c

D

E

F

G

H

114 SUPREME COURT REPORTS [1985) 3 s.c.~.

the persons employed by it in "connection with its business in the

contract areas" subject to the payment of a fixed royalty per tonne.

Under that clause, the Respondent Company had the right to cut

and collect such poles

of unreserved species and creepers as might

be necessary for construction

of rafts on obtaining a permit in that

behalf and

on payment of royalty according to the schedule of rates.

Under clause XXV, the Grantor, if so required by the Respondent

Company, was

to lease to it a suitable site or sites to be selected by

it out of such sites as were at the disposal of the Gran tor within

the licensed areas for the erection of store houses, sheds,. depots,

bungalows, staff offices, agencies and other buildings

of a like nature

bonafide

Frequired by it "for the purposes of the business connected

with" the Bamboo Contract rent free for the term of such contract.

Under clause XVI, in the event of the Grantor setting fire to the

forest for silvicultural purposes, it

was to give to the Respondent

Company as long a notice as possible

of the commencement of such

· operations and it was the Respondent Company which was to be

re.sponsible for safeguarding the forest produce which was the subject

matter

of the Bamboo Contract.

Under clause XX!X, the contract

areas were to be worked on four years cutting cycle for Salia and

twelve ·years cutting cycle for Daba and were to comprise the areas

stated in the said clause.

It was submitted on behalf of

tho Appellant that the Bamboo

Contract

was a composite contract of sale, in that it was an

agree­

ment to sell existing goods, namely, bamboos standing in the

contract areas

at the date of the Bamboo Contract, coupled with an

agreement

to sell future goods, namely, bamboos to come into

existence in the future. According lo the Appellant the property

in the existing

l!amboos would pass after they were ripe for cutting

and under Rule

12 of the Forest

Cm1tract Rules the Divisional

Forest Officer had delineated the boundaries and limits

of the annual

coupe from which hamboos were

to be cut for the Respondent

Company to take delivery

of them in as much as the bamboos then

became ascertained goods. In the alternative it was submitted that

the property passed when the Respondent Company started the

work

of cutting bamboos. According to the Appellant, in either

event property passed before the

bamboos· were severed. So far as

the bamboos which were not in existence at the date

of the Bamboo

Contract but were to come into existence thereafter were concerned,

it was submitted that as they were future goods, once they came.

y

,

ORISSA v. TITAGHOR PAPER MILLS (Madon, J.) 115

into existence and became ripe for cutting, the property in them . A

passed to the Respondent Company in the same way

as in the case

of bamboos in existence at the date of the Bamboo Contract.

While discussing the subject-matter

of the impugned provisions

we have already held that they apply where there is a completed

con·

. tract of purchase aud.the property in the goods which are the subject·

matter of the contract passes froni the seller to the buyer when the

contract

is made.

In oth;r words, the purchase would be complete

when the standing trees or 'bomboos are specific goods, that is, when

they are identified and agreed upon at the time the . contract of sale

is made~ and the contract is unconditional and further such standing

trees

or bamboos arc in a deliverable state, that is, nothing

remains to be done except for buyer to enter upon the land

of the seller and to fell and remove the trees or bamboos,

as the

case· may be, without any let or hin_drance. The

very submission

of

the Appellant with respect to when the property

passes to the Respondent .Company in the case

of the Bamboo

Contract are sufficient to show that the impugned provisions cannot

have any application to the case. The Bamboo Contract like the

Timber Contract is also made subject to the

!'orest Contract Ruies

and while dealing with Timber Contract

we have pointed out that

by reason

o,f the operation of those Rules property in the trees

passed to the forest contractor after the trees were felled and taken

to the depots at.inspection points and there checked and. examined

and thereafter removed from the contract area. The same position

would apply to the case

of the Bamboo Contract assuming for the

sake

of argument that it is a contract of sale of goods.

In this view of the matter, the impugned provisions would

have no application and the amounts payable under the Bamboo

Contract would not be exigible to purchase

tax. By reason, however,

of the substitution of the dclinition of the term "dealer" in clause

(c, of section 2 of the O;·issa Act with retrospective effect, it may be

argued that if the Bamboo Contract was a contract

of sale of goods,

then on the sale taking place to the Respondent Company, sales tax

would become

payabb and the Respondent Company would be

bound to reimburse to the Forest Department the amount payable

by it as sales tax. In order to avoid future legal controversy

and particularly in view

of the fact that the High Court has held the jlamboo Contract to be a ~rant of a pm/it a prendre it becomes

B

c

D

E

F

G

ff

;A

B

c

D

E

F

G

H

H.6 SUPREME COURT REPORTS (1985] 3 S.C.R.

.necessary to determine whether the Bamboo Contract is at all a

contract

of sale of goods. According to the Respondent Company

the High Court

was right in holding that Bamboo Contract was not

a contract of sale of goods but was a grant of a profit a

prei;dre.

The meaning and nature of a profit a prendre have been thus

described in Halsbury's Laws

of England, Fourth Edition, Volume

14, paragraphs

240 to 242 at pages 115to117:

"24.0. Meaning of'pr0fit a prendre'

A profit a prendre is a right to take something off

another person's land.

It may be more fully defined as a

right to enter another's land to take some profit

of the soil,

or a portion

of the soil itseif, for the use of the owner of

the right. The term 'profit a prendre' is used in

contradis­

tinction to the term 'profit a prendre', which signified a

benefit which had' to be rendered

by the possessor of land

after it had come into his possession. A profit a prendre ·is a servitude.

"241. Profit a prendre as an interest in land.

A profit a prendre is an interest in land and for this

reason any disposition

of it must

be in writing. A profit a

prendre which gives a right to paiticipate in a portion only

of some specified produce of the land is jmt as much an

interest in the land

as a right to take the whole of that

produce ...

"242. What ma.v be taken as a profit a prendre.

The subject matter of a profit a prendre, namely the

substance which the owner

of the right is by virtue of the

right entitled to take,

may consist of animals, including fish

and fowl, which are on the land, or of vegetable matter

growing

or deposited on the land by some agency other

than that of man, or of any part of the soil itself, including

mineral accretions to the soil

by natural forces. The right

may extend

to the taking of the whole of such animal or

vegetable matters or merely a part of them. Rights have

been established

as profits a prendre to take acorns and

beech mast, brakes, fern, heather

and litter, thorns, turf

and peat, boughs and branches of growing .trees, rushes,

bidssA v. TITAGHUR PAPER MILLS (Madon, J.) i 17

freshwater fish, stone, sand and shingle from the seashore

and ice from a canal; also the right

of pasture and of

shooting pheasants. There is, however, no right to take

seacoal from the foreshore. The right to

take animals

ferae naturae while they are upon the. soil belongs to the

owner

of the soil, who may grant to others as a profit a

prendre a right to come and take them by a grant

of

hunting, shooting, fowling and so

forth."

A profit a prendre is a servitude for it burdens the land or

rather a person's ownership of land by separating from tbe rest

certain portions or fragments of the right of ownership to be enjoyed

by persons other than the owner of the thing itself (see· Jowitt's

Dictionary of English Law, Second Edition, Volume 2; page 1640.

under the heading "Servitude"). "Servitude" is a wider term and

includes both easements and

profits a prendre (see Halsbury's Laws

of England, Fourth Edition, Volume

14, paragraph 3, page 4). The

distinction between a

profit a prendre and an easement has been

thus stated in Halsbury's Laws

of England, Fourth Edition, paragraph

43 at pages 21 to 22:

"The chief distinction between an easement and a profit a

prendre

is that whereas an easement only confers a right

to utilise the servicnt tenement

in a particular manner or

prevent the commission of some act on that tenement, a

profit a prendre confers a right to take from the servient

tenement some part of the soil of that tenement or minerals

under it or some part

of its natural produce or the animals

ferae naturae existing upon it. What

is taken must be

capable of ownership, for otherwise the right amounts to a

mere

easement'~.

In Inilian law an easement is defined by section 4 of the Indian

Easement Act,

1882 (Act No. V of 1882) as being

''a right which

the owner or occupier

of certain laud possesses, as such: for the

beneficial enjoyment

of that land, to do and continue to do

some·

thing, or to prevent and continue to prevent something being done,

in or upon, or in respect Of, certain other land not his own". A

profit a prendre when granted in favour of the owner of a dominant

heritage for the beneficial enjoyment of such heritage would,

therefore,

be an easement but it would not be so if the grant was not

for the beneficial enjoyment of the grantee's heritage.

A

B

c

D

. E'

F ·,-

G

H

A

B

c

D

E

F

G

118 SUPREME COURT REPORTS {1985] 3 s.c.R.

Clause (26) of section 3 of the General Clauses Act, 1897,

defines "immovable property" as including inter alia "benefit to

arise out of land". The definition of "immovable property" in

clause (f)

of section 2 of the Registration Act

1908, illustrates a

benefit to arise out

of land by stating that

immovable property

"includes ... rights to ways, lights ferries, fisheries or any other benefit

to arise out of land". As we have seen earlier, the Transfer of Pro­

perty Act, 1882, does not give any definition of "immovable pro­

perty" except negatively by stating that immovable property does

not include standing timber, growing crops,

or grass. The Transfer

of

Propety Act was enacted about fifteen years prior to the General

Clauses Act, However,

by section 4 of the General Clauses Act, the lleliaitions of certain words and expressions, including "immovable

property': and "movable property", given in section 3 of that

Act are directed to apply also, unless there is anything repugnant

in the subject or context, to all Central Acts made after January 3

1968, and the definitions of these two terms, therefore. apply

when they occur in the Transfer of

Property Act. In Ananda Behra

and another

v. The State of Orissa and

a11other(') this Court has

held that a profit a prendre is a benefit arising out land and that in

view

of clause (26) of section 3 of the General Clauses Act, it is

immovable property within the meaning of the Transfer of

Property

Act.

The earlier decisions showing what constitutes benefits arising

out of land have been summarized

ill Mulla on The Transfer

of Property Act, 1882", and it wonld be pertinent to· reproduce the

whole

of that passage. That passage (at pages

16-17 of the Fifth

Edition)

is as follows:

"A 'benefit to arise out of land' is an interest in land

and"therefore immovable property. The first Indian Law

Commissioners in their report of

1879 said that they bad

'abstained from the almost impracticable task

of defining

the various kinds

of interests in immovable things which

are considered immovable property. The Registration

Act, however, expressly includes

as immovable property

benefits to arise out

of land, herediary allowances, rights

of way lights, ferries and fisheries'. The definition of

immovable property in the General Clauses Act applies to

this Act. The following have been held to be immovable

H (1) (1955] 2

S. c. R. 919

\_

r

/

ORIS SA. v. TITA.GIIUR PA.PER MiLLS (Madon, J.) 119

property:-varashasan or annual allowance charged on land; A

a right to collect dues at a fair held on a plot of land; a hat

or market; a right to possession and management

of a

saranjam;

a malikana; a right to collect rent· or

jana: a

life interest

in the

[income of immovable property; a right

of way; a ferry; and a fishery; a lease of land". B

Having seen what the distinctive features

of a profit a prendre

are, we will now turn to the Bamboo Contract to ascertain whether

it can be described

as a grant of a profit

a prendre and thereafter to

examine the authorities cited at the Bar in this connection. Though

both the Bamboo Contract in some of its clauses and the Timber

Contracts ipeak of "the forest produce sold and purchased under

this Agreement", there are strong countervailing factors which go to

show that the Bamboo Contract is not a contract of sale of goo.ds.

While each of the Timber Contracts is described in its body as "an

agreement for the sale and purchase of forest produce", the Bamboo

Contract

is in express terms described as

"a grant of exclusive right

and licence to fell, cut, obtain and remove bamboos ... for the pur­

pose of converting the bamboos into Paper pulp or for purposes

connected with the manufacture

of paper ....

" Further, throughout

the Bamboo Contract, the person

who is giving the grant, namely,

·the Governor of the

State of Orissa, is referred to as the "Gran-

tor." While the Timber Contracts speak of the consideration. pay­

able by .the forest contractor; the Bamboo Contract provides for

payment of royalty. "Royalty" is not a term used in legal parlance

for the price

of

goods sold. "Royalty" is defined in Jowites Dic­

tionary of English Law, Fifth Edition, Volume 2, page 1595, as

follows.

"Royalty, a payment reserved

by the grantor

of a

patent, lease of a mine or similar right, and payable

proportionately to the use made of right

by

lhe grantee. ·

It is usually a payment of money, but may be a payment in

kind, that is, of part of the produce

of the

exercise ofthe

right.

Royalty also means a payment which

is made to

an

author or compos.er by a publisher in respect of each copy

of his work whicl1 is sold, or to an inventor in respect

of each article sold under the patent."

c

D

E

F

G

We are not concerned with the second meaning of the word H

A

B

c

D

E

F

G

i2o SUPREME COURT REPORTS [1985} 3 S.C.R.

"royalty" given in Jowitt. Unlike the Timber Contracts, the Bam­

boo Contract is not an agreement to sell bamboos standing in the

contract areas with an accessory licence

to enter upon such areas

for the purpose

of felling and removing the bomboos nor is it,

un­

like the Timber Contracts, in respect of a particular felling season

only.

It is an agreement for a long period extending to fourteen

years, thirteen years and eleven years with respect to different

con­

tract areas with an option to the Respondent Company to renew

the contract for a further term

of twelve years and it embraces

not

only bamboos which are in existence at the date of the contract

but also bamboos which are to grow and come into existence

thereafter. The payment

of royalty under the Bamboo Contract

bas no relation to the actual quantity

of bamboos cut and removed.

Further, the Respondent Company

is bound to pay a minimum

royalty and the amount

of royalty to be paid by it is always to be

in

excess of the royalty due on the bamboos cut in the contract

areas.

We may pause here to note what the Judicial Committee

of

the Privy

Council had to sa} in the case of Raja Bahadur Kamkashya

Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar

and Orissa' about the payment of minimum royalty under a coal

mining lease. The question in that case was whether the annual

amounts payable

by way of minimum royalty to the lessor were in

his hands

capital receipt er revenue receipt. The Judicial Committee

held that it

was an income flowing from the covenant in the lease. While discussing this question, the Judicial Commictee said (at

pages

522-3):

''These are periodical payments, to be made by the

lessee under his covenants in consideration

of the benefits

which he is granted

by the lessor. What these benefits

may be

is shown by the extract from the lease quoted

above, which illustrates

how inadequate and fallacious it is

to envisage the royalties as merely the price of the actual

tons

of coal. The tonnage royalty is indeed only payable

when the

coal or coke is gotton and despatched : but that

is merely the last stage. As preliminary and ancillary to

that culminating act, liberties are granted to enter on the

land and search, to dig and sink pits, to erect engines and

H

(I) (1943) 11 I.T.R, 513 P.C.

"--

J

'

'

ORISlA v. TITAGHUR PAPER MILLS (Madon, J.) 121

machinery, coke ovens, furnaces and form railways and

roads.

All these and the like liberties show how fallacious

it is to treat the

lease as merely one for the acquisition of

a certain number of tons of coal, or the agreed item of

royalty as merely the price of each ton of coal."

Though the case before the Judicial Committee was of a

lease of a coal mine and

we have before us the case a grant for the

purpose of

feUing, cutting and removing. bamboos with various

other rights and licences ancillary thereto, the above observations

of the Judicial

co·mmittee are very pertinent and apposite to what

we have to decide.

Vnder the Bamboo Contract, the Respondent €ompany has

the right to use all lands, roads and· streams within as also outside

the contract areas for the purpose of free ingress to and egress from

the contract areas.

It is also given the right

·to make dams across

streams, cut canals, make water courses, irrigation works, roads,

bridges, buildings, tramways and other work useful or necessary for

the purpose

of its business of felling, cutting, and removing bamboos

for the purpose of converting the same into paper pulp or for

pur­

poses connected with the manufacture of paper. For this purpose

it has also the right to use timber and other forest produce to be

paid for at the current schedule of rates. The Respondent Com­

pany has the right to extract fuel from areas allotted for that pur­

pose in order to meet the fuel requirements of the domestic consum­

ption in the houses and offices of the persons employed by it and

.to pay a

fixed royalty for this purpose. Further, the Government / , was booud, if required by the Respondent Company, to lease to it a

' suitable site or sites selected by it for the erection of store houses,

sheds, depots, bungalows, staff offices, agencies and other bnildings

of a like nature.

We have highlighted above only the important terms and con-/

A

B

'

c

D

E

F

ditions which

go to show that the Bamboo Contract is not and can-G

not be a contract

of sale of goods. It confers upon the Respondent

Company a benefit to arise out

of land, namely, the right to cut and

remove bamboos

whi ;h would grow from the soil coupled

with several ancillary rights and

is thus a grant of a profit a prendre.

It is equally not possible to view it as a composite contract one,

an agreement relating to standing bamboos agreed to be severed

ff

A

B

c

122 SUPREME COURT REPORTS . ( 1985) 3 S.C.R.

and the other, an agreement relating to bamboos to come into

existence in the future. The terms

of the Bamboo

Contract make

it clear that it

is one, integral and indivisible contrJct which is not

capable of being severed in the manner canvassed on behalf of the

Appellant.

It

is·not a lease of the contract areas to the Respondent

Company for its terms clearly show that there

is no demise by the

State Government

of any area to the Respondent Company. The

Respondent Company has also no right to the exclusive possession

of the contract areas but has only a right to enter upon the land to

take a part

of

tl;e produce thereof for its own benefit. Further, it is

also pertine,nt that while this right to enter upon the contract areas

is described as a "licence", under clause XXV of the Bamboo Con-

tract tho Respondent Company has the right to takt on leas• a

suitable site or sites

of its choice within the contract areas for the

erection

of store houses, sheds, depots, bungalows, staff offices,

agencies and other buildings

of a like nature required for the pur-

D poses

of its

business.' The terms and conditions of the Bamboo

Contract leave no doubt that it confers upon the Respondent Com­

pany a benefit to arise out.of land and it would thus be an interest in

immovable property.

As the grant is of the value exceeding Rs.

100,

the Bamboo Contract is compulsorily registrable. It is, in fact, not

registered. This is, however, immaterial because it

is a grant by

E the Government of an interest in land and under section

90 of the

Registration Act it

is exempt from registration. The High Court

was, therefore, right in holding that the Bamboo Contract was a

grant

of a profit

a prendre, though the grant of such right not being

for the beneficial enjoyment

of any land of the Respondent

Com­

pany, it would not be an easement. Being a profit a prendre or a

F

G

H

benefit to arise out of land any attempt on the part of the State "._

Government to tax the amounts payable under the Bamboo Con- j

tract would not only be ultra l'ires the Orissa Act but also uncon­

stitutional as being beyond the State's taxing power under Entry

54 in List II in the Seventh Schedule to the Constitution of _

India.

We will now turn to the authorities cited

at the Bar. The

cases which have come before the courts on this point have

mainly involved

the question whether the document before the

court required registration. After the coming into force

of the

Constitution

of India and the introduction of land reforms with

consequent abolition

of 'Zamindari' and other proprietary

inte­

rests in land, the question whether a particular document was a

Otl!SSA v. TITAGHUR PAPER MILLS (Madon, J.) ii3

grant of a proprietary interest in land has also fallen for deter­

mination by various courts. It is unnecessary to refer to all the

decisions which were cited before

us and we propose to confine

ourselves to considering only such

of them as are directly relevant

to the question

wh'ch we have to decide. Of the High Court

· decisions the one most in point is that of a Fu'! Bench of the

Madras High Court in Seeni Chettiar v. Santhanathan. Chettiar and

others.(') The question in that case was whether a document which

granted to the defendant a right to enjoy the produce

of all the

trees on the bank and bed

of a tank as also the grass and the reeds

and further to cut and remove the trees for a period exceeding

four years required registration. The court held that the

docu­

ment was not a lease because it did not transfer to th• defendant

exclusive possession

of the tank but conferred upon him merely

a right

of access to the place for the reasonable enjoyment of

what he was entitled to under the contract The court, however,

came to the conclusion that the document required registration

as

it transferred an interest in immovable property, and that it was

not a sale

of mere standing timber but it was contemplated by the

document,

as shown by

the fact that a comparatively long period

of a little ·more than four years was granted to the defendant for

cutting and removing the trees, that"the purchaser should derive

a benefit from the furiher growth

of the thing sold, from further

vegetation and from the nutriment to be afforded by the

land".

The above words quoted in the judgment in that case were those

of Sir Edward Vaughan Williams in the following passage cited

with approval

by Lord Coleridge, C.J., in Marshall v.

Green

2

) :-

"The principle of these decisions appears to be this,

that wherever

at the time of the contract it is

contemp­

lated that the purchaser should derive a bcniftt from the

further growth

of

the thing sold, from further vegetation

and from the nutriment to be afforded

by the land, the

contract

is to be considered as for an interest in land ;

but where the process

of

vegetatiol!. is over, or the par­

ties agree that the thing sold shall be immediately with­

drawn from the land, the land is to be considered as a·

(I) I.L.R. (1897) 20 Mad. 58 F.B.

(2) [1875) I C.P.D. 35, 39,

A

B

c

D

E

F

G

H

A

B

c

D

E

F

G

124

SUPREME COURT REPORTS [!985) 3 S.C.R.

mere warehouse of the. thing sold, and the contract is

for goods."

So far as the decisions of this Court are concerned, the one

which requires consideration first is

Firm

Chhotabhai Jethabai

Patel & Co. (and other cases) v. The State fo Madhya Prade.'h'.

This was one of the two cases strongly relied upon by the Appel­

lant, the other being State of Madhya Pradesh & Ors. v, Orient

Paper Mills Ltd'. The facts in Chhotabhai's Case were that the

petitioners had entered into contracts with the proprietors

of

certain estates and mahals in the

State of Madhya Pradesh under

which they acquired the right to pluck, collect and carry away

tendu leaves ; to cultivate, culture and acquire lac ; and

to cut

and carry

away teak and timber and miscellaneous species of trees

called hardwood and bamboos. On January 26, 1951, the

Madhya Pyadesh Abolition of Proprietary Rights (Estates, Mahals,

Alienated Lands) Act, 1950 (Madhya Pradesh Act I of 1951),

came into force and on the very next day a notification

was issued

under the said Act

·putting an end to all proprietary rights in

estates, mahals and alienated villages and vesting the same in the

State for the purposes of the State free of all encumbrances with

effect from March

31, 1952. The petitioners therupon

appro­

ached this Court under Article 32 of the Constitution of India

praying for a writ prohibiting the State of Madhya Pradesh from

interfering

with the rights which they had acquired under the

contracts with the former proprietors.

It was averred in the

petitions that not only had the petitioners paid the consideration

under the said contracts but had

al.so spent large sums of money

in the exercise

of their rights under the said contracts. This

Court held that the contracts appeared to be in essence and effect

·

licenses granted to the petitioners to cut, gather and carry away

the produce in the shape tendu leaves, lac, timber

or wood and

did not create any interest either in the land or in the trees or

plants. In arriving at this conclusion the Court relied upon a

decision

of the Judicial Committee of the

Privy Council in Messrs

Moh an/al Hargovind

of Jubbulpore v. Commisioner of income-tax, C.P. & Berar, Nagpur

3

, In that case the assesses carried on

(1) [1953]

S.C.R. 476.

(2) [1977] 2 S.C.R. 149,

ff , (3) L.R. [1949] 76 I.A. 235 ; ILR 1949 Nag. 892; A.I.R. 1949 P.C, 311.

. ORISSA v. TiTAGHUR PAPER MILL' (Madon, J.) 125

business as manufacturers and vendors of bidis composed of

tobacco contained or rolled in tendu leaves. The contracts en·

tered into by the assesees were short term contracts under which

in consideration

of a sum payable by instalments the assessees'

were granted the exclusive right to collect and remove tendu

leaves from specified areas.

Some of the contracts also granted

to the assessees a small ancillary right

of cultivation. The Judi-·

cial Committee held that the amounts paid

by the assessees under

the said contracts constituted expenditure in order to secure raw

m·aterials for their

'rnsine;s and, therefore, such expenditure was

allowable as being on ·revenue account. In Chhotabhai's Case

this Court took the view that the contracts before it were similar

to the contracts before the Judicial committee and quoted with

approval the following passage from the judgment in

Messrs

Mohan/a/ Hargovind's Case

(at page 241)

: ·

''The contracts grant no interest in land and n<l

interest in the trees or plants themselves. They are simply

and solely contracts giving to the grantees the right to pick

and carry away leaves, which,

of course, implies the right

to appropriate them as .their

own property. The small right

of cullivation given in the first of the two contracts is me­

rely ancillary and is of no more significance than, would be,

e.g., a right to spray a fruit tree given to the person who

has bought the crop

of apples. The contracts are short

term contracts. The picking

of the leaves under them

has to start at once

or practically at once and to proceed

continuously."

According to this Court, the contracts entered into

by the

petitioners before it related to goods which had a potential

existence and there

was a sale of a right to such goods as soon as

they came into existence, the question whether the title passed on

the date

of the contract itself or later depending upon the inte'ntion

of the parties. This Court, therefore, came to the conclusion that

the

State had no right to interfere with the potitioners' rights

under the said contracts.

As

we will later point out, the authority of the decision in

Chhotabhai's

Case has been considerably shaken, if not wholly

eroded,

by subsequent pronouncell]ents of this Co\lrt. For the

A

B

c

D

E

F

G

ff

A

·B

c

D

E

F

G

H

126 SUPREME COURT REPORTS (1985) 3 S.C.R.

present it will be sufficient for us to point out that the reliance

placed in Chhotabliai's Case on the decision, of the Judicial

Committee in

Messrs Mohan/a/ Hargovind's Case does not appear

to be justified for the contracts before the Judicial Committee and

before this

Court were different in their contents and this Court

appears to have fallen into an error in assuming that they were

similar.

For instance, the contracts before .the

Privy Council

were

short term contracts while those

before the Court in

Chhotabhai's Case were for different periods including terms of five

to even fifteen years. Apart from this, we have pointed out above

the features which go to make the Bamboo Contract a benefit to

· arise out of land. These features were conspicuously ab3ent in

the contracts before the court in

Caotabhai's Case.

The decision next in point of time on this aspect of the case is

Ananda Behare and another v. The State of Orissa and anorher. The

petitioners

in that case had obtained oral licenses for catching and

appropriating fish from specified sections of the Chilka Lake from

its proprietor, the Raja

of

Parikud, on payment of large sums of

money prior to the enactment of the Orissa Estates Abolition Act,

1951 (Orissa Actl of 1952). Under the said Act, the estates of the

Raja of Parikud vested in the State of Orissa and the State refused

to recognize the rights

of the petitioners and was seeking to re-auction

the rights of fishery

in the said lake. The petitioners, contending

that the

State had infringed or was about to infringe their funda­

mental rights under Articles 19 (!.) (f) and 31 (I) of the Constitution

of India, filed petitions in this Court under Article 32 of the

Constitiution.. In their petition, the petitioners claimed that the

transactions entered into by them were sales of future goods, namely,

fish in the sections of the lake covered by the licences and that a s

fish was movable property, the sai Act was not attracted because it

was confined to immovable property. The

Court observed that if

this contention

of the petitioners was correct, then their petition

under Acticle

32 was misconceived because until any fish was actually

caught, the petitioners would not acquire any property

in it. The

Court held that what

was

sold· to the petitioners was the right to

catch

and carry away fish in specific sections of the lake for a specified

future period

and that this amounted

·to a licence to enter on the

land coupled with a grant to catch and carry away the fish which right

was a

profit

a pm11/rc and in England it Wc>uld be regarded as an

interest in lnod bcJu,c It w<1s a right lo take some proftt of the soil

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.) 127

for the use of the owner of" the right in and India it would be·

regarded as a benefit arising out of the land and as such would be

immovable pcoperty. The Court then pointed out that

fish did

not come under the category

of· property excluded from the

definition

of

"immovable property", The Court further held that

if a

profit a prendre is regarded as tangible immovable property, then

the 'property' being over Rs.

100 in vafue, the document creating such

right would repuire to be registered, and if

it was intangible immovable

property, then a registered instrument would be necessary whatever

the value; but

as in the case before the Court the

sales were all oral

and therefore, there being neither writing nor registration, the

transactions passed no title or interest and accordingly the petitioners

had no fundamental rights which. they could eoforce,

Ananda

Behera's Case

was the first decision in which Chhotabhai's Case was

distinguished. The relevant passage in the judgment (at pages

923·

4) is as follows :

"It is necessary to advert to Firm Chhotabhai Jethabai

Patel & Co .. v. The State of Madhya Pradesh and explain it

because

it was held there that a right to pluck, collect and

carry away' tendu leaves does not give the owner

of

th~

right any proprietary interest in the land and so that sort

of right was not an 'encumbrance' within the meaning of

the Madhya Pradesh Abolition of Proprietary Rights Act.

But the contract there was to 'pluck, collect and carry away,

the leaves. The only kind

of leaves that can be 'plucked'

are those that are growing on trees and it

is evident that

there must be a fresh

drop of leaves at periodic intervals.

That would make it a growing

prop and a growing crop is

expressly exempted from the definition of 'immovable

property' in the Transfer

of Property Act. That case is

distinguishable and does not apply

here".

The next decision which was cited and on which a considerable

debate took place

at the Bar was

Shrimati Shantabai v. State of

Bombay & Others. The facts in that case were· that by an unregistered

document the petitioner's husband had granted to her in consideration

of a sum of Rs.

20,000 the right to take and appropriate all kinds

of wood from certain forests in his Zamindari. On the coming into

force

of the Madhya Pradesh Abolition of Proprietary Rights

(Estates, Mahals, Alienated Lands) Act,

1950, all proprietary rights

iu laud vested in the

State of Madhya Pradesh and the petitioner

A

B

c

D

E

F

G

H

A

B

c

D

E

F

G

128 SUPREME COURT R"PORTS [1985] 3 S.C.R.

could no longer cut any wood. She thereupon applied to the Deputy

Commissioner and obtained from him

an order permitting her to

work the forest and started cutting the trees. The Divisional Forest

Officer took action against her and passed an order directing

that the

cut materials be forfeited.

She made representations to the

Government and they proving fruitless, she filed in this Court a

petition under Article

32 of the Constitution of India alleging breach

of her fundamental rights under Article

19 (I) (f) and (g) of the

Constitution. Four

of the five learned Judges who

heard the case

pointed out that the foundation

of the petitioner's claim was an

unregistered document and that it was

riot necessary to determine

the true meaning and effect thereof for whatever construction be

put

on it, the petitioner could not complain of breach of any of her

fundamental rights. The majority of the learned Judges held that

if the document were considered as conveying to the petitioner any

part or share in

her husband's proprietary right, no such part or

share was conveyed to her as the document was not registered and

assuming

that any such part or share was conveyed, it had become

vested in the

State under section 3 of the said Act; if the document

were considered as a licence coupled with a grant, then the right

acquired by the petitioner would be either in the nature

of a profit

a prendre

which being an interest in land was immovable property

and would require registration and

as the document was not

registered, it did not operate to transmit to her any such profit a

prendre

as held in Ananda Behera's

Case; and if the document were

construed as conferring a purely personal right under a contract,

assuming without deciding that a contract was "property" within the

meaning

of Article 19(l)(f) and 31(1) of the Constitution, she

could

not complain as the

State had not acquired or taken possession

of the contract which remained her property and cs the State was

not a party to the contract and claimed no benefit under it, the

petitioner was free to sue the grantor upon that contract and recover

damages by way of compensation; and assuming the State was also

bound by the contract; she could only seek to enforce the contract

in the ordinary way and sue the

State if so advised and claim

whatever damages or compensation she might be entitled to for the

alleged breach

of it. After so holding the majority of the learned

Judges observed (at page 269):

"This aspect of the matter docs not appear to have

ff been brought to the notice of thi> when it decided the case

'

'

....

'

I

OIUSSA

v. TITAGHUR PAPER MILLS (Madon, J.)

of.

Chhotobhai

Jethabai Patel and Co. v. The State of

Madhya Psadesh and had it been so done, we have, no

doubt that case would not have been decided in the way

it was

done."

129

. Unlike the majority of the Judges, Vivian Bose, J,. in his

separate judgment considered in. detail the nat.ure

of the document

in that case

..

Vivian Bose; J,. pointed out the distinction between

standing timber

and a tree. We have earlier extracted those passages

from the learq.ed Judge's judgment. The learned Judge then pointed

out that the duration of the grant was for a period

of twelve years

and

that it was evident that trees which would. be fit for cutting

twelve years later would not be

fit for felling immediately and;

therefore,

the document was not a mere sale of trees.as wood.

Vivian Bose, J,. held that the transaction was not just a righ!'to cut

a tree

but also to derive a profit from the soil itself; in the shape of

the nourhhment in the soil that went into the tree and made it to

grow till it was

of a size and age fit for felling as timber and if

already of that size, in order to enable it to continue to

·Jive till the

petitioner chose to fell it. The learned Judge, therefore, held that

though such trees

as can be regarded as standing timber at the date

of the document; both because of their size and girth and also

because

of the intention to fall at an

early date would be movable

property for the purposes

of the Transfer of Property Act and

the

Registration Act, the remaining trees that were covered by the grant

would·be immovable property and as the total value was Rs. 26,000,

the deed required registration and being unregistered, it did not pass

any title

or interest and, therefore, as in Ananda Behera's Case the

petitioner had no fundamental right which she could

enforce.·

According to learned Counsel for the Appellant, the judgment

of Vivian Bose, J,. in that case was not the judgment of the. Court

since the other learned Judges-expressly refrained from expressing

any opinion

as to the actual nature of the transaction under the

document in question. Learned Counsel

Sl)bmitted that what the

Court really held in

that case was that there' was no breach of any

fundamental right of the petitioner which would entitle her to

appr­

oach this Court under Article 32 of the Constitution,.and this decision

was, therefore, not an authority for the proposition that a document

of the type before the Court was a grant of a profit a prendre

as held by Vivian Bose, J. It is true as contended by l~arned Counsel

A

B

c

D

E

F

G

H

A

B

c

D

E

F

H

130 SUPREME COURT REPORTS (1985] 3 S.C.R.

that the majority expressly refrained from deciding the nature of the

document because, as it pointed out, in any view

of the matter, the

petition would fail and it would, therefore, be difficult to say

that

what Vivian Bose, J,. held was that the decision of the Court as such.

However, the judgment

of Vivian Base, J., is a closely reasoned one

which carries instant conviction and cannot, therefore, be lightly

brushed aside

as learned Counsel has attempted to do. It is also

pertinent to note that the majority in that case pointed out the

principal errors into which the Court had fallen in

Chhotabhai's

Case

and disapproved of what was decided in that case.

The decision to which

we must now advert is Mahadeo v.

The State of Bombay (and connected petitions). The facts in that

case were that some proprietors

of Zamindaris situate in territories,

then belonging to the

State of Madhya Pradesh and on the reorgani­

zation of States traµsferred to the erstwhile State of Bombay,

granted to the petitioners right to take forest produce, mainly tendu

leaves, .from forests included in their Zamindaris. The agreements

conveyed to the petitioners in addition to the tendu leaves other

forest produce like timber, bomboos, etc., the soil for making

bricks, and the right to build on and occupy land for the purpose

of

their buisness. In a number of cases, these rights were spread over

many years.

Some of the agreements were registered and the

others unregistered. After the coming into force

of the

Madhya­

Pradesh Abolition of Propreitary Rights (Estates, Mahals, Alienated

Lands) Act, 1950, the Government disclaimed the agreements and

auctioned the rights afresh, acting under section 3

of the said Act.

The petitioners thereupon filed petitions under Article

32 of the

Constitution

of India challenging the legality of the action taken by

the Government on the ground that it was an invasion of their

funda­

mental rights. The main contention of the petitioners was that the

agreements were in essence and effect licenses granted to them to

cut, gather and carry away the produce in the shape of tendu leaves,

or lac,

or timber or wood, and did not grant to them any

"interest in

land" or 'benefit to arise out of land' and the object of the agree­

ments could, therefore, only be described

as sale of goods as defined

in the Indian

Sale of Goods Act. In support of that contention,

the petitioners relied upon the dicision in

Chhotabhai's case. The

Court examined the terms of the agreements

in question and conclu­

ded that under none

of them was there a naked right to take

leaves of tendu trees together with a right

of ingress and of regress

'

\__.

,'

r

'

)'-

~---.

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.) 131

from the land but there were further benefits including the right to

accupy the land, to erect buildings and to take other forest produce

not necessarily standing timber, growing crop or grass. The Court

further held that whether the right to the leaves could be regarded

as a right to a growing crop had to be examined with reference to all

the terms

of the documents and all the rights

convey~d thereunder

and that

if the right conveyed comprised

more than the leaves of

the trees, it would not be correct to refer to it as being in respect of

growing crops simp/iciter. On an examination of the terms of the

documents and the rights conveyed thereunder the Court came to

the conclusion that wh1t was granted to the petitioners was an

interest in immovable property which was a proprietary

right within

the meaning

of the said Act and, therefore, it vested in the State.

With reference to

C

1

ih-1tab

1

ui C.He relied upJn by the petitioners,

Hidayatullah, J.,

as

he then was, speaking for the court, said (at

page 346) :

" It is clear from the foregoing analysis of the decision

in

Chhotabhai's

Case that on a canst•uction of the docu­

ments there under consideration an adopting . a principle

enunciated by the privy Council in

Mohan/al Hargovind of

Jubbalpure

v. Com•nissioner of Income tax Central Pro-

vinces and Berar and relying upon a passage each in Benja­

min on Sale and the well-known treatise of Baden-Powell,

the Bench came to the conclusion that the documents there

under consideration did not create any interest in land and

did not constitute any grant

of any propreitary interest in

the estate but were merely contracts

or licenses given to

the petitioners 'to cut, gather and carry away the produce

in the shape of tendu leaves,

or lac, or timber or wood'.

But then,

.it necessarily followed that the Act did not

purport to affect the petitioners. rights

under the contracts

or licences. But what was the nature of those rights of the

petitioners?

It is plain, that if they were merely contracual

rights, then as pointed out in the two later decisions,

in

Ananda Behera v. The State of

Orissa, Shantabai's case,

the State has not acquired or taken possession of those

rights but has only declined to be bound by the agreements

to which they were

not a party. If, on the other hand, the

petitioners

were 111erc Jicensces, then

also, as pointed out

B

c

D

E

F

G

jn \he second of the two <;ases cited, the licences came to ff

•

A

B

c

D

E

F

G

i32 SUPREME COURT REPORTS [1985] 3 S.C.R.

an end on the extinction of the title of the Iicensors. In

either case there was no question of the breach of any

fundamental right

of the petitioners which could support

the petitions which were presented under Art.

32 of the

Constituion.

It is this aspect

~f the matter which was not

brought to the notice

of the Court, and the resulting omission

to advert

to it has seriously impaired, if not completly

nullified,

the effect and weight of the decis'on in Chhotabhai's

case

as a

precedent."

We may also usefully reproduce ·the following passages (at

page 354) from the concluded portion

of the judgment :

"From this, it is quite clear that for~sts and trees be­

longed to th~ proprietors, and they were items of. proprie­

tary rights ... "

"If then the forest and the trees belonged to the pro­

prietors as items in their 'proprietary rights', it is quite

clear that these items

of proprietary rights have been

trans­

ferred to the petitioners ... Being a 'proprietary right', it

vests in the State under ss. 3 and 4 of the Act. The decision

in Chhotabhai's case treated these rights as bare licences,

.and it

was apparently given

per hcu ·iam and cannot; there-

fore; be followed." (Emphasis supplied)

·Faced with this decision, learned Counsel for the Appellant

sought to distinguish it on the ground that the terms of the agree-.

ments in that case were different from the terms of the Bamboo

Contract.

We are unable to accept this submission. It is unnecessary

to set

out in detail the terms of the agreements in M1hadeo's Case.

The differences sought to be pointed out by learned Counsel for

the Appellant are unsubstantial and make no

difforence. The yssen­

tial and basic features are the same and the same interpretation as

was placed upon the agreeemonts in M 1had9o's Case must, there­

fore, apply to the Bamboo Contract.

In State of Madhya Pradesh v. Yakinuddin(

1

) the respondents

had entered into agreements with the form or proprietors of certain

estates in the State of Madhya Pradesh acquiring the right to pro­

pagate lac, collect tendu leaves and gather fruits and flowers of

Mahua leaves. Some of these documents were registered and others

H (l) [1963] 3 S.C.R. 13.

·~·

.,

·' ."'t-

•

'

ORISSA v. TITAGHUR PAPER MILLS (Madon, I.) 133

unregiste1ed. On the coming into force of the Madhya Pradesh

Abolition of Proprietary Rights (Estates, Mahals, Alienated Lands)

Act, 1950, the State of Madhya Pradesh took possession of all;

the villages comprised in the respective estates of the proprietors

who had granted the aforesaid rights to the respondents and ·refused

to recognize the respondents' rights. The respondents thereupo~

filed petitions under Article 226 of the Constitution in the High

Court of Madhya Pradesh and the High Court relying upon the

decision

in

Chhotabhai's Case, granted to the respondents the reliefs

claimed

by them. A Bench of five Judges of this Court allowed the

appeals filed

by the

State of Madhya Pradesh. In its judgment,

this Court considered its earlier decisions in

Shantabai v.

State of

Bombay and others and Mahadeo v. The State of Bombay and. obse­

ved as follows (at page 21):

"In view of these cpnsiderations, it must be held

thaf these cases are equally governed by the decisions afore­

said of this Court, which have overruled the earliest deci­

sion in the case of Chhotabhai Jethabai Patel and Co. v.

The State of Madhya Pradesh.

In Board of Reven.ue Etc. v. A.M. Ansari Etc.(

1

)

the respondents

were the highest bidders at an auction

of forest produce, namely,

timber, fuel, bamboos, minor forest produce, bidi leaves, tanning

barks, parks, mohwa, etc., held by the Forest Department

of the

Government of Andhra

Pradesh. They were called upon to pay in

terms

of the conditions of sale stamp duty on the

-agreements to be

executed by then as if these documents were leases of immovable

property. The respondents there upon filed petitions under Article

226 of the Constitution in the High Court of Andhra Pradesh. In

the said petitions, the State contended that under the agreements,

the respondents had acquired an interest in immovable property.

The High Court held

in favour of the respondents. The

State

went in appeal to this court. On consideration of the terms of

the agreements, this Court held that the agreements were licences

and not leases. The Court !~id emphasis upon three salient

features

of those agreements for reaching its conclusion,· namely, {I) that these were agreements of short duration of nine to ten

months,

(2) that they did not create any estate or interest in the

(I) (1976] 3 S.C.R. 661.

•

B

c

E

F

G

A

B

c

D

E

F

G

ff

134

SUPREME COURT REPORTS

(1985] 3 S.C.R.

land, and (3) that they did not grant exclusive possession and

control

of the land to the respondents but merely granted to them

the right to pluck, cut, carry

away and appropriate the forest

produce that might have been existing

at the date of the agreement

or which might have come into existence during the short period of

the·currency of the agreements, and that the right of the respondents

to

go on the land was only ancillary to the real purpose of the

contract. The Court obsarved as follows (at page

667) : " ... Thus the acquisition by the respondents not being

an interest

in. the soil but merely a right to cut the fructus

naturales,

we are clearly of the view that the agreements

in question possessed the

clo.araotori•tics of licences and

did not amount to lease~ so as to attract the applicability

of Article 31(c) of the Stamp Act".

"The conclusion arrived "at by us gains strength from

·the judgment of this Court i:i Firm Chhotabhai Jethabai

Patel and Co. d Ors. v. The State of Madhya Pradesh

where contracts and agreements entered into by person

with the previous proprietors

of certain estates and mahals

in the

State under which they acquired the rights to pluck,

collect and carry away tendu leaves, to cultivate, culture,

and acquire lac, and to cut and carry

away teak

and timber

and miscellaneous species

of trees called hardwood and

bamboos were held in essence and effect to

be

licences."

"Thete is, of course, a Judgment of this Court in

Mahadeo v. State of Bombay where seemingly a somewhat

different

view was expressed but the facts of that case were

quite distinguishable. In that case apart from the bare

right to take the leaves of tendu trees, there were further

benefits including the right to occupy the land, to erect

buildings and to take away other forest produce not

necessarily standing timber, growing crop or grass and the

rights were spread over many

years·."

We fail to see how this authority in any way supports the case

of the Appellant before us or resuscitates the authority

of

Chhotabhai's Case. In Ansari's

Case the Court seems to have

assumed that

Chhotabhai's Case dealt with short term contracts while, as we have seen ·above, most of the contracts in Chhotabhai's

/

---..:.~

........

ORiSSA v. TITAGHUR PAPER MILLS (Madon, J.) i:B

Case were of far greater duration extending even to fifteen years,

nor

was the Court's attention drawn to the case of

State of Madhya

Pradesh

v.

Yakinuddin: While the agreement in Ansari's Case.was

a mere right to enter upon the land and take. away tendu . leaves,

etc., the right under the Bamboo Contract

is of a wholly different

nature. Further, the question whether the agreements were a

grant of a

profit a prendre or a benefit to

arise out of land was

not raised and, therefore, not considered in Ansari's Case and the

only point which fell for decision

by the Court was whether th.e

agreements were licences or leases. In fact, another question

which arose

in that case was whether the respondents were liabl.e

to pay the amounts demanded from them as reimbursement of

sales tax. Affirming the decision of the High Court on this point,

tht Court held that the Forest Department did not carry on. any

busines s

by holding auctions of forest

· produce and was, therefore,

not a dealer within the meaning

of that term as defined in the

Andhra Pradesh General

Sales Tax Act, 1957. The question

whether the agreements were contracts

of sale of goods was,

however, not considered in that case.

We now come to the case of

State of Madhya .Pradesh and

others

v.

Orient Paper Mills Ltd., the second of the two cases on

which learned Counsel for the Appellant relied so strongly in support

of his submission that the Bambo~ Contract was a contract of sale

of goods. The facts in that case

as appearing from the judgment of

the High Court reported as Orient Paper

Mills Ltd. v. State of

Madhya Pradesh and Others(') were that the Pr<sident of India acting

on behalf of the former

Part C

State ofVindhya Pradesh had entered

into an agreement with the respondent. The said agreement was a

registered instrument and

was styled as a lease and under it the

respondent acpuired the right for a period of twenty years

·with an

option of renewal for a further period of twenty years to enter .upon

"the leased area" to fell, cut or extract bamboos and salai wood and

to remove, store and utilize the same for meeting the

fuel

require­

ment of its paper ·mill; A copy of the said agree.men! has been

produced before

us.

Some of the terms of the said agreement were

the same

as those contained in the Bamboo Contracts as also in the

case of

Mahadeo v. The

State of Bombay. The ·said agreement

provided for payment

of royalty

in~luding a minimum royalty. It

also ~onferred upon the respondent the right to take on .Jease such

(I) [1972] 28 S.T.C. 532.

A

B

c

D

E

•F

H

A

B

c

D

E

F

G

H

136

SUPREME COURT REPORTS (1985] 3 S.C.R.

suitable site or sites as were at the disposl of the State Government

within "the leased area" for the erection of store houses, sheds,

depots, bungalows, staff

offices, agencies and other buildings of a like

nature

bona fide required for the purposes of its business connected

with the said agreement as also a right to make dams acrosss reams,

cut canals, make water-course, irrigation works, construct roads,

railways and tramways and do any other work useful

or necessary

for the purposes

of its business connected with the said agreement

in

or upon

"the leased area" in terms very similar to those in'the

Bamboo Contract. After the States Reorganization Act, 1956, came

into force, the territories comprised in the State of Vindhya Pradesh

became part of the new State of Madhya Pradesh. At the date

when the said agreement was entered into the

C.

P. and Berar

Sales Tax Act, 1947, wa5 in force in the State of Vindhya

Pradesh and the definition of "goods" contained in clause (g) of

section 2 of that Act as modified and in force in that State excluded

from the purview

of the said Act forest contracts that gave a right

to collect timber or wood to

forest produce. The C. P. and Berar

Sales Tax Act was repealed by the Madhya Pradesh General Sales

Tax Act, 1958, with effect from April 1, 1959, and the new Act did

not contain any exclusion

of forest contracts from the definitions of "goods''. Further, the terrn "dealer" as defined in the 1958 Act

included the Central Government and the State Government or any

of its departments. The Forest Department of the State Govern­

ment was, however, exempted from the payment of sales tax for ·the

period Aprill, 1959, to November 2, 1962. After the period of the

said exemption expired, the Forest Departmant got itself registered

as a dealer and the Divisional Forest Officer called upon the

respondent

to reimburse to him the amount which, according to him,

he

was liable to pay as sales tax in respect of the transaction covered

by the said agreement. Challenging his right to do

so, the respondent

filed in the High Court of Madhya

Pradesh a writ petition under

Article

226 of the Constitution. Jn the said writ petition the

respondent contended that the transaction covered

by the said

agreement

was not a sale of goods and accordingly, no sales tax was

payable in respect of bamboos and salai wood extracted by the

respondent thereunder,

that the said agreement did not provide for

the recovery

of the amount of sales tax from the respondent, and

that· neither the State Government nor the Forest Department

of that Goverment was a "dealer" and that even if tbe saler

tax was payable, it

was not recoverable as arrears of land

/

ORISSA v. TITAGHUR PAPER MILLS (Madon, J.) 137

revenue. The High Court held that the transaction was one

of sale of goods and that if sales tax

was payable it would be

recoverable under

secti0n 64A of the Sale of Goods Act, 1939, but

the State Government

o.r the Forest Department could not

merely·

by selling the forest produce grown on its own land be regarded as

carrying on any business of buying, selling, supplying or distributing

goods and, therefore, in respect of mere sales of forest produce

neither the State Government nor the Forest Department

was a

"dealer" within the meaning of that term as defined in the 1958 Act.

In coming to the conclusion that the said agreement

was a contract

of sale

of goods, the High Court proceeded upon the basis that what

it had to consider

was

"the stage when bamboo and salai wood have

already been felled and appropriated". By reason of the judgment

of the High Court, the definition of the term "dealer" was amended

with retrospective effect

by the Madhya Pradesh General

Sales Tax

(Amendment and Validation) Act,

1971, so as to nullify the find­

ing

of the High Court that neither the

State Government nor

its Forest Department

was a

"dealer". The State of Madhya

Pradesh

as also the respondent came in appeal to the

Supreme Court.

The appeals were heard in the Court

by a Division Bench of two teamed Judges. At the hearing of the appeals, the respondent

desired to challenge the

vi res of the amending Act, but in view of

the Presdential Proclamation suspending the operation

of Article 14,

it could not do so and the court held that after the proclamation

lapsed, it

was open to the respondent to take up the point but so

far

the appeals were concerned that challenge was not available and the

appeals must

be decided on the basis that the amendment was valid

and constitutional. The main point before this Court, therefore,

was whether the said agreement was a lease as it was styled or a

simple sale of standing timber coupled with a licence to enter and do

·

certain' things on another's land. The Court held that the label

given to a document

was not conclusive of its real nature and that

under the said agreement, possession of the land

was not given

tci

the respondent as it would have been had the said agreement been ·a

lease and that as the terms of the said agreement showed, it conferred

in substance a right to cut and carry away timber of specified species

and till the trees were cut, they remained the property of the owner,

namely, the State, and Iha t once the trees were sovered, the property

in them passed to the respondent. The Court further observed that

the term used in tbe said agreement, namely, "royalty", was "a

feudalistic euphemism for the 'price' of the timber".

A

B

c

D

E

F

G

H

A

·B

c

D

E

F

G

. '

H

138 SUPREME COURT REPORTS (198)] 3 S.C.it

We arc unable to agree with the interpretation placed by the

Court

on the document in the Orient Paper Mills' Case. We find

that in that case this Court as also the High Court adopted a wrong

approach in construing the said document.

It is a well-settled rule

of interpretation that a document must

b~ construed as a whole.

This rule is stated in Halsbury's Laws of England, Fourth Edilion,

Volume

12, paragraph 1469 at page

602, as follows:

"Instrun;ent construed as whole.

It is a rule of construction applicable to all written

instruments that the instrument must be construed

as a

whole in order to ascertain

th1 tn1e meaning of its

several clauses, and the words of each clauso mast

be so interpreted as to bring them into harmony with

the other provisions

of the instrument, if that interpretation

does no violence to the meaning

of which they are naturally

susceptible. The best construction

of deeds is to make

one part

of the deed expound the other, and so to make all

the parts agree. Effect must as far as possible, be given to

every

word and every clause".

In Mahadeo v. State of Bombay a five-Judge Bench of this Court

categorically held (at page

349) that

"Whether the right to the

leaves can be regarded

as a right

to a growing crop has, however, to

be examined with reference to all the terms of the documents and all

the right.< conveyed thereunder". In spite of this clear and unequivocal

pronouncement

by a five-Judge Bench of this Court, the learned

Judges

of the High Court who

decidod the Orient Paper Mills' Case

held (at page· 538) that ''we have to consider the stage when bamboos .

and salai wood have already been foiled and appropriated", wJiile

a two-Judge Bench of this Court evolved for itself in the appeal from

that judgment a rule

of interpretation which was thus stated (at page

152) by Krishna Iyer, J., who spoke for the Court:

"The meat of the matter is the judicial determination

of the true character of the transaction of 'lease' from the

angle

of the

MPG ST 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

< \__

_..J.

.....

'

-!

>-·

ORISSA v. TITAGHUR PAPER MiLLS (Madon, i.) 139

decide an issue arising under the specific statute by c.onfining . A

the

focus to that statutary compass as far as possible.

Diffusion into wider jurisprudential areas

is fraught with

unwitting conflict or confusion. We, therefore, warn

ourselves

against, venturing into the general law of real

property except for minimal illumination thrown

by rulings

cited.

In a large sense, there are no absolutes in legal B

propositions and human problems and so, in the jural

cosmos of relativity, our observations here

may not be good

currency beyond the factual-legal boundaries of sales-tax

situations under a specific

statute."

A little later the learned Judge st~ted (at page 157) as C

follows :

"We 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".

The above rule enunciated by this Court in that case falls into

two parts, namely,(!) a document should be

so interpreted as to

bring it within the ambit of a particular statute relevant for the

purpose of the dispute before the Court, and (2) in order to

do so,

the court can look at only such of the clauses of the document

as

also to just one or more of the consequences flowing from the.

document which would fit in with the interpretation which the court

wants to put on the document to make that statute applicable. The

above principle of interpretation cannot be accepted

as correct in

Jaw. It. is fraught with considerable danger and mischief as it may

expose documents to the personal predilections and philosophies

of

individual judges depending upon whether according to them it

would

be desirable that documents

of the type they have to construe

should

be made subject to a particular statute or not. The result

would

be

.that a document can be construed as amounting to a grant

of a benefit to arise out of land when the question .before the Court

is whether proprietary rights and interests in estates have been

abolished and the same document or a document having the same

tenor could be construed as· a contract of sale of goods when the

question

is whether

.the amounts payable thereunder are exigible to

sales tax or purchase tax, making the interpretation

of the document

dependent upon the personal

views of the judges with respect to the

D

E

F

G

H

i40 . SUPREME COURT REPORTS [1985) 3 s.c.R .

A. · legislation in question. In the very case which we are considering,

namely, the Orient Paper Mill's Case as shown by the very first

sentence in the judgment, this Court obliquely expressed its disappro­

val of the transactions of the type represent by the document before

it. That sentence

is as follows (at page

150) ~

B

c

D

E

F

G

H

"The State of Madhya Pradesh, blessed with abundant

forest wealth, whose exvloitation, for reasons best known to

that goverement, was left in part to the private sector. viz.,

the respondent, Orient Paper Mills ... "

We may point out here that in making this observation the

Court overlooked three important aspects

of the

m~tter, namely,

(I) it was a matter of policy for the State to decide whether such

transatctions should be entered into or not, (2) the transaction was

entered into

by the State so that a paper mill could be started in

the

State as shown by the various terms of the said agreement and thus

was an encouragement to settmg up

of industries in the State, and

(3) the transaction ensured employment for the people

of the area

because the said agreement expressly provided

that the respondent

was to engage minim m

50 per cent of the labour for the working

of the contract area from the local source if available.

Just as a document .cannot be interpreted

by picking out only

a

few clauses ignoring the other relevant ones, in the same way the

nature and meaning

of a document connot be determined by its

end­

result or one of the results or consequences which flow from it. If

the second part of the above rule were correct, the result would be

startling. There would be almost no agreement releting

to immovable

property which cannot be construed

as a contract of sale of goods.

Two instances would suffice to show this.

If a man were to sell his

building to another and the deed

of sale were to provide that the

building should be demolished and reconstructed and the price

should be paid to the vendor partly

in money and partly by

givin3

him accommodation in the new building, according to this rule of

interpretation adopted by the Court in the Orient Paper Mills Case

it would for the purpose of sales tax be a sale of goods because the

old building when demolished would result in movable property,

namely, debris, doors, windows, water pipes: d.rainage pipes, water

tanks, etc., which would be sold by the purchaser as movables.

Similarly, if a man were to give a lease

of his orchard or field, the

lessee would be entitled to the fruits already in existence

as also to

)

~-

~ \.