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PETITIONER:

VISHNU AGENCIES (PVT.) LTD. ETC.

Vs.

RESPONDENT:

COMMERCIAL TAX OFFICER & ORS. ETC.

DATE OF JUDGMENT16/12/1977

BENCH:

BEG, M. HAMEEDULLAH (CJ)

BENCH:

BEG, M. HAMEEDULLAH (CJ)

CHANDRACHUD, Y.V.

BHAGWATI, P.N.

KRISHNAIYER, V.R.

UNTWALIA, N.L.

FAZALALI, SYED MURTAZA

KAILASAM, P.S.

CITATION:

1978 AIR 449 1978 SCR (2) 433

1978 SCC (1) 520

CITATOR INFO :

F 1979 SC1158 (3,4,5)

RF 1980 SC 674 (4)

R 1980 SC1124 (30)

F 1985 SC1199 (6)

R 1988 SC1487 (48)

C 1989 SC1371 (15)

ACT:

Sales-tax-Statutory sale-If sale for the purposes of Sales-

tax Acts.

Cement sold to holders of permits issued under the West

Bengal Cement Control Act 1948-Sale, if exigible to tax.

Transactions between growers and procuring agents and rice

miller and whole-sale agents under A. P. Paddy Procurement

(Levy) Order-If exigible to sales-tax.

HEADNOTE:

The Cement Control Order promulgated under the West Bengal

Cement Control Act, 1948 prohibits storage for sale and sale

by a seller and purchase by a consumer of cement except in

accordance with the conditions specified in a licence issued

by a designated officer. It also provides that no person

shall sell cement at a higher than the notified price and no

person to whom a written order has been issued shall refuse

to sell cement "at a price not exceeding the notified

price". Any contravention of the order becomes punishable

with imprisonment or fine or both.

Under the A.P. Procurement (Levy and Restriction on Sale)

Order, 1967, (Civil Appeals Nos. 2488 to 2497 of 1972) every

miller carrying on rice milling operation is required to

sell to the agent or an officer duly authorised by the

Government minimum quantities of rice fixed by the

Government at the notified price, and no miller or other

person who gets his paddy milled in any rice-mill can move

or otherwise dispose of the rice recovered by milling at

such rice mill except in accordance with the directions of

the Collector. Breach of these provisions becomes

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punishable.

It was contended in this Court on behalf of the appellants

that the word ,sale" in the Bengal Finance Sales Tax Act,

1941, must receive the same meaning as in the Sale of Goods

Act, 1930 since the expression "sale of goods" was, at the

time when the Government of India Act, 1935 was enacted, a

term of well recognised legal import in the general law

relating to sale goods and in the legislative practice

relating to that topic both in England and in India and (2)

since under the Sale of Goods Act there can be no sale

without a contract of sale and since the parties had no

volition but were compelled by law to supply the goods at

prices fixed under the Control Orders by the authorities the

transactions were not sales and so were not exigible to tax.

Disssing the appeals.

HELD : Per curiam Sale of cement by the allottees to the

permit-holders and the transactions between the growers and

procuring agents as well as those between the rice millers

on the one band and the wholesalers or retailers on the

other, are sales exigible to sales-tax in the respective

States. [465-F-G]

Per Beg. C.J,

The transactions in the instant cases are sales and are

exigible to tax on the ratio of Indian Steel and Wire

Products Ltd.. Andhra Sugar Ltd. and Karam, Chand Thapar.

In cases like New India Sugar Mills, the substance of the

concept of a side itself disappears because the transaction

is nothing more than the execution of an order. Deprivation

of property for a compensation called price does not amount

to a sale when all that is done is to carry out an order so

that

434

the transaction is substantially a compulsory acquisition.

On the other hand, a merely regulatory law, even if it

circumscribes the area of free choice, does not take away

the basic character or core of sale from the transaction.

Such a law which governs a class obliges a seller to deal

only with parties holding licences who may buy particular or

allotted quantities of goods at specified prices, but an

essential element of choice is still left to the parties

between whom agreements take place. The agreement despite

considerable compulsive elements regulating or restricting

the area of his choice, may still retain the basic character

of a transaction of sale. In the former type of case, the

binding character of the transaction arises from the order

directed to particular parties asking them to deliver

specified goods and not from a general order or law

applicable to a class. In the latter type of cases, the

legal tie which binds the parties, to perform their

obligations remains contractual. The regulatory law merely

adds other obligations, such as the one to enter into such a

tie between the parties. Although the regulatory law might

specify the terms, such as price, the regulation is

subsidiary to the essential character of the transaction

which is consensual and contractual. The parties to the

contract must agree upon the same thing in the same sense.

Agreement on mutuality of consideration, ordinarily arising

from an offer and acceptance, imparts to it enforceability

in courts of law. Mere regulation or restriction of the

field of choice does not take away the contractual or

essentially consensual binding core or character of the

transaction. [438B-D, EG, 439A-C, 440B]

New India Sugar Mills v. Commissioner of Sales Tax, Bihar,

AIR 1963 SC 1207; [1963] Supp. 2 SCR 459 explained.

Commissioner, Sales tax, U.P. v. Ram Bilas Ram Gopal, AIR

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1970 All 518, Chittar Mal Narain v. Commissioner of Sales

Tax, [1971] 1 SCR 671, Indian Steel and Wire Products Ltd.

v. State of Madras, [1968] 1 SCR 479, Andhra Sugar Ltd. v.

State of Andhra Pradesh [1968] 1 SCR 705 and State of

Rajasthan v. Karam Chand Thapar, AIR 1969 SC 343 referred

to.

[Per Chandrachud, Bhagwati, Krishna Iyer, Untwalia, Murtaza

Fazal Ali and Kailasam, JJ.]

According to the definitions of "Sale" in the two Acts the

transactions between the appellants and the allottees or

nominees are patently sales because in one case the property

in cement and in the other property in the paddy and rice

was transferred for cash consideration by the appellants.

[445D]

1. When essential goods are in short supply, various types

of Orders are issued under the Essential Commodities Act,

1955 with a view to making the goods available to the

consumer at a fair price. Such Orders sometimes provide

that a person in need of an essential commodity like cement,

cotton, coal or iron and steel must apply to the prescribed

authority for a permit for obtaining the commodity. Those

wanting to engage in the business of supplying the commodity

are also required to possess a dealer's licence. The

permit-holder can obtain the supply of goods, to the extent

of the quantity specified in the permit, from the named

dealer only and at a controlled price. The dealer who is

asked to supply the stated quantity to the particular permit

holder has no option but to supply the stated quantity of

goods at the controlled price. [440 E-G]

2. In State of Madras v. Gannon Dunkerley & Co. Ltd.,

[1959] SCR 379 after considering a variety of authorities on

the subject, this Court held that the expression sale of

goods in Entry 48 List 11 Government of India Act, 1935

cannot be construed in its popular sense and that it must be

interpreted in its legal sense. Whereas in popular parlance

a sale is said to take place when the bargain is settled

between the parties through property in the goods may not

pass at that stage, as where the contract relates to future

or unascertained goods, the essence of sale in the legal

sense is the transfer of property in a thing from one person

to another for a price. It was further held that according

to the law both of England and India in order to constitute

a sale, it is necessary that there should be an agreement

between the parties for the purpose of transferring title to

the goods which pre-supposes capacity to contract, supported

by valuable consideration and that as a result of the

transaction property must actually pass

435

in the goods. "Unless all these elements are present, there

can 'be no sale." The effect of the construction which the

Court put on the words of Entry 48 in Gannon Dunkerley is

that a sale is necessarily a consensual transaction and if

the parties have no volition or option to bargain, there can

be no sale. If this view is assumed to reflect the correct

legal Position, the transactions in these cases will amount

to sales. [447B-C, D-F, 449D-E]

3. Offer and acceptance need not always be in an

elementary form, nor does the law of contract or of sale of

goods require that consent to a contract must be express.

Offer and acceptance can be spelt out from the conduct of

the parties which covers not only their acts but omissions

as well. On occasions, silence can be more eloquent than

eloquence itself. Just as correspondence between the

parties can constitute or disclose an offer and acceptance,

so can their conduct. This is because law does not require

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offer and acceptance to conform to any set pattern or

formula. [450D-E]

4. In the instant case, it is not correct to say that the

transactions between the dealer and the consumer were not

consensual. The limitations imposed by the Control Order on

the normal right of the dealers and consumers to supply and

obtain goods, the obligations imposed on the parties and the

penalties prescribed by the order do not militate against

the position that eventually, the parties must be deemed to

have completed the transactions under an agreement by which

one party bound itself to supply the stated quantity of

goods to the other at a price not higher than the notified

price and the other party consented to accept the goods on

the terms and conditions mentioned in the permit or the

order of allotment issued in its favour by the concerned

authority. in order, to determine whether there was any

agreement or consensuality between the parties regard must

be had to their conduct at or about the time when the goods

changed hands. In the first place, it is not obligatory on

a trader to deal in cement nor on the consumer to acquire

it. The primary fact is that the decision of the trader to

deal in an essential commodity is volitional. Such volition

carries with it the willingness to trade strictly on the

terms of the Control Order. The consumer who is under no

legal compulsion to acquire or Possess cement, decides as a

matter of his volition to obtain it on the terms of the

permit or the order of allotment issued in his favour. That

brings the two parties together, one of whom is willing to

supply the essential commodity and the other to receive it.

When the allottee presents his permit to the dealer, he

signifies his willingness to obtain the commodity from the

dealer on the terms stated in the permit. His conduct

reflects his consent. And when, upon the presentation of

the permit the dealer acts upon it, he impliedly agrees to

supply the commodity to the allottee on the terms by which

he has voluntarily bound himself to trade in the commodity.

His conduct too reflects his consent. Thus, though both

parties are bound to comply with the legal requirements

governing the transaction, they agree as between themselves

to enter into the tranaction on statutory terms, one

agreeing to supply the commodity to the other on those terms

and the other agreeing to accept from him on the very terms.

[449E-H, 450C, E-H,451A]

5. Secondly, though the terms of the transaction are

mostly predetermined by law, it cannot be said that there is

no area at all for bargain. The conditions provided in the

order that cement shall not be sold at a higher than the

notified price and that no dealer shall refuse to sell it at

a price not exceeding the notified price leaving it open to

the individuals to charge and pay a price which is less than

the notified price or charge a lesser price. Within the

bounds of reasonableness, it would be open to the parties to

fix the time of delivery. The consumer has a right to ask

for weighment of goods which shows that he may reject the

goods if found short in weight or are not of the requisite

quality. The consumer has a right to ask for weighment of

goods which shows that he tions have the freedom to bargain

militates against the view that the transactions are not

consensual. [451-AE]

6. In New India Sugar Mills Ltd. the question was whether

sugar supplied by the mills on the orders of the Sugar

Controller was exigible to tax. The majority held that a

contract of sale between the buyer and the seller, which is

a pre-requisite to a sale, being absent the transaction was

not exigible to sales

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436

tax. But the principle on which the problem should be

approached was set out in the dissenting judgment which said

that consent may be express or implied and that it could not

be said that unless offer and acceptance were present in an

elementary form, there could be no taxable sale. Taking the

view that on obtaining the necessary permit the seller on

the one hand and the buyer on the other agreed to sell and

purchase sugar it was pointed out that when the buyer, after

receiving the permit, telegraphed instructions to despatch

sugar and the seller despatched it, 'a contract emerged and

consent must be implied on both sides though not expressed

antecendently to the permit". So long as the parties trade

under controls at fixed price and accept these as any other

law of the realm, the contract is at the fixed price, both

sides having or deemed to have agreed to such a price.

Consent under the law of contract need not be express; it

could be implied. [453B-G; 454A-C]

7.In coming to its conclusion the majority in New India

Sugar Mills followed the decision of this Court in Gannon

Dunkerley that in a building contract there was no agreement

express or implied to sell goods and secondly that property

in the building materials does not pass in the materials

regarded as goods" but it passes as part of immovable

property. The majority in-New India Sugar Mills was in

error in saying that the ratio govern that case because the

questions involved in both different. In New India Sugar

Mills the commodity with concerned was sugar and was

delivered as sugar just as in commodity is cement, which was

delivered as cement Dunkerley tax was demanded after the

commodity had after property in it had passed. The question

in this case which was question involved in New India Sugar

Mills namely decidendi of Gannon Dunkerley must cases were

altogether which the Court was the instant case the

Secondly, in Gannon changed hands, that is, the very whether

a transaction effected in accordance with the obligatory

terms of a statute can amount to a sale, did not arise in

Gannon Dunkerley, Gannon Dunkerley is not an authority for

the proposition that there cannot at all be a contract of

sale if the parties to a transaction are obliged to comply

with the terms of a statute. [456C-E]

8. In Gannon Dunkerley this Court was influenced largely

by the observations in the 8th edn. of Benjamin on "Sale?'

that to constitute a valid sale there must be a concurrence

of four elements, one of which is "mutual assent". The

majority judgment in New India Sugar Mills also derived

sustenance from the same passage in Benjamin's 8th edn.

Gannon Dunkerley involved an altogether different point and

is not an authority for the proposition that there cannot at

all be a contract of sale if the parties to a transaction

are obliged to comply with the terms of a statute. [464E-F ,

465C-D]

9. With the high ideals of the Preamble and the directive

principles of our Constitution, there has to be a

fundamental change in the judicial outlook. Freedom of

contract has largely become an illusion. The policy of the

Parliament in regard to the contracts including those

involved in sale of goods, has still to reflect recognition

of the necessity for a change, which could be done by a

suitable modification of the definition of sale of goods.

[464C-D]

Majority decision in New India Sugar Mills v. Commissioner

of Sales Tax, Bihar, AIR 1963 SC 1207; [1963] Supp. 2 SCR

459 overruled.

Minority opinion in India Steel & Wire Products v. State of

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Madras [1968] 1 SCR 479, Andhra Sugar Ltd. v. State of

Andhra Pradesh, [1968] 1 SCR 705, Salar Jung Sugar Mills

Ltd. v. State of Mysore [1972] 2 SCR 228 and Oil and Natural

Gas Commission v. State of Bihar [1977] 1 SCR 354 approved.

State of Tamil Nadu v. Cement Distributors Pvt. Ltd. [1973]

2 SCR 1019 partly approved.

Chhitter Mal Nazrain Das. v. Commissioner of Sales Tax

[1971] 1 SCR 671 explained.

State of Madras v. Gannon Dunkerley [1959] SCR 379 explained

and distinguished.

Kirkness v. John Hudson and Co. Ltd. [1955] A.C. 696 held

inapplicable.

Ridge No miness Ltd. v. Inland Revenue Commissioners [1962]

Ch. 376 referred to.

Commissioner, Sales Tax U.P. v. Ram Bilas Ram Gopal AIR 1970

Allahabad 318 referred to.

43 7

JUDGMENT:

CIVIL APPELLATE JURISDICTION: civil Appeal No. 724 of

1976.

Appeal by Special Leave from the, Judgment and Order dated

13th Dec. 1974 of the Calcutta High Court in Appeal from

Original Order No. 240 of 1973.

AND

Civil Appeals. Nos. 2488-2497 (NT) 1972 (From the Judgment

and Order dated the 31st March, 1970 of the Andhra Pradesh

High Court in Writ Petitions Nos. 3005, 3006, 3085, 3086,

3088, 3090, 4232, 4243 and 4244 of 1969.

Sachin Chowdhary, B. Sen, S. S. Bose, K. K. Chakraborty, A.

G. Manzes, J. B. Dadachanji and k. J. John for the Appellant

in C.A. 724/76.

L. N. Sinha, D. N. Mukherjee, G. S. Chatterjee and A. K.

Ganguli for respondents 1 to 4 in C.A. 724/76.

B. Kanta Rao for the Appellants in C.As 2488-97 of 1972.

Soli J. Sorabjee, Addl. Sol. Genl. (In 2488-97) 72, P.

Parameshwara Rao A. K. Ganguli and T. V. S. Narasimhachari

for the Respondents in CAs. Nos. 2488-97/72.

A. Subba Rao for the Intervener.

The following Judgment were delivered

BEG, C.J.--I am in general agreement with my learned brother

Chandrachud who has discussed all the authorities so

admirably and comprehensively. I, however, would like to

add a few observations stating the general conclusion, as I

see it, emerging from an application of general principles

and accumulation of case law on the subject of what may be

called "statutory" or "compulsory" sales. Are they sales at

all so as to be exigible to sales tax or purchase tax under

the relevant statutory provisions ?

The term 'sale? is defined as follows in Eenjamin on Sale

(Eighth Edn.) :

"To constitute a valid sale there must be a

concurrences of the following elements, namely

:-

(1) parties competent to contract;

(2) mutual assent;

(3) a thing, the absolute or general

property in which is transferred from the

seller to the buyer; and

(4) a price in money paid or promised."

It is true that a considerable part of the field over which

what are called 'sales' take place under either 'regulatory

orders or levy orders passed or directions given under

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statutory provisions is restricted and controlled by these

orders and directions. If, what is called a "sale"

438

is, in substance, mere obedience to a specific order, in

which the so called "price" is only a compensation for the

compulsory passing of property in goods to which an order

relates, at an amount fixed by the authority making the

order, the individual transaction may not be a ,,sale"

although the compensation is determined on some generally

fixed principle and called "price". This was, for example,

the position in New India Sugar Mills v. Commissioner of

Sales Tax, Bihar(1). That was a case of a delivery

according to an order given by the Govt. which could amount

to a compulsory levy by an executive order although there

was no legislative "levy order" involved in that case. On

the other hand,, in Commissioner, Sales Tax, U.P. v. Ram

Bilas Ram Gopal,(2) the order under consideration was

actually called a levy order, but the case was

distinguishable from New India Sugar Mills v. Commissioner

of Sales Tax, Bihar (supra) on facts. It was held in the

case of Ram Bilas (supra) that the core of what is required

for a "sale" was not destroyed by the so called "levy" order

which was legislative. It is true that passages from the

judgement of Pathak, J., in the case of Ram Bilas Ram Gopal

(supra) were cited and specifically disapproved by a Bench

of this Court in Chittar Mal Narain v. Commissioner of Sales

Tax(3). But, perhaps the view of this Court in Chittar Mal

Narain, Das (supra) goes too far in this respect. It is not

really the nomenclature of the order involved, but the

substance of the transaction under consideration which

matters in such cases.

In the first typo of case mentioned above the substance of

the concept of a sale, as found under our Law, itself

disappears because the transaction is nothing more than the

execution of an order. Deprivation of property for a

compensation, which may even be described as "price", does

not amount to, a sale when all that is done is to, carry out

an order so that the transaction is substantially a

compulsory acquisition. On the other hand, a merely

regulatory law, even if it circumscribes the area of free

choice, does not take away the basic character or core of

sale from the transaction. Such a law, which governs a

class, may oblige sellers to deal only with parties holding

licences who may buy particular or allotted quantities of

goods at specified prices, but an essential element of

choice is still left to the parties between whom agreements

take place. The agreement, despite considerable compulsive

elements regulating or restricting the area of free choice,

may still retain the basic character of a transaction of

sale. This was the position in Indian Steel and Wire

Products Ltd. v. State of Madras(4). Andhra Sugar Ltd. v.

State of Andhra Pradesh(5) and State of Rajasthan v. Karam

Chand Thapar(6): There might be borderline cases in which

it- may be difficult to draw the line.

(1) AIR 1963 SC 1207 : [1963] (Supp) 2 SCR 459.

(2) AIR 1970 All 518.

(3) [1971] 1 S.C.R. 671.

(4) [1968] 1 S.C.R. 479.

(5) [1968] 1 S.C.R. 705.

(6) A.I.R. 1969 S.C. 343.

439

In the former type of case, the binding character of the,

transaction arises from the order directed to particular

parties asking them to deliver specified goods and not from

a general order or law applicable to a class. In the latter

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type of cases, the legal tie (vinculum juris) which binds

the parties to perform their obligations remains contrac-

tual. The regulatory law merely adds other obligations,

such as the one to enter into such a tie between the parties

indicated there. Although the regulatory law might specify

the terms, such as price, or parties, the regulation is

subsidiary to the essential character of the transaction

which is consensual and contractual. The basis of a con-

tract is : "consensus adem". The parties to the contract

must agree upon the same thing in the 'same sense.

Agreement on mutuality of consideration, ordinarily arising

from an offer and acceptance, imparts to it enforceability

in Courts of law. Mere regulation or restriction of the

field of choice does not take away the contractual or

essentially consensual binding core or character of the

transaction.

I may be forgiven for citing a passage from my judgment in

Commissioner of State Tax v. Ram Bilas Ram Gopal,(supra) to

indicate the setting of such transactions

"It appears to me to be necessary to

distinguish between a restriction in the area

of choice of parties and the transaction

itself in order to, determine the true

character of the transaction. Limitation of

the field of choice is a necessary concomitant

of a controlled or mixed economy which ours

is. Absolute freedom of contract or

unregulated operation of the laws of- supply

and demand, which an apotheosis of the lais-

sez-faire doctrine demanded, led really to a

shrinking of the area of freedom in the

economic sphere, producing gross inequalities

in bargaining powers and recurrent crises.

Therefore, a regulated or a socialistic

economy seeks to regulate the play of forces

operating on the economic arena so that

economic freedom of all concerned, including

employers and employees, is preserved and so

that the interests of consumers are also not

sacrificed by any exploitation of conditions

in which there is scarcity of goods,. I think

that the regulation or restriction of the area

of choice, cannot be held to take away the

legal character of the transactions which take

place within the legally restricted field. It

is too late in the day, when so much of the

nation's social and economic activities are

guided and governed by control orders,

allotment orders, and statutory contracts, to

contend that mere State regulation of the

economic sphere of life results in the

destruction of the nature of the transactions

which take place within that sphere." (P. 524)

In Roman Law the contract of sale was classed as a

"consensual" contract. The consent could, no doubt, be

express or implied. I find that Hidayatullah J., in his

very learned dissenting judgment in New India Sugar Mills

Case (supra), where some Roman Law is. referred to, thought

that even in a case of a 'specific order directing delivery

of

440

goods there could be an implied consent so as to constitute

a safe. I find it, with great respect, difficult to go so

far as that. What could be implied, upon the facts of a

particular case, must still be a consent to a proposal if

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the transaction is to be construed as a "sale". Mere

compliance with an order may imply an acceptance of an order

but acceptance of a proposal to purchase or sell are of a

juristically different genus. It is, however, not necessary

for us, in this case, to accept the correctness of the

minority view of Hidayatullah, J. in New India Sugar Mills

case (supra). The transactions before us are sales on an

application of the ratio decidendi of Indian Steel and Wire

Products Ltd's case (supra) and other cases decided on

similar grounds.

The difficulty arises from the fact that, although the

ingredients of a "sale," as defined in Benjamin's treatise

on "Sale?', may seem to be satisfied even if delivery of

goods is in obedience to "an order to deliver them for a

consideration, fixed or to be fixed if we stretch mutual

assent to cover assent resulting from orders given, yet, it

is difficult to see how such a transaction would be based on

a contractual tie. According to Sec. 4(3) of our Sale of

Goods Act, a sale results only from a contract which

presupposes a minimal area of freedom of choice where the

ordinary mechanism of proposal and acceptance operates.

For the reasons indicated above, while I agree with the

answer given by my learned brother Chandrachud to the

question before us and also practically with all the views

expressed by my learned brother, yet, I hesitate to hold

that the majority opinion expressed by Shah J., in New India

Sugar Mills case (supra), is erroneous. I think the case is

distinguishable. Ibis, however, makes no difference to the

common conclusion reached by us on the facts of the cases

before us.

CHANDRACHUD, J. These appeals have been placed for hearing

before a seven-Judge Bench in order to set at rest, to the

extent foreseeable, the controversy whether what is

conveniently, though somewhat loosely, called a 'compulsory

sale? is exigible to sales tax. When essential goods are in

short supply, various types of Orders are issued under the

Essential Commodities Act, 1955 with a view to making the

goods available to the consumer at a fair price. Such

Orders sometimes provide that a person in need of an

essential commodity like cement, cotton, coal or iron and

steel must apply to the prescribed authority for a permit

for obtaining the commodity. Those wanting to engage in

the-business of supplying the commodity are also required to

possess a dealer's licence. The permit holder can obtain

the supply of goods, to the extent of the quantity specified

in the permit, from the named dealer only and at a

controlled price. The dealer who is asked to supply the

stated quantity of goods at the particular permit holder has

no option but to supply the stated quantity of goods at the

controlled price. The question for our consideration not

easy to decide, is whether such a transaction amounts to a

sale in the language of the law.

We will refer to the facts of civil appeal 724 of 1976, in

which a company called M/s Vishnu Agencies (Pvt.) Ltd., is

the appellant. It carries on business. as an agent and

distributor of cement in the

441

State of West Bengal and is a registered dealer under the

Bengal Finance (Sales Tax) Act, 1941, referred to

hereinafter as the Bengal Sales Tax Act. Cement being a

controlled commodity, its distribution is regulated by the

West Bengal Cement Control Act, 26 of 1948, referred to

hereinafter as the Cement Control Act, and by the Orders

made under section 3 (2) of that Act. Section (3) (1) of

the Cement Control Act provides, inter alia, for regulation

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of production, supply and distribution of cement for

ensuring equitable supply and distribution thereof at a fair

price. By the Cement Control Order, 1948 framed under the

Cement Control Act, no sale, or purchase of cement can be

made, except in accordance with the conditions contained in

the written order issued by the Director of Consumer Goods,

West Bengal or the Regional Honorary Adviser to the

Government of India at Calcutta or by officers authorised by

them, at prices not exceeding the notified price.

The appellant is a licensed stockist of cement and is

permitted to stock cement in its godown, to be supplied to

persons in whose favour allotment orders are issued, at the

price stipulated and in accordance with the conditions of

permit issued by the authorities concerned. The authorities

designated under the Cement Control Order issue permits

under which a specified quantity of cement is allotted to a

named permit-holder, to be delivered by a named dealer at

the price mentioned in the permit. A permit is generally

valid for 15 days and as soon as the price of cement

allotted in favour of an allottee is deposited with the

dealer, he is bound to deliver to the former the specified

quantity of cement at the specified price.

A specimen order issued in favour of an allottee, under

which the appellant had to supply 10 metric tons of cement

at Rs. 144.58 per M.T., exclusive of sales tax, reads thus

"LICENCE FOR CEMENT

The quantities of cement detailed below are

hereby allotted to M/s. Marble & Cement

products Co. Pvt. Ltd., 2, Braboume Road,

Calcutta-1 to be supplied by M/s. Vishnu

Agencies Pvt. Ltd., 3, Chittaranjan Avenue,

Calcutta-13, on conditions detailed below.

The price of material involved must be

deposited with the Stockist within 15 days and

the actual delivery must be taken within 15

days from the date of issue of the permit.

The licence is issued only for the purpose of

Mfg. of Mosaic Tiles at 188, Netaji Subhas

Road, Calcutta-40.

Under no circumstances will the validity of

the permit be extended beyond the period of 15

days from the date of its issue.

Cement

Total Tonnge

Country Cement at Rs. 144.58 Ton Cwt. per M.T.

exclusive of S. T. 10 M/T (Ten M/T only)"

442

The appellant supplied cement to various allottees from time

to time in pursuance of the allotment orders issued by

appropriate authorities and in accordance with the terms of

the licence obtained by it for dealing in cement. The

appellant was assessed to sales tax by the first respondent,

the Commercial Tax Officer,, Sealdah Charge, in respect of

these transactions. It paid the tax but discovered on

perusal of the decision of this Court in New India Sugar

Mills Ltd. v. Commissioner of Sales Tax(1) that the

transactions were not exigible to sales tax. Pleading that

the payment was made under a mistake of law, it filed

appeals against the orders of assessment passed by res-

pondent 1. It contended in appeals before the Assistant

Commissioner of Commercial Taxes that by virtue of the

provisions of the Cement Control Act and the Cement Control

Order, no volition or bargaining power was left to it and

since there was no element of mutual consent aggreement

between it and the allottees, the transactions were not

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sales within the meaning of the Sales Tax Act. The

appellant further contended that if the transactions were

treated as sales, the definition of "sale" in the Sales Tax

Act was ultra vires the legislative competency of the

Provincial Legislature under the Government of India Act,

1935 and of the State Legislature under the Constitution.

The appellate authority rejected the first contention and

upheld the assessments. It did not, as it could not, go

into the second contention regarding legislative competence.

The appellant adopted the statutory remedies open to it but

since the arrears, of tax were mounting up and had already

exceeded a sum of rupees eight lacs, it filed a writ

petition in the Calcutta High Court praying that the various

assessment orders referred to in the petition be quashed and

a writ of prohibition be issued directing the sales tax

authorities to refrain from making any further assessments

for the purpose of sales tax on the transactions between the

appellant and the allottees.

A learned single Judge of the High Court allowed the writ

petition and issued a writ of mandamus restraining the

respondents from imposing sales tax on the transactions.

between the appellant and the allottees. That judgment

having been set aside in appeal by a Division Bench of the

High Court by its judgment dated December 13, 1974, the

appellant has filed appeal No. 724 of 1976 by special leave.

Civil appeals No. 2488 to 2497 of 1972 raise a similar

question under the Andhra Pradesh Paddy Procurement (Levy)

Orders, under which paddy growers in the State are under an

obligation to sell the paddy to licensed agents appointed by

the State Government at the prices fixed by it. The High

Court of Andhra Pradesh by its judgment dated March 31, 1970

has taken the, same view as the Calcutta High Court, namely,

that the transactions amount to sales and are taxable under

the Sales Tax Act. Counsel appearing in the Andhra Pradesh

appeals agree that the decision in the Calcutta case will

govern those appeals also.

(1) [1963] Supp. 2 S.C.R. 459.

443

Since the crux of the appellant's contention is that the

measures adopted to control the supply of cement leave no

consensual option to the parties to bargain, it is necessary

first to notice the relevant provisions of law bearing on

the matter. The West Bengal Cement Control Act, 26 of 1948,

was enacted in order. to "confer powers to control the

production, supply and distribution of, and trade and com-

merce in, cement in West Bengal." Section 3(1) of the Act

empowers the Provincial Government to provide, by order in

the Official Gazette, for regulating the supply and

distribution of cement and trade and commerce therein.

Section 3(2) provides by clauses (b) to (o) that an order

made under sub-section (1) may provide for regulating or

controlling the prices at which cement may be purchased or

sold and for prescribing the conditions of sale thereof,

regulating by licences, permits or otherwise, the storage,

transport, movement, possession, distribution, disposal,

acquisition, use of consumption of cement; prohibiting the

withholding from sale of cement ordinarily kept for sale;

and for requiring any person holding stock of cement to sell

the whole or specified part of the stock at such prices and

to such persons or classes of persons or in such

circumstances, as may be specified in the order. If any

person contravenes an order made under section 3, he is

punishable under section 6 with imprisonment for a term

which may extend to three years or with fine or with both,

and, if the order so provides, any Court, trying such con-

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tranvention, may direct that a property in respect of which the

Court is satisfied that the order been

contravened shall be forfeited to the Government.

In exercise of the powers erred by section 3(1) read with

clauses (b) to (h) of section (2) of the Act, an Order

which may conveniently be called the Cement Control Order

was promulgated by the Governor on August 18, 1948. The

relevant clauses of that Order contain the following

provisions. By paragraph 1, no person shall after the

commencement of the order sell or store for sale any cement

unless he holds a licence and except in accordance with the

conditions specified in such licence obtained from the

Director of Consumer Goods, West Bengal, or any officer

authorised by him in writing in this behalf. By paragraph

2, no person shall dispose of or agree to dispose of any

cement except in accordance with the conditions contained in

a written order of the Director of Consumer Goods, West

Bengal or the authorities specified in the paragraph. By

paragraph 3, no person shall acquire or agree to acquire any

cement from any person except in accordance with the

conditions contained in a written order of the Director of

Consumer Goods, West Bengal, or the authorities specified in

the paragraph. By paragraph 4, no person shall sell cement

at a "higher than notified price". By Paragraph 8, no

person or stockist who has any stock of cement in his

possession and to whom a written order has been issued under

paragraph 2 shall refuse to sell the same, "at a price not

exceeding the notified price", 'and the seller shall deliver

the cement to the buyer "within a reasonable time after the

payment of price". By paragraph 8A, every stockist or every

person employed by him shall, if so re

3-1146 SCI/77

444

quested by the person acquiring cement from him under a

written order issued under paragraph 3, weigh the cement in

his presence or in the presence of his authorised

representative at the time of delivery.

We are not concerned with the amendments made by the Govern-

ment of West Bengal to the, Cement Control Order on December

30, 1965 by which, inter alia paragraphs 2, 3, 4, 8 and 8A

of that Order were deleted. The,appeal from the decision of

the Calcutta High Court is limited to the transactions

between the appellant and the allottees from the years 1957

to 1960.

As regards the batch of appeals from Andhra Pradesh, the

levy of tax was challenged by three sets of persons, the

procuring agents, the rice-millers and the retailers with

the difference that the procuring agents were assessed to

purchase tax, while the others to sales tax under the Andhra

Pradesh General Sales Tax Act, 1957. By virtue of the

provisions of the, Andhra Pradesh Paddy Procurement (Levy)

Orders, the paddy-growers can sell their paddy to licensed procuring age

nts appointed by the State Government only and

at the prices fixed by the Government. The agriculturist

has the choice to select his own procuring agent but he

cannot sell paddy to a private purchaser. The procuring

agents in their turn have to supply paddy to the rice-

millers at controlled prices. The millers, after converting

paddy into rice, have to declare their stocks to the Civil

Supplies Department. Pursuant to the Orders issued by the

Department, the rice-millers-have to supply a requisite

quantity of rice to the wholesale or retail dealers at

prices fixed by the Department. Orders for such supply by

the millers are passed by the authorities under the A.P.

Procurement (Levy) and Restriction on Sale Order, 1967.

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Under this Order, every miller carrying on rice-milling

operations is required to sell to the agent or officer duly

authorised by, the Government the minimum quantities fixed

by the Government at the notified price; and no miller or

other person who gets his paddy milled in any price mill can

move or otherwise dispose of the, rice recovered by milling

at such rice mill except in accordance with the, directions

of the Collector. A breach of these provisions is liable to

be punished under section 7 of the Essential Commodities Act

1955 and the goods are liable to be forfeited under section

6A of that Act. The A.P. sales tax authorities levied

purchase tax on the purchase of paddy made by the procuring

agents from the agriculturists and they levied sales tax on

the transactions relating to the sup of rice by the millers

to the wholesale and retail dealers and on the supply made,

by the retailers to their customers. The case as regards

the sales tax imposed on the transactions between the retail

dealers and the consumers stood on an altogether different

footing, but the writ petitions filed by the procuring

agents and rice-millers raised questions similar to those

involved in the writ petition filed in the Calcutta High

Court.

These then are the provisions of the respective Orders

passed by the Governments of West Bengal and Andhra Pradesh.

445

We may now notice the provisions of the Sales Tax Acts.

Section 2(g) of the Bengal Finance (Sales Tax) Act, 6 of

1941, defines a sale" to mean "any transfer of property in

goods for cash or deferred payment or other valuable

consideration, including a transfer of ,property in goods

involved in the execution of a contract, but does not

include a mortgage, hypothecation, charge or pledge."

Section 2 (1) provides that the word "turnover" used in

relation to any period means "the aggregate of the sale-

prices or parts of sale-prices receivable, or if a dealer so

elects, actually received by the dealer........ By clause

(h) of section 2, "sale-price" is defined to mean the amount

payable to a dealer as valuable consideration for "the sale

of any goods". By section 4(1), every dealer whose gross

turnover during the year immediately preceding the

commencement of the Act exceeded the taxable quantum is

liable to pay tax under the Act on all "sales" effected

after the date notified by the State Government.

Section 2(n) of the Andhra Pradesh General Sales Tax Act

1957 defines a "sale" as "every transfer of the property in

goods by one person to another in the course of trade or

commerce, for cash, or for deferred payment or for any other

valuable consideration. Section 5 of that Act is the

charging section.

According to these definitions of 'sale' in the West Bengal

and Andhra Pradesh Sales Tax Act, transactions between the

appellants on one hand and the allottees or nominees on the

other are patently ,sales because indisputably, in one case

the property in cement and in the other, property in paddy

and rice was transferred for cash consideration by the

appellants; and in so far as the West Bengal case is

concerned, property in the goods did not pass to the

transferees by way of mortgage, hypothecation, charge or

pledge. But that is over- simplification. To counteract

what appears on the surface plain enough, learned. counsel

for the appellants have advanced a two fold contention.

They contend, in the first place,' that the word 'sale' in

the Sales Tax Acts passed by the Provincial or State

legislatures must receive the same meaning as in the Sale of

Goods Act, 1930; or else, the definition of sale in these

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Sales 'Tax Acts will be beyond the legislative competence of

the Provincial and' State legislatures. Secondly, the

appellants contend that since under the Sale of Goods Act,

there can be no sale without a contract of sale and since

the parties in these matters had no volition of their own

but were compelled by law to supply and receive the goods at

prices fixed under the Control Orders by the prescribed

authorities, the transactions between them are not sales

properly so palled and therefore are not exigible to sales

tax.

For examining the validity of the first contention, it is

necessary to turn to the appropriate entries in the

legislative lists of the Constitution Acts, for the

contention is founded on the premise that the word sale'

which occurs in those entries must receive the same meaning

as in the Sale of Goods Act, 1930 since the expression "sale

of goods" was, at the time when the Government of India Act

was enacted, a term of well-recognised legal import in the

general law relating to sale

446

of goods and in the legislative practice relating to that

topic both in England and in India. Entry 48 in the

Provincial List, List II of Schedule VII to the Government

of India Act, 1935 relates to; "Taxes on the sale of goods."

Entry 54 of List II, of the Seventh Schedule to the

Constitution reads to say: "Taxes on the sale or purchase of

goods other than newspapers, subject to the provisions of

entry 92A of the Union List but we may refer to it in order

to complete the picture. It refers to: "Taxes on the sale

or purchase of goods other than newspapers, where such sale

or purchase takes place in the course, of inter-State trade

or commerce."

The contention of the appellants that the expression 'sale

of goods' in entry 48 in the Provincial List of the, Act of

1935 and in entry 54 in the State List of the constitution

must receive the same meaning as in the Sale of Goods Act

is repelled on behalf of the State Governments with the

argument that constitutional provisions which confer

legislative powers must receive a broad and liberal

construction and therefore the expression 'sale of goods'

in entry 48 and its successor, entry 54, should not be

construed in the narrow sense in which that expression is

used in the Sale of Goods Act, 1930 but in a broad sense.

The principle that in interpreting a constituent or organic

statute, that construction most beneficial to- the widest

possible amplitude of its powers must be adopted has

been examined over the years by various courts, including

this Court, and is too firmly established to merit

reconsideration. Some of the leading cases on this point

are the Privy Council decisions in British Coal Corporation

v. king(1), Edwards v. A. G. for Canada(2) and James v.

Commonwealth of Australia("); the Australian decisions

in Morgan v. Deputy Federal Commissioner of Land Tax,

N.S.W.(4) and Broken Hill South Ltd. v. Commissioner of

Taxation (N.S.W.) (5) ; the Federal Court decisions in In re

the Central Provinces and Berar Act No. XIV of 1938(6) and

United Provinces v. Atiqa Begum;(7) and the decisions of

this Court in Navinchandra Mafatlal v. The Commissioner of

Income-tax, Bombay City(8) and The State of Madras v.

Gannon Dunkerley & Co. (Madras), Ltd. (9) These decisions

have taken the view that a constitution must not be

construed in a narrow and pedantic sense, that a board and

liberal spirit should inspire those whose duty it is to

interpret it, that a Constitution of a Government is a

living and organic thing which of all instruments has the

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greatest claim to be construed ut res magis valeat quam

pereat, that the legislature in selecting subjects of

taxation is entitled to take things as it finds them in

remum natura and that it is not proper that a Court

should deny to such a legislature the right of solving

taxation problems unfettered by a priori legal

categories which often derive from the exercise of

legislative power in the same constitutional unit.

(1) [1935] A.C. 500. (6) [1939] F.C.R. 18.

(2) [1930] A.C. 124. (7) [1940] F.C.R. 110.

(3) [1936] A.C. 578. (8) [1955] 1 S.C.R. 529..

(4) [1912] 15 C.L.R.661. (9) [1959].S.C.R. 379.

(5) [1937] 56 C.L.R. 33.

447

On a careful examination of various decisions bearing on the

point this Court speaking through Venkatarama Aiyar J. in

Gannon Dunkerley (supra) upheld the contention of the State

of Madras that the words "sale of goods" in Entry 48 which

occur in-the Constitution Act and confer legislative powers

on the State Legislature in respect of a topic relating to

taxation must be interpreted not in a restricted but broad

sense. But as observed by the learned Judge in that case,

this conclusion opens up questions as to what that sense is,

whether popular or legal, and what its connotation is,

either in the one sense or' the other. After considering

text-book definitions contained in Blackstone, Benjamin on

Sale, Halsbury's Laws of England, Chalmer's Sale of Goods

Act, Corpus Juris, Williston on Sales and the Concise Oxford

Dictionary, the Court held that the expression 'sale of

goods' in Entry 48 cannot be construed in its popular sense

and that it must be interpreted in its legal sense. Whereas

in popular parlance a sale is said to take place when the

bargain is settled between the parties though property in

the goods may not pass at that stage, as where. the contract

relates to future or unascertained goods, the essense of

'sale' in the legal sense is the transfer of the property in

a thing from one person to another for a price.

The Court then proceeded to determine, the connotation of

the expression 'sale of goods' in the legal sense and held,

having regard lo the evolution of the law relating to sale

of goods, the scheme of the Indian Contract Act and the

provisions of the Sale of Goods Act, 1930, which repealed

Chapter VII of the Indian Contract Act relating to sale of

goods, that according to the law both of England and of

India, in order to constitute a sale it is necessary that

there should be an agreement between the parties for the

purpose of transferring title to the goods, which pre-

supposes capacity. to contract, that the contract must be

supported by valuable consideration and that as a result of

the transaction property must actually pass in the goods.

"Unless all these elements are present, there can be no

sale,"

Basing itself on this position, the Court finally concluded

in Gannon Dunkerley (supra) that the expression 'sale of

goods' was, at the, time when the Government of India Act

was enacted, a term of wellrecognised legal import in the

general law relating to sale of goods and in the legislative

practice relating to that topic both in England and in India

and therefore that expression, occurring in entry 48, must

be interpreted in the sense which it bears in the Sale of

Goods Act, 1930. In coming to this conclusion, the Court

relied upon the, American decisions in United States v. Wong

Kim Ark, South Carolina v. United States(2 ) and Ex Parte.

Grossman(3); the Privy Council decisions in L'Union St.

Jacques De Montreal v. Be Lisle (4) , Royal Bank of Canada

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v. Larue,(5) The Labour Relations Board of

(1) [1898] 169 U.S. 649.

(2) [1905] 199 U.S. 437.

(3) [1925] 267 U.S. 87.

(4) [1874] L.R. 6 P.C.31.

(5) [1928] A.C. 187.

448

Saskatochewan v. John East Iron Works Ltd.(1); Croft v.

Dunphy(2), and Wallace Brothers and Co. Ltd. v. Commissioner

of Income-tax, Bombay City and Bombay Suburban District;(3)

the decision of the Federal Court in In re The Central

Provinces and. Berar Act No. XIV of 1938; (supra); and the

decisions of this Court in The State of Bombay v. F. N.

Balsara(4) and The Sales Tax Officer, Pilibhit v. Messrs

Budh Prakash Jai Prakash(5). In a nutshell, these decisions

have taken the view that the Constitution must be

interpreted in the light of the common-law, the principles

and history of which were familiarly known to the framers of

the Constitution, that the language of the Constitution

cannot be understood without reference to the common law,

that to determine the extent of the grants of power, the

Court must place itself in the position of the men who

framed and' adopted the Constitution and inquire what they

must have understood to be the meaning and scope of those

grants, that when a power is conferred to legislate on a

particular topic it is important, in determining the scope

of the power, to have regard to what is ordinarily treated

as embarced within that topic in-legislative practice and

particularly in the legislative practice of the State which

has conferred that power, that the object of doing so is

emphatically not to seek a pattern to which a due exercise

of the power must conform, but to ascertain the general

conception involved in the words of the Act, and finally,

that Parliament must be presumed to have had Indian

legislative practice in mind and unless the context

otherwise clearly requires, not to have conferred a

legislative power intended to be interpreted in a sense not

understood by those to whom the Act was to apply.

The view expressed in Gannon Dunkerley (supra) that the,

words "sale of goods" in entry 48 must be interpreted in the

sense which they bear in the Sale of Goods Act, 1930 an$

that the, meaning of those words should not be left to

fluctuate with the definition of 'sale in laws relating to

sales of goods which might be in force for the, time being.

may, with respect, bear further consideration but that may

have. to await a more suitable occasion. It will then be

necessary to examine whether the words "sale of goods" which

occur in entry 48 should not be construed so as to extend

the competence of the legislature to enacting laws in

respect of matters which might- be unknown in 19 3 5 when

the Government of India Act was passed but which may have

come into existence later, as a result of a social and

economic evolution. In Attorney General v. Edison

Telephone, Company of London(,,) a question arose whether

the Edison Telephone Company London, infringed by

installation of telephones, the, exclusive privilege, of

transmitting telegrams which was conferred; upon- the

Postmaster-General under an Act of 1869. The decision

depended on the meaning of the

(1) [1949] A.C. 134.

(2) [1933] A.C. 156.

(3) [1948] L.R. 75 I.A. 86.

(4) [1951] S.C.R. 682.

(5) [1955] 1 S.C.R. 243.

(6) [1880] L.R. 6 Q.B.D. 244.

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449

word "telegraph" in the Acts of 1863 and 1869. The company

contended that since-telephones were unknown at the time

when these Acts were passed, the definition of 'telegraph'

could not comprehend 'telephones. That contention was

negatived by an English Court. In the Regulation and

Control of Radio Communication in Canada, In re(1) a similar

question arose as to whether 'broadcasting" was covered by

the expression "telegraph and other works and undertakings"

in section 92(10) (a) of the Constitution Act of 1867. The

Privy Council answered the question in the affirmative and

was apparently not impressed by the contention that

broadcasting was not known as a means of communication at

the time when the Constitution Act was passed. These

decisions proceed on the principle that if after the

enactment of a legislation, new facts and situations arise

which could not have been in the contemplation of the

legislature, statutory provisions can justifiably be applied

to those facts and situations so long as the words of the

statute are in a broad sense capable of containing them.

This principle, according to the view expressed in Gannon

Dunkerley, (supra) did not apply to the interpretation of

Entry 48, a view which in our. opinion is capable of further

scrutiny. It is, however, unnecessary in these appeals to

investigate the matter any further because, the position

which emerges after putting on the words of Entry 48 the

same meaning which those words'-bear in the Sale of Goods

Act, 1930 is that in order to constitute a sale, it is

necessary that there should be an agreement between the

parties. In other words, the effect of the construction

which the Court put on the words of Entry 48 in Gannon

Dunkerley (supra) is that a sale is necessarily a consensual

transaction and if the parties have no volition or option to

bargain, there can be no sale. For the present purposes,

this view may be assumed to reflect the correct legal

position but even so, the transactions which are the subject

matter of these appeals will amount to sales.

Applying the ratio of Gannon Dunkerley, (supra) the true

question for decision, therefore, is whether in the context

of the Control Orders issued by the Government of West

Bengal for regulating the supply and distribution of cement,

the transactions under which the, appellant supplied cement

to persons who were issued permits by the authorities to

obtain the commodity from the appellant, involved an element

of volition or consensuality. If they did, the transactions

would amount to sales, but not otherwise. It is undeniable

that under paragraph 2 of the West Bengal Order of 1948,

which we have for convenience designated as the Cement

Control Order, no person can dispose of or agree to dispose

of any cement except in accordance with the conditions

contained in a written order of the Director of Consumer

Goods or the authorities specified in that paragraph. That

is a limitation on the dealer's right to supply cement.

Correspondingly by paragraph 3, no person can acquire or

agree to acquire cement from any person except in accordance

with the conditions contained in a written order of the

Director of Consumer Goods or the authorities specified in

that paragraph. That is a limitation on the consumer's

right to obtain cement. Paragraph 4 puts a restriction on

the price which a dealer

(1) [1932] A.C. 304.

45 0

may charge for the commodity by providing that no person

shall sell cement at a price higher than the notified price.

Paragraph 8 imposes on the dealer the obligation to supply

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cement by providing that no person or stockist who has any

stock of cement in his possession and to whom a written

order has been issued under paragraph 2 shall refuse to sell

the same at a price not exceeding the notified price. person

who contravenes the provisions of the Cement Control Order

is punishable under section 6 of the West Bengal Cement

Control Act, 1948 with imprisonment for a term which may

extend to three years

These limitations on the normal right of dealers and

consumers to supply and obtain the goods, the obligations

imposed on the parties and the penalties prescribed by the

Control Order do not, in our opinion, militate against the

position that eventually, the parties must be deemed to have

completed the transactions under an agreement by which one

party bound itself to supply the stated quantity of goods to

the other at a price not higher than the notified price and

the other party consented to accept the goods on the terms

and conditions mentioned in the permit or the order of

allotment issued in its favour by the concerned authority.

Offer and acceptance need not always be in an elementary

form, nor indeed does the Law of Contract or of Sale of

Goods require that consent to a contract must be express.

It is commonplace that offer and acceptance can be spelt out

from the conduct of the parties which covers not only their

acts but omissions as well. Indeed, on occasions, silence

can be more eloquent than eloquence itself. Just as

correspondence between the parties can constitute or

disclose an offer and acceptance, so can their conduct.

This is because, law does not require offer and acceptance

to conform to any set pattern formula.

In order, therefore, to determine whether there was any

agreement or consensuality between the parties, we must have

regard to their conduct at or about the time when the goods

changed hands. In the first place, it is not obligatory on

a trader to deal in cement nor on any one to acquire it.

The primary fact, therefore, is that the decision of the

trader to deal in an essential commodity is volitional. Such

volition carries with it the willingness to trade in the,

commodity strictly on the terms of Control Orders. The

consumer too, who is under no legal compulsion to acquire or

possess cement, decides as a matter of' his volition to

obtain it on the terms of the permit or the order of

allotment issued in his favour. That brings the two parties

together, one of whom is willing to supply the essential

commodity and the other to receive it. When the allottee

presents his permit to the dealer, he signifies his

willingness to obtain the commodity from the dealer on the

terms stated in the permit. His conduct reflects his

consent. And when, upon the presentation of the permit, the

dealer acts upon it, he impliedly agrees to supply the

commodity to the allottee on the terms by which he has

voluntarily bound himself to trade in the commodity. his

conduct too reflects his consent. Thus, though both parties

are bound to comply with the legal requirements governing

the transaction, they agree as between themselves to enter

into the transaction on statutory terms,

451

one agreeing to supply the commodity to the other on those

terms and the other agreeing to accept it from him on the

very terms. It is therefore not correct to say that the

transactions between the appellant and the allottees are not

consensual. They, with their free consent, agreed to enter

into the transactions.

We are also of the opinion that though the terms of the

transaction are mostly predetermined by law, it cannot be

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said that there is no area at all in which there is no

scope, for the parties to bargain. The West Bengal Cement

Control Act, 1948 empowers the Government by section 3 to

regulate or control the prices at which cement may be

purchased or sold. The Cement Control Order, 1948 provides

by paragraph 4 that no person shall sell cement at a "higher

than notified price", leaving it open to the parties to

charge and pay a price which is less than the notified

price, the notified price being the maximum price which may

lawfully be charged. Paragraph 8 of the Order points in the

same direction by providing that no dealer Who has a stock

of cement in his possession shall refuse to sell the same

"at a price not exceeding the notified price", leaving it

open to him to charge a lesser price, which the allottee

would be only too agreeable to pay. Paragraph 8 further

provides that the. dealer shall deliver the cement "within a

reasonable time" after the payment of price. Evidently,

within the bounds of reasonableness, it would be open to the

parties to fix the time of delivery. Paragraph 8A which

confers on the allottee the right to ask for weighment of

goods also shows that he may reject the goods on the ground

that they are short in weight just as indeed, he would have

the undoubted right to reject them on the ground that they

are not of the requisite quality. The circumstance that in

these areas, though minimal, the parties to the transactions

have the freedom to bargain militates against the view that

the transactions are not consensual.

While on this aspect, we may usefully draw attention to two

important decisions of this Court, the first of which is

Indian Steel & Wire Products Ltd. v. State of Madras(1).

The appellant therein supplies certain steel products to

various persons in Madras at the instance of the Steel

Controller exercising powers under the Iron and

Steel'(Control of Production and Distribution) Order, 1941.

The State of Madras assessed the turnover of the appellant

to sales tax upon which, the appellant contended that the

deliveries of steel products were made under compulsion of

law since it was the controller who determined the persons

to whom the goods were to be supplied, the price at which

they were to be supplied, the manner in which they were to

be transported and the mode in which the payment of the

price was to be made. Since every facet of the transaction

was prescribed by the controller, so it was argued, there

was no agreement between the parties and therefore the

transaction could not be considered as a sale. Rejecting

this contention, it was observed by Hegde J., who spoke for

the Constitution Bench, that though the controller fixed the

base price of the steel products and determined the

(1) [1968] 1 S.C.R. 479.

452

buyers, the parties were stiff 'free to decide the other

terms of the bargain, as for example, the time and date of

delivery and the time and mode of payment and therefore it

could not be said that there was no agreement between the

parties to sell and buy the goods. It was held that though

the area within which it was possible for the parties to

bargain was greatly relieved on account of the Iron and

Steel Control Order, it was not correct to contend that

because law imposes restrictions on freedom of contract,

there could be no contract at all. "So long as mutual

assent is not completely excluded in any dealing, in law it

is a contract."

The second decision is reported in Andhra Sugar Ltd. v.

State of Andhra Pradesh(1). In that case, the occupier of a

sugar factory had to buy sugarcane from cane-growers in

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conformity with the directions. of the Cane Commissioner

issued under the Andhra Pradesh (Regulation of Supply and

Purchase) Act, 1961. Under section 21 of that Act, sales

and purchase of sugarcane were exempt from tax under the

Andhra Pradesh General Sales Tax Act, 1957, but under

section 2(1), of the Act of 1961, the State Government had

power by notification, to levy a tax "on the purchase of

cane required for use, consumption or sale in a sugar

factory". Various sugar factories in the State filed writ

petitions under Article 32 of the Constitution challenging

the- validity of section 21 mainly on the ground that since

they were compelled by law to buy cane from the cane-

growers, their purchases were not- made under

agreements and were not taxable under entry 54, List 11 of

the Seventh Schedule to the Constitution having regard to-

the decision in Gannon Dunkerley (supra). The writ petitions

were- decided by a Constitution Bench of this Court

which delivered its un- animous judgment through

Bachawat J. It is necessary in the first place to state

that though it was argued on behalf of the State Government

in that case that the occupier of the factory had some

option of not buying the sugarcane from the grower and

had some freedom of bargaining about the terms and

conditions of the agreement, that point was not pursued any

further and the writ petitions proceeded on the basis that

there was no option left for any bargain in the transaction.

After referring to the definition of "contract of sale of

goods" in section 4(1) of the Indian Sale of Goods Act,

1930, and the relevant provisions of the Contract Act

relating to offer and acceptance,. the Court observed

that under section 10 of the Contract Act, an agreements

are contracts if they are made by the free consent of the

parties competent to contract, for a lawful consideration

and with a lawful object, and are not by the Act

expressly declared to be void. Section 13 of the

Contract Act defines "consent" and section 14 says that

consent is said to be free when it is not caused by

coercion, undue influence, fraud, misrepresentation or

mistake as defined in sections 15 to 22. In the background

of those provisions, the Court observed that the cane-

grower in the factory zone was free to make or, not to

make an offer of sale of cane 'to the occupier of the

factory. But if be made an offer, the occupier of the

factory was bound to accept it and the consent of the

occupier not being caused by coercion, undue influence,

fraud, misrepresentation or mistake was "free

(1) [1968] 1 S.C.R. 705.

453

consent as defined in section 14 of the Contract Act, even

though he was obliged by law to enter into the agreement.

"The compulsion of law is not coercion as defined in section

15 of the Act" and "in the eye of the law, the agreement is

freely made." Since the, parties were competent to contract,

the agreement was made for a lawful consideration and with a

lawful object, the agreement was not void under any

provision of law and it was enforceable at law, the Court

held that the purchases of sugarcane were taxable by the

State legislature under Entry 54, List 11 of the Seventh

Schedule of the Constitution.

Strong reliance was placed by the factory owners in Andhra

Sugars (supra) on the majority' judgment of Kapur and Shah

JJ. in New India Sugar Mills Ltd. v. Commissioner of Sales

Tax (supra) to which we must refer here. The "admitted

course of dealing" between the parties in that case was that

the Governments of various consuming States used to intimate

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to the Sugar Controller of India, from time to time, their

requirements of sugar and similarly, the factory owners used

to send to the Sugar Controller of India statements of

stocks of sugar held by them. On a consideration of the

requests received from the State Governments and the

statements of stock received from the factories, the Sugar

Controller used to make allotment of sugar. The. allotment

order was addressed by the Sugar Controller to the factory

owner directing him to supply sugar to the State Government

in question in accordance with the despatch instructions

received from the competent officer of the State Government.

A copy of the allotment order was simultaneously sent to the

State Government concerned on receipt of which the competent

authority of the State Government sent to the factory

concerned detailed instructions about the destinations to

which the sugar was to be despatched as also the quantities

of sugar to be despatched to each place. The Madras

Government which, under this arrangement, received its quota

of sugar from the New India Sugar Mills, also laid down the'

procedure of payment. The Patna High Court having held that

the supply of sugar by the mills to the Province of Madras

was liable to be taxed under the Bihar Sales Tax Act, 1947,

the mills filed an, appeal to this Court which was decided

by a Bench of three learned Judges. Kapur and Shah J. held

that since the mills were compelled to carry out the

directions of the Controller and since they had no volition

in the matter of supply of sugar to the State of Madras,

there was no offer by them to the State Government and no

acceptance by the latter. Shah J., speaking for the

majority observed that a contract of sale between the seller

and the buyer is a prerequisite to a sale and since there

was no such contract, the transaction in question which the

Bihar Sales Tax authorities sought to tax was not exigible

to sales tax.

Hidayatullah J. who 'delivered a dissenting opinion

observed-after reviewing the position both under the English

and the Indian Law, that though it was true that consent

makes a contract of sale, such consent "may be express or

implied and it cannot be said that unless the offer and

acceptance are there in an elementary form, there can be no

taxable sale." Taking the view that on obtaining the

necessary permit, the sugar mills on the one hand and the

Government of

454

Madras on the other agreed to "sell" and "purchase" sugar

could admit of no doubt, the learned Judge said that when

the Province of Madras after receiving the permit,

telegraphed instructions to despatch sugar and the mills

despatched it, "a contract emerged and consent must be

implied on both sides though not expressed antecedently to

the permit." The Controller brought the seller and the

purchaser together, gave them permission to supply and

receive sugar leading thereby to an implied contract of sale

between the parties. The learned Judge accepted that there

was an element of compulsion in both selling and buying,

perhaps more for the supplier than for the receiver, but,

according to him, "a compelled sale is nevertheless a sale"

and "sales often take place without volition of party." The

learned Judge summed up the matter pithily thus : "So-long

as the parties trade under controls at fixed price and

accept these as any other law of the realm because they

must, the contract is at the fixed price both sides having

or deemed to have agreed to' such a price. Consent under

the law of contract need not be express, it can be im-

plied.. . . . The present is just another example of an

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implied contract with an implied offer and implied

acceptance by the parties." Adverting to the construction of the legislat

ive entry 48 of List 11, VII Schedule to the

Government of India Act, 1935, the learned Judge observed

that the entry had to be interpreted in a liberal spirit and

not cut down by narrow technical consideration. "The entry

in other words should not be shorn of all its content to

leave a mere husk of legislative power. For the purposes of

legislation such as on-sales tax it is only necessary to see

whether there is a sale, express or implied..... The

entry has its meaning and within its meaning there is a

plenary power. If a sale express or implied is found to

exist then the tax must follow."

We are of the opinion that the true position in law is as is

set out in the dissenting judgment of Hidayatullah J., and

that, the view expressed by Kapur and Shah JJ. in the

majority judgment, with deference, cannot be considered as

good law. Bachawat J. in Andhra Sugar (supra) was, with

respect, right in cautioning that the majority judgment of

Kapur and Shah JJ. in New India Sugar Mills (supra) "should

not be treated as an authority for the proposition that

there can be no contract of sale under compulsion of a

statute." (pages 715-716). Rather than saying what, in view

of the growing uncertainty of the true legal position on the

question, we: are constrained to say, namely, that the

majority judgment in New India Sugar Mills (supra) is not

good law, Bachawat J. preferred to adopt the not unfamiliar

manner of confining the majority decision to "the special

facts of that case."

The majority judgment in New India Sugar Mills (supra) is

based predominantly on the decision of this Court in Gannon

Dunkerley (supra) to which we have referred at length in

another context. In fact, Shah J. observes at page 459 of

the report after discussing the judgment in Gannon Dunkerley

(supra) that "the ratio decidendi of that decision must

govern this case." The decision in Gannon Dunkerley (supra)

really turned on a different point, the question for

consideration therein being whether the value of the

materials used in the execution

455

of building contracts could be included within the taxable

turnover of the company. It was contended on behalf of the

company that the power of the Madras Legislature to impose a

tax on sales under entry 48, List 11 of Schedule VII of the

government of India Act, 1935 did not extend to unposing a

tax on the value of materials used in construction works, as

there was no transaction of sale in respect of those goods,

and that the provisions introduced in the Madras General

Sales Tax Act, 1939, by the Madras General Sales Fax

(Amendment) Act, 1947, authorising the imposition of such

tax were ultra vires. Venkatarama Aiyar J. posed the

question thus : "The sole question for determination in this

appeal is whether the provisions of the Madras General Sales

Tax Act are ultra vires, in so far as they seek to impose a

tax on the supply of materials in execution of works

contract treating it as a sale of goods by the

contractor. . . . . . ". The Court accepted that building

materials were 'goods' and limited the inquiry to whether

there was "a sale of those materials within the meaning of

that word in entry 48". Reference was then made to Benjamin

on Sale in which it is said that in order to constitute a

'sale, four elements must concur "(1) Parties competent to

contract; (2) mutual assent, (3) a thing, the absolute or

general property in which is transferred from the seller to

the buyer; and (c) a price in money paid or promised." (Vide

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8th Edn., p.. 3). On the strength of this statement and on

a consideration of the provisions of the Contract Act and

the Sale of Goods Act, 1930 it was concluded that "according

to the law both of England and of India, in order to

constitute a sale it is necessary that there should be an

agreement between the parties for the purpose of

transferring title to goods". The Court then proceeded to

examine the true nature of a building contract and held

"It has been already stated that, both tinder

the common law and the statute law relating to

sale of goods in England and in India, to

constitute A transaction of sale there should

be an agreement, express or implied, relating

to goods to be completed by passing of title

in those goods. It is of the essence of this-

concept 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 the

parties for the sale of the very goods in

which eventually property passes. In a

building contract, the agreement between the

parties is that the contractor should

construct a building according to the

specifications contained in the agreement, and

in consideration therefor receive payment as

provided therein, and as will presently be

shown there is in such An agreement neither a

contract to sell the materials used in the

construction, nor does property pass therein

as movables. It is therefore impossible to

maintain that there

456

is implicit in a building contract a sale of

materials as understood in law." (pages 413-

414)

The final conclusion on the point involved in

the appeal was expressed thus

"To sum up, the expression 'sale of goods' in

Entry 48 is a nomen juris, its essential

ingredients being an agreement to sell

movables for a price and property passing

therein pursuant to that agreement. In a

building contract which is, as in the present

case, one entire and indivisible--and that is

its norm, there is no sale of goods, and it is

not within the competence of the Provincial

Legislature under Entry 48 to impose a tax on

the supply of the materials used in such a

contract treating it as a sale." (pages 425-

426)

Thus, the, two reasons given by the Court in support of its

conclusion were, firstly, that in a building contract there

was no agreement, express or implied, to sell 'goods' and

secondly, that property in the building materials does not

pass in the materials regarded a; 'goods' but it passes as

part of immovable property. In New India Sugar Mills.

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(supra) the commodity with which Court was concerned was

sugar and was delivered as sugar just as in the instant case

the commodity with which we are concerned is cement which

was delivered as cement. That meets the first reason in

Gannon Dunkerley (supra). As regards the second, it is

quite clear that the tax was demanded after the commodity

had changed hands or putting it in the words of the Sale of

Goods law, after property in it had passed. With great

respect therefore, the majority in New India Sugar Mills

(supra) was in error in saying that "the ratio decidendi of

that decision (Gannon Dunkerley) must govern this case'.

The question before us which was the very question involved

in New India Sugar Mills (supra) viz., whether a transaction

effected in. accordance with the obligatory terms of a

statute can amount to a 'sale did not arise in Gannon

Dunkerley. (supra). Just as the, majority Judges in New

India Sugar Mills (supra) applied to the case before

them the ratio of Gannon Dunkerley, (supra) the Court in the

latter case applied the ratio of the House of Lords

decision in Kirkness v. John Hudson and Co. Ltd.(1)

observing categorically that "the derision in Kirkness must

be hold to conclude the matter" (P. 412). We think it

necessary to lay particular emphasis on this aspect because

it shows how the question for decision in Gannon Dunkerley

(supra) was basically different from the question in New

India Sugar Mills (supra) or in, the appeals before us.

In Kirkness (supra), railway wagons belonging to the

respondent company were taken over by the Transport

Commission compulsorily it) exercise of the powers conferred

by section 29 of the Transport Act, 1947, and compensation

was paid therefor. The question was whether this amount was

liable to income-tax on the footing of sale of the wagons by the company.

The contention on behalf of the revenue if

was that compulsory acquisition being treated as sale under

the English law, the taking over of the wagons and payment

of compensation

(1) [1955] A.C. 696.

457

therefor must also be regarded as sale for purpose of

income-tax and therefore, the company was liable to a

balancing charge under section 17 of the Income-tax Act,

1945. The case turned on the meaning of the word sale' for

the purposes of the Excess Profits Tax legislation and the

income-tax Act, 1945 (8 & 9 Geo. 6, c. 3). Lord Morton in

his dissenting speech found it "impossible to say that the

only construction which can fairly be given to the word

'sold' in section- 17(1) (a) of the Income Tax Act, 1945, is

to limit it to a transaction in which the element of mutual

assent is present." But the majority of the House came to A

different conclusion, and held that the element of bargain

was essential to constitute a sale' and to describe

compulsory taking over of property as a sale was a misuse of

that word. We are not concerned in these appeals with

'Compulsory acquisition' of goods nor indeed, was the Court

concerned with it in Gannon Dunkerley (supra). The majority

in New India Sugar Mills (supra) was right in saying that

the decision in Kirkness (supra) and the "observations made

therein have little relevance in determining the limits of

the, legislative power of the Provincial legislature under

the Government of, India Act, 1935, and the interpretation

of statutes enacted in exercise of that power." In fact, if

we may say so with great respect', the observation in Gannon

Dunkerley (supra) that the decision in Kirkness (supra)

concluded the question before the Court. seems to us

somewhat wide of the mark. Since Kirkness (supra) involved

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an altogether different point, we would have avoided

referring to it put the reliance upon it 'in Gannon

Dunkerley (supra) may lead to a misunderstanding regarding

its true ratio which needs to be clarified. Besides

Kirkness (supra) has been referred to in various decisions

and has been considered as an authority for apparently

conflicting propositions, which too made it necessary to

understand the decision in a proper perspective.

It is not the decision in Kirkness (supra) but another

English decision which may with advantage be noticed. That

is the decision of the Court of Appeal in Ridge Nominees

Ltd. v. Inland Revenue Commissioners.(1) The question in

that case was whether a transfer of shares executed under

section 209 of the Companies Act, 1948 on behalf of a

stockholder who declined to accept the offer of purchase was

required to be stamped as a transfer on sale. Under section

209, the transferee company was entitled in certain

circumstances to give a notice to a dissenting shareholder

that it desired to acquire his shares. Upon such notice

being given, the transferee company became entitled to

acquire the shares of the dissenting shareholder at a

particular price. If the dissenting shareholder did not

transfer the shares, then subsection (3) provided for the

execution of a transfer on behalf of the shareholder by a

person appointed by the transferee company. In the First

Schedule to the Stamp Act, 1891 was included the item

"Conveyance or transfer on sale of any property........ In

the light of this entry under which stamp duty was payable,

the question which the Court had to consider was whether a

transfer executed on behalf of a dissenting

shareholderwasa"transferonsale". Theanswerdepended upon

whether there could be a sale even though the essential

element

(1) [1962] Ch 376.

45 8

of mutual assent was totally absent. Lord Evershed M.R.

observed in his judgnient that what the Companies Act had

done, by file machinery it had created, was that in truth it

brought into being a transaction which ex facie in all its

essential characteristics and effect was a transfer on sale.

Donovan L.J. in his concurring judgment said that when the

legislature by section 209 of the C Act empowered the trans-

feree company to appoint an agent on behalf of a dissenting

shareholder 3 for thempurpose of executing a transfer of

his shares against a price to be paid to the transferor

company and held in trust for the dis- senting-shareholder,

it was clearly shring his dissent and putting him in the

same position as if he had. For the purpose of considering

whether the transaction amounted to a sale, one must,

according to the learned Judge, regard the dissent of the

shareholder as overriden by an assent which the statute

imposed upon him, fictional though it may be.

Danckwerts L.J., also by a concurring judgment, said

that a sale may not always require the consensual element

and that there may, in truth, be a compulsory sale of

property in which the owner is compelled to part with

Ws property for a price, against his will.

We will proceed to refer to the Other decisions of this

Court bearing on the point under discussion. In State

of Rajasthan v. M/s Karam Chand Thapper & Bros. Ltd.(1) the

respondent-assessee which was registered as a

dealer under the Rajasthan Sales Tax Act, 1954, entered into

a contract with the Equitable Cod Company under which it

acquired monopoly rights to supply coal in_Rajasthan as an

agent of the Coal Company. The respondent supplied coal to

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the State of Rajasthan under an agreement with it and that

transaction was included in the respondent's turnover by the

Sales Tax Officer, Jaipur. The High Court of Rajasthan

allowed the respondents writ petition against the

order of assessment on the,, ground, inter alia, that the

supply of coal by the respondent to the State of

Rajasthan did not constitute salt as the, supply was

controlled by a statutory order, namely, the Colliery

Control Order, 1945. In appeal to this Court by the State of

Rajasthan, it was held that under the Colliery Control

Order, coal could be supplied under a contract and

the effect of the Control Order was only to

superimpose upon the agreement between the parties the rate

fixed by the Control Order. The four elements required to

constitute a sale, namely, competency of parties, mutual

assent of the parties, passing of property in the goods

supplied to the purchaser, and lastly, payment or promise of

payment of price were all present to render the turnover

liable to sales tax" Shah J. who spoke for the Court relied

upon the judgments in Indian Steel and Wire Products,

(supra) and Andhra Sugar (supra) observing that in these two

cases the Court had held that "when goods, supply of which

is controlled by statutory orders, are delivered pursuant to

a contract of & The, the principle of the case in M/s New

India Suqar Mills Ltd. case (supra) has no application.."

The Court distinguished the decision in New India Sugar

Mills (supra) on the ground that it was founded on a

different principle since the condition requiring mutual

assent of the parties was lacking in that case.

(1) [1969]. 1 S.C.R. 861.

459

In Chhitter Mal Narain Das v. Commissioner of Sales Tax(1)

the appellants who were dealers in food grains supplied to

the Regional Food Controller diverse quantities of wheat in

compliance with the provisions of the U.P. Wheat Procurement

(Levy) Order, 1959. The High Court held in a reference made

to it under the Sales Tax Act that the transaction amounted

to a sale And was exigible to sales tax. In appeal to this

Court it was held by a Bench consisting of Shah and Hegde

JJ. that clause 3 of the U.P. Procurement (Levy) Order, 1959

sets up a machinery for compulsory acquisition by the State

Government of stocks of wheat belonging to the licensed

dealers, that the Order contains a bald injunction to supply

wheat of the specified quantity day after day, that it did

not envisage any consensual arrangement and that the Order

did not even require the State Government to enter into an

informal contract with the supplier. Delivering the

judgment of the Bench, Shah J. observed that the transaction

in which an obligation to supply goods is imposed, and which

does not involve an obligation to enter into a contract,

cannot be called a 'sale', even if the person supplying

goods is declared entitled to the value of goods which is

determined in the prescribed manner. It was observed that

the decision in Indian Steel and Wire Products (supra) does

not justify the view that even if the liberty of contract in

relation to the fundamentals of the transaction is

completely excluded, a transaction of supply of goods

pursuant to directions issued under a Control Order may be

regarded as a sale. This decision is clearly

distinguishable since the provisions of the Wheat

Procurement Order were construed by the Court as being in

the nature of compulsory acquisition of property obliging

the dealer to supply wheat from day to day. Cases of

compulsory acquisition of property by the State stand on a

different footing since there is no question in such cases

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of offer and acceptance nor of consent, either express or

implied.

We would, however, like to clarify that though compulsory

acquisition of property would exclude the element of mutual

assent which is vital to a sale, the learned Judges were,

with respect, not right in holding in Chitter Mal(1) that

even. if in respect of the place of delivery and the place

of payment of price, there could be a consensual arrangement

the transaction will not amount to a sale (p. 677). The

true position in law is as stated above, namely, that so

long as mutual assent, express or implied, is not totally

excluded the transaction will amount to a sale. The

ultimate decision in Chitter Mal (supra) can be justified

only on the view that clause 3 of the Wheat Procurement

Order envisages compulsory acquisition of wheat by the State

Government from the licensed dealer. Viewed from this

angle, we cannot endorse the Court's criticism of the Full

Bench decision of the Allahabad High Court in Commissioner,

Sales Tax U.P. v. Ram Bilas Ram Gopal(2) which held while

construing clause 3 that so long as there was freedom to

bargain in some areas the transaction could amount to a sale

though effected under compulsion of a statute. Looking at

the scheme of the U.P. Wheat Procurement Order, particularly

clause 3 thereof. this Court in Chitter Mal (supra) seems to

have concluded that the transaction was, in truth and

substance, in the nature of

(1) [1971] 1 S.C.R. 671.

(2) AIR 1970 Allahabad 518.

4-- 1146SCI Allhabad 518

460

compulsory acquisition, with no real freedom to bargain in

any area. Shall J. expressed the Court's interpretation of

clause 3 in no uncertain terms by saying that "it did not

envisage, any consensual arrangement."

In Salar Jung Sugar Mills Ltd. v. State of Mysore, (supra)

which was decided by a Bench of seven learned Judges, the

appellants were subjected to levy of tax on purchase of

sugarcane after the inclusion of sugarcane in the Third

Schedule to the; Mysore Sales Tax Act, 1957. They challenged

the levy on the ground that on account of the Central and

State Control Orders applicable to the transactions, there

was no mutual assent between them and the growers of

sugarcane in regard to supply of sugarcane by the latter and

since there was no purchase and sale of sugarcane, they were

not dealers within the meaning of section 2(k) of the Mysore

Sales Tax Act. After referring to the cases which we

have considered above, it was held by the Court that the

decisions relating to 'compulsory sales? establish that

statutory orders regulating. the supply and distribution of

goods do not absolutely impinge on the freedom of contact.

In spite of the fact that under the relevant Control

Orders the parties, the minimum price and the minimum

quantity of supply were, determined or regulated, the Court

held that the Control Orders left to the parties the

option in regard to a higher quantity then was stipulated

in the Orders, It higher price than the minimum as also

the form and manner of payment. A factory could reject

goods after inspection which indicated not only freedom in

the formation but also in the performance of the contract. A

combination of all these factors, according to Ray- J. who

spoke for a unanimous Court, indicated with unerring

accuracy that the parties entered into agreement with

mutual assent and with volition for transfer of' goods in

consideration of price. The transactions were accordingly

held as amounting to sales within the meaning of section

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2(t) of the, Mysore Sales Tax Act. In coming to this

conclusion the Court relied on the statement in

Benjamin on Sale, 8th ed. page 68 that though a contract of

sale requires mutual assent, "The assent need not as a

general rule be express" and that, it may be implied from

the language of or conduct of parties and indeed it

may even be inferred from the silence on the part of

parties in certain cases. As an instance, the Court

referred to the common case of a person buying rationed

articles from a ration shop. "The parties, the price, the

shop, the supply and the acceptance of goods in

accordance with the provisions of the Ration Order ,ire

all regulated." All the same, said the Court, when the

customer presents the ration card to the shopkeeper, the

shopkeeper delivers the rationed articles, the customer

accepts the articles and pays their price "there is

indisputably a sale".

In State of Tamil Nadu v. Cement Distributors Private Ltd.()

the principal question which arose for decision was whether

producers who supplied cement to the State Trading

Corporation or its agents in gunny bass in pursuance of the

directions given by the Government were liable to pay sales

tax on the turnover relating to the price of gunny bags. In

some of the connected appeals the question also arose

whether the

(1) [1973] 2 S.C.R. 1019.

461

selling agents of the, State Trading Corporation were liable to, pay sales

lax in respect of the price of the gunny bags

in which, they sold cement to, the consumers. As regards

the question whether the transactions between producers and

the State Trading Corporation in so far as the supply of

cement was concerned amounted Lo sales within the meaning of

the Madras General Sales Tax Act, 1959, Hegde, J. who spoke

for the three Judge Bench observed that there was "no

dispute" that those transactions could not amount to sales

in view of the Cement Control Order, 1958. On the question

whether the gunny bags, in which the cement was supplied,

can be considered to have been sold it was observed that

there was "no dispute' that if the price of gunny bags was

held to have been wholly controlled, then the supply of

gunny bags also could not be considered as sales. This

position was held to have been concluded by the decisions in

New India Sugar Mills Ltd. (supra) and Chittar Mal Narain

Das (supra). The only question which the Court considered

was whether, in fact, the price of the gunny bags in which

cement was supplied to the State Trading Corporation was

controlled by the Cement Control Order of 1958. On that

question it was held that since the Central Government had

fixed the actual price of the gunny bags also, the supply of

gunny bags did not amount to sales. In the first place,

the, decision proceeds on a concession in so far as the

supply of cement is concerned as is shown by the statement

that there was "no dispute' that "the same cannot be

considered as sales". As regards the other question

concerning gunny bags, the Court did not allow the Advocate-

General of Tamil Nadu to contend that since. tinder clause

6(4) of the Cement Control Order the Central Government

could have fixed the maximum and not the actual price of

gunny bags, was scope for bargaining between the parties.

That question not having been raised in the High Court or in

the appeal memo filed in this Court and the Central

Government not having put in its appearance in this Court,

permission was declined to raise the questions Thus the

decision is not an authority for the, proposition for which

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the appellant contends. Besides. the judgment rests partly

on the decision in New India Sugar Mills (Supra) which we

have dissented from and partly on Chitter Mal (supra) which,

by reason of the 'compulsory acquisition' inferred therein,

was distinguishable.

In oil and Natural Gas Commission v. State of Bihar(1) a

three Judge Bench speaking through Ray CJ. held, following

the judgment in Salar Jung Sugar Mills Ltd., (supra) that

the supplies of crude oil by the Oil and Natural Gas

Commission to a refinery of the Indian Oil Corporation

amounted to sales, even though the supplies were made

pursuant to the directions and orders of the Central

Government and the Commission had no volition in the matter.

Law presumes assent of parties, it was observed, when there

is transfer of goods from one party to the other.

This resume of cases, long as it is, may yet bear

highlighting the true principle underlying the decisions of

this Court which have

(1) [1977] 1 S.C.R. 354.

462

taken the view that a transaction which is effected in

compliance with the obligatory terms of a statute may

nevertheless be a safe in the eye of law. The Indian

Contract Act which was passed in 1872 contained provisions

in its seventh chapter comprising sections 76 to 123

relating to sale of goods which were repealed on the

enactment of a comprehensive law of sale of goods in 1930.

The Contract Act drew inspiration from the English law of

contract which is almost entirely the creation of English

courts and whose growth is marked by features which are

peculiar to the social and economic history of England.

Historically the English law of contract is largely founded

upon the action on the case for assumpsit, where the

essence of the matter was the undertaking. The necessity

for acceptance of the undertaking or the promise led the

earlier writers on legal theories to lay particular emphasis

on the consensual nature of contractual obligations. It was

out of the importance, which political philosophers of the

eighteenth century gave to human liberty that the doctrine

was evolved that every person should be free to pursue his

own interest in the way he thinks best and therefore law

ought to give effect to the will of the parties as expressed

in their agreement. Adam Smith in his famous work on "The-

Wealth of Nations" propounded in 1776 the view that the

freedom of contract must as far as possible be left

unimpaired. Gradually, as would appear from Friedman's

statement in Law in a Changing Society (1959), ch. 4 freedom

of contract the freedom to contract on whatever

terms might seem most advantageous to the

individuals-become a cornerstone of nineteenth

centuary laissez faire economics. Champions of individualist

social philosophy who protested against legal and social

restrictions in order to advance the policies of expansion

and exploitation pursued by I industry and commerce won

their battle and "freedom of contract was one of the

trophies of victory" (see Anson's Law of Contract,

23rd Ed. page 3). The freedom and sanctity of contract

thus became "the necessary instruments of laissez faire, and

it was the function of the courts to foster the one and to

vindicate the other. Where a man sowed, there he

should be able to reap". is Cheshire and

Fifoot's Law of Contract, 8th Ed. page 19). it is

significant that the maxim itself laissez faire, laissez

passer which derived from eightenth century France has

been commonly attributed to Gournay, at first a

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merchant and later one of the intendants of commerce and a

friend of Turgot. Turgot attributes the phrase laissez nous

faire to another merchant, Legendre, who is said to

have used it in impressing upon Colbert the desire on the

part of the mercantile community for non-interference by the state

.

When Colbert asked a meeting of French businessmen what the

state might do to assist them, Legendre pointedly replied,

"laissez-nous faire" The underlying assumption-of the

laissez faire doctrine turns on an optimistic view of

the nature of the universe and on the conception of a

"natural order' or system of economic harmonies which

will prevail and work out to mankind's advantag

e

in the absence of positive regulation. (see International Encyclo

paedia

of the Social Sciences, 1968 Ed. edited by David L. Sills,

Vol. 8, page 546 and Encyclopaedia of the Social Sciences

edited by Edwin R. A. Seligman, Vol. IX, pages 15-16).

463

Towards the close of the nineteenth century it came to be

realised that private enterprises, in order to be socially

just, had to ensure economic equality.

"The very freedom on contract with its

corollary, the freedom to complete, was

merging into the freedom to combine; and in

the last resort competition and combination

were, incompatible. Individualism was yield-

ing to monopoly, where strange things might

well be done in the name of liberty. The

twentieth century has seen its progressive

erosion on the one hand by opposed theory and

on the other by conflicting practice. The

background of the law, social, political and

economic, has changed Laissez fare as an ideal

has been supplanted by, 'social security'; and

social security suggests status. rather than

contract. The State may thus compel persons

to make contracts, as where, by a series of

Road Traffic Acts from 1930 to 1960, a

motorist must insure against third party

risks; it may, as by the Rent Restriction

Acts, prevent one party to a contract from

enforcing his right under it; or it may

empower a tribunal either to reduce or to in-

crease the rent payable under a lease. In

many instances a statute prescribes the

contents of the contract. The Moneylenders

Act 1927 dictates the terms of any loan caught

by its provisions; the Carriage of Goods by

Sea Act 1924, contains six pages of rules to

be incorporated in every contract for 'the

carriage of goods by sea from any port in

Great Britain or Northern Ireland to any other

port;' the Hire-Purchase Act 1965, inserts

into hire-purchase contracts a number of terms

which the parties are forbidden to exclude;

successive Landlord and Tenant Acts from 1927

to 1954 contain provisions expressed to apply

,notwithstanding any agreement to the

contrary'. The erosion of contract by statute

continues briskly; and there are no immediate

signs of a reaction." (Cheshire and Fifoot's

Law of Contract, 8th Ed. pages 21-22).

In the words of Anson,

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"Freedom of contract is a reasonable social

ideal only to the extent that equality of

bargaining power between contracting parties

can be assumed, and no injury is done to the

economic interests of the community at large.

In the more complicated social and industrial

conditions of a collectivist society it has

ceased to have much idealistic attraction. It

is now realised that economic equality Often

does not exist in any real sense, and that

individual interests have to be made to

subserve those of the cornmunity. Hence there

has been a fundamental change both in our

social outlook and in the policy of the

legislature towards contract, and the law

today interferes at numerous points with the

freedom of the parties to make what contract

they like . ... ... ...

464

" This intervention is especially necessary

today when most contracts entered into by

ordinary people are not the result of

individual negotiation. It is not possible

for a private person to settle the terms of

his agreement with the British Railways Board

or with the local electricity authority. The

'standard form contract is the rule. He must

either accept the terms of this contract in

toto, or go without. Since, however, it is

not feasible to deprive oneself of such

necessary services, the individual is

compelled to accept on those terms. In view

of this fact, it is quite clear that freedom

of contract is now largely an illusion."

(Anson's Law of Contract, 23rd Ed. pages 3-4).

Anson is perhaps over-optimistic in saying that there has

been a fundamental change in social outlook and in the

legislative policy towards contract. Anyway, with the high

ideals of the Preamble and the directive principles of our

Constitution there has to be such a fundamental change, in

judicial outlook. Instances given in Cheshire and Anson

have their parallels in India too, wherein freedom of

contract has largely become an illusion. The policy of our

Parliament in regard to contracts, including those involved

in sale of goods, has still to reflect recognition of the

necessity for a change, which could be done by a suitable

modification of the definition of 'sale of goods.

It all began with the reliance in Gannon Dunkerley (supra)

(pages 396-398) on the statement in the 8th Edition (1950)

of Benjamin on Sale. that to constitute a valid tale there

must be a concurrence of four elements, one of which is

"mutual assent". That statement is a reproduction of what

the celebrated author had said in the 2nd and last edition

prepared by himself in 1873. The majority judgment in New

India Sugar Mills (supra) (page 467) also derives,

sustenance from the same passage in Benjamin's 8th edition.

But as observed by Hidayatullah J. in his dissenting

judgment in that case, consent may be express or implied and

offer and acceptance need not be in an elementary form (page

510). It is interesting that the General Editor of the 1974

edition of 'Benjarnin's Sale of Goods" says in the preface

that the editors decided to produce an entirely new work

partly because commercial institutions, modes of transport

and of payment, forms of contract, types, of goods, market

areas and marketing methods, and the extent of legislative

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and governmental regulation and intervention, had changed

considerably since 1868, when the 1st edition of the book

was published. The formulations in Benjamin's 2nd edition,

relating to the conditions of a valid 'sale' of goods, which

are reproduced in the 8th edition evidently require modi-

fication in the light of regulatory measures of social

control. Hidayatullah J., in his minority judgment referred

to above struck the new path; and Bachawat J. Who spoke for

the Court in Andhra Sugars (supra) went a step ahead by

declaring that "the contract is a contract of sales and

purchase of cane, though the buyer is obliged to give his

assent under compulsion of a statute". (page 716). The

concept of freedom of contract, as observed by Hedge J. in

Indian Steel and

4 6 5

Wire Products, (supra) has undergone a great deal of

change even in those countries where it was considered

as one of the basic economic requirements of a democratic

life. (page 490). Thus, in Ridge Nominees Ltd., (supra) the

Court of Appeal, while rejecting the argument that there was

no sale because the essential element of mutual assent was

lacking, held that the dissent of the shareholder was

overridden by an assent which the statute imposed on him,

fictional though it may be, that a sale may not always

require the consensual element mentioned in Benjamin on

Sale, 8th Edition, page 2, and that there may in truth be a

compulsory sale of property with which the owner is

compelled to part for a price against his will. (pages 405-

406). Decisions in case of 'compulsory acquisition, where

such acquisition is patent as in Kirkness (supra) or is

inferred as in Chitter Mal (supra) fall in a separate and

distinct class. The observations of Lord Reid in Kirkness

(supra) that 'sale' is a women juris the name of a

particular consensual contract-have therefore to be under-

stood in the context in which they were made, namely, that

compulsory acquisition cannot amount to sale. In Gannon

Dunkerley, (supra) Venkatarama Aiyar J. was influenced

largely by these observations (see pages 411, 412 and 425)

and by the definition of 'sale' in Benjamin's 8th edition'

Gannon Dunkerley _(supra) involved an altogether different

point and is not an authority for the proposition that there

cannot at all be a contract of sale, if the parties to a

transaction are obliged to comply with the terms of a

statute. Since we are putting in a nutshell what we have

discussed earlier, we would like to reiterate in the

interest of uniformity and certainty of law that, with great

deference the majority decision in New India Sugar Mills

(supra) is not good law. The true legal position is as is

stated in the minority judgment in that case and in Indian

Steel and Wire Products, (supra) Andhra Sugars, (supra)

Salar Jung Sugar Mills (supra) and Oil and Natural Gas

Commission. (supra). To the extent to which Cement

Distributors Pvt. Ltd. (supra) is inconsistent with these

judgments, it is also, with respect, not good law.

The conclusion which therefore emerges is that the

transactions between the appellant, M/s. Vishnu Agencies

(Pvt.) Ltd., and the allottees are sales within the meaning

of section 2(g) of the Bengal Finance (Sales Tax) Act, 1941.

For the same reasons, transactions between the growers and

procuring agents as also those between the rice-millers on

one hand and the wholesalers or retailers on the other are

sales within the meaning of section 2(n) of the Andhra

Pradesh General Sales Tax Act, 1957. The turnover is

accordingly'exigible to sale tax or purchase tax as the case

may be.

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The appeals are accordingly dismissed with costs, with one

hearing fee.

P.B.R.

Appeals dismissed.

466