NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW,

RANCHI

RESEARCH PAPER
ON

CRITICAL ANALYSIS: NEW INDIA SUGAR MILLS LTD v. COMMISSIONER OF SALES TAX
BIHAR

SUBMITTED BY – SUBHASHNI KUMARI SUBMITTED TO – MISS LAHAMA

MAJUMDAR
SEMESTER – V, SECTION - A ASSISTANT PROFESSOR
ROLL NO. - 778 SALES OF GOODS ACT

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 INTRODUCTION:
Section 4 defines contract of sale as: “A contract of sale of goods is a contract whereby the seller
transfers or agrees to transfer the property in goods to the buyer for a price.”
The definition above lays down four essentials which are:
1) There must be two parties :- There must be at least two parties, i.e. one buyer and the other
seller. A person cannot buy his own goods. There is exemption in the case of a part owner. For
the purpose of sale of partnership property, partners are not regarded as separate persons. They
cannot be both seller and buyer. But a partner may sell goods to the firm or buy goods from the
firm. However, a part owner can sell his ownership to another part owner.
A partnership firm was dissolved and the surplus assets, including some goods, were divided
among the partners in specie. Sales tax office sought to tax this court held that they (partners)
were themselves the joint owners of the goods and they could not be both buyers and sellers so it
is not a sale.
2) Subject matter of Sale must be "goods:- The subject matter of the contract must be goods.
The expression “goods” is thus defined in section 2(7) of the act "goods" means every kind of
movable property other than actionable claims and money; and includes stock and shares,
growing crops, grass, and things attached to or forming part of the land which are agreed to be
severed before sale or under the contract of sale. 1
3) Transfer of property in the goods :- It is the ownership that is transferred in a Contract of
sale. The general property is transferred from seller to the buyer in a contract of sale. When the
goods are pledged, it is only the special property which is transferred i.e., possession of the
goods is transferred to the pledgee while the ownership rights remain with the pledger. You
should note that for transferring the ownership of goods, the physical delivery of the goods is not
essential.2
4) Consideration in Price :- Consideration in a contract of sale has necessarily to be money.
Thus, if for instance, goods are offered as consideration for goods, it will not amount to sale, but
it will be called ‘barter’. Similarly, in case there is no consideration, it amounts to gift and not
sale. However the consideration may be partly in money and partly in goods. For e.g.- fifty two

1
Chalmer's Sale of Goods Act, 3, (12th Ed.).
2
Id at 129.

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bullocks, valued at $6 a piece were exchanged for 100 quarters of barley at $2 per quarter, the
difference to be made up in cash ,the contract was treated as one of sale.

Statutory transaction and contractual liberty:-

According to Potheir the contract of sale is “consensual, bilateral and commutative”
So the first essential which we get from the definition given by Potheir is that the sale must be
consensual that means parties must give their free consent because forced purchase and
procurement is acquisition.
Statutory transactions are those transactions in which supply of goods is done by virtue of a
statutory obligation. Statutory transaction would not be a sale of goods as the consensual element
which forms the basis of contract is absent.
This statutory transaction directly places a danger on the principle of ‘contractual liberty’ which
has been given in section 62 of the sale of goods act 1930. 3
Exclusion of implied terms and conditions.-
Where any right, duty or liability would arise under a contract of sale by implication of law, it
may be negatived or varied by express agreement or by the course of dealing between the parties,
or by usage, if the usage is such as to bind both parties to the contract.
The provision is merely an application of the general maxim “Expressam facit cessare tacitum”
which means that “The express mention of one thing implies the exclusion of another” thus
sanctifying the principle of contractual liberty which allows parties to the contract to add any
number of conditions in their agreement.
Another legal maxim from which section 62 draws its legitimacy is “Modus et convenitio
vincunt legem” which means that “The form of agreement and the convention of parties overrule
the law” this maxim also strengthens the principle of contractual liberty by approving the
principle of parties autonomy in making laws for themselves.
Statutory transaction is not in accordance with the principle of contractual liberty rather it is a
antithesis of contractual liberty because one important factor of contract of sale is that parties
must be free to set any number of terms and conditions for themselves but in statutory
transaction this is not available to the parties. 4
Why Statutory Transaction Is Imposed:-
3
Id.
4
Benjamin's Sale of Goods, 26, (2nd Ed.).

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Statutory transaction is imposed when essential goods are in short supply or at the time of any
social or other disturbance takes place which renders smooth supply of a commodity difficult if
not impossible so government takes the initiative of directing those who are in possession of
commodity to supply the commodity at a price which is decided by government. 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 may lay down the requirements of holding a
license for dealing in the commodity and getting a permit for obtaining the commodity. The
permit holder can obtain the supply of the essential goods, to the extent of quantity for which
permit is granted, from the named dealer at a controlled price.
Statutory transaction and contract of sale :-
A sale is necessarily a consensual transaction and if the parties have no volition or option to
bargain, there can be no sale, the limitations on the normal rights of dealers and consumers to
supply and obtain the goods, the obligations imposed on the parties and the penalties prescribed
by the control order did militate against the position that eventually the parties must be deemed
to have completed the transaction 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 goods on the terms and conditions mentioned in the permit or the order
of in its favor by the concerned authority.
In order to see whether there was any agreement or consensuality between parties, regard must
be had to their conduct at or about when the goods changed hands. Since it is not obligatory on a
trader to deal in such essential commodity nor on any one to acquire it, the primary fact is that
the decision of the tile trader to deal in the essential commodity strictly in the terms of the
control orders is volitional and the consumer too on his own volition decides to obtain the
commodity on the terms of the permit or the order of allotment issued in his favor. The parties
enter into such transactions with their free consent.
So in instances like this it is contract of sale because parties are making contract by their own
will and there is no forced consent but it is a free consent so it is a contract of sale.
In case of statutory transaction, this transaction is not necessarily a consensual transaction the
limitations on the normal rights of dealers and consumers to supply and obtain the goods, the
obligations imposed on the parties and the penalties prescribed by the control order converts the

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contract of sale in to statutory transaction thus leaving no scope for parties to make terms and
conditions for themselves and thus eradicating the principle of contractual liberty.
The vexed question whether such a transaction amounts to a sale in the language of the law and
the controversy whether what is conveniently though loosely called, a ‘Compulsory sale’ is
eligible to sales tax ?
It has been held in many English cases that supply of goods by the virtue of a statutory
obligation, would not be a sale of such goods as the consensual element which forms the basis of
the contract is absent.
Case of compulsory acquisition of property by the state stand on a different footing since there is
no question in such cases neither of offer and acceptance nor of consent, either express or
implied .
Though compulsory acquisition of property would exclude the element of mutual assent which is
vital to a sale, so long as mutual assent, express or implied, is not totally excluded the transaction
will amount to sale.
A transaction which is effected in compliance with the obligatory terms of a statue may
nevertheless be a sale in eyes of law. 5
Statutory Transaction Indian scenario:-
As a result of the regulations relating to the control of prices and control of movement and
supply of goods, complicated questions arise as to whether in a given case it is a sale or not. In
such cases bargains are regulated and controlled and freedom of contract becomes a matter of
Hobson’s choice.6

5
Helsbury's Law of England, 5, (IInd Ed.V.29).
6
Williston on Sale, 2 (1948, Ed.)

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 NEW INDIA SUGAR MILLS LTD V. COMMISSIONER OF SALES TAX BIHAR
[Civil Appellate Jurisdiction:Civil Appeal No. 237 Of 1961.]
Appeal by special leave from the judgment and order dated September 30, 1958, of the Patna
High Court in M.J.C. No. 5 of 1956.
S.T. Desai and B. P. Maheshwari, for the Appellant.
S. P. Varma, for the Respondent.

FACTS

Under the Sugar and Sugar Products Control Order, 1946, the consuming States intimated to the
Sugar Controller of India their requirements of sugar and the factory owners sent statements of
stocks of sugar held by them. The Controller made allotments to various States and addressed
orders to the factory owners directing them to supply sugar to the States in question in
accordance with the dispatch instructions from the State Governments. Under such allotment
orders, the assesses, a sugar factory in Bihar, despatched sugar to the State of Madras. The State
of Bihar treated these transactions as sales and levied sales tax thereon, under the Bihar Sales
Act, 1947. The assesses contended that the despatches of the sugar pursuant to the directions of
the Controller did not amount to sales and that no sales tax was exigible on such transactions.

JUDGMENTS

That the transactions did not amount to sales and were not liable to sales tax. Under Entry 48,
List II of Government of India Act, 1935, the Provincial Legislature had no power to levy sales
taxes on a transaction which was not of the nature of a sale of goods, as understood in the Sale of
Goods act. To constitute a sale of goods, property in the goods must be transferred from the
seller to the buyer under a contract of sale. A contract of sale between the seller and the buyer is
a prerequisite to a sale. Despatches of sugar under the directions of the Controller were not the
result of any such contract of sale. There was no offer by the assesses to the State of Madras
and no acceptance by the latter; the assessee was, under the Control Order, compelled to carry
out the directions of the Controller and it had no volition in the matter. Intimation by the State of
its requirement of sugar to the controller or communication of the allotment order to the assesses

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did not amount to an offer. Nor did the mere compliance with dispatch instructions issued by the
Controller, which the assessee could not decline to carry out, amount to acceptance of an offer or
to making of an offer. A contract of sale postulates exercise of volition on the part of the
contracting parties.
State of Madraa v. Gannon Dunkerky & Co.,7; relied on the Tata Iron & Steel Co. Ltd. v. The
State of Bihar, 8, explained.
Per Hidayatullah, J.-In these transactions there was a sale of sugar for a price and sales tax was
payable in respect thereof. Though consent is necessary for a sale, it may be express or implied,
and it cannot be said that unless the offer and acceptance are in an elementary direct form there
can be no taxable sale. The controller permitted the assesses to supply sugar of a Stated quality
and quantity to the State of Madras; thereafter the two parties agreed to "sell" and "purchase" the
sugar. So long as the parties trade under controls at fixed price they must be deemed to have
agreed to such a price; there wasan implied contract with an implied offer and an implied
acceptance. The same is the position with respect to the quality and quantity fixed by the
Controller. when the State , after receiving the permit, sent instructions to the assesses to
dispatch sugar and the assesses despatched it a contract emerged and consent must be implied on
both sides though not expressed antecedently to the permit.
Gannon Drunkerky9 was the landmark case which was sought to be invalidated by the 46th
amendment to the Constitution. The Supreme Court in this case had held that the Madras General
Sales Tax (Amendment) Act, 1947 was ultra vires to the extent that it attempted to levy sales tax
on materials used by the respondents in the execution of their works contracts, which included
the elements of both a sale and a service. The Court held that works contracts, such construction
contracts, are indivisible and cannot be separated into services and sales, and since the primary
intention of the parties was only to render and accept a service and the parties’ dominant
intention was not to execute the sale of the goods (such as bricks) involved in the transaction, the
same was not liable for sales tax. 10 The sale of the goods remained merely incidental or
subordinate to the main intention of the parties to render services. Therefore, unless the
transaction in truth represents two distinct and separate contracts, one for sale of goods and one

7
[1959] S. C. R. 379.
8
[1958] S. C. R. 1355.
9
[1959] S. C. R. 379.
10
AIR 1958 SC 560.

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for the provision of services, and is clearly discernible as such through the intention of the
parties, the State would not have the power to separate the agreement to sell from the agreement
to render service, and impose tax on the sale.11 This marked the birth of the ‘dominant nature’
test which was premised fundamentally on the intention of the parties to the contract to effect a
sale.

CRITICAL ANALYSIS:

PRICE : Price means the money consideration for a sale of goods. The definition of price is
taken from Section 1 of the English Act. "Price", according to this definition, must be money,
paid or promised, according as the agreement may be for a cash or a credit sale? but if any other
consideration than money be given, it is not a sale. In New India Sugar Mills Ltd. V.
Commissioner of Sales Tax, Bihar. It is manifest that under the Sale of Goods Act a transaction
is called sale only where for money consideration property in goods is transferred under a
contract of sale. In the instant case a sugar factory in Bihar Province in compliance with the
directions issued by the sugar controller of India in exercise of authority under sugar & sugar
products control order, 1946, despatched sugar to Madras Province. It was held that it was no
sale by the assessee to the Madras Province and the transaction could not be taxed under the
Bihar Sales Tax Act.12

Ascertainment of Price : Section 9 deals with ascertainment of price • (1) The Price in a contract
of sale may be fixed by the contract or may be left to be fixed in manner thereby agreed or may
be determined by the course of dealing between the parties. (2) Where the price is not
determined in accordance with the foregoing provisions, the buyer shall pay the seller a
reasonable price- that is a reasonable price is a question of fact dependent on t.ie circumstances
of each particular case.

In The Commissioner of Income Tax, Andhra Pradesh V. M/S Motor and Gaaeral Stores (P. )
Ltd.,13the Supreme Court observed, there is no definition of the word price in the Transfer of
Property Act. But, it is well settled that the word "Price" is used in the same sense in Sec. 54 of

11
Bharat Sanchar Nigam Limited v Union of India, (2006) 3 SCC 1, [“The BSNL Case”].
12
A.I.R. 1963, S.C. 1211.
13
A.I.R . 1968, S.C. 200.

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that Act as in Sec. 4 of the Sale of Goods Act, 1930. Sec. 2(10) of the Sale of Goods Act, defines
"Price" as meaning the money consideration for a sale of goods. The presence of money
consideration is therefore an essential element in a transaction of sale. If the consideration is not
money but some other valuable consideration it may be an exchange or barter but not a sale-.
"The difference between a sale and an exchange is this, that in the former the price is paid in
money, whilst in the latter it is paid in goods by way of barter".

In Gopal Krishna Pillai V. K.M» Mani,14the Supreme Court said that a re-sale of goods is also a
sale and the money consideration in respect of such re-sale, whether to a third person or even to
the original seller would be the price of goods re-sold, and such price is recoverable debt,
provided the same is excluded from any law providing for debt relief.

CONCLUSION

It is clear from the above discussion that the Amendment that its purpose was to invalidate
specific decisions of the Supreme Court on certain issues dealing with the determination of what
constitutes a sale under Entry 54 of the Schedule.8 The table below enumerates these decisions:

New India Sugar Mills v Commissioner of Section 366(29A)(a)

Sales Tax, Bihar,15 wherein it was held that
since an element of volitional sale by the seller
is not present in case of the transfer of
controlled commodities under a Control Order,
there was no sale.
State of Madras v Gannon Dunkerly,16 in Section 366(29A)(b)
which works contracts were held not liable to
sales tax since the dominant intention was to
effect a service only.
K.L. Johar and Company. v Deputy Section 366(29A)(c)
Commercial Tax Officer,17 held that there was

14
A.I.R . 1984, S.C. 216.
15
AIR 1963 SC 1207.
16
10 AIR 1958 SC 560; it is the pre-amendment locus classicus on the issue of what amounts to a sale- i) parties
competent to contract, ii) mutual assent and iii) transfer of property in goods from one of the parties to the contract
to the other party thereto iv) for a price.
17
11 AIR 1965 SC 1082.

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 no sale by the dealer to a person who wanted to
purchase the vehicle at the time of the hire
purchase agreement since the dominant
intention was to effect a service only.
A.V. Meiyappan v Commissioner of Section 366(29A)(d)
Commercial Taxes, Madras,18 wherein it was
held that a lease of a negative print of a picture
would not be a sale.
Commercial Tax Officer v Young Mens Indian Section 366(29A)(e)
Association,19 in which it was held that that
there was no transaction of sale involved in the
supply of refreshments and preparations by the
club to its members and no sales tax could be
levied thereon since the dominant intention
was to effect a service only.
Associated Hotels of India v R.N.Kapoor, 20 Section 366(29A)(f)
wherein it was held that there is no sale
involved in the supply of food or drink by a
hotelier since the dominant intention was to
effect a service only to a person lodged in the
hotel.

18
12 (1967) XX STC 115.
19
13 AIR 1970 SC 1212.
20
AIR 1972 SC 1131.

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