COMMISSIONER OF SALES TAX Vs. KAREEM ALI MOTIBHAI

JUDGEMENT

(1.) This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the said Act").

(2.) The facts on which this reference arises may be briefly stated as follows : The respondent was assessed for the period from 29th October, 1962, to 17th October, 1963. During the period of assessment, on 7th September, 1962, the respondent entered into an agreement with the Government of Maharashtra under which the Government agreed to sell to the respondent and the respondent agreed to purchase from the Government certain forest produce described in the first schedule to the said agreement situated in the area specified in the said schedule, and on the terms and conditions stated in the agreement. Briefly stated the first schedule shows that the said forest produce consisted, in the area not meant for felling, of standing trees of teak and other first class species bearing marginal hammer-mark on a blaze at base and at breast height and standing miscellaneous trees bearing a marginal hammer-mark on the blaze only. In the area meant for clear felling the said forest produce consisted of standing trees of teak and other first class species marked as set out therein and standing miscellaneous trees marked as set out therein. The said schedule also shows that included in the goods sold were felled trees bearing marginal hammer-mark at the stump and butt-end. The second and third schedules impose certain conditions on the respondent. Clause 7(iv) of the third schedule, which imposes a condition and which is very relevant for the purpose of this reference, runs as follows : "No timber shall be removed by the contractor from his coupe unless it is hammer-marked at stump site by a suitable device by the forest department."

(3.) Clause 2 of the said contract provides, inter alia, that the respondent, who is referred to as "the forest contractor" in the said contract, may collect and remove, in accordance with the conditions of the contract, and during the period from the date the forest contractor furnishes the necessary coupe boundary certificate after inspection of the contract area, to the 31st day of May, 1963, the forest produce referred to therein. There are provisions in the contract for removal of the forest produce by the forest contractor in a particular manner to certain specified depots and imposing certain restrictions making it obligatory on the forest contractor to sell certain timber to agriculturists and residents of the village Patol as set out in the contract. Under clause 7 the respondent bound himself, inter alia, not to do any act in contravention of the Indian Forest Act, the Forest Contract Rules or of the said contract and the said clause provided further for a penalty for every such act. The total turnover of sales, which was not in dispute, amounted to Rs. 82,986, out of which sales of firewood, which were exempt from the tax, amounted to Rs. 8,796. The respondent claimed that the remaining sales of Rs. 74,188 were resales of timber, which was purchased by him from the Divisional Forest Officer, who was a registered dealer, and the said sales were exempt from tax. The contention of the respondent before the Sales Tax Officer was that the purchase of timber having been made from a registered dealer, he was entitled to deduct from his turnover these resales under section 8(ii) of the said Act. The Sales Tax Officer disallowed this claim on the ground that it was not a resale within the meaning of section 2(26) of the said Act in so far as the respondent had processed the forest coupe from which the forest produce was extracted. The respondent appealed to the Assistant Commissioner of Sales Tax, who confirmed the order of the Sales Tax Officer, holding that the respondent had purchased standing timber only and was a manufacturer within the meaning of section 2(17) of the said Act. The respondent preferred a second appeal, which came up before the Sales Tax Tribunal. The Tribunal came to the conclusion that the most important condition of the contract was that contained in clause 7(iv) of the third schedule, under which the respondent was prevented and prohibited from removing anything other than logs marked with a hammer-mark at the stump site by the forest department. The Tribunal held that the respondent was never the owner of every tree that was standing in the coupe. No doubt, the respondent had felled the trees and cut them into suitable logs, sized as required by the stipulation in the contract deed. The logs which he had hacked always remained the property of the forest department and it was only when the hammer-mark on the suitable logs was put that the timber became salable and ascertained goods. The Tribunal has observed that unless the subject-matter of sales is ascertained and goods are in a deliverable state no sale transaction is conceivable. In the opinion of the Tribunal in the sale of the coupe, no timber was sold by the Divisional Forest Officer and it was only when the hammer-marks on the logs were made that the timber became available. It may be pointed out that the only manufacturing process which the respondent was supposed to have carried on was felling of timber trees before taking delivery of the timber in the coupe.