Citation Codes

Equivalent Citations

citation codes

Case Number

W.P Nos. 878 and 879 of 1962.

Advocates

Messrs. C.S Chandrasekhara Sastri and C. Venkatraman for Petrs.
Mr. S. Mohan for the Addl. Govt. Pleader for Respt.

Judges

Veeraswami, J.

Acts

(1935) 297 'JS 283: 80 Law Ed 688. Section 39 of. the Indian Electricity Act, 1910,
Madras General Sales Tax Act, 1959 and the Central Sales Tax Act 1956.
CENTRAL SALES TAX ACT 1956
fact, Section 8(3)(b) of the Central Sales Tax Act, 1956
Sale of Goods Act, or of the Indian Electricity Act.
Sale of Goods Act or the General Clauses Act
Section 39 of the Indian Electricity Act
Section 7(2) of the Central Sales Tax Act.
Article 52 of the Indian Limitation Act,
provisions of the Indian Companies Act.
Madras General Sales Tax Act, 1939'
Madras General Sales Tax Act, 1959.
Section 8(3) read with Section 8(1)
Article 52 of the Limitation Act."
Section 373 of the Indian Penal
Section 8(i)(b) and Section 8(3)
Madras General Sales Tax Act,
Sub-section (2) of Section 7,
GENERAL CLAUSES ACT 1897
Section 7(2) of that Act,
SALE OF GOODS ACT
Section 8(1)(b)

See more information ...

Smart Summary

Judgment Summary: ORDER — Veeraswami, J.

Factual and Procedural Background

The petitioner is a limited company (registered under the Indian Companies Act) which purchases electricity and distributes it to local consumers within a specified area. For distribution the petitioner also purchased certain goods from out-of-State dealers and sought the benefit of concessional treatment under the Central Sales Tax Act, 1956 by obtaining a certificate of registration under Section 7(2) after amendment of Section 8(3) in 1958. That certificate secured the benefit of Section 8(1)(b), which reduced the tax on such inter-state purchases to one per cent (instead of seven per cent).

The registration certificate — which had been renewed — was cancelled by the Joint Commercial Tax Officer, Esplanade division, with effect from March 14, 1962, on the view that electricity was not "goods" and consequently the petitioner was not a dealer entitled to registration under Section 7(2). The petitioner filed the present petitions seeking to quash the order of cancellation of its registration certificate.

Legal Issues Presented

Whether electricity constitutes "goods" for the purposes of the Madras General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956.
Whether the cancellation of the petitioner's registration certificate (under Section 7(2) of the Central Sales Tax Act) was valid, given the classification of electricity and the statutory scheme leading to the concessional tax in Section 8(1)(b) read with Section 8(3).

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ashwander v. Tannessa Valley Authority (1935) 297 'JS 283: 80 Law Ed 688	Referenced (via American Jurisprudence) as authority recognizing that electricity is property capable of sale and even larceny.	The court noted that American Jurisprudence relied on Ashwander in treating electricity as property; the opinion cites that support when concluding electricity is property and can be sold.
Rash Behari v. Emperor, AIR 1936 Cal 753	Held (per two Calcutta High Court judges) that it was doubtful whether the Sale of Goods Act applied to gas, water and electricity; the judges concluded electricity was not "goods" for the purposes there under consideration.	The court recorded this view and explicitly disagreed with it, noting that it did not accept the conclusion that electricity is not property for the purposes of the Sale of Goods Act or the Indian Electricity Act.
Nainital Hotel Co. Ltd. v. Municipal Board, Nainital, AIR 1946 All 502	Held that for the purposes of Article 52 of the Limitation Act, electricity was "moveable property" and therefore "goods". The decision relied on Section 39 of the Indian Electricity Act and the definition of "moveable property" in the General Clauses Act.	The court stated agreement with the approach in this case and adopted its reasoning in holding that electricity should be regarded as "goods".
Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, 1957-8 STC 61 (AIR 1956 Hyd 194)	Considered the meaning of "goods" and noted prior authority (Mohamed Kabir) that treated electricity as "goods"; however the Hyderabad High Court observed the term "goods" has an indefinite meaning and did not decide the point conclusively.	The court referred to this treatment as part of the body of authority and observed that prior courts had adverted to but not always decided the question; it used the discussion to situate its own conclusion rather than as a controlling precedent.
Mohamed Kabir v. Government, 15 Deccan LR 60 (FB)	Reportedly held electricity to be "goods" for the purpose of the Hyderabad Penal Code (as referenced in Nizam Sugar Factory).	The court cited the decision as part of the jurisprudential support indicating that some courts had treated electricity as "goods".
Erie-County Natural Gas and Fuel Co. v. Carrol, 1911 AC 105	Held that gas is "goods".	The court used the analogy to support the proposition that if gas can be held to be "goods" on similar considerations, electricity can likewise be regarded as "goods".

Court's Reasoning and Analysis

The court's analysis proceeded in two complementary strands: statutory/definitional analysis under general law, and contextual/statutory construction of the sales tax statutes.

1. Statutory definitions and the nature of "goods":

The Sale of Goods Act defines "goods" as "every kind of moveable property other than actionable claims and money" and includes various tangible items. The court observed that the inclusive examples in the definition suggest tangibility, but held that the inclusive part should not limit the primary definition.
The General Clauses Act defines "moveable property" broadly as property of every description except immovable property. From this the court concluded that property which is not immovable must be moveable.
The court emphasized that the key attributes for "goods" are that the subject-matter be property and moveable — i.e., transmissible or transferable and capable of delivery — and that such transfer/delivery need not be only in a strictly physical sense.
Applying these concepts, the court reasoned that electricity is property of commercial value, is routinely sold and consumed, can be transmitted through conductors and delivered for consumption, and therefore meets the statutory criteria for "goods" even if it cannot be possessed physically in the same way as tangible articles or stored except by special devices.
The court noted Section 39 of the Indian Electricity Act, 1910 treats dishonestly abstracting or consuming energy as theft (a "deeming" provision), which the court took as reinforcing that electricity is contemplated as property capable of wrongful appropriation.

2. Contextual statutory construction under the sales tax statutes:

The court examined Section 8(3)(b) and Section 8(1)(b) of the Central Sales Tax Act, 1956. Section 8(1)(b) provides a concessional tax rate (one per cent) for sales to a registered dealer of certain goods described in subsection (3). Section 8(3)(b) expressly refers to use "in the generation or distribution of electricity or any other form of power."
From the combined reading of these provisions, the court inferred that the statutory scheme contemplates a distributor of electricity as a dealer for purposes of the Act so that the concessional rate can apply to purchases of "goods" by such a distributor for use in distribution.
The court reasoned that if a distributor of electricity were not regarded as a dealer and if electricity were not regarded as "goods", the purpose of Section 8(3) and the concomitant amendment to Section 7(2) (which enables registration) would be frustrated.
The court also contrasted earlier provisions in the Madras General Sales Tax Act, 1939 (which expressly excluded sales of electrical energy in a specific section) with the 1959 Act (which omitted that exclusion). However, the court relied primarily on the Central Act's provisions (Section 8(1)(b) and Section 8(3)) to show legislative intent to treat distributors and the relevant inputs as within the sales-tax framework.
Finally, having found that electricity qualifies as "goods" under general law and that the Central Sales Tax Act's language presumes a distributor to be a dealer, the court concluded that the petitioner was properly regarded as a dealer entitled to registration and the benefit of the concessional taxation scheme.

Holding and Implications

The petitions were allowed.

Direct consequences for the parties:

The court allowed the petitions seeking to quash the cancellation of the petitioner's registration certificate (the petitions were described as being to quash the cancellation order), and therefore the cancellation was effectively set aside by the allowance of the petitions.
The petitioner is regarded as a dealer for purposes of the Central Sales Tax Act and electricity is held to be "goods" under the general law and in the statutory context considered.
The court awarded costs: one set, and counsel's fee of Rs. 100.

Broader implications: The opinion does not undertake a broad pronouncement about national doctrinal change beyond the statutory interpretation and holdings in this case; it confines its conclusion to the statutory definitions and context before it and does not purport to set out an expansive new doctrine beyond holding that electricity is "goods" for the purposes examined.

Show full summary ...

The Kumbakonam Electric Supply Corporation Ltd., Oriental Buildings, Armenian St, Madras And Another. v. The Joint Commercial-Tax Officer, Esplanade Dn. Madras.

ORDER Veeraswami, J.

1. These two petitions, in which the petitioner is the same, raise an interesting question as to whether electricity, is ""goods"" for the purpose of the Madras General Sales Tax Act, 1959 and the Central Sales Tax Act 1956. There appears to be no direct authority on the question, but I have come to the conclusion that the question should be answered in the affirmative. The petitioner is a limited company registered under the provisions of the Indian Companies Act. It purchases electricity and distributes it to its local consumers within a specified area. For the purpose of distributing electricity, the petitioner has also to purchase certain "goods" from out of the State dealers paying tax under the Central Sales Tax Act 1956. After Section 8(3) of the Central Act was amended with effect from 1958, the petitioner obtained a certificate of registration Under Section 7(2) of that Act, which would secure the benefit of Section 8(1)(b) to the sales of "goods" effected by the out-of-State-dealer to the petitioner.

This meant that the petitioner would only be paying and the out-of-State-dealer would only be a collecting from it one per cent as tax on the turnover of the transaction between them. But for Section 8(1)(b), the transactions would be liable to tax at seven per cent. The certificate of registration issued to the petitioner would} appear to have been renewed until the Joint Commercial Tax Officer, Esplanade division, cancelled it with effect from March 14, 1962. He did so on the view that electricity was not ""goods"" and the petitioner was not, therefore, a dealer entitled to a certificate, of registration Under Section 7(2) of the Central Sales Tax Act. These petitions are to quash the order of cancellation of the petitioner's registration certificates.

2. Under the Sale of Goods Act, ""goods"" means every kind of moveable property other than actionable claims and money, and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be served before sale or under the contract of sale. Under this definition ""goods"" must be property and it must be moveable. The inclusive part of the definition would seem to indicate that the property contemplated is of a tangible character, which may be capable of possession and touch and that the things which would come within the expression ""goods"" should be such as may be put to human or other use. The scheme of the Sale of Goods Act visualizes delivery of possession, which again indicates that what is contemplated by ""goods"" under its provisions is tangible property which can be transmitted from hand to hand by delivery.

But I think the first part of the definition of ""goods"'' should not be read as controlled in its scope by the inclusive part of the definition. Any kind of property which is moveable will, therefore, fall within the definition of ""goods"" provided it is transmissible or transferable from hand to hand or capable of delivery, which to my mind, need not necessarily be in a tangible or physical sense. The General Clauses Act, 1897, defines "moveable property" as property of every description, except immoveable property, and "immoveable property" includes of course, land, benefits to arise out of land and things attached to the earth, or permanently fastened to the earth. Under this Act, therefore, property is divided into two broad categories as moveable, and immoveable, and that which is not immoveable is defined to be moveable. This is a wide description which does not appear to be of much assistance in deciding the instant Question.

But having regard to the two-fold division of property, if the property in question is not immoveable, it must necessarily be moveable. From these statutory definitions it is clear therefore, that if electricity is property and it is moveable it will be ""goods"". It may perhaps be that when the Sale of Goods Act or the General Clauses Act was enacted, electricity as property was not so much in the contemplation of the legislature. But, as it seems to me, both from the scientific as well as the economic point of view, electricity appears to be such property as gas or water which is subjected to a particular process, bottled up and sold for consumption.

After all what is property? I think anything which is of value in a commercial sense and is fit for use in any conceivable manner will be property, provided it is capable of possession and transfer, such possession or transfer not merely in the physical sense. Electricity answers that description. Every day it is sold, purchased and consumed. It is too late in the day to say that electricity is not capable of sale as property. Electricity seems to be also moveable property, because it can undoubtedly be transmitted, of course, through insulators or through conductors from place to place. It :s also capable of delivery in the same way for consumption though again subject to the protection which is required, having regard to the peculiar nature and quality of electricity. It may be that electricity cannot be possessed in a physical sense, like tangible "goods", it may also be true partly that, electricity cannot be stored except in the form of batteries and similar devices. If, therefore, electricity is property and is capable of movement and delivery in the sense I have; mentioned, I do not sea why it cannot be regarded as "goods".

3. 18 American Jurisprudence, 407 recognizes that electricity is property, capable of sale and it may be the subject of larceny. This view appears to be based upon Ashwander v. Tannessa Valley Authority, (1935) 297 'JS 283: 80 Law Ed 688. Section 39 of. the Indian Electricity Act, 1910, as a matter of fact, treats electricity as property which is capable of theft. The section says that whoever dishonestly obstructs or consumes or uses any energy shall be deemed to have committed theft within the meaning of the Indian Penal Code. I note that the section uses the word "deemed" but nonetheless, I am inclined to think that it is in the contemplation of the Electricity Act that electricity is property and moveable at that, capable of being stolen by dishonest abstraction, consumption or user of energy, also capable of distribution and sale. Sir Dinshah Mullah in his work on Sale of Goods Act, would appear to have thought that electricity, like gas and water, was not ""goods"".

Two learned Judges of the Calcutta High Court in Rash Behari v. Emperor, AIR 1936 Cal 753, at p. 766, agreed with this view and observed:

"Sir Frederick Pollock and Sir Dinshaw Mullah in their commentary on that Act [Sale of Goods Act) express the view that it is doubtful whether the Act is applicable to such things as gas, water and electricity. In our opinion, that view is correct, certainly as regards electricity. It is, therefore, not possible for Mr. Garden Need to derive any support by reference to the law relating to the sale of "goods"."

The learned Judges wore dealing with the argument that as Section 39 of the Indian Electricity Act made dishonest abstraction consumption or use of energy punishable as theft, it must have been contemplated by the legislature that all the elements of theft as defined in Section 373 of the Indian Penal Coda must be present. The court declined to accept that argument on the view that the offence of theft Under Section 39 depended upon the deeming provision therein. With great respect to She learned Judges, I do not share the view that electricity is not property for the purpose of Sale of Goods Act, or of the Indian Electricity Act.

On the other hand, a Division Bench of the Allahabad High Court in Nainital Hotel Co. Ltd. v.. Municipal Board, Nainital, AIR 1946 All 502 while on a consideration of Article 52 of the Indian Limitation Act, held that, for its purpose, electricity was property and "goods". in taking that view, the Allahabad High Court referred to Section 39 of the Indian Electricity Act, and the definition of "moveable property" in the General Clauses Act and concluded:

"For these reasons, it seems to me clear that electric energy should be held to be 'moveable property' and therefore '"goods"' within the meaning of Article 52 of the Limitation Act."

I find myself in entire agreement with the approach made-' in that case.

4. This question whether electricity is ""goods"" has, been adverted to in one or two other cases, to which, my attention was invited, but without expressing any conclusion. For instance in Nizam Sugar Factory Ltd. v. Commissioner of Sales Tax, 1957-8 STC 61 : ((S) AIR 1956 Hyd 194 (V 43)) iris High Court of Hyderabad referred to Mohamed Kabir v. Government, 15 Deccan LR 60 (FB), as having held electricity to be ""goods"" for the purpose of Hyderabad Penal Code, and went on to observe that ""goods"" was an expression of indefinite meaning, which should be fixed in the context and that electricity might not be. regarded as ""goods"" because of the separate entries Nos. 53 and 54 in list II of Sch. 7 of the Constitution. But having said that the learned Judges also stated that they were not deciding the question. My view is that the legislative entries do not provide an answer to the question In Erie-County Natural Gas and Fuel Co. v. Carrol, 1911 AC 105, the court of Appeal held gas to be ""goods". If one can go that far, I cannot see why on the same considerations electricity should not be held to be, ""goods"".

5. Under the Madras General Sales Tax Act, 1939' it would appear that the State Legislature considered electricity to be property, as otherwise there was no need for inserting Section 4 which specifically stated that the Act would not apply to the sale of electrical energy among certain other things. The Turnover rules of 1939, pursuant to this section, provided for exclusion of the turnover of sales of electrical energy from the computation of taxable turnover. But these provisions, in so far as they relate to electricity, are not found repeated to the Madras General Sales Tax Act, 1959. On that account, however, it can be said that the Madras General Sales Tax Act, 1959 postulated that electricity should not be treated as ""goods"". As a matter of fact, Section 8(3)(b) of the Central Sales Tax Act, 1956 seems to throw light on the point. That clause in the sub-section reads:

"The "goods" referred to in Clause (b) of Sub-section (l)(b) in the case of "goods" other than declared "goods" of the class or classes specified in the certificate of registration of the registered dealer purchasing the "goods" as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of "goods" for sales or in making mining or in the generation or distribution of electricity or any other form of power."

Section 8(1)(b) is to the following effect:

"Every dealer, who in the course of inter-state trade or commerce-............(b) sells to a registered dealer other than the Government "goods" of the description referred to in Sub-section (3); shall be liable to pay tax under this Act, which shall be one per cent of his turnover."

6. It will be clear from these two provisions, that: their intention is to extend the benefit of concessional tax at one per cent to a distributor of electricity in relation to the "goods" purchased by him for use in the distribution of electricity. But in order to give effect to the intention, the transaction must be between a dealer and a registered dealer in respect of the "goods" within the purview cl Sac. 8 (3), A combined reading of Section 8(i)(b) and Section 8(3) would seem to suggest that a distributor of electricity is assumed to be a denier, as otherwise, if a distributor of electricity - not a dealer and a registered dealer, Section 8(1) will have no application. A dealer is defined by the Central Sales Tax Act practically in the same way as in the Madras General Sales Tax Act, both old end new, namely, that it means a person who carries on the business of buying and selling "goods". Vile definition of ""goods"" so far as these petitions are concerned, in these enactments are more or less the same. The definition of ""goods"" in the Central Sales Tax Act is an inclusive one; it includes all materials, articles, commodities, and all other kinds of moveable property. "Goods" for the purpose of the Madras General Sales Tax Act 1939, as well as 1959, have been defined to mean, all hinds of moveable property other than specified items. The concepts of dealer, "goods" and sale in She! Central and Stale Acts comprehend all kinds of moveable property.

Section 8(3) read with Section 8(1) and understood in the context in which those expressions have been used in the statutes, makes it apparent that a distributor of electricity is treated as a dealer. If that is not so. the object of Section 8(3) cannot be achieved. It is true that the certificate of registration was applied for by and granted to the petitioner Under Section 7(2), as amended in 1958. But it should not be lost sight of that Sub-section (2) of Section 7, as amended, was introduced by the same Amending Act, which inserted also sub-section (3) of section 8. On this construction of the statutory provisions, the petitions must succeed. Quite apart from that, the same result must also follow my view that electricity is

"goods"

under the General law.

7. The petitions are allowed with costs. One set. Counsel's fee Rs. 100.

The Kumbakonam Elect... v. The Joint Commercial...