The Judgment of the Court was delivered by

Raghavan, J.:— The petitioner is a wholesale distributor of food-grains appointed under clause 51 of the Kerala Foodgrains (Regulation of Distribution) Order, 1965. He was assessed to sales tax on the transfers of the foodgrains effected by him to the retail distributors treating those transactions as sales and considering their total as the turnover for the year 1965-66, overruling his objections that he was only an agent of the Government and not a dealer, and that the transactions by way of transfer of the foodgrains to the retail dealers were not sales.

2. At the outset we may dispose of one argument advanced by Mr. M.I Joseph, the counsel of the petitioner. The counsel has contended that the definition of “sale” in the Kerala General Sales Tax Act of 1963 is ultra vires the powers of the State Legislature as it is wider in scope than the definition of the term in the Sale of Goods Act. We do not propose to go into the merits of this contention at this stage. Probably, at a later stage of this judgment, that question may also have to be incidentally considered. For the present, it is enough to state that such a contention is not available to the petitioner, who has approached this court by way of revision under a provision in the Sales Tax Act itself. In such a case, a person like the petitioner, who comes to this court under a provision of the Act itself, has no right to question the vires of any of its provisions. This has been laid down by the Supreme Court; and we may just refer to two or three decisions. The first decision is K.S Venkataraman & Co. v. State of Madras [1966] 17 S.T.C 418 S.C; 60 I.T.R 112 S.C.; the second decision is Commissioner of Income-tax v. Straw Products Ltd. [1966] 60 I.T.R 156 S.C. and the third decision is C. T. Sienthilnathan Chettiar v. State Of Madras. [1968] 67 I.T.R 102 S.C.. It has been specifically stated in the last of these decisions that neither the High Court nor the Supreme Court can go into such a question in a revision or reference under a provision in a statute from a decision of an authority functioning under the statute. The second Objection of the counsel is the main objection; and that is based upon two Supreme Court rulings: State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd [1958] 9 S.T.C 353 S.C. and Upper India Sugar Mills… v. Commissioner Of Sales Tax U.P…., Bihar [1963] 14 S.T.C 316 S.C.. In the first case, Venkatarama Aiyar, J., speaking for a Bench of five Judges, held that a sale as contemplated by the Indian Sale of Goods Act had four ingredients, viz., (1) parties competent to contract; (2) mutual assent; (3) a thing, the absolute or general property in which was transferred from the seller to the buyer; and (4) a price in money paid or promised. The learned Judge followed Benjamin on “Sale”; and the principle of freedom of contract was also behind the reasoning in this decision. The Supreme Court was considering in this case whether a State Legislature had power to tax the sale of the materials used in a works contract; and the Supreme Court held that, in the case of a building contract, the property in the materials used did not pass to the other party to the contract as movable property, unless that was the agreement between the parties. In other words, the Supreme Court held that in a building contract there was no sale of the materials as movables, unless the parties themselves treated the contract as two, one for the sale of the materials and the other to do work and render service.

3. The next decision relied on by the counsel of the petitioner was by a Bench of three Judges; and one of the learned Judges (Hidayatullah, J., as he then was) disagreed with the other two. In that case, the earlier decision in Gannon Dunkerley's case was followed; and Shah, J., who spoke for the majority, held that the ratio decidendi in Gannon Dunkerley's case applied to the case, while Hidayatullah, J., observed that the said decision should not be extended to the facts of the case.

4. But, there are three other more recent decisions of the Supreme Court, which, after considering the two earlier decisions, have laid down that all the four ingredients necessary to constitute a sale under the Sale of Goods Act are not necessary in a case like the one before us where the State legislates for imposing tax on sale of goods.

5. The first of these cases is by a Bench of five Judges in Indian Steel & Wire Products Ltd. v. State of Madras. Hegde, J., spoke for the court; and his Lordship considered both the earlier decisions and said:

“It is true that in view of the order, the area within which there can be bargaining between a prospective buyer and an intending seller of steel products, is greatly reduced. Both of them have to conform to the requirements of the order and to comply with the terms and conditions contained in the order of the Controller. Therefore they could negotiate only in respect of matters not controlled by the order or prescribed by the Controller. It is true, in these circumstances, the doctrine of laissez faire can have only a limited application. That is naturally so. In certain quarters the validity of that doctrine is seriously challenged. Under the existing economic compulsions—all essential goods being in short supply—in a welfare State like ours, social control of many of our economic activities is inevitable. That does not mean that there is no freedom to contract. The concept of freedom of contract 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. Full freedom to contract was never there at any time. Law invariably imposed some restrictions on freedom to contract. But due to change in political outlook and as a result of economic compulsions, the freedom to contract is now being confined gradually to narrower and narrower limits.”

6. The learned Judge also quoted with approval the following passage from the “Law of Contract” by Cheshire and Fifoot (6th edition) at page 23:

“As the nineteenth century waned it became ever clearer that private enterprise predicated some degree of economic equality if it was to operate without injustice. The very freedom to contract with its corollary, the freedom to compete, was merging into the freedom to combine; and in the last resort competition and combination were incompatible. Individualism was yielding 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 faire 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, In many instances a statute prescribes the contents of the contract”

7. In the course of the discussion in this judgment, Hegde, J., has referred to the decision of the House of Lords in Kirkness v. John Hudson & Co. Ltd. In that case, Viscount Simonds “only echoed” what Singleton, L.J, said “in his admirably clear judgment” and followed the passage, that “by the common law a sale of personal property was usually termed a ‘bargain and sale of goods’”, from Benjamin in his well-known book on “Sale” quoted by Singleton and Birkett, L. JJ., and Hegde, J., has pointed out that that was a case of compulsory acquisition and not sale.

8. Freedom of contract can be and has always been only freedom to contract within the law even in a laissez faire economy. It must all the more be so in a controlled economy like ours, where the area or the field of the law has widened since the aim is a welfare State and a socialistic society. Controls and regulations are inevitable in a controlled economy; and so long as the controls and the regulations are constitutional and valid, freedom of contract can only be within those controls—within those valid and constitutional controls, which are law. This is what was indicated by Hidayatullah, J., in his minority judgment in New India Sugar Mills' case. We are referring to this not because the minority view is the binding decision, but only to point out that the later decision to which we have made reference points more in that direction by relaxing the rigidity of the concept of freedom of contract.

9. The decision in Indian Steel & Wire Products' case has been followed by the same Bench of five Judges in Andhra Sugars Ltd. v. State of Andhra Pradesh. Bachawat, J., has delivered the judgment of the Bench; and the learned Judge has observed after considering the earlier decision:

“We have here a case where one party to a contract of sale is compelled to enter into it on rigidly prescribed terms and conditions and has no freedom of bargaining. But the contract, none the less, is a contract of sale.”

10. More recently, yet another Bench of the Supreme Court has followed in State of Rajasthan v. Karam Chand Thappar and Brothers (Coal Sales) Ltd., Jaipur, the aforesaid two decisions of the Supreme Court. Shah, J., speaking for the court, has distinguished the decision in New India Sugar Mills' case, where he himself delivered the judgment of the majority, observing that that was a case “founded on a different principle”. The three recent decisions of the Supreme Court cleary indicate that, simply because one of the elements necessary to constitute “sale” under the Sale of Goods Act is absent, the sale will not cease to be a sale. The principle, that freedom of contract in a controlled economy is only within the controls which are themselves law, has been accepted by the Supreme Court in these three decisions.

11. With these three decisions in mind, we shall now refer to some of the provisions of the contract entered into between the petitioner and the Collector on behalf of the State. The agreement contains only five clauses, and a schedule which contains several provisions. The second clause in the body of the document provides that the petitioner shall sell the specified articles to holders of foodgrains distribution documents, and he shall receive the articles from authorised mills/importers/wholesalers or a depot of the Food Corporation of India. Under clause 3, the petitioner has to deposit a security of Rs. 1,000 for the due fulfilment of the terms and conditions of the contract. Clause 4 provides that in case the petitioner commits any breach of any of the provisions of the contract, the Government, the Commissioner of Civil Supplies or any other authorised officer shall have power to cancel the agreement, to forfeit the security deposit, etc. The last clause gives power to the Government to recover amounts from the petitioner under the Revenue Recovery Act.

12. In the schedule there are several provisions; and we shall refer only to a few of them which are relevant for the purpose of the case. It is provided in clause 1 of the schedule that the petitioner shall carry on the business at a place noted. Clause 2 provides that the petitioner shall account for the entire quantity of the specified articles purchased by him from time to time “treating it as an entrustment from Government for the purpose of sale by authorised wholesale distributors”. Then there are provisions compelling the petitioner to keep regular accounts and allowing the officers of the Civil Supplies Department to inspect the accounts. In clause 4, the language used is again that the petitioner is authorised to purchase articles and distribute them to retail distributors. One provision which has to be specially noted is that, in case the order of appointment of the petitioner is cancelled or suspended, the stocks of the specified articles available with him at the time of such cancellation or suspension “shall be disposed of in accordance with the direction of the officer ordering such cancellation or suspension” (clause 6). The other provisions need not be recapitulated here, as they are not relevant for the issue before us.

13. The word “business” is defined in the Kerala General Sales Tax Act to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, with or without profit-motive. “Dealer” is defined to mean any person who carries on the business of buying, selling, supplying or distributing goods. “Sale” is defined as follows:

“‘Sale’ with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation, charge or pledge.”

“Turnover” means the aggregate amount for which goods are either bought or sold, or supplied or distributed by a dealer.

14. The provisions of the contract between the petitioner and the Collector clearly show that the petitioner purchases foodgrains from an authorised miller/importer/wholesaler or a depot of the Food Corporation of India. The provisions also indicate that he sells the articles to authorised retail dealers. It is not disputed that, when the petitioner purchases foodgrains, he pays the price of the articles to his vendor—the authorised miller/importer/wholesaler or depot of the Food Corporation of India. It is also not disputed that, when he distributes or transfers the articles to the retail dealers, he gets the price for them. The restriction is that the price he pays to his vendor is fixed and the price he takes from the retail dealer is also fixed. Similarly, he can purchase only from a particular miller/importer/wholesaler or depot of the Food Corporation of India and can sell only to particular retail distributors; he cannot purchase from any other source, nor can he sell to any other distributor or consumer as he likes. These restrictions on purchase and sale are intended to ensure equitable distribution of the foodgrains and to prevent cornering, racketeering and black-marketing. The purpose of controls is to prevent these; and these alone are achieved by the restrictions imposed on the purchase and sale by the petitioner. If, as we have already stated, these controls are valid and constitutional, the consequential restriction on the freedom of contract is also valid and constitutional. Because of these restrictions, the transactions do not cease to be sales. The area within which freedom of contract was being exercised in a laissez faire economy was certainly wider, though even that freedom was always regulated by law; and the area is naturally narrowed by the inevitable controls and regulations inherent in a socialistic and controlled economy. Still, the freedom of contract is there and the contract of sale is also there; only some ingredients like the price, the source from which the articles have to be taken or the persons to whom they have to be sold are superimposed by the controls and the regulations, which are themselves law. And the laissez faire concept, that there cannot be “sale” without freedom to bargain, cannot always be there in a socialistic economy. We may point out that there is even a margin of profit provided for the petitioner under the contract, though profit-motive may not be a necessary ingredient in a business. We may also add that this line of reasoning will apply even to “sale” as contemplated by the Indian Sale of Goods Act.

15. The foregoing dicussion clearly shows that the transactions effected by the petitioner with the retail dealers are sales and they are amenable to tax under the Sales Tax Act.

16. The last argument is that the petitioner is an agent of the Government. Incidentally, in discussing the second question, we had to consider this question as well. At any rate, since this question has been raised separately, we just indicate how the petitioner is not an agent of the Government. During the course of the argument, we put a question to the counsel of the petitioner whether, if the godown or shop of the petitioner was consumed by fire, the petitioner would be the loser or the Government would give him the price of the articles burnt down. The counsel candidly conceded that the loser would be the petitioner. This is proof positive that the property in the goods passed to the petitioner when he took delivery of them from the authorised miller/importer/wholesaler, etc., and paid the price therefor. We do not think any authority is required for this. However, to complete the discussion, we may refer to the decision of the Allahabad High Court in Commissioner of Sales Tax, U.P v. Jiwan Das. In a similar case, where the assessee was distributing controlled articles, the Allahabad High Court held that the assessee's transactions were sales amenable to tax and that he was not an agent of the Government. The contract in that case provided that, in case the agreement between the assessee and the Government was cancelled, the assessee had to return the articles still remaining with him to the Government; and it was argued that this indicated that the assessee was only an agent. This argument was repelled by the Allahabad High Court. In the case before us, the provision is not that the petitioner should return the articles to the Government; the provision is that the articles would be disposed of in accordance with the direction of the officer ordering the cancellation or suspension which need not mean that the petitioner will not get the money he paid for the articles. Mr. M.I Joseph relied also on clause 2 of the schedule to the contract, where it is stated that the articles purchased by the petitioner have to be treated as “an entrustment from Government”. This only means that he has to keep the articles “for the purpose of sale to authorised retail distributors”; and this does not mean that he is the agent of the Government. For these reasons, this contention has also to be rejected. When this judgment is being pronounced, the recent Full Bench decision of the Allahabad High Court in Commissioner of Sales Tax, U.P, Lucknow v. Ram Bilas Ram Gopal, is brought to our notice, where the Allahabad High Court has held that the sales effected by an assessee to the Regional Food Controller under the U.P Wheat Procurement (Levy) Order were sales as contemplated by the Indian Sale of Goods Act and were also liable to sales tax. Therein, their Lordships of the Allahabad High Court, we find, have reached this conclusion on almost the same line of reasoning we have adopted in this case.

17. The revision case is dismissed. However, we do not pass any order regarding costs.