STATE OF MADHYA PRADESH & ORS. versus ORIENT PAPER MILLS LTD

Citation: [1977] 2 S.C.R. 149 · Decided: 23-11-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA, V.R. KRISHNA IYER · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

STA TE OF MADHYA PRADESH & ORS. 
v. 
ORIENT PAPER MILLS LTD: 
November 23, 1976 
149 
A 
[H. R. KHANNA AND Y: R. KRISHNA IYER, JJ.] 
B 
Madhya Pradesh General Sales Tax Act, 1958-Lease of 
forest area-
Timber extracted from leased area-If liable to sales-tax. 
Under· s. 2{g) of the Madhya Pradesh General Sales Tax Act the term 
'goods' means a:ll kinds of movable property and includes all growing crops, 
trees, plants and things attached to, or forming part of the land which are 
agreed to be se\'ered before sale or under the contract ot sale. Under cl. (n) 
C 
'Sale' means any transfer of property in goods for cash or deferred payment. 
Clause ( o) defines 'sale price' as the amount payable by a dealer as valnable 
consideration for the sale of goods and under cl. (t) 'turnover' means the aggre-
gate of the amount of sale price received and receivable by a dealer. 
The respondent Mills entered into a lease with the Forest Department of 
the State for the cutting of bamboo and sa,lai wood from the leased forest area 
in the State. 
The lease deed provided that the lessee shall pay a· minimum 
royalty every year whether there was cutting of timber or not, the lessee could 
D 
construct roads, railways etc. for the purposes of business; should pay the.price 
fixed for the wood removed from the leased area; should keep a-n account of all 
wood cut and removed and that the rights and privileges of the lessees shall 
extend only to bamboos and salai wood within the leased area. 
The appellant (Forest Department) which was a, registered dealer under 
Sales Tax Act demanded from the re-spondent, (also a registered ucaler) sales 
tax i:-i respect of timber ·extracted from the leased area. 
When the respondent 
repudiated the Department's claim it pa:id the tax and preceeded to recover 
E· 
the tax under the revenue recovery 
proceedings under s. 82 of the 
Indian 
Foresls Act. 
Aliowing the respondwt's writ petition under Art. 226 of the Constitution 
the High Court held that the State Government and its Forest Departments 
were not a 'dealer' within the meaning of the sales tax law and as such were 
11ot entitled to recover the amount from the respondent. 
Thereupon the defini-
tion of the dealer under the Act wac; altered to undo the effect of the High 
F 
Court's decision. 
In appeal to this Court the appellant contended that though apparently the 
transaction was a lease, in reality the lease was no more than a simple sale 
of st&:lding timber, coupled with a iicence to enter and do certain things on 
another's land and the transaction in essence was a sale of goods within the 
meaning of the Act. 
Allowing the appeal to this Court. 
HELD : Going by the definition of 'sale of goods' unde~ s.2(7) of the 
Sale of Goods Act and s. 2(g) of the Sales Tax Act standing timber is 'movable 
property' if under tile contract it is to be severed. 
But the severence must take 
place when the timber still vests in the contracting party. [158DJ 
G 
In the instant case there was sale of bamboo and salai wood under the con-
tract and, in the contemplation of the parties they were lb be cut and severed' 
pursuant to the contract itself. 
H 
Raja Ba/wdur Kamakshya Narain Singh (1943) 11 I.T.R. 513; Badri Prasad 
fl969j 2 S.C.R, 380 held inopolicable .. 
A 
B 
D 
E 
F 
G 
H 
rso--
SUPREME COURT REPORTS 
[1977] 2 S.C.R. 
. 
1. (a) Despite its description, the deed conferred in truth and substance a · 
right. to cut and carry timber of specified species. Till the tress were cut, they 
remamed the property. o_f the appellant. 
Once the trees were severed, the pro-
perty passed. 
Royalty 1s a euphemism for the price of the timber. [157DJ 
(b) !"rom the terms of the lease it was clear thr.-t for a pric~ fixed, bamboo 
and salai wood were perm,1tted to be removed by the respondent from the forest 
of the _appellant. 
Pos_sess1on of the land qua land was not given and there was 
a prov1s1on that the nghts of the lessess shall· extend onlv to bamboos and sufai 
wood wit~in the leased area. and nothing therein shall In any way be deemed 
to authonse the lessees to mterfere with the working of the forest area of 
other contractors of the forest lands. ll 57 A-Bl 
(2) The amending bill, whereby the liability wa~ being de nova fastened, 
was enacted into law after the judgment of the High Court. Read with s. 82 of 
the Indian Forests Act, the amount was being recovered as if it were land 
revenue. 
This process deprived the respondent of his right to c

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